The danger of over expanding in business

The danger of

over expanding

in business

Being in business is never easy especially when one is helming a public listed company. It comes with great responsibilities and major decisions are needed to be made decisively at times.

The decisions could not be a perfect one, it could even turn out to be a disastrous one that can send the company into deep, deep trouble.

Decision such as expanding or over expanding is never an easy one. When there is a big demand for a certain product and this company is one of that product manufacturer that is running at full capacity. What should you do if you happens to be the number one head honcho man?

Do you just maintain business capacity as it is or do you order more machineries, increase staff counts, invest in latest software, buy even more raw materials to increase your output capacity to cater to more demands?

It is my personal opinion that most ambitious entrepreneur business man if he is the big boss of that company (running at full capacity) would choose the later step i.e. invest more in the needed areas to increase production even more.

It is alright as long as the extra demand for the products is still there. The company would be raking in more profits for its shareholders. Everyone including staff and shareholders would be happy.

But what if after investing so much to increase capacity only to see that the demand has softened down due to competitors also producing more and at cheaper price or unexpected poor economic situation? Not only that, the less demand also prolonged into months or even years?

It could be disastrous for not rich companies that take big loans as they might have to pay interest for the loans, besides the cost of maintaining its new acquired machineries and even forced to retrench its redundant staffs.

If one is an investor in a public listed company, one should take note with caution when that company is embarking on a major expansion, taking on big loans as well. The slightest news you read or hear about slower demands that might affect the company, you must make a quick simple decision whether to sell your shares or to hang on.

Recently when there was news of Tek Seng Holdings Berhad reducing its 180 head count from production line (due to slower demand) in September.

It came as a shock to investors as Tek Seng was expanding several new additional lines to cater to strong demand for its polyvinyl chloride related products.

A quick Google search on related solar power issues seemed to portray that many similar overseas big players were experiencing slower demands due to massive overcapacity productions.

As I am just a "kacang putih" investor, I decided to dispose of all my shares and free warrants on that day. Of course it was easier for me to sell because my entry cost was just below 40 sen. It would be more difficult if late comers buying at RM1.20 and above as they might be reluctant to cut losses hoping for an eventual rebound.

It has been almost three months and it was a decision I was grateful I made. The share price of Tek Seng is now hovering above just 70 sen range.

Another lucky company I was very lucky to get out with good profits was now the defunct shipping and logistic services provider, Swee Joo Berhad. Its main focus was on providing containerized shipping services between Peninsular and East Malaysia, in the coastal waters of Sarawak as well as between Malaysia and regional destinations such as Bangkok, Ho Chi Minh City, Jakarta and Surabaya.

Listed on Oct 17, 2006, it closed above 80 sen on its maiden debut and went on to record as high as around RM1.60 two years later. After its listing, Swee Hoo embarked on aggressive expansion riding on shipping boom. It borrowed heavily for fleet expansion, including the acquisition of the four chemical tankers and container ships.

But the unforeseen 2008-2009 global financial crisis caused a sharp decline in freight rates. Shipping industry was adversely hit. Swee Joo was caught sadly. Business was bad and there was little cash flow left, but short-term loans and long-term liabilities of RM500mil as at Sept 30, 2009. Interest expenses amounted to RM28mil a year.

Eventually it went into bankruptcy and there was nothing left anymore for minority shareholders.

Yours truly was one investor who invested on its maiden listing day buying at 86 sen. But I was most truly lucky to sell off my 3,000 Swee Joo shares at around RM 1.50 plus two years later shortly before the start of the global finanical crisis. At that time, I was just in the mood of profit taking and not knowing anything about the coming global financial crisis.

Even more lucky was that when its share price tumbled down, I did not enter at all although I was very tempted to buy back especially when it was selling at my original purchase price of 86 sen. If I had done so, I would have given back everything I profited earlier. This is called luck.

Well, this will be my last article for 2016, I like to wish everyone good health, more wealth and ONG & HUAT in 2017. Happy New Year to you. Thank you so much for being with me since the middle of 2013. The journey has been wonderful for me so far. I hope you my loyal readers/followers enjoyed too regardless of what happened to the stock market.

See you again soon in 2017!

