105 - The New Mercury

105 - The New

Mercury

Sometimes there are not much details or informations of a particular stocks that investors can have access to other than the occasionally announcements. Even then, the informations are also not easily understood by the average man on the streets.

Take for example, one of my early favourite stocks : Mercury Industries Berhad. It has successfully changed into a pure construction player exiting its car paint business. But I couldn't gather enough clear details from its announcements and I was left wondering how the new Mercury is progressing and how its financial positions would be.

Early birds readers who have been reading my every blogs would know that Mercury was one stock that I dared readers to walk the talk with me. (Refer back to my blog : Walk The Talk with Mercury Industries Berhad With Me. Dare You? It was dated : September 3, 2013).

At that time of "challenging readers invest with me together" this Mercury stock, it was on the premise of its easy to understand business of being in the car paint business. It was principally involved in the manufacture and trading of automotive paints and other related products used in the auto refinish business.

The automotive paint business is deemed resilient since there would be constant requirement of vehicles to repaint their car after several years on the road. Besides total vehicles sales were constantly in the range of 600,000 units per year.

It is a business that is easily understood by any investors. It is that reason why I invested in. Besides another plus point is its consistent dividends which is above bank's fixed deposit rates.

Then two years ago, out of the blue, Mercury began its journey to become a pure construction player. I decided to stick with its' new business venture to see how it pan out. But not much was understood by investors as Mercury is a rather low profile stock that is hardly covered by analysts.

As such, it didn't attract much investing attention and its volume is hardly traded  most of the time. Even so if there is, it is just a few lots changing hands.

But in the September issue of The Edge Weekly dated September 25, 2017, a good detailed coverage of Mercury Industries Berhad seemed to have a magic spell on its stock. The clear write up of the latest strong financial standings and its plans to grow its business by acquiring construction-related companies must have scored high marks.

Demands for its usually thinly traded shares spiked up the following weeks and from its last traded price of RM1.27 on Sept 21 (before The Edge Weekly issue on Sept 25), Mercury saw its shared surging days after days. It reached its 52-week peak (or perhaps its last six year high) at RM2.08 on Oct 11. Since then, it has been hovering at RM1.90 plus minus.

From what I am able to digested or understood from The Edge Weekly article is that Mercury is officially a cash rich company with RM10.5 million. While this cash amount is peanuts compared to other construction big boys, one must note that Mercury is a small based company with only 40,182.000 shares.

Also it is now more clear with its earnings visibility as it bends on acquiring small construction-related companies to strengthen its business.

So far its first half year 2017 net profit of RM11.6 million (thanks to RM9 million gain from the sale of the automotive paints division) has put it into a nice net cash position. Although it is unlikely to match its second half profits to its first half, as long as there is decent profits to be made, investors can confidently look forward to another good dividends of at least a six sen payout.

Besides, there might be a possibility of bonus issue or share split exercise as early as next year according to its managing director, Datuk Tiong Kwing Hee.

I also like to stress that I am still holding on to my 36,000 shares of Mercury even though it is now a completely different kind of company. Even though the share price has soared quiet substantially from my purchasing prices.

I am still walking the talk with the new Mercury. What about you?

104 - Beware of bumper dividends

104 - Beware of

bumper dividends

Companies announcing an unexpectedly bumper dividends are always a sweet wonderful music to shareholders. The more dividends, the sweeter the music will be. After all, as shareholders of any company, any bumper dividends are always welcome and will add in more ringgit to the purse to spend or keep.

Normally an unexpectedly announcement of a bumper dividends will have a spike of interests on its share price immediately on the next trading day. Investors who wish to buy the shares to be able to qualify for the dividends are willing to pay a higher price than the previous day's closing price while those already owning the share would not be that stupid to sell at the same closing previous day price.

It is like a bumper dividends has caused more buying than selling interests among investors. One should note that once the dividends has been ex-dated, the share price will automatically re-adjust itself the next day to reflect a new fair opening price again.

