Mercury's nicely rising temperature

Mercury's nicely rising temperature

Total vehicle sales in 2013 has hit an all-time high of more than 652,000 units, surpassing the Malaysian Automotive Association's (MAA) forecast of 640,000 units - according to Malaysia Automotive Institute (MAI) chief executive office Madani Sahari.

And the figure appears rosy as well for current the year 2014. In April, Malaysia recorded vehicle sales of 58,732 unit, up 11.9% from 52,489 units a year ago and the Malaysian Automotive Association (MAA) expects sales to be better in May. The MAA said it expected sales to be given a boost from the pre-Hari Raya promotional campaigns. Year-to-date, total sales rose 4% to 218,642 units from 210,223 units in the previous corresponding period.

Mercury Industries Berhad

One small company, Mercury Industries Berhad, Malaysia's 2nd largest car paint producer continues to be one of the main beneficiaries of this continuous good vehicles sales in Malaysia.

Mercury's principal activities are in the manufacturing and trading of automotive paints and other related products used in the auto refinish industry. The business is sensitive to the fluctuation in oil prices as petroleum-based raw materials form a major component of the production cost. Should there be any downside to sales revenue growth, it is expected to be insignificant since the company's products is demand-resilient due to the steadily increasing motor vehicles population in the country, even in a period of slower economic growth.

Mercury continues to achieve a rather consistent revenue and profit after tax during the last five years. It's average Earnings Per Share (EPS) of 16.58 sen during the last five years has put the company in a stronger footing note. It has enable the company to reward its shareholders with 8 sen dividend for financial year 2011, 2012 and 2013. For financial year 2014, Mercury has announced an interim 8 sen dividend plus a special 2 sen dividend making it a total of 10 sen dividend - up 2 sen or 25% from its previous 8 sen dividend in 2013.

Although Mercury does not have a fixed dividend payout ratio policy, one can judge by its latest dividends and special dividends as a good sign of more to come in future years should the profits be just maintained at more or less the EPS of 16 sen only.

So far, for financial year 2014, Mercury looks likely to maintain that target based on its recent 1st Qtr Results just recently released. Mercury reported an EPS of 4.18 sen which is more or less the 4 sen's range during the last several quarters. Annualised that 4.18 sen and that would be around 16 sen plus minus for financial year 2014. Net asset per share has also increased to RM1.36 as compared to RM1.28 in the previous year.

Mercury's latest 2013 Annual Report revealed that the company is helmed by only four directors unlike many other companies that will see so many directors. (More directors mean more cost to the company). Of the four directors, only one Executive Director was paid a total of RM142,000.00. (Fees, Salaries and other Emoluments) while the other three Non-Executive Directors were paid lower than the Executive Director.

Compare this payment with other companies' directors and you will be glad that Mercury's Directors are not overly paid. Isn't this good news for minority shareholders of Mercury? Not overpaid and not over-staffed of "Directors". Hats off to them! (Incidentally while pre-writing this blog during last week, the weekly Focus Malaysia 's latest issue dated May 31-June 2014 discussed about the top 50 Overpaid Directors of listed companies incurring big losses. It is incredible that some directors are paid so much in millions when their companies are posting losses in double or triple digits millions losses). Is this fair to minority shareholders?

Back to Mercury again, the top thirty largest shareholders at as April 30, 2014 held collectively 32,111,695 shares or 79.90 %. This means that there is only about 20% free float shares in the market and to be exact, only 8,700,305 shares left. Kassim alone holds 31,500 shares. (If I am able to accumulate another 70,000 shares, I might be the No. 30th largest shareholders comes next year because the current No. 30th largest shareholders holds 100,000 shares as at April 30, 2014).

Interesting enough, I could not find a single unit trust fund amongst the 30 largest shareholders' list. It is quite a surprise to me because normally company paying good regular dividends would be having some units trust funds (especially those funds seeking dividends) on board as amongst the 30 largest shareholders. Maybe Mercury does not fit into those unit trust funds' criteria or have their approved mandates.

The blessing in disguise from this "missing-in-actions" unit trust funds' investment means that the share price remains attractive even at this current levels. Had some units trust funds gone in and  bought some tranches some times ago, there would even be less shares left in the open market and the price might be more expensive today!

