Last night I highlighted the declining earnings in Uchi. Yet Another Update On Uchi
I clicked open my stock quotes and Uchi is UP a nice 6 sen or 8%!!!
Bad earnings? But the markets are loving the stock! Why? Are my comments WRONG?
Well do understand this. I am merely stating the facts and for Uchi, its earnings is CLEARLY DECLINING and do note that I do not here to predict the stock movement.
So what is happening with Uchi?
If I have to guess the answer is very simple.
PROPOSED FINAL DIVIDEND FOR THE YEAR ENDED DECEMBER 31, 2008
- Please be informed that the Board of Directors of Uchi Technologies Berhad has, on February 25, 2009, proposed a Final Tax Exempt Dividend of 6 sen per share of RM0.20 each for the year ended December 31, 2008 for the approval of shareholders at the forthcoming Annual General Meeting of the Company.However, the entitlement date and date of payment of the Dividend have yet to be finalised at the moment
Based on yesterday's closing price, this proposed Tax Exempt Dividend is certainly interesting.
I took a look at its balance sheet.
Its cash balances total 135.844 million and it had no loans. However, if you look at the previous year cash balances, you can see clearly that Uchi's cash balance is shrinking.
Flashback 2007. I wrote Review Of Uchi Again
In it I compiled the following table.
Back in 2006, it had cash balances of 168.170 million and when I looked at in Sept 2007, it had cash balances of 172.039 million. Cash balances now is 135.844 million. Clearly shrinking yes?
Yesterday's 4Q unaudited earnings, Uchi reported net profit of only 58.748 million.
Compare to to the above table.
The last time Uchi reported net earnings below 60 million was fy 2003.
So we have the very interesting case where one is looking at three main issues.
1. Uchi pays great dividends.
2. Earnings is clearly declining.
3. Cash balances is also clearly declining and one of the main reason is that Uchi's pays great dividends.
Now common sense would suggest that if the earnings keep on declining, one day Uchi's dividends payout would surely decline too.
Counter argument is that in the long run, Uchi's earnings should recover and given the fact that Uchi's current cash balances is still quite sizeable, why worry? Buy and enjoy the dividends for the long term.
How?
Would you buy Uchi for its dividends?
Posts
2 comments:
My thoughts:
Uchi's dividend has been on a decline for the past few years.
However, considering the price of Uchi presently, the dividend is very attractive. The dividend given and proposed this year (2009)based on last year's earning is generous at 12% yield for those who bought Uchi at cost of RM1.00 per share.
For next year (2010) I roughly estimate a dividend of 9 sen, carrying a yield more than 10% on current share price.
Current decline of earning is due to the global recession.
Assuming that this year's is the worst year for economy. Then next year onwards, we should see an increase of earnings for Uchi. This should translate to higher dividend yield for year 2011 if the price is stagnant at RM 0.81.
A few points that need to be observed:-
a) Will the recession prolonged ?
b) Dividend payout policy continuation.
c) Entry price.
d) Untowards financial and operation in Uchi.
If above observance is non-obstructive, then Uchi with it's dividend yield offer more value than other stock especially in the recession years.
My 2 cents points
Thanks for your compilation of Uchi's backgound especially the ESOS.
It is a concern if there is an abuse and I appreciate your comment regarding the ESOS and glad to see that no new ESOS is given in 2008 and hopefully too in 2009.
My thots after reading your posts on Uchi.
There are three ways for a company to generate fund for expansion. (1) Internally generated fund (cash reserve), (2) Sale of equity and (3) Debt.
All the three methods reduce EPS..(1) through loss of interest on earning, (2) dilution of earning through enlarge share base and (3) Interest due to bank.
The pecking order is always (1),(2) and (3). I wonder what has transpire within the board of the company when (2) is chosen as the method to raise capital.
If agency theory is pursued by the board, it will make those who got the ESOS more responsible in charting the future direction of the company as no director wanted to buy equity at high price only to see it falls below the purchase price which is now the reality.
But no shareholder will agree if the directors are issued ESOS only for them to make quick bucks. To clear this issue, it is good to have a look at the change in director's shareholding throughout the issuance of ESOS.
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