The Dilemma of Over Supply of Rice

The Dilemma of Over Supply

of Rice

What is actually happening in Thailand now? The unrest has been building up steam especially during the last few days. Will the elegant and charming Prime Minister Yingluck Shinawatra survives this crisis this time? What actually causes this unrest?

One of the main causes I personally believed is due to the over supply of rice production that exceeded world demand during the last few years. We all know the law of demand and supply. Too much goods chasing too fewer buyers and the price will drop. Too many buyers chasing too few goods and the price will go up.

Currently based on what I had read, rice production supply during the last few years exceeded world demand. Even despite lower 2012 production [According to The Food and Agriculture Organisation (FAO)], rice supply continued to outstrip world demand. I have no idea for 2013.

Thailand which produces abundant of rice is expected to suffer a sharp decline in exports and Argentina with Brazil, China, Myanmar and Uruguay and Vietnam also shipping less rice.

Global rice inventories at the close of the 2012/13 marketing years were revised upwards by 200.000 tons to 164.5 million tons (milled basis). This would imply a 9 million tons increase from the previous year and mark the eighth consecutive season of stock accumulation. Thailand needs to release its abundant stocks before the October harvest which could impact prices.

Back to Yingluck, during the last election which she won, She had set up a "controversial" rice subsidy scheme with the farmers. She had pledged to buy rice from the farmers at a fixed rate, in return for their votes. The farmers delivered the votes massively for Yingluck. At that time, world rice price was still stable. As long as world rice price stays stable (above the fixed rate bought from the farmers), the Yingluck government would still be in a winning position. However when world rice price fell (below the fixed rate bought from the farmers), it spells big trouble for the Yingluck government. The government is suffering from huge losses as rice bought from the farmers are selling in the world market at below the fixed rate bought from them. How long can this losses continues?

Thus, the opposition has every reasons to demand a change of government. A new government would surely renege on the promise pledged to the farmers by the Yingluck government. The farmers would not like it. Hence, we see two sides to this unrest. But the farmers are too turning up in demonstration against the Yingluck government due to the non payment of rice delivery during the last few months.

How this issue will pan itself out is only time will tell. But in Malaysia, there is a current rice issue going on. But don't worry, you won't be able to see any demonstration on the streets regarding this rice issue. I am talking about the rice monopoly company in Malaysia and that is Bernas. 

Bernas (Padiberas Nasional Bhd)

The current attempt by tycoon Tan Sri Syed Mokhtar Albukhary to take Bernas private is being spurned by minorities who are not happy with the offer price of RM3.70.

The minorities felt that the offer price of RM3.70 is not a fair value and the company should be worth more than that

I am puzzled by the way Bernas is being "calculated" for its fair value by different various different groups. According to MSWG, Bernas should be worth between RM4.18 to RM6.13 per share based on the variable sets of calculations (sorry, I really don't know the technical way of calculating and valuing a stock with all those figures, I am just an ordinary layman who even needs a calculator to add in some simple numbers).

But obviously that is not what the independent adviser Kenanga Investment Bank Bhd (KIBB) sees.  Minorities are being advised by KIBB to take up the offer as the offer is seen as a fair and reasonable.

What about the offerors? Tan Sri Syed Mokhtar Albukhary and his group must have their reasons for attempting to take Bernas privately. Although this is his second attempt, again this time the minorities seen to be holding pretty well-up for a bigger offer.

Incidentally, Bernas has not been paying any dividend since 2012, perhaps due to the ongoing privatisation attempts. Also, the privatisation attempt is currently being the issue when rice production supply during the last few years has exceeded world demand.

How will Bernas performs in the future in the face of oversupply of rice?

Stock B

A few years ago, there was this stock (I shall call it Stock B) that has attracted my attention with its rather generous dividends payouts. It was trading at a steady range of RM2.20 plus levels. (Actually Stock B has risen from a RM1 plus levels prior to this).

Confident that there had to be a minor correction for Stock B, I reminded my remiser to call me be should Stock B be traded at less than RM2.20 in the future.

A few days later while I was shopping at Tesco with my spouse one afternoon around 4pm when my remiser called and told me that Stock B is now trading at RM2.17. Well, then I told her to buy 3,000 shares of Stock B at that RM2.17 price. Done!

My shopping bill on that day was about RM80.00. But it "became" almost RM230.00! Why? Because Stock B closed at RM2.12 on that day! See, the paper loss was RM150 alone for Stock B! If only I had waited to tell my remiser to buy at near the closing time. I could have bought at a lower price.