Early regular readers would surely know that Kassim must be the only blogger to very strongly advocate to invest in Mercury. To prove a point of how much  I viewed Mercury as such a good long term bet, I have even on two occasions bought two tranches of shares at that time's current prices - to prove a point that "Walking The Talk" is more important than just "Talking The Walk".

Attractive dividend at current price

So at the current price of RM1.58 as at today's closing on June 2, is Mercury still a good buy since that share price has appreciated 33 sen since my lasting purchase at RM1.25 in Dec 3, 2013?

From a dividend point of view, the current share price is still relatively quite cheap. Why? A 10 sen dividend at current share price of RM1.58 means a dividend yield of 6%! But wait, here comes the even more interesting part. Investors willing to buy the share price now (ex-date is June 11) will be rewarded the 10 sen dividend payable on July 9, 2014.

But wait, what if there is another dividend payable in July next year? Assuming another 10 sen or a conservative 8 sen dividend for next year? Investors would be getting some 18 sen to 20 sen dividends for a holding period of some 13 months!

Therefore, as long as the share price of Mercury is below the RM2 levels, the dividend yield will remain at an attractive 5% plus rate! Granted that there would be no guarantee of what would happen to the share price from today until some 13 months away, but then again the share price might even rise further should Mercury maintains its average 4 sen quarterly earnings for the rest of the year.

"3 Potential Bonus"

Should Mercury maintains that earnings, investors would be getting a possible "3 potential bonus" - No. 1: the current 10 sen dividend, No. 2: the capital appreciation of the share price and No. 3: the next dividend payable next year around July.

Of course this is only from my assumptions. Anything can always happen anytime and anywhere. That is why I have always share with my followers and readers that there is always an element of risk in investing. But if one is brave enough and willing to take some "calculated risks", the rewards ahead could be very, very rewarding!

Seriously, at the moment, the temperature is rising nicely for Mercury's shareholders.

Walking The Talk Again by buying

more Mercury shares at current market price

Once again, I have decided to buy additional 4,500 shares of Mercury at RM1.59 on June 2, 2014 shortly before the closing market. (The funds came from my disposal of my 2,000 shares NCB at RM2.99 on the same day. I shall discuss why I sold my NCB at a "loss" in my next coming blog together with the posting of the new contract notes of my purchase of Mercury and selling of NCB shares).

I sincerely believe the cash from the selling of NCB has a better chance to grow with Mercury even though the current share price is at a 52-week high. Always remember, there will always be another new and newer 52-week high when a company starts to increase its dividends payout coupled with its consistent earnings because more and more long term investors will start to accumulate this type of shares thus reducing the balance of shares available in the open market.

Again time will tell if I am right or wrong about Mercury. But so far, I am still right based on the rise in its share price and the surprisingly increase dividends (interim of 8 sen and special 2 sen dividends) for all those shareholders of Mercury including Kassim.

So my dear readers, once again I am asking you this :

Do you dare to join me to become

the shareholders of Mercury,

even at the current level?

More On The Importance of Lady Luck

The recent Championship playoff final at Wembley between Derby County and Queens Park Rangers showed how important Lady Luck is when you needed it at the most critical important time. Despite dominating and attacking again and again throughout the match, Derby County could not just find the net. And football is about getting the ball into the net. All throughout the match, QPR survived the continuous onslaught with some luck.

If only there is one shot from Derby that is beyond QPR's goalkeeper's saving range, Derby would have been the winner and earn the promotion to the English Premier League. Despite playing the last 30 minutes with an extra player's advantage (QPR's Gary O'Neil was dismissed in the 60th minute), Derby still lost the match 1-0 thanks to QPR's Bobby Zamora's last-gasp strike (perhaps the rarely few occasions the ball was played in Derby's penalty area).

In actual fact, the winning goal was QPR's first and only shot on target in that match! See, Lady Luck must have been a QPR's fan on the day.

Incidentally, as one Malaysian owner Tan Sri Tony Fernandes celebrates the promotion of his club back to the English Premier League, another Malaysian owner Tan Sri Vincent Tan's football club Cardiff City was demoted from the Premier League in the same season 2013/2014. Yet earlier in the season 2012/2013, QPR was relegated and Cardiff City promoted! How fortune has changed hands for the two Malaysian owners.

The question is will Cardiff City be able to stage an instant comeback to the Premier League and will QPR be able to survive in this coming 2014/2015 season?