A Tale of Two Automotive Companies.

Mention the word “A Tale of Two Cities” and most probably, most of us would have heard about it somehow, somewhere and sometimes along the way during our lives. For those who are not keen about reading novels, they most probably wouldn’t know it at all. It is about the famous 1859 novel by Charles Dickens. Since then, many other books and movies’ titles beginning with “A Tale of Two ......” were published and produced from time to time.

One of them is “A Tale of Two Sisters”, a 2003 South Korean psychological horror film. What about “A Tale of Two Brothers”? Can anyone tell me about this? Sorry if you think this is another horror movie, you are wrong. It is about the adventure of the lions from Disney’s The Lion King. The list of “A Tale of Two ...” could go on and on.

But do you know that in Bursa Malaysia, there is also one “A Tale of Two .....” story? Is it? Yes,

it is. It is from yours truly. Introducing “A Tale of Two Automotive Companies”.

They are the newly listed Solid Automotive Berhad  and the bigger brother “veteran” APM Automotive Malaysia Berhad. Actually, both are in different business although both the registered companies’ names are almost the same except being different in the front name as Solid and APM only.

First, a little bit about

Solid Automotive Berhad

New kid-on-the-block Solid Automotive Berhad is an automotive parts trader and distributor. Listed on September 12th 2013 at an IPO price of RM0.56 sen. The company was founded in 1982 and has seven branches in Malaysia and one in Singapore and business into over 30 countries.

Currently, it had an inventory of 19 in-house brands, over third brands and more than 7,000 stock-keeping units.

Solid Automotive’s subsidiaries Solid Corporation, Twinco, Auto Empire, JBS and Uni Point are  involved in the trading and distribution of automotive parts and components as well as remanufacturing of automotive alternators and starters for the passenger and commercial vehicle segments in the automotive aftermarket in Malaysia and overseas.

Solid Automotive intends to pay approximately 40 percent of  profit after tax as dividends. Based on 2013 figures, this translate to dividend yield of 4.5 percent or 2.5 sen per share which I think is very a very decent rate of dividend.

What about APM Automotive

Holdings Berhad?

APM is a much bigger brother compared to Solid in terms of several areas including revenue, profits, earnings per share, dividend cash in hand and many more.

What does APM do?

It has a Suspension Division, Interior and Plastic Division, Electrical & Heat Exchange Division, Marketing Division and operations outside Malaysia in Indonesia, Vietnam, Australia and USA.APM has three joint-ventures in Indonesia which manufacture and distribute seats, interior parts and coil springs. Motor vehicles sales in Indonesia are expected to exceed a million units in 2013. In anticipation of this growing automotive market, the Group would be purchasing a 3 hectare land nearby to its existing operations during the current financial year for future potential businesses.

In Vietnam, the Group has two wholly-owned operations which manufacture and distribute leaf springs and seats.  On November 1st 2011, the Group entered into two separatjoint-venture agreements with subsidiaries of International Automotive Components Group SA for the setting-up of manufacturing facilities in Malaysia and Thailand.

The joint-ventures marked another milestone for the Group in

advancing its core capabilities of design, engineering wider

range of vehicle interior components, system to serve both

existing as well as new OEM customers in Malaysia and in the

ASEAN region.

In Malaysia, the new joint-venture company, APM IAC Automotive Systems Sdn. Bhd., was incorporated at the end of November 2011, with the Group having a 60% shareholding.

New cars sales recorded in 2012 was a record of 611,000 vehicles, 6,000 more sold in 2011. The local manufacturers association (MAA) released a 2013 forecast of 634.000 units which looks quite conservative, in a country with a still low circulating car park and a GDP expected up 5.6%.

So if you are an investor,

which company would you choose?

From an honest point of view, I cannot really say much about Solid because it is still a young and small company with a long way to go. But for APM, I found it as a very attractive company which has several “criterias” which I normally look for when investing in it.

APM has a growing cash-pile.

For one, it is cash rich with a big cash hoard of RM346 million with almost zero debts. Divided by its ordinary shares of 195,688 shares and that is a solid cash per share of RM1.77 as at end of June 2013.

APM is paying more and more dividends!

