Mercury's Diversification into Construction

Mercury's Diversification

into Construction

One of the most important reasons why I invested in a particular company is its main focus on one single simple business that stays profitable from time to time.

Because their main attention is focused on one  business, they tend to become "master" of that trade. The management team are most probably experts or specialists in that field and would not be able to understand another kind of different business so easily as their first one.

But when a company with a main focus business suddenly announced that it is going to venture or diversify its business base with another different business, it raises interest amongst its investors.

One company that recently announced that it is diversifying its business base is Mercury Industries Berhad, the 2nd largest car paint maker in Malaysia. Mercury is going into construction business.

This announcement caught me by surprise as I did not anticipate that Mercury would diversify. I have always thought that Mercury would remain focus on its main car paint business.

I guess I am wrong about this. Nevertheless, as I have been someone who had challenged/invited/asked readers to dare to join me in the journey with Mercury in my previous blogs, I am most obliged to express my personal opinion about this new business Mercury is going to acquire.

After all, some of my friends and followers and possible readers who bought Mercury shares after reading my blogs  would surely like to know the "leader" i.e. me - what is my views on this.

First, I must acknowledge that diversification into other new business carries an element of risks. Not all companies are successful with new  acquired business. Some suffered losses and eventually have to let go of the business at a song price.

But some companies' diversification paid off after a period of times. These companies report higher profits with this new acquisition business and the reward is as usual ... higher share price and higher dividends.

One example is Tek Seng Holdings Berhad. When it ventured into solar business, hardly anyone took notice of it. In fact, the solar business was initially bleeding into its account. Its share price was trading below 30 sen at that time.

But over the next few years as the solar business was gaining momentum, Tek Seng's shares attracted attention and the share price even triple although the solar division is still at the break-even point.

Another company, TSM Global Berhad diversified in the die-casting and precision machining of parts for the hard-disk drive (HDD) industry. What happened? TSM suffered millions of losses. The hard-disk business was finally sold at a "pasar malam cheap sale" price.

Today TSM Global remains back to its main business, i.e. making automotive wiring harnesses, high-tension ignition cables and PVC wires and cables.

For your information, TSM Global was taken privatized a few years back.

Back to Mercury, only time will be the final judge of the days. At the moment, I am still holding on to my Mercury shares.

Employees Provident Fund (EPF) vs Unit Trust

From time to time, I have been asked about investment in unit trust especially those using their EPF fund. Many times I have politely refused to express my views because I did not follow the unit trust performance closely as there are so many categories of funds investing in various  different industries.

So I am not in a position to express my views. But what I can say is when one withdraws fund from EPF to invest in unit trust, there is the cost factor which means that after deducting the cost factor, the principle would be left only with around 95 - 97% for investment.

This also means that the fund must be able to generate a return of at least 10% the following year to make a return of 5 - 7% after deducting the cost factor.  How many fund can do that? And how many fund can CONSISTENTLY produce a return of 8 - 10% for several more years to come?

On the other hand, EPF has been delivering much improve rate of returns for contributors especially the last five years. The last five years' return are 5.8, 6, 6.15, 6.35 and 6.75% (for year 2010, 2011, 2012, 2013 and 2014 respectively) is rather quiet impressive.

The average returns of last five  is 6.21%. If a unit trust fund is able to generate even a 6% return CONSISTENTLY for several years, then it is a good fund to invest.

Unfortunately, I believe not many fund can do that. If you scout around, you would find that most of the fund would struggle to even achieve near it.

But that also doesn't mean I did not invest in unit trust fund. I have been regularly investing since 1997 using my EPF and (some cash from time to time). I also invested some money in Private Retirement Fund since two year ago.

My objective is to diversify my investment basket rather than all in Bursa Malaysia.

Buying more shares of Focus Lumber Berhad

Since my first investment in Focus Lumber Berhad, the share price surprisingly went up to a new high of RM1.64, and that started on a downtrend basis to a low of RM1.37 before rebounding to the current price of RM1.44.

There were two more purchase of Focus Lumber on two different dates. I called it "programme buying to average out the share price over a particular period of time. I prefer this method rather than buying massively at one particular price so that I would not be caught should market suddenly turns bearish.

I bought 12,000 shares of Focus Lumber at RM1.56 on Apr 23 and again 9,000 shares at RM1.43 on Apr 28.

Recently I received the annual report of 2014 and after going through, I compared the top 30 largest shareholders' holdings and discovered that they had reduced their total holdings to 77.26% or 79,714,916 shares.

Compared to 2013's top 30 largest share holdings of 91.47% or 94,382,400 shares means that there are now more free shares available in the open market, to be around 24,095,000 shares.

No wonder the share prices slide down after touching a high of RM1.64 on April? Is it a case of bad timing for me when I started my accumulation of Focus Lumber shares?

Nevertheless by the time you are reading this blog, the results might have been released and depending on how it earns, this will have a strong bearing on its share price.

I only hope I am right one more time.