Nevertheless, as I kept Stock B for the next 20 months and went on to receive more than RM1,000 plus dividends. Then it started to report less and less profits in its quarterly results. (It dawned to me that there was an over supply of rice production vs world demand due to the favourable climate according to a report. As such, Stock B which had huge stockpiles bought at dearer price earlier would be affected).

I made up my mind by selling off Stock B at RM3.46 for my 3,000 shares. (A profit of RM3,754.48 plus the RM1K plus dividends means a total profit of RM4,754.48 for a holding period of 20 months or a 72% return).

Believe it or not, months later, Stock B was the subject of a privatisation exercise.

Stock B is actually ...... Bernas!

Life is 10% what you make it,

and 90% how you take it."

There was a Mr Tan who posted this after reading my blog : Integrax's Future Potential Kingmaker. A search on the internet revealed that actually this is a inspiration quote by Irving Berlin (1888-1989) who was an American composer and lyricist.

What is the actual meaning of it? I might be wrong, but my very personal perception of the meaning is that one doesn't have to know all or do everything, but just have the 10% knowledge or participation enough and then must be an opportunist to take the 90% reward from it.

For example is Mr Tan trying to say that Kassim knows a little bit of something (just about 10%) that one day Integrax will be the subject of a privatisation exercise? Hence, based on that little knowledge makes an early bet by investing in Integrax? And one day (maybe months or a few years later) that Kassim's investment will reap possible 100% or more should there be a privatisation exercise for Integrax?

Please correct me if I am wrong, Mr Tan. Or perhaps there are some other readers who may have their own perceptions of it. Be generous enough to share it with me and for the benefit of others. It will not cost you anything, perhaps only a little bit of your valuable times.

But I can guarantee that when you share (your honest ideas and views) sincerely with others, there is nothing more wonderful than that good feeling you will experience at the end of the day and that is the good joys of sharing with each other!

Will it shine or rain for Star and Uchi?

 

Will it shine or rain

for Star and Uchi?

Posting good Qtr results are very important for companies in Bursa Malaysia. A good results may result in the share price moving up higher or in the worst scenario, stay at its current levels. However posting poor results could have serious consequence to its share price.

At least this is the impression investors are expected to see. But sometimes, the stock market is a very strange animal to understand. It has always been like this since the very first time I entered the investment world when I was in my late twenties. It can be sometimes very efficient and sometimes very inefficient in valuing stocks after they had released their earnings results.

There is one interesting stock which many of us would have come into “contact” for the last few decades and that is Malaysia’s leading English newspaper, The Star which should be celebrating its 43rd Anniversary this year.

Shining days ahead for Star?

The Star should be releasing its 4th Qtr results anytime soon. How will the results be? But before we proceed any further, let us rewind the clock a few months’ back when The Star reported its 3rd Qtr results on Nov 2013.

Malaysia’s English leading newspaper, The Star reported its 3rd Qtr 2013 results which in my opinion was above expectations. Its 3rd Qtr’s eps of 5.97 sen was the strongest compared to its 1st Qtr eps of 3.53 sen and 2nd Qtr eps of 3.87 sen.

Net profit jumped 28.4% to RM44.05mil in the 3rd Qtr ended Sep 30th from RM34.3mil a year earlier, as improved cost control boosted earnings at the group’s key units.

Going forward to the last quarter which was traditionally a festival quarter with a lot of promotions going on especially the Christmas season, The Star should be expected to report another strong set of 4th Qtr earning which in my forecast, would be in the range of eps of at least 6 sen plus minus.

If that is the case, then the total eps for 2013 would be around in the 19-20 sen range. As Star’s dividend yield has normally been around 5 to 6% plus, a final dividend of at least another 6 sen seems too quiet a conservative amount. A total of 12 sen dividend would mean at the current price of RM2.26, the dividend yield is at 5.3% which is still attractive compared to bank’s fixed deposit rate.

Yet instead of seeing its share price moving at least some notches up, its share price dropped more around 13% from RM2.60 (before the 3rd Qtr results were announced) to somewhere RM2.26 on Feb 11th at the time of writing. Note that on Feb 4th, The Star’s share price touched a more than decade’s low of RM2.14!

Isn’t the market supposed to react POSITIVELY to it? Strange, isn’t it? Imagine, a company reporting a result that was above expectation yet the share price continued to move south gradually  over the next several months. I could not imagine if Star was to report a poorer set of 3rd Qtr results, the share price would surely plunge to new lows, perhaps at below the RM2 levels.

