98 - The effect
of price war
The recent 1st Qtr reporting session for the majority of listed stocks
on Bursa Malaysia has rather been a poor one, from my very personal frank
observation point of view.
Although I couldn't get the official figures of how many reported growth
in profits or more reported negative growth or even worse more suffered losses,
I noticed most were not able to report improved results.
When we have such a broad base of companies reporting less profits and
many more actually suffering negatively, we can only understand how tough the
whole business environment has been for business.
As consumers started to become picky for value buys if possible and cut
down on major ticket items, manufacturers and retailers need to replan their business and pricing especially to
attract market share.
And one of the common strategies is to maintain
or reduce prices through promotion to stay competitive enough. But it is common
knowledge that most businesses are too, competing closely the same especially
in terms of pricing.
As long as they can garner market share at the expenses of competitors
(but at the same time at the expense of profits), it is considered to be ok
than having declining market share which will result in losses and unsold products
eventually find its way back to the seller and manufacturers.
Such price compression war situation actually hurt the bottom line of
those companies involved, but what choices do they have if their pricing is
more expensive than the rival's?
An ongoing classic case it the keenly fought battle for pizza market
share is the current RM5 a piece
promotion that has been going back since two or three years ago.
I think Domino Pizza started the RM5 a piece promotion first and it
became an instant hit among pizza lovers. Who could imagine just for a RM5,
one could get a bite or two on different types of pizza with different
toppings. It became so popular that its main bigger rival Pizza Hut also joined
in the RM5 promotion war and it is still on today.
My friend's spouse who is an expert in baking pastry remarked that it is
almost impossible to make any profit for this type of pizza for just RM5 only.
With the prices of ingredients on the rise always, it is cheaper to buy one at
RM5 than to make your own self.
So what is the point if both sides are incurring losses in this RM5
promotion? I think the answer beneath is as long as one buys my pizza, one will
get used to my types and tastes of Pizza and would eventually preferred other
kind of non-promotion type of pizza as well.
Even hypermarket are joining in the war if one goes and have a look at
Giant and Tesco hypermarkets. Besides the pizza war, there are other types of
wars going on as well. Another example is also the healthy yogurt drink war.
Nestle, Dutch Lady, Marigold and others brands are competing too fiercely for
market share.
While all these price reduction war is good for
consumers, it is not so good for manufacturers and retailers and for those
listed companies too. Hence this is one key reason many companies were not able
to report better results.
Apollo's 4th Qtr results
and its anticipated
dividends
to be announced this
month
Snack confectionary maker Apollo Food Holdings Berhad is due to announce its
4th Qtr results sometime this June for its Financial Year ended April 2017.
This 4th Qtr results will be keenly followed by its majority of long
term stable dividends shareholders because a good result will have a strong
bearing on its once in a year final dividends payout.
How much the dividends will be this time? To roughly have a conservative
estimation, based on its up to date 3rd Qtr (Jan 2017) of its earnings per
share of 18.92 sen and assuming another 6 sen for its 4th Qtr bringing total
dividends to 25 sen, the likely dividend will be 20 sen per share.
But as Apollo is a cash rich stock with more than RM 127 million in its
kitty (translating into RM1.59 per share) and zero debts and has a steady track
record of dividends, it is in a strong position to even payout all its earning
of 25 sen as dividends.
This is just all my guess only and one should even be prepared for the
unexpected such as a poor 4th Qtr results which could affect its dividends
payout ratio and its share price as well which is currently hovering around the
RM5 range.
One should note that Apollo just not have a specific dividend payout
ratio policy and has never raised a single sen for any right issue exercise
from its shareholders all these years. Also it has never declare any bonus
issue as well.
Buying 3,000 shares of
CB Industrial Products
Holdings
on May 29, 2017 at
RM2.10
CB Industrial Products Holdings is also another well
diversified company that is a leading manufacturing and engineering based
company specialising in the construction of palm oil mills, manufacturing of
palm oil mill equipment, machinery and related parts.
It's other main business segments in the Group include retrofitting of
special purpose vehicles and development of palm oil plantation and milling.
CBIP aims to be the preferred provider of innovative engineering products and
solutions to the global oil palm industry and related sectors.
CBIP has a healthy balance sheet of cash hoard of around RM120 million
which should provide opportunity for it to
explore into any future business opportunities.
Besides CBIP is one stocks that pays regular dividends twice a year.
Such kind of stock fits nicely into my criteria of Basket of Defensive Stocks
for a mid to longer term time period. If you happen to think that CBIP is one
stock that will give you quick short term return, I will not agree with you on
this, seriously.
I like to take this opportunity to wish all Muslims friend a very Happy
Selamat Hari Raya Aidil Fitri.