Mercury turning into a construction player

Mercury turning

into a construction

player

Mercury Industries Berhad recently announced it has entered into a conditional share sale agreement (“SSA”) with Interglobal Dynasty Sdn Bhd for its disposal of auto refinish business.

Mercury's reasons were that its auto refinish business has become increasingly challenging as a result of the slowing domestic economy, uncertainties in the global economies and weaker Ringgit.

Instead, Mercury will be banking on its 70% owned construction company, Paramount Bounty Sdn Bhd (PBSB) for its new revenue and profits. PBSB was acquired during the second half of 2015.

Some readers who followed my early blogs would recall when I first posted about Mercury on Sept 23, 2013 : Walk the talk with Mercury Industries Berhad with me. Dare you? Since then, I continued to make several more subsequent purchase of Mercury stocks until 36,000 shares.

There were several reasons why I was interested in Mercury. Way back in 2013, total vehicles sales in Malaysia were rising. Car paint business seemed like a resilient one with consumers needing to repaint their cars after several years of usage. Besides, any car sent in for repairing after an accident is likely to require some spraying of paint too. Incidentally, accidents in Malaysia are rather high compared to many other countries.

Another reason was its good dividends payout which not many other counters can rival. Since 2011, it has paid out 8 sen for 2011, 2012, 2013, 10 sen for 2014, 6 sen for 2015, 6 sen paid in July 2016 and a further 6 sen payable in January 2017, total 12 sen for Financial year 2016.

Remarkably, despite its high dividends payout, since 2011, the highest its share price touched was only at 1.70 done on June 11, 2012. Why dividends lovers shunned Mercury is rather a mystery to me until today.

Perhaps there are other ares of concerns about Mercury others investors see which I don't see. Mind you, I am just an ordinary Joe investor who are perhaps more lucky to be in the right place right time most of the times.

Now that the management of Mercury has decided to exit its auto refinish business and focus on construction, the most important question ordinary  investors like me to ask is should I stay on or sell out my 36,000 shares?

I am sharing this now because it was me who challenged readers to buy Mercury shares and stay together with me for long term investment. I am pretty sure there must be some followers who bought Mercury shares and are still with me.

If I am to sell, I would be making sure I would be posting my blog the very next day to make this selling decision as promptly as possible so that my followers will be able to make a  better informed decision on themselves.

So far, the construction division has been performing better than the paints division. It contributed the lion's share of revenue and pre-tax profits as well in the latest 3rd Quarter Result (July to September).

In fact, its pre-tax profits surged 25% compared to its corresponding quarter  in 2015. Note that PBSB was acquired in August 2015.

Granted that PBSB is a smallish construction company that is nothing compared to the giants like SP Setia or IJM Berhad. In fact, many mid-size property companies are even bigger than PBSB.

But then again, many of these giants properties companies at one time ago started as a little unknown company first. Who knows, PBSB might one day becomes a giant company as well.

At the moment, I have decided to stay on and take my chances and see how PBSB will carry Mercury to the next forte.

I have decided to add in more shares to my Basket of Defensive Stocks.

Buying 3,000 shares of Advanced

Packaging Technology (M) Bhd

on Dec 16, 2016 at RM2.28

Advanced Packaging Technology (Advanced Pack) is a very small cash rich company that has a good record of paying dividends since 2004. At this price, the dividend yield is around between 5.5% to 6% which is higher than banks' current fixed deposit rate of 3% or 4%.

Buying 4,000 shares of JCBNEXT Berhad

on Dec 16, 2016 at RM1.76

JCBNEXT Berhad (JCBNext) is formerly known as Jobstreets. Actually I am considered very late into buying into this company. (It has rewarded earlier investors with hefty payouts of over more than two thousand ringgits after it disposed of its main business).

But nevertheless, it still has substantial cash in its kitty and a strong presence recruitment business in Taiwan. It is also another consistent dividends paying company.

Have a wonderful Christmas and Happy New Year.

Fimacor - still strong, steady and generous

Fimacor - still strong,

steady and generous

Owning business or assets especially in another country is not always assumed as safe. Many times that particular country's government could see a change of hands and the new government will sometimes decide to change the current rules set by the previous government.

Such change of rules sometimes can seriously affect a wide spectrum of people and business in the countries, But sometimes even without any change of new government, the existing one could still  to amend or over-ride existing rules or agreements done years back due to certain reasons.

