Monday, February 27, 2006

ROI on Uchi

ROI - the Review of Investment

So you have purchased yourself an investment in a great business at a good price. So what do you do?

Do you honestly think it is wise to leave your great investment aside and hope that your investment will grow forever and ever?

Get real!

That's the harsh answer I keep reminding myself. For in the real businessworld, most businesses simply cannot grow forever and ever. Leaving our investment aside and hope that our investment(s) will grow into a 10 or 20-bagger is simply foolish thinking.

Remember we are but normal average investors. And because we are normal average investors, we are more likely to make mistakes, either via faults in our own stock selection process or the company that we have vested interests, might not be a good company anymore! And if it is no longer a good company, why hold on to the investment?

Which is why the ROI is so important. We need to review our investment to make sure that the stocks we are holding is still a good stock. We need to review if the very reasons to invest in the stock remains valid. Now if the stock is no longer good, it simply makes no sense to hold the stock.

Ah, yes talk is always very cheap because supply is always greater than demand. (LOL!)

Ok.. let me share a mumbling on a real example.

Let's assume (forget this not, the word assume (ass-u-me) means making an ass out of u and me.. :p) that I had made an investment in Uchi Tech. Remember hor... ass-u-me I had made an investment in Uchi.

Now say one of the reasonings that I purchased Uchi was for its earnings growth. Yup, say i was seduced by the fact Uchi is making lots of money and is going to make more money in the future. And because of this reason, I made an investment in this stock.

So for my personal ROI, I really need to ask myself honestly how valid is this reasoning now?

Do you see how I have stressed on the word honestly? Sounds silly right? But as silly as it may sound, many an investor have failed to this question themselves truthfully!

Back to Uchi. To answer this question, i would look at Uchi's historical yearly earnings. (please verify the data posted here.)

fy_______ Sales______Net Profit
2001 ____ 94.999____37.062

Question time. From 1999 to 2005, has Uchi earnings continued to grow? Are you satisfied with it?

Next issue. Take out the good old calculator and calculate the net profit margins. Are you satisfied with the net profit margins? Has the margins been sacrificed for the sake of earnings growth? (ah.. this one is debatable. For some, they do not like to see net profit margins been sacrificed for the sake of growth.)

Net profit margin since 1999: 39%, 35%, 39%, 42%, 49%, 54%, 56%

How do you rate such a performance? Still good?

Next, check on the company's balance sheet. Take it as a challenge. Ass-u-me that you are on a mission to discover the biggest .. err... err... investment trap in the Bursa Malaysia. Comb thru Uchi's balance sheet and see if you can smell a rat in there!

Things to ask.. is there a drastic built-up in the company's inventory? What about the trade balances? And what about the company's borrowings?

Do we smell a rat?

And the most important thing is the Moola!

Show Me Ze Moola!

Simple issue. The company announced that it made more and more money each year. Do we see the 'wealth' being created or not? Is the company really worth more or is the simply company worth less?

Big issue here.. for we have seen so many companies saying they earn so much money.. but... somehow... the investor, they dun see the moola!

Compare the cash balances. Is the current piggy bank more than last year fiscal year? If no, where is ze moola? Did the company pay out more dividends?

How? Are we satisfied? Or am i singing Mick Jagger's classic, I can't get no Satisfaction, already?

Remember in ROI, there is no point in cheating. If we cheat ourselves, meaning if we give ourselves lame excuses and find flimsy excuses to justify our own reasonings to stay invested in the stock, we are simply cheating ourselves and we are only helping the share market make a fool out of our beloved money!

How? Does Uchi past all these simple issues or not?

Are we satisfied that Uchi has a realistic chance to grow somemore in the near future?

And then check the local corporate issues... do we see the company doing anything funky?

Remember in the posting, Management Integrity,

  • According to Fisher, the management of a company is always for closer to its assets than its shareholders. And without even breaking any laws, there are number of ways that the management can benefit themselves and their families at the expense of the minority shareholders, for example employing their relatives, buy-and-selling of properties between relatives at above market rates or the issuing common stock options.

I saw this Uchi announcement posted...

How? Uchi is proposing a new ESOS.

Ahem. A 15% ESOS priced at a "price to be determined by the Board upon recommendation of the ESOS Committee based on the weighted average market price of the Shares for the five (5) market days immediately preceding the date of offer with a discount of not more than ten percent (10%) or such other percentage of discount as may be permitted by the Bursa Securities or any other relevant authorities from time to time during the duration of the Proposed New ESOS; or.."

how? If and when this new proposal is passed, a minority shareholder will see their earnings per share being diluted by 15%.

Is this fair? Is this acceptable by you?

If no... then the option is to either vote against this proposal ... and if that fails... then perhaps... yes perhaps it is time to say goodbye to the stock! Remember Fisher teaching that in such instances, the company is finding ways to enrich and benefit themselves at the expense of you, the minority shareholder!

Again how?

Well, these are the very issues I will be addressing myself, if and if I own shares in this stock, Uchi Tech.

ps... I am merely mumbling my thoughts... ok?

Cheers dude!


hhc1977 said...

hi nm,

somehow saw yr 2nd part instead of 1st one first.

yes, the ESOS is really a worry and a risk.

Sometimes, if ESOS is done properly, it will create a win win situation between shareholder, worker and customer. remember, as a shareholder , we are also responsible for the well being of yr staff well being.

This brings out my mind on Intel duting its 80s where it dished out ESOS like paper. However, many of those who benefited from the ESOS actually created tremendous value for INtel.

If i remembered correctly, Uchi also had old ESOS which is at the price of around RM0.80++ at last year (only knew that when the they exercised the option.)

So, i will put up a red flag for this for the time being. I think it's still not terminal yet.

Moolah said...

A 15% ESOS is simply disgusting!