What a difficult year 2016

What a difficult

year 2016

By the time you are reading this, the year 2016 would have just passed by more than two weeks although memories are still very fresh of what a difficult year it was for most rakyats and of course investors of Bursa Malaysia.

For one, the majority of most stocks closed near its 52-week low or new 52-week low in 2016. Only a marginally small group managed to closed near its 52-week high. For long term investors, the declining stocks prices could only mean a major erosion of paper wealth in their profit and loss account.

It would be even more bitter to swallow especially for those who invested most or major portion of their cash savings in stocks rather than putting in fixed deposit. For those who practised proper asset allocation in investing, the loss is not that much. As Warren Buffet advised : Never put all your eggs in one basket. In fact I like to add in that it is advisable NOT to put the major portion of your eggs in one basket too!

Why did the majority of stocks prices declined to such new 52-week low or near its 52-week low? One must understand that it is always the profits earned that determines the direction of share price. This is the prime mover in my opinion.

Most companies reported lower profits or even loss as at the third quarter of 2016. It was no surprise to me because the economy as a whole was not going well in many quarters.

So when most companies and businesses are not doing well in this subdued economy time, less profits set out chain of an unfortunate dominoes effect of getting less take home pay and thus spending less to cope with rising cost of goods and services.

It is really a double edge sword for almost the whole segment of business and the rakyats. To illustrate how bad businesses are, here are some real life situations I personally experienced or shared by my closed friends.

Cosmetics counters are almost eerily deserted most of the times. The next time you go to the mall, try to observe the dire quiet situations of the cosmetics counters. These counters are normally located together in a big space. But it has been many months since customers started to disappear. 

Even the cosmetics sales consultants started to call or Whatsapp their regular disappearing customers to inform about any promotions or sales going on. During the good days, you won't hear from them at all. Why? They were busy entertaining hoards of customers. Even regular customers must wait for their turns to be served.

A leading supermarket in Penang has seen its cosmetics counters section becoming smaller due to less counters still operating as some have closed down.

At supermarkets, I have noticed that there are now more cases of fruits/essentials placed back after being chosen, packed, weighed and gummed with a price sticker. Obviously the customers must have thought the price was within his/her comfortable range. Only after knowing the price and feeling expensive, decided not to buy and put it back.

This cases are confirmed as I personally spoke to one official of a leading supermarkets who said they are also fed up with this situations happening commonly in a daily basis. It is giving them extra work, and using up more plastics.

Several leading malls in Penang has seen more empty shop lots these days than years back. And some have been empty since last year. 

A good indication of how companies have cut down on expenses is the current Chinese New Year red packets given out. During the good times, red packets packed in 10 were freely given out. But this year, it is not easy to ask for free red packets as most companies have ordered less and hence only given out to those who make some purchases or their regular customers. Even then, the red packets come in 5 or 6 only.

Another clear sign of the slowing economy is the drought of advertisements in The Star. The Star is getting thinner by each days. There are instances where on certain days, there was only one colour advertisement in the first half of the paper. Unlike those days The Star was brimmed with so many colour advertisements fighting for prominent pages even though those who wanted their advertisements on preferred pages must pay extra loading for it.

Admist all these subdued spending, the rakyats are faced with another  in the form of inflations. Prices of may essentials have risen since the late last year.

Many people are lamenting about the expensive prices of so many things.  And there are not much most of us can do other than to spend less and get less or spend more to get the same.

Life indeed will even be tougher in 2017.

The danger of over expanding in business

The danger of

over expanding

in business

Being in business is never easy especially when one is helming a public listed company. It comes with great responsibilities and major decisions are needed to be made decisively at times.

The decisions could not be a perfect one, it could even turn out to be a disastrous one that can send the company into deep, deep trouble.

Decision such as expanding or over expanding is never an easy one. When there is a big demand for a certain product and this company is one of that product manufacturer that is running at full capacity. What should you do if you happens to be the number one head honcho man?

Do you just maintain business capacity as it is or do you order more machineries, increase staff counts, invest in latest software, buy even more raw materials to increase your output capacity to cater to more demands?