Recently one of my companies, Fima Corporation Berhad (Fimacor) was experiencing such shocking amendments of rules/agreements of their plantation business in Indonesia.

Fimacor's 80% owned PT Nunukan Jaya Lestari (PTNJL) has a lease hold term that expires in 2038 and covers 49,356.75 acres of agricultural land in Nunukan Regency, East Kalimantan, Indonesia. Between 2006 and 2007, Fimacor paid a total of RM 96 million to acquire PTNJL.

The plantation business in Indonesia accounted for around 30% of the group's revenue since the last eight financial year. But during these last eight years, its total profit easily exceeded its original investment of RM 96 million. It has turned out to be a good investment after all.

But now the Indonesian government has revoked its 80%-owned Indonesian subsidiary's cultivation rights, reasons were it had been improperly issued resulting in the overlapping of some of Fimacor's planted areas with forestry areas.

Fima has started legal proceedings to challenge the ministerial order. But what will the outcome be? If it loses, the loss of this will seriously hurt its earnings although it still has a stable security printing business to rely on. (But then again, isn't it better to enjoy two earnings than one?).

Fimacor was featured twice before here. I first wrote it on Jan 20, 2014 : One rich generous printing and plantation son and later on July 2014 : Fimacor is running faster than Kfima. My original investment of 4,000 shares in 2004 has now ballooned to 12,000 shares following its bonus and split exercise in 2014.

Total dividends received to date is around RM 11,000.00 which has exceeded my original cost of RM 5,722.36. Fimacor remains a top dividend class paymaster. Between 2011 and 2014, (before its bonus and split exercise), its average dividends were RM 346 per share. For 2015 and 2016, it paid RM 125 per share each year, but when I calculated my 12,000 shares x RM 125, it is a total of RM 1,500.00 per year.

Although my investments are free, it doesn't mean I don't have to worry about what will happen to my investment in Fimacor at all. I am in a dilemma of how the outcome will be? If I don't sell now and it loses the Indonesian plantation business, its share price will easily fall below RM 2 and beyond. What if it wins? I think in the event it wins, it will not have any effect on its current price of RM 2.15 plus minus range.

On the other hand, had it been the other way round that the plantation business accounted for 70% of its revenue instead of 30%, meaning the security printing business just accounted for 30% only, I believe its share price would have fallen to below RM 2 the moments the news came out.

Right now, its seems to have priced in this revocation news already. I believed many minorities shareholders like me are keen to know the outcome although it may take months or more than that when it comes to counter legal proceedings of this type of case.

The goodness at the moment is it is still business as usual there. The icing  on the cake is palm oil price has been trading rather higher during these few months.

Interestingly, Fimacor had just announced a set of impressive results for its 2nd Quarterly Report (July - September) for Financial Year ended March 2017.

Fimacor earned 7.32 sen, together with its 1st Quarterly of 5.93 sen, bring its total half year earnings to 13.25 sen. On an annualised basis will bring it to around 26 sen. A first interim dividend of 5 sen has been announced, payable on Dec 30, 2016. I am confident a final dividend of at least 7.5 sen will be rewarded to shareholders when it announces its 4th Quarterly Report result somewhere in May next year.

For dividends lovers like me, Fimacor remains a share I would like to keep for more years as long as the dividends are banked in to me at this kind of rate which is easily more than banks' fixed deposit rate.

A New Wonderful Experience

I have a true confession to share. Recently I decided to abstain from reading the share price of Bursa Malaysia. I wanted to know how it the feeling would be by totally not knowing the changes of my shares. So the only sure way is not to check on the gainers list or from the newspapers.

But I continued to keep abreast with current business issues by reading the business pages, The Edge and Focus Malaysia. I continue to check on the results and dividends announcement as well.

So what was the feeling like to be? Well, you never try you never know. I can only say it is something like peace of mind when one doesn't really know what is happening to the share price.

That is why I did not post any update on my Kassim's Basket of Defensive Stocks table. Incidentally the day I abstained from knowing the share price was on Oct 21, 2016. It was a day I started to see life differently after my possible near miss day on Oct 19.

Thank You so much

For those who wished me well after reading my previous blog, I like to say thank you so much. They were a few friends who called up to ask. I am doing fine. I have decided to increase my morning exercise more times rather than confine to my usual Saturday and Sunday football games only.

