Will it shine or rain for Star and Uchi?

 

Will it shine or rain

for Star and Uchi?

Posting good Qtr results are very important for companies in Bursa Malaysia. A good results may result in the share price moving up higher or in the worst scenario, stay at its current levels. However posting poor results could have serious consequence to its share price.

At least this is the impression investors are expected to see. But sometimes, the stock market is a very strange animal to understand. It has always been like this since the very first time I entered the investment world when I was in my late twenties. It can be sometimes very efficient and sometimes very inefficient in valuing stocks after they had released their earnings results.

There is one interesting stock which many of us would have come into “contact” for the last few decades and that is Malaysia’s leading English newspaper, The Star which should be celebrating its 43rd Anniversary this year.

Shining days ahead for Star?

The Star should be releasing its 4th Qtr results anytime soon. How will the results be? But before we proceed any further, let us rewind the clock a few months’ back when The Star reported its 3rd Qtr results on Nov 2013.

Malaysia’s English leading newspaper, The Star reported its 3rd Qtr 2013 results which in my opinion was above expectations. Its 3rd Qtr’s eps of 5.97 sen was the strongest compared to its 1st Qtr eps of 3.53 sen and 2nd Qtr eps of 3.87 sen.

Net profit jumped 28.4% to RM44.05mil in the 3rd Qtr ended Sep 30th from RM34.3mil a year earlier, as improved cost control boosted earnings at the group’s key units.

Going forward to the last quarter which was traditionally a festival quarter with a lot of promotions going on especially the Christmas season, The Star should be expected to report another strong set of 4th Qtr earning which in my forecast, would be in the range of eps of at least 6 sen plus minus.

If that is the case, then the total eps for 2013 would be around in the 19-20 sen range. As Star’s dividend yield has normally been around 5 to 6% plus, a final dividend of at least another 6 sen seems too quiet a conservative amount. A total of 12 sen dividend would mean at the current price of RM2.26, the dividend yield is at 5.3% which is still attractive compared to bank’s fixed deposit rate.

Yet instead of seeing its share price moving at least some notches up, its share price dropped more around 13% from RM2.60 (before the 3rd Qtr results were announced) to somewhere RM2.26 on Feb 11th at the time of writing. Note that on Feb 4th, The Star’s share price touched a more than decade’s low of RM2.14!

Isn’t the market supposed to react POSITIVELY to it? Strange, isn’t it? Imagine, a company reporting a result that was above expectation yet the share price continued to move south gradually  over the next several months. I could not imagine if Star was to report a poorer set of 3rd Qtr results, the share price would surely plunge to new lows, perhaps at below the RM2 levels.

The 3rd Qtr results of The Star indicated the company is in a net cash position of over RM100 million. This cash pile is set to increase over the next few years. Whether the management will declare another special dividend (similar to the one in 2010) remains to be seen. But should that happens, shareholders would be more than delighted.

This year, the most popular sport in the world will be held in Brazil for over one month. The World Cup Soccer is back again! There will be major advertisements and promotions going on. The Star will be in a strong position to capitalise on this every four year popular soccer event.

Raining days ahead for Uchi?

There is another good paying dividend stock, Uchi Technologies Berhad. On Nov 19th 2013, Uchi reported its 3rd Qtr eps of 1.82 sen only, which was lower than the 1st Qtr eps of 2.29 sen and 2nd Qtr eps of 2.31 sen. This results were posted on the Bursa website after the closing market on that day. Coincidentally on that day, Uchi shot to several sen to close at RM1.53, its highest level in 52 weeks.

The following several days, investors dumped Uchi’s shares and its share price tanked more than 10% to below RM1.40.  Today  Uchi’s share price remained surprisingly strong, closing at RM1.45 on Feb 11th 2014.

Uchi’s 1st interim dividend (for Financial Year 2013) of 4 sen was lower then the previous’ year interim of 5 sen which is 20% lower. The dividend was announced on Nov 28th, 2013. It remains to be seen if Uchi’s final dividend would be at least 7 sen as previous’ year. That will depend on Uchi’s 4th Qtr performance. A weak 4th Qtr performance would surely result in a lower final dividend and that could mean more downwards pressure on its share price.

Uchi usually pays out dividends that exceeded 90 or even 100% of its earnings. One only need to log in to www.malaysiastock.biz website and check it out on yourself the amount of dividends Uchi has been paying out generously since the last so many years.

However, Uchi is also in a net cash position of over RM100 million according to its latest noted for 3rd Qtr 2013. The stock is strongly held by its top 5 largest shareholders comprising : (1) Eastbow International Limited 91,263,660 shares, (2) Lembaga Tabung Haji 37,346,640 shares (3) Amanahraya Trustees Berhad [Skim Amanah Saham Bumiputera] 23,309,600 shares (4) Valuecap Sdn Bhd 14,400,000 shares (5) Amanahraya Trustees Berhad [Public Islamic Select Treasures Fund] 13,933,100 shares.

Both management are generous!

While The Star is majority owned by Malaysia Chinese Association, Uchi is believed to be majority owned by some Taiwaneses and Malaysians. But both the management have similar good generous hearts. They only know the opposite words of  stingy! They rewarded their shareholders with good dividends most of the times. In good times, the dividends were higher and in not-so-good times, the dividends were lower.

You really have to be a shareholder of both companies to really feel the amount of dividends received if you are a long term shareholder. Star in particular paid out to its shareholder with a special dividend of RM526 on Nov 30th 2010 apart from  two dividends of 10.5 sen paid on Apr 16th and Oct 18th that year.

As far as I can know, both The Star and Uchi always remain profitable during the last so many years. It is only a question of how much they can make each year.

Interestingly, the strong US dollars will have an effect on The Star as newsprint is traded in the greenback whereas Uchi will benefit from a strong greenback.

But I see The Star as having greater upside potential especially with its aggressive marketing strategies and also with its current very depressed share price.  I believe The Star is poised to shine even brighter in the coming quarters.

Uchi, on the other hand, may need  a super performance in its 4th Qtr to make up for its 3rd Qtr’s disappointing results. Anything less and Uchi may need more than “The Three Wishes” this time!

Puzzling EPF!

One of the main reasons believed to be caused of the current distressed share price of Star is due to the constant and consistent selling by one of its major shareholders, the Employment Provident Fund (EPF), especially the last year.  A check on the website revealed that EPF has been aggresively selling the shares in the open market. (The Star’s Annual Report 2012 stated that as at Mar 29th 2013, the EPF is the third largest shareholders with 57,476,500 shares   or 7.784%). The last selling was done on Dec 31st 2013 leaving the EPF with 38,207,800 shares (meaning the EPF has disposed as much as 19,269,000 shares or 33%!).

However, on Feb 5th 2014, the EPF suddenly became BUYER. EPF acquired 181,900 shares of The Star to increase its shareholding to 38,389,700 shares.

Then again on Feb 6th 2014, the EPF acquired 104,100 shares of The Star to increase its shareholding to 38,493,800 shares.

Why is the sudden twist of turn by EPF to become buyer instead of continuing its selling spree? Will this buying spree continues? If so, what does it indicate? Is EPF knowing something we don’t know?

Is something brewing there in The Star?