It is my personal opinion that most ambitious entrepreneur business man if he is the big boss of that company (running at full capacity) would choose the later step i.e. invest more in the needed areas to increase production even more.

It is alright as long as the extra demand for the products is still there. The company would be raking in more profits for its shareholders. Everyone including staff and shareholders would be happy.

But what if after investing so much to increase capacity only to see that the demand has softened down due to competitors also producing more and at cheaper price or unexpected poor economic situation? Not only that, the less demand also prolonged into months or even years?

It could be disastrous for not rich companies that take big loans as they might have to pay interest for the loans, besides the cost of maintaining its new acquired machineries and even forced to retrench its redundant staffs.

If one is an investor in a public listed company, one should take note with caution when that company is embarking on a major expansion, taking on big loans as well. The slightest news you read or hear about slower demands that might affect the company, you must make a quick simple decision whether to sell your shares or to hang on.

Recently when there was news of Tek Seng Holdings Berhad reducing its 180 head count from production line (due to slower demand) in September.

It came as a shock to investors as Tek Seng was expanding several new additional lines to cater to strong demand for its polyvinyl chloride related products.

A quick Google search on related solar power issues seemed to portray that many similar overseas big players were experiencing slower demands due to massive overcapacity productions.

As I am just a "kacang putih" investor, I decided to dispose of all my shares and free warrants on that day. Of course it was easier for me to sell because my entry cost was just below 40 sen. It would be more difficult if late comers buying at RM1.20 and above as they might be reluctant to cut losses hoping for an eventual rebound.

It has been almost three months and it was a decision I was grateful I made. The share price of Tek Seng is now hovering above just 70 sen range.

Another lucky company I was very lucky to get out with good profits was now the defunct shipping and logistic services provider, Swee Joo Berhad. Its main focus was on providing containerized shipping services between Peninsular and East Malaysia, in the coastal waters of Sarawak as well as between Malaysia and regional destinations such as Bangkok, Ho Chi Minh City, Jakarta and Surabaya.

Listed on Oct 17, 2006, it closed above 80 sen on its maiden debut and went on to record as high as around RM1.60 two years later. After its listing, Swee Hoo embarked on aggressive expansion riding on shipping boom. It borrowed heavily for fleet expansion, including the acquisition of the four chemical tankers and container ships.

But the unforeseen 2008-2009 global financial crisis caused a sharp decline in freight rates. Shipping industry was adversely hit. Swee Joo was caught sadly. Business was bad and there was little cash flow left, but short-term loans and long-term liabilities of RM500mil as at Sept 30, 2009. Interest expenses amounted to RM28mil a year.

Eventually it went into bankruptcy and there was nothing left anymore for minority shareholders.

Yours truly was one investor who invested on its maiden listing day buying at 86 sen. But I was most truly lucky to sell off my 3,000 Swee Joo shares at around RM 1.50 plus two years later shortly before the start of the global finanical crisis. At that time, I was just in the mood of profit taking and not knowing anything about the coming global financial crisis.

Even more lucky was that when its share price tumbled down, I did not enter at all although I was very tempted to buy back especially when it was selling at my original purchase price of 86 sen. If I had done so, I would have given back everything I profited earlier. This is called luck.

Well, this will be my last article for 2016, I like to wish everyone good health, more wealth and ONG & HUAT in 2017. Happy New Year to you. Thank you so much for being with me since the middle of 2013. The journey has been wonderful for me so far. I hope you my loyal readers/followers enjoyed too regardless of what happened to the stock market.

See you again soon in 2017!

Mercury turning into a construction player

Mercury turning

into a construction

player

Mercury Industries Berhad recently announced it has entered into a conditional share sale agreement (“SSA”) with Interglobal Dynasty Sdn Bhd for its disposal of auto refinish business.

Mercury's reasons were that its auto refinish business has become increasingly challenging as a result of the slowing domestic economy, uncertainties in the global economies and weaker Ringgit.

Instead, Mercury will be banking on its 70% owned construction company, Paramount Bounty Sdn Bhd (PBSB) for its new revenue and profits. PBSB was acquired during the second half of 2015.