Did life give me a second chance?

Did life give me a second chance?

Life is indeed very strange. When I wrote about health-rich is more important than cash-rich in my last blog, I was of course not in real actual position/situations of those truly sick people and will most probably never know how it really feels to be truly sick.

Well, I had a sort of those possible near-miss life and death/coma/paralysed situation just recently. It just happened unexpectedly out of the blue.

A supposed-to-be romantic two-day one-night stay trip to this exclusive

Swiss-Garden Beach Resort Damai Laut at Lumut for yours truly and my spouse instead turned up to be a night stay at Pantai Hospital some distance away.

An evening walk around the resort's pool side around 7.00 pm evening seemed a pleasant and harmless one for us. Unfortunately I had a slip on  the concrete staircase and landed surprisingly in a perfect buttock sitting position.

Although both my arms were slightly injured, I got up and started to feel giddy moments later. Then I told my wife I needed to sit down as the giddiness was becoming too much for me.

Then I passed out. (But I still remembered those split seconds before I passed out, my vision just simply shrank into total darkness. There were no feeling of any pain at all).

Sensing I had passed out, my wife ran to seek help. But miraculously, I somehow regained back my consciousness and found myself alone sitting on the staircase. I was beginning to sweat profusely in my whole body.

When my spouse came back with some nearby people, she was relieved to see me conscious again. Later, officials and the resort's security guards came and I was wheel chaired to the spacious airy lobby where I was able to calm down and relax back as much as possible.

As I am on medication for hypertension (actually well-controlled prior to this trip), there were fears that I might be on the verge of a possible heart attack or an early sign of stroke).

I decided to stay for a night observation at Pantai Hospital Manjung where an ECG and a blood test showed my heart beat is normal and my blood did not show any sign of heart attack. Well, it was such a relief in the end.

There were several deep thoughts that I must share after this incident.

What if I passed out and did not regain back my consciousness?

One never knows unless one has the rare opportunity like yours truly to experience it. What caused a person to pass out? Most probably it is due to lack of oxygen supply to the brain. If this is the cause, then this is actually very frightening indeed because the person could be clinically dead if no urgent CPR is performed.

Even if the person somehow regains back his consciousness after CPR is performed, there is no telling if he can be back to his normal self again. His brain could be damaged and cause the person to suffer a stroke.

Yours truly thanked God for giving me a chance to regain back my consciousness. Perhaps it is due to my good karma for always helping those many snails crossing the walkway to safety in our gated apartments for many years.

Experiencing the tremendous kindness and concern of people you don't know at all

This near-miss trip also gave me a valuable opportunity to experience the kindness and concern of those people who came to my side to check on my condition and offering some life-saving advices in case of an early sign of mild stroke or possible heart attack.

There were a family of four elderly diners at the nearby Thai Restaurants who rushed to my side thus having their enjoyable Thai cuisines dinner interrupted. 

The resort's management and staff who were with me right from that moment till I was eventually driven to the hospital. The extended check out time when I finally came back from the hospital the next day after discharged to pack my belongings. The Front Office Manager on duty, Mr Vikneswaran who was assisting me on that evening and even checking on my condition during my check out period to ensure I was fit enough to drive back home to Penang. I say thank you so much to each and everyone of you deeply from the bottom of my heart.

Also I must thank the two burly sized Nepalese security guards who helped me with their mighty strengths to carefully push me back to the lobby from the side pool. Not only that, one of them even used his sort of cowboy hat to fan me strongly to let me create real strong cool wind for me during my non stop sweating moment. I really don't know their names, but I hope management of Swiss Damar Laut took note of their very unselfish efforts for me. It gave me a lot of confidence with their presence around.

Did I get a second chance in life?

I shall never know if ever life gave me a second chance or not? But I shudder to think if it did not. You would not be needing to tab into kassimsblogspot any more for the latest blogs.

As such, I would rather see it as a very grateful act from God. I would see life from a very different and bigger perspective from now onwards.

I would even treat my investment in Bursa Malaysia as just as another appendage to my new lease of life.

Suddenly it feels so good to be waking up in the morning again to enjoy all those simple regular daily activities in life. And to communicate/interact with our those loved ones, friends and even strangers as well.

Do appreciate your life now and live everyday in a significant and meaningful way.