It has an excellent dividend payout rate. From a 14 sen dividend in 2007, it has increased to 32 sen in 2013 and looks to either maintain or even increase more for 2013 judging by its latest 2nd Qtr’s strong results. It has announced an interim 10 sen dividend and a special 30 sen dividend for its 1st half 2013 Financial Year. APM can easily afford to do so as its’ first half year profit is an earning per share of 32.2 sen. Annualised and that would be around 64 sen which means that a final dividend of 10 sen to 20 sen is there. For this type of good dividend pay out, APM must be classed as an income stock for those seeking above average dividend returns which is why I liked this stock.

If there is one point sharp investor must look out for, it is usually the gradual rise in dividends payout when its earnings is rising. It means the company is

willing to share the profits more with shareholders. This will attract more conservative shareholders looking for above average dividends (compared to bank’s fixed deposit rate). As a result, there will be less shares left in the open

market to trade as conservative shareholders are keeping the shares for the long term.

APM is 32.472% owned by Tan Chong Consolidated Sdn Bhd. A check on its 30 largest shareholders revealed that APM is hugely owned by many big institutional and unit trust funds, a proud testament to it.

Impressed by APM’s strong attraction, the writer purchased 1,500 shares at RM4.66 on November 29th 2012. Currently, APM is hovering around the range of RM5.70 at the time of writing.

The writer has qualified for two dividends since then (RM220.00 paid on June 28th 2013 and RM400.00 to be paid on September 30th 2013) since his purchase. The total dividends is RM930.00 (RM660.00 dividends multiplied by his 1,500 shares).

Low trading volume doesn’t matters,Fundamental does!

A good question was posted to me in the Chat-Box column of stocks-unleashed.com by a familiar regular user “Oldman”. was referring to a stock called Mercury Industries Berhad.

Oldman asked : How would you interpret a counter with no volume?

First, thanks for being one of my readers in http://kassimsthoughts.blogspot.com. I am gladly surprised that my pageview has been rising gradually by the days.

So if you are an investor going to invest in a company in Bursa Malaysia, what is the most important criteria one should be looking for? Or shall I say more than one criteria?

The answer lies in the strong fundamental business of the company, for without it, the company would be struggling and could be heading nowhere, but south (meaning the share price heading that way) eventually. But on the other hand, a company with a strong fundamental basis would be doing constantly good business, hence transferring it into good profit and eventually reflected in its stable share price.

Of course, the good quality of the management and the ability of the company’s business product to stay relevant are also very important. No point selling a product that eventually becoming absolute in the future.

When I first set my sight on Mercury 20 month ago, I also noticed that the trading volume was very low and the buying and selling bid’s spread was more than 5 sen. Buyers putting in to buy at 86 sen and sellers wanting to sell at 92 sen. Sometimes for several days, not a single transaction was done. Even if there is a transaction done, the volume would be just a few traded lots done. But that didn’t bother me one single bit. I am a very patient investor. I will wait and wait for days and even weeks or even months to buy at the price I wanted. We all know that Bursa Malaysia is full of weak retail investors. At the slightest news of something bad occurring anywhere in the world and you can see the  market is full of sellers the very next day. Their motto is very simple. Sell first regardless of the good companies’ share they are holding.

Eventually my patience paid off. I managed to buy 15,500 shares at around 86 sen in one day.

Fast forward to today, the low trading volume of Mercury Industries Berhad continues. Hardly any trading done sometimes for several days. After my blog on Mercury was posted, there was not a single transaction done for that week. But there were buyers wanting to buy at between RM1.13 - RM1.20 and sellers wanting to sell at between RM1.25 - RM1.30. Why is the selling and buying price’s bid now higher than the first time I bought them?

Fundamental of Mercury is stronger and richer today

than 2 years ago

The answer is simple. The Mercury of today is different from the Mercury of some 2 years ago. Its cash per share is now almost 40 sen compared to less than 20 sen 2 year ago. Although it is business as usual, the company is now a richer one. Its earning has been quiet consistent at around 16 sen per share. To put it in a simple term, its fundamental is now stronger and therefore, there are now investor willing to buy at around RM1.20 (compared to around 86 sen) and sellers willing to sell at around RM1.30 (compared to around 90 sen) two years ago. Mercury’s valuation is richer today.

Another good point the writer likes about Mercury is its simple business model which is easier to comprehend. Mercury is not necessary better at making more money than other complicated business models, but Mercury’s business is much easier to understand. In fact, its business can be described as nothing special and very boring. But it is exactly this type of boring stock with quiet predictably earnings that I am sure the great Warren Buffet would love to have in his portfolios.