Some readers who followed my early blogs would recall when I first posted about Mercury on Sept 23, 2013 : Walk the talk with Mercury Industries Berhad with me. Dare you? Since then, I continued to make several more subsequent purchase of Mercury stocks until 36,000 shares.

There were several reasons why I was interested in Mercury. Way back in 2013, total vehicles sales in Malaysia were rising. Car paint business seemed like a resilient one with consumers needing to repaint their cars after several years of usage. Besides, any car sent in for repairing after an accident is likely to require some spraying of paint too. Incidentally, accidents in Malaysia are rather high compared to many other countries.

Another reason was its good dividends payout which not many other counters can rival. Since 2011, it has paid out 8 sen for 2011, 2012, 2013, 10 sen for 2014, 6 sen for 2015, 6 sen paid in July 2016 and a further 6 sen payable in January 2017, total 12 sen for Financial year 2016.

Remarkably, despite its high dividends payout, since 2011, the highest its share price touched was only at 1.70 done on June 11, 2012. Why dividends lovers shunned Mercury is rather a mystery to me until today.

Perhaps there are other ares of concerns about Mercury others investors see which I don't see. Mind you, I am just an ordinary Joe investor who are perhaps more lucky to be in the right place right time most of the times.

Now that the management of Mercury has decided to exit its auto refinish business and focus on construction, the most important question ordinary  investors like me to ask is should I stay on or sell out my 36,000 shares?

I am sharing this now because it was me who challenged readers to buy Mercury shares and stay together with me for long term investment. I am pretty sure there must be some followers who bought Mercury shares and are still with me.

If I am to sell, I would be making sure I would be posting my blog the very next day to make this selling decision as promptly as possible so that my followers will be able to make a  better informed decision on themselves.

So far, the construction division has been performing better than the paints division. It contributed the lion's share of revenue and pre-tax profits as well in the latest 3rd Quarter Result (July to September).

In fact, its pre-tax profits surged 25% compared to its corresponding quarter  in 2015. Note that PBSB was acquired in August 2015.

Granted that PBSB is a smallish construction company that is nothing compared to the giants like SP Setia or IJM Berhad. In fact, many mid-size property companies are even bigger than PBSB.

But then again, many of these giants properties companies at one time ago started as a little unknown company first. Who knows, PBSB might one day becomes a giant company as well.

At the moment, I have decided to stay on and take my chances and see how PBSB will carry Mercury to the next forte.

I have decided to add in more shares to my Basket of Defensive Stocks.

Buying 3,000 shares of Advanced

Packaging Technology (M) Bhd

on Dec 16, 2016 at RM2.28

Advanced Packaging Technology (Advanced Pack) is a very small cash rich company that has a good record of paying dividends since 2004. At this price, the dividend yield is around between 5.5% to 6% which is higher than banks' current fixed deposit rate of 3% or 4%.

Buying 4,000 shares of JCBNEXT Berhad

on Dec 16, 2016 at RM1.76

JCBNEXT Berhad (JCBNext) is formerly known as Jobstreets. Actually I am considered very late into buying into this company. (It has rewarded earlier investors with hefty payouts of over more than two thousand ringgits after it disposed of its main business).

But nevertheless, it still has substantial cash in its kitty and a strong presence recruitment business in Taiwan. It is also another consistent dividends paying company.

Have a wonderful Christmas and Happy New Year.

Fimacor - still strong, steady and generous

Fimacor - still strong,

steady and generous

Owning business or assets especially in another country is not always assumed as safe. Many times that particular country's government could see a change of hands and the new government will sometimes decide to change the current rules set by the previous government.

Such change of rules sometimes can seriously affect a wide spectrum of people and business in the countries, But sometimes even without any change of new government, the existing one could still  to amend or over-ride existing rules or agreements done years back due to certain reasons.

Recently one of my companies, Fima Corporation Berhad (Fimacor) was experiencing such shocking amendments of rules/agreements of their plantation business in Indonesia.

