Mercury springs a pleasant surprise

Mercury springs

a pleasant surprise

Malaysia's second largest car paint maker Mercury Industries Berhad recently sprang a pleasant surprise news for its shareholders when it announced its 3rd Qtr results.

Mercury announced a strong set of results, achieving an earning per share of 5.02 sen, which must be the highest ever recorded since 2012. Compared to its 2nd Qtr 2015 results of only 1.95 sen, it is indeed a remarkable turn-around one.

As we recalled, Mercury had already diversified into the construction business a few months back, acquiring a 70% stake in a inter-related deal, construction company PBSB.

At that time, I was a little sceptical about Mercury's diversification as I normally prefer the companies I invested to focus more or solely on their main strong business/products.

However, this time, the diversification of Mercury seemed to have paid off so far. According to its 3rd Qtr report, its PBSB, the construction arm of the Group contributed a revenue of RM12.47 million and a pretax profit of RM2.64 million. This good profits helped to offset its other business segment i.e. its paint business which reported lower revenue and lower pretax profit.

The decrease in revenue can be attributed to the slowdown in consumer spending due to the weaker Ringgit and lower commodities prices. Also the higher cost of goods and services arising from the implementation of the Goods & Service Tax (GST).

The decrease in pretax profit was mainly attributed to the expenses incurred for the acquisition of PBSB even though it was partially offset by forex gain.

Going forward to the next several coming quarters, will the construction division continues to deliver strong consistent earnings that will boast up the overall earnings of Mercury?

I do not know. I don't own any construction stocks before because I am sometimes confused with the accounting way of construction companies. Sometimes the results are excellent in this quarter, but poor results in the next quarters due to sort of unbilled billings or unrecognised earnings, it is quite confusing for someone like me.

Once these ways of accounting confused me, I am unlikely to invest. But in the case as I have been one of advocator for Mercury as early as the beginning of my blogs in 2013 and has been challenging/inviting you to join in the wagon, I will stick to my investment.

Besides, Mercury has been paying steady dividends since the last four year. The dividends received were 8 sen, 8 sen, 10 sen and 6 sen in 2012, 2013, 2014 and 2015 respectively.

These rate of dividends is considered high as Mercury's share price is normally traded between 1.15 - 1.50 range. As long as the dividends are maintained for the next few years, I really have no qualm if the share price continue to even languish at this ranging price.

What about you whom might have joined in the party for Mercury shares after being "brainwashed" to invest? Sorry, I used the word "brainwashed" as only a joke. I know most of you are sort of experts in your own way when it comes to analysing stocks.

Again, I believed some might have sold off, some might still be hanging on. But I am still holding on as long as the two divisions of Mercury can continue to earns profits over the next several years. It means that the dividends will continue to be credited into my banking account.

Profits in hands that turned into paper loss

Just recently I share about the dilemma of not taking profit when there is paper profits to be realised into actual cash profit. I shared about the anxiety of investors whether taking profits too early is a wise decision or not.

Well, I am now regretting my decision for not turning paper profit into cash profit for one of my mentioned stocks, APM Automotive Holdings Berhad, a cash rich company and also a subsidiary of its parent company, Tan Chong Consolidated Sdn Bhd. Tan Chong owned 32.47 % of APM.

APM was featured on Sept 30, 2013 titled : A Tale of Two Automotive Companies

Bought by yours truly at RM4.66 on Nov 29, 2012, APM went on to as high as RM6.40 on May 12, 2014 riding on the good sentiment of the market.

However in recent times, its quarterly profits has been declining as evidenced from its reducing dividends payout. Hence, the share price followed in tandem and is now trading at below my original price.

If you care to check, it closed at RM 3.93 on Dec 10, 2015.

Why I didn't sell when it was starting to report declining profits? Why I did not take at least some profits when there was time to do so? Or was I still hoping there would be a turn around of fortune for APM? Or maybe I did not pay attention to it as I was focusing on others?

I really don't have the answer. All I can say is I am now sitting on paper loss and I hope the paper loss would not balloon to a bigger one.