I would be very happy if Mercury maintains that kind of earning for the next several years. Imagine again in ten years time, with Mercury’s cash per share rising to around RM1.20, if you a Mercury shareholder and you wish to sell its share, would you sell at RM1.30 or more?

In conclusion, a good investor should not be worry at all about the no trading or low trading volume of a particular stock. The law of nature will always prevail in the end. The new buying and selling’s price demand will automatically adjusted itself in line with the new fundamental strength of the company.

Here is a short simple true story about a low rise three room ground floor apartment in Taman Sri Nibong, Penang sold for RM300,000 in May 2010. Last year another ground floor unit next to that unit was sold for RM400,000. In between these three years’ period, no other ground floor was sold other than this two units. Hardly any buying and selling volume, right? But see, the price went up by more than 33% in three years’ time regardless of “any volume or no volume at all”.

The moral of the apartment’s story (if there is one) is : The new buying and selling’s price demand will automatically adjusted itself in line with the new fundamental strength of the property market.

Selling Pharmaniaga Bhd

Regular readers of the popular website stocks-unleashed.com would have noticed as early as last year when I started posting my personal views on certain stocks in short paragraph in the Chit-Box column from time to time. At that time, I was calling for a buy on Pharmaniaga when its share price has dropped to below RM8 from a high of almost RM11. Since then, Pharmaniaga has implemented a share split of 1 for 2 and then followed by a bonus issue of 1 for 10 0n May 2013 (Pharmaniaga also implemented a bonus issue of 1 for 10 0n February 2012).

The writer bought 2,000 shares of Pharmaniaga Bhd at RM4.33 on February 22nd 2010. At that time, it was trading at around RM4.30 plus, considered a high price. But I felt that it was expanding its market in the Middle East and Southeast Asia, particularly, Saudi Arabia, Indonesia, Myanmar and Vietnam.

As its Chairman Tan Sri Lodin Wok Kamaruddin said the company was looking for growth opportunities in these countries including through mergers and acquisitions.

Another good point is its good dividend payouts. Around a total of RM2,682 in dividends must have been credited into my bank account since my purchase.

On September 12th 2013, the writer sold his 4,840 shares of Pharmaniaga at RM4.77 (My original 2,000 shares has ballooned to 4,840 shares following the two bonus and 1 share split exercised).

The proceed is RM23,134.72 (4.77 x 4,840 shares).  Minus my cost RM8,723.56 (buying price cost plus broking fee) gave the writer a profit of RM14,241.40 and plus the dividends of around RM2,682 received, the net profit is RM16,923.40.  Not bad for an investment period of 3 years and 7 months which earned a return of 194% returns for an original investment of RM8,723.56.

The writer is positioning himself to purchase other “small” capitalized companies that he feels are trading at undemanding levels, making reasonable profits, in a cash-rich position and most important, paying out regular dividends.

The search for the next undiscovered “Pharmaniaga” or “mini Public Bank” is still on apart from Mercury Industries Berhad.

Walk The Talk with Mercury Industries Berhad With Me. Dare You?

Walk The Talk with Mercury Industries Berhad With Me. Dare You?

Traffic jams are getting worse and worse by the days. So much so that I know of  many people checking on the internet about the traffic flow before going off from the office. Who likes to be stuck for one hour or more when it normally takes only a 15 minute's drive? Imagine crawling inch by inch and burning precious petrol for the extra 45 minutes going through stress and frustration. Worse still if one suddenly feels the urge to answer to the call of nature.

The reason is very simple. There are just too many cars on the roads. No thanks to an explosive new cars sales recorded in 2012. Volume surged 33% to 611,000 vehicles, 6,000 more sold in 2011. The local manufacturers association (MAA) released a 2013 forecast of 634.000 units which looks quite conservative, in a country with a still low circulating car park and a GDP expected up 5.6%.

Also with the prices of cars going cheaper by the days, the 2013 forecast seems a foregone conclusion. Who could have imagined a Honda Jazz being sold at less than RM75,000.00 today?

Mercury Industries Berhad

The good car sales business is good for one "very small company" called Mercury Industries Berhad, Malaysia's 2nd largest car paint producer. The company is principally involved in the manufacture and trading of automotive paints and other related products used in the auto refinish industry.  Mercury's products cater mostly to the auto refinish industry which is demand-resilient. Therefore, its revenue will not be greatly affected by the economic conditions of the country.