What caused a company to pay out an unexpectedly bumper dividends? There are many reasons. The reasons could be a sale of a subsidiary business that resulted in excess cash, a change of policy of dividends payout ratio, say for example, company has been earning an average of 50 sen for many years and has been regularly paying just a miserly dividend of 5 sen, decided to change its policy to pay at least 80% of its earnings, the dividends would be 40 sen and that would spark a rush for its share price.

But while bumper dividends are good for all shareholders, the more under-mining issue is still the consistent earnings every year of the company concerned. As a shareholder, I would not be concerned at all of the share price if my invested company pays bumper dividends and still continue to make reasonable consistent profits.

There are  two cases I would like to share. Take the case of Harrisons Holdings (M) Bhd. Harrisons announced a sudden bumper dividends of 25 sen for financial year 2016 (previously 15 sen for financial year 2012 - 2015).

When it announced the 25 sen dividend on April 12, its share price closed at RM3.44. It closed 23 sen higher at RM3.67 the next day. Then on its ex-date June 23, it closed at RM4.28, yet the next day the share fairly dropped to close at RM4.04 (to reflect an adjustment of 25 sen dividend).

Since then, Harrisons has maintain its share price around RM3.90-RM4, still far ahead of its prior announcement of 25 sen dividends price of RM3.44 on April 12.

Why didn't Harrisons share price drop back to its RM3.44 after its dividends pay out. The reason is simple, Harrisons has announced better results for its first half this year, a total dividends of 18.28 sen. On an annualised basis, the eps would be a whopping 36.56 sen and most probably Harrisons would at least pay another 25 sen dividend for Financial Year 2017 in 2018. Who knows Harrisons might be generous enough to even pay out 30 sen dividends next year?

At the time of posting, Harrisons share price closed at RM3.99 on Oct 5, 2017.

Keep your fingers crossed for the coming two quarterly results of Harrisons. It will give you an early indication of how much dividends will be paid out by Harrisons.

Another high dividends paying stock is Apollo Food Holdings Berhad. Apollo is due to pay a 25 sen dividend too,  on Jan 9, 2018. The ex-date is Dec 8, 2017. After Apollo announced this dividend on June 23, its share price fluctuated between RM5 to as high as RM5.48 during the next several weeks.

Since then, Apollo has retreated back to its RM5 range. If this price of RM5 continues to hover until after the ex date on Dec 8, the newly adjusted price on Dec 9 will be RM4.75 and then it is left to market's supply and demand situation.

Now why has the share price not been able to stay at least 20 sen higher at RM5.20 since the announcement of the 25 sen dividend?

To find out why, let us track back to its last seven quarters of earnings per share of single digit only. Prior to these, its last eighth and ninth earnings per share was double digits.

It showed Apollo was experiencing difficulties in several areas and resulted in subsequence quarters of poorer earnings. Only last year, Apollo share price touched a high of RM6.33 on Oct 17, but that was before the ex date (Dec 8, 2016) of a bumper dividend of 30 sen payable in January this year.

Since then, after the dividend, the share price has been trending down in tandem with its poorer results. Although there is the coming 25 sen dividend with the ex date of Dec 8, one should note with caution to see of it can maintain back to its share price of RM5 or it will trade lower than its after ex date price.

Amanahraya Trustees Berhad of Skim Amanah Saham Bumiputera has been selling almost every days since the release of its last quarter results. Amanahraya Trustees Berhad is the second largest shareholders of Apollo (with 14,950,000 shares / 18.69% stakes) and its daily aggressive selling could suggest it is either seeing the future is not so bright or perhaps for other undisclosed reasons.

Whatever it is, yours truly has already decided to sell my only 1,000 shares on July 18 at RM5.37. As I said earlier when I sold, my concerns were Apollo might report lower and lower profits in the coming quarters and such high dividends might not be sustained in coming years.

Again this is my decision and if you are holding Apollo shares, please make your own judgements. Apollo could just prove me wrong later with improving results. At the time of posting, Apollo share price closed at RM4.96 on Oct 5, 2017, incidentally it is also its 52-week low.