The 3rd Qtr results of The Star indicated the company is in a net cash position of over RM100 million. This cash pile is set to increase over the next few years. Whether the management will declare another special dividend (similar to the one in 2010) remains to be seen. But should that happens, shareholders would be more than delighted.

This year, the most popular sport in the world will be held in Brazil for over one month. The World Cup Soccer is back again! There will be major advertisements and promotions going on. The Star will be in a strong position to capitalise on this every four year popular soccer event.

Raining days ahead for Uchi?

There is another good paying dividend stock, Uchi Technologies Berhad. On Nov 19th 2013, Uchi reported its 3rd Qtr eps of 1.82 sen only, which was lower than the 1st Qtr eps of 2.29 sen and 2nd Qtr eps of 2.31 sen. This results were posted on the Bursa website after the closing market on that day. Coincidentally on that day, Uchi shot to several sen to close at RM1.53, its highest level in 52 weeks.

The following several days, investors dumped Uchi’s shares and its share price tanked more than 10% to below RM1.40.  Today  Uchi’s share price remained surprisingly strong, closing at RM1.45 on Feb 11th 2014.

Uchi’s 1st interim dividend (for Financial Year 2013) of 4 sen was lower then the previous’ year interim of 5 sen which is 20% lower. The dividend was announced on Nov 28th, 2013. It remains to be seen if Uchi’s final dividend would be at least 7 sen as previous’ year. That will depend on Uchi’s 4th Qtr performance. A weak 4th Qtr performance would surely result in a lower final dividend and that could mean more downwards pressure on its share price.

Uchi usually pays out dividends that exceeded 90 or even 100% of its earnings. One only need to log in to www.malaysiastock.biz website and check it out on yourself the amount of dividends Uchi has been paying out generously since the last so many years.

However, Uchi is also in a net cash position of over RM100 million according to its latest noted for 3rd Qtr 2013. The stock is strongly held by its top 5 largest shareholders comprising : (1) Eastbow International Limited 91,263,660 shares, (2) Lembaga Tabung Haji 37,346,640 shares (3) Amanahraya Trustees Berhad [Skim Amanah Saham Bumiputera] 23,309,600 shares (4) Valuecap Sdn Bhd 14,400,000 shares (5) Amanahraya Trustees Berhad [Public Islamic Select Treasures Fund] 13,933,100 shares.

Both management are generous!

While The Star is majority owned by Malaysia Chinese Association, Uchi is believed to be majority owned by some Taiwaneses and Malaysians. But both the management have similar good generous hearts. They only know the opposite words of  stingy! They rewarded their shareholders with good dividends most of the times. In good times, the dividends were higher and in not-so-good times, the dividends were lower.

You really have to be a shareholder of both companies to really feel the amount of dividends received if you are a long term shareholder. Star in particular paid out to its shareholder with a special dividend of RM526 on Nov 30th 2010 apart from  two dividends of 10.5 sen paid on Apr 16th and Oct 18th that year.

As far as I can know, both The Star and Uchi always remain profitable during the last so many years. It is only a question of how much they can make each year.

Interestingly, the strong US dollars will have an effect on The Star as newsprint is traded in the greenback whereas Uchi will benefit from a strong greenback.

But I see The Star as having greater upside potential especially with its aggressive marketing strategies and also with its current very depressed share price.  I believe The Star is poised to shine even brighter in the coming quarters.

Uchi, on the other hand, may need  a super performance in its 4th Qtr to make up for its 3rd Qtr’s disappointing results. Anything less and Uchi may need more than “The Three Wishes” this time!

Puzzling EPF!

One of the main reasons believed to be caused of the current distressed share price of Star is due to the constant and consistent selling by one of its major shareholders, the Employment Provident Fund (EPF), especially the last year.  A check on the website revealed that EPF has been aggresively selling the shares in the open market. (The Star’s Annual Report 2012 stated that as at Mar 29th 2013, the EPF is the third largest shareholders with 57,476,500 shares   or 7.784%). The last selling was done on Dec 31st 2013 leaving the EPF with 38,207,800 shares (meaning the EPF has disposed as much as 19,269,000 shares or 33%!).

However, on Feb 5th 2014, the EPF suddenly became BUYER. EPF acquired 181,900 shares of The Star to increase its shareholding to 38,389,700 shares.

Then again on Feb 6th 2014, the EPF acquired 104,100 shares of The Star to increase its shareholding to 38,493,800 shares.

Why is the sudden twist of turn by EPF to become buyer instead of continuing its selling spree? Will this buying spree continues? If so, what does it indicate? Is EPF knowing something we don’t know?

Is something brewing there in The Star?