I said "very small company" because Mercury has only a share base 40,182 shares owned by  2,277 individuals according to its 2012 Annual Report. The top thirty largest shareholders hold collectively 79.79% of the shares. So the famous phrase of "less men more share" couldn't be more true this time. Its 2012 Annual Report showed that it has a cash hoard of RM12 million and zero debts.

On August 30th 2013, Mercury announced its 2nd Qtr 2013 results. Predictably, the 1st half year's earnings was around 8 sen plus, almost the same as the few previous quarters. But the cash in the kitty has risen to almost RM16 million, thus increasing its cash per share to almost 40 sen!

During the last three years, Mercury has been earning an average of 16 sen per share. It has also rewarded shareholders with three 8 sen dividend as well. What if it continues to do the same for the next ten years?

Yes, this is the good part I am coming to. ASSUMING for the next ten years, the earning of 16 sen remains the same. The 8 sen dividend payout each year remains the same for the next ten years.  ASSUMING bank's fixed deposit rate of 4% per annum remains the same for the next ten years.

The current share price of Mercury is about RM1.20.

RM1,200 deposit in a bank

An deposit of RM1,200 would earn RM48 a year based on the Bank's fixed deposit rate of 4% annum. A ten year period would earn the depositor a total of RM480 and nothing else!

Investing in 1,000 Mercury's share at current price of RM1.20.

The investor paying RM1,200 for 1,000 Mercury shares will receive a dividend of 8 sen or RM80. A ten year period would earn the investor a total of RM800. (That is RM320 more!)

But that is not the end. Remember, Mercury is earning 16 sen each year. Minus the 8 sen dividend and there is still a 8 sen balance with the company. A ten year period and that 8 sen would snowball to 80 sen (RM800) per share! Plus the existing 40 sen and that would be RM1.20 (RM1,200) cash per share! Can Mercury still be trading at RM1.20 which is the same as its cash per share in ten year's time? My experience with cash-rich stocks is that as its cash hoard keeps increasing over the years, its share prices also follow up automatically. Its share price has to be traded above RM1.20.

Still back to Mercury's share in ten years' time, its cash per share of RM1.20 still belongs to that 1,000 Mercury shareholder!  Imagine if the company decides to payout that amount as a special bumper dividend or increase its' annual dividend from 8 sen to a higher amount.

By then what will happen to the share price? Will Mercury's share price still be at RM1.20? Logic tells us that when a company's cash per share keeps on rising each year, its' share price will also keeps heading north each year. What will you do if you are the major shareholders? Take it private? Declare a big dividend payout? Do nothing? Try doing nothing and surely it will attract predators coming in to take over the company or building up a big stake to have a big say in the direction of the company.

Look recently what nearly happened to icapital berhad, a closed-end fund? With too much cash and not putting it into investment, it attracted fund that was eyeing its cash pile. Recently, it announced a special dividend payout for the first time since its listing on October 2005. According to a report, the special dividend was paid out because it wanted to utilise the tax credits under the Section 108 of the Income Tax Act, 1967 which will expire on 31 December 2013.

Walk The Talk

Yes, I am convinced that Mercury is a good long term bet and as such, I will walk the talk and not the other way round. No point saying something is so good when one did not even own or purchase it. Although I had already purchased 15,500 shares of Mercury bought at RM0.86 on December 12th 2011, it wouldn't be fair if I keep on introducing Mercury as a good investment if I do not purchase additional Mercury shares at around current price.

Therefore, I have decided to be in the firing lines of my words by buying another 11,000 shares of Mercury (bought at RM1.15 on August 28th 2013) to add to my existing 15,500 shares. It takes a lot of guts to buy shares in this severe market downturn, but that is what I call buying with conviction regardless of market conditions especially when others are selling. Together I now hold 26,500 shares of Mercury.

Time will tell if I am right or wrong. In the meantime, anyone dares to be with me with Mercury ... for the next ten years?

The recent market downturn.

Questions from "Layman" regarding the recent market downturn.

How do you perceive the current downturn trend?

Any KLSE entry point for consideration?

This is what I wish to share with "Layman".

Market will always go up and down from times to times due to a lot of various factors which you and I cannot control at all. For me, one must have an entry price for a particular stock which one has been aiming for some.

For example stock A has been trading at a price range of between RM2 to RM2.50 which you are not willing to pay for it. Suddenly it came down to RM1.70, will you buy? Buy at a decided price regardless of market conditions. Buy even more if your decided price stock bought goes down lower.

If you are confident of that stock (which I presumed you have done the homework), then you have nothing to fear.