Fimacor's 80% owned PT Nunukan Jaya Lestari (PTNJL) has a lease hold term that expires in 2038 and covers 49,356.75 acres of agricultural land in Nunukan Regency, East Kalimantan, Indonesia. Between 2006 and 2007, Fimacor paid a total of RM 96 million to acquire PTNJL.

The plantation business in Indonesia accounted for around 30% of the group's revenue since the last eight financial year. But during these last eight years, its total profit easily exceeded its original investment of RM 96 million. It has turned out to be a good investment after all.

But now the Indonesian government has revoked its 80%-owned Indonesian subsidiary's cultivation rights, reasons were it had been improperly issued resulting in the overlapping of some of Fimacor's planted areas with forestry areas.

Fima has started legal proceedings to challenge the ministerial order. But what will the outcome be? If it loses, the loss of this will seriously hurt its earnings although it still has a stable security printing business to rely on. (But then again, isn't it better to enjoy two earnings than one?).

Fimacor was featured twice before here. I first wrote it on Jan 20, 2014 : One rich generous printing and plantation son and later on July 2014 : Fimacor is running faster than Kfima. My original investment of 4,000 shares in 2004 has now ballooned to 12,000 shares following its bonus and split exercise in 2014.

Total dividends received to date is around RM 11,000.00 which has exceeded my original cost of RM 5,722.36. Fimacor remains a top dividend class paymaster. Between 2011 and 2014, (before its bonus and split exercise), its average dividends were RM 346 per share. For 2015 and 2016, it paid RM 125 per share each year, but when I calculated my 12,000 shares x RM 125, it is a total of RM 1,500.00 per year.

Although my investments are free, it doesn't mean I don't have to worry about what will happen to my investment in Fimacor at all. I am in a dilemma of how the outcome will be? If I don't sell now and it loses the Indonesian plantation business, its share price will easily fall below RM 2 and beyond. What if it wins? I think in the event it wins, it will not have any effect on its current price of RM 2.15 plus minus range.

On the other hand, had it been the other way round that the plantation business accounted for 70% of its revenue instead of 30%, meaning the security printing business just accounted for 30% only, I believe its share price would have fallen to below RM 2 the moments the news came out.

Right now, its seems to have priced in this revocation news already. I believed many minorities shareholders like me are keen to know the outcome although it may take months or more than that when it comes to counter legal proceedings of this type of case.

The goodness at the moment is it is still business as usual there. The icing  on the cake is palm oil price has been trading rather higher during these few months.

Interestingly, Fimacor had just announced a set of impressive results for its 2nd Quarterly Report (July - September) for Financial Year ended March 2017.

Fimacor earned 7.32 sen, together with its 1st Quarterly of 5.93 sen, bring its total half year earnings to 13.25 sen. On an annualised basis will bring it to around 26 sen. A first interim dividend of 5 sen has been announced, payable on Dec 30, 2016. I am confident a final dividend of at least 7.5 sen will be rewarded to shareholders when it announces its 4th Quarterly Report result somewhere in May next year.

For dividends lovers like me, Fimacor remains a share I would like to keep for more years as long as the dividends are banked in to me at this kind of rate which is easily more than banks' fixed deposit rate.

A New Wonderful Experience

I have a true confession to share. Recently I decided to abstain from reading the share price of Bursa Malaysia. I wanted to know how it the feeling would be by totally not knowing the changes of my shares. So the only sure way is not to check on the gainers list or from the newspapers.

But I continued to keep abreast with current business issues by reading the business pages, The Edge and Focus Malaysia. I continue to check on the results and dividends announcement as well.

So what was the feeling like to be? Well, you never try you never know. I can only say it is something like peace of mind when one doesn't really know what is happening to the share price.

That is why I did not post any update on my Kassim's Basket of Defensive Stocks table. Incidentally the day I abstained from knowing the share price was on Oct 21, 2016. It was a day I started to see life differently after my possible near miss day on Oct 19.

Thank You so much

For those who wished me well after reading my previous blog, I like to say thank you so much. They were a few friends who called up to ask. I am doing fine. I have decided to increase my morning exercise more times rather than confine to my usual Saturday and Sunday football games only.