Interesting dialogue between Mohd Radzian and hhc1977 on the posting More Feedback On Uchi"
Let me say a few words again.
The main concerns for Uchi
1. Decline in earnings.
2. Decline in net profit margins.
3. Decline in cash balances.
4. Continued decline in dividends paid.
5. The integrity of the owners in rewarding themselved more in a much bloated ESOS
As it is, Uchi's potential yield in dividends based at a price of 84, does have its justifications, despite its lower dividends.. if
1. Uchi's dividends for total year is at least 9-10 sen.
2. The recession does not last longer than 8 months (would this time be ok, Radzian?)
Well the investment would pay off if the 2 points hold true.
Could it not go wrong?
The recession. This is synchronized global recession and there are some very strong arguments that it could last much longer.
And in the face of such a scenario, I have raised the issue again and again on Uchi's main products and look at its relevancy on the face of a global recession. What is the impact?
And without a shadow of a doubt, Uchi's products would hurt if the recession is prolonged and it's without a shadow of a doubt too that Uchi's earnings would be impacted.
Of course, some would be correct to point out that since Uchi's product is sold in USD and since the RM is much weaker against the USD, this should act as a buffer to Uchi's earnings.
However, some would also quickly point out the drastic slump in sales revenue. With the huge slump in sales, how good could profits be?
And if the decline in earnings continue, so would the share price.
And this is where the huge concern is. The dividends received could be good based at 84 sen but any potential gain could easily be reversed by the falling share price caused by declining earnings.
That's the concern.
Of course, a concern is just a concern. It might not happen and if it doesn't happen, the investor taking the bold investing decision to buy would be rewarded.
However, if the concern holds true, the prudent investor had just made the intelligent move by not being seduced by the dividend yields on the backdrop of a slumping earnings.
Monday, March 09, 2009
Last Words On Uchi For Now
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6 comments:
Hello Moola and HHC,
To be very neutral, I have started a blog on Uchi..
Please read at : http://bursavalueinvesting.blogspot.com/
Do leave comments, I need feedback as well
I need to add.
1. Recession
Technically, recession starts in 2008. But, Warren Buffet and many others pointed that recession starts in December 2007 when data other than growth in GDP are considered.
By this April, the recession is 15 months old. The longest recession in US previously is 1６ months. I am assuming recession will continue another 8 plus 4 months *worst case scenario. This means that my estimate of the total period US under recession will be 12 plus 14 months , which is equal to 28 months, or 2 years and 4 months.
I may be wrong.
But hopefully I am right.
2. Uchi Earning during Recession
I have done a case study at the link in my previous post. I may be right or may be wrong, nevertheless please comment.
Thanks.
Good effort Radzian,
However let me say out loud here that I will fail when investing has to become as complicated as using so many estimates and such complicated formula to justify one's investing.
Nothing wrong with what you are doing and it's just that I do not do it in such complicated manner. Too many estimates and assumptions are made.
Sorry.
Yeah, we are all different.
For me, Uchi's main products and its relevancy on the face of a global recession is utmost importance.
Moola,
We are all different,
If calculation are made to be too simplified, then the estimate and assumption is larger.
What I have written in my blog is how a person derive the dividend directly from the revenue. The only estimate which I have written are estimate of revenue and this is done based on GDP growth and exchange rate between USD/MYR.
The equation which I provide is free and you can simulate the best and worst ROE scenario. Later, if I have time, I will write a visual basic program and it could do the simulation ans save a lot of time for analysis of other companies in the future.
For me integrity is important too, if a company fail to give dividend to it's shareholder, it point that there are so much unknown things happening in the company and hence we as the minority shareholder failed to be rewarded for our investment.
Not many people are honest and generous to share what they earn in their business, so I stick to those who are generous albeit they are falling due to appreciation of exchange rate and recession. In good time, they have more likelihood to reward me compared to the other stingy company
HI
Great effort mates,
1)I m kind of sceptical in using previous data to predict what we are in. Market is a reaction between many variables (reflexology). We might be in the fat tail event in typical normal distribution event.
2)Seriously, do u see this recession this deep and furious last year?
3)I m using a stupid method. I will wait until a bottom is confirmed before i commit myself.
as for uchi,
1)What is the moat you see in its company product beside its old coffee market? I think they went into water related stuff but i dont know how good they are now.
2)IN coming out of recession, do u think uchi's prodcut will be the must have for other people? If not, how can uchi improve its bottomline?
3)Uchi is highly held by 2 guys and it might pay to understand how they live (look at what cars they r driving). Better still, understand how they operate their company.
4)As for currency gain, pay attention on their hedging activities. I will expect it should take some hit on its hedging activities.
5)I m really wondering will uchi's customer still has the appetite for expensive coffee market as the current mess is on going. Even Starbuck did offer "instant" coffee which is unthinkable last year :)
6)Uchi's product offering is like eletronic manufacturing service industry which is under tremendous cost pressure. And i dont think the barrier of entry is terribly high.
Radzian,
Oh yes ,I am aware that your assumptions and estimates were based on GDP and exchange rate and this is exactly why we differ.
Let me ask you, have you considered the issue of Uchi's main product and its revelancy under current market environment? Me? I have huge concerns.
Quote: Not many people are honest and generous to share what they earn in their business, so I stick to those who are generous albeit they are falling due to appreciation of exchange rate and recession.
Yes, that's true BUT I will NOT force myself to invest based on this reason alone!
Have you really, really consider the fact that the dividends are plunging each year?
And this looks like the 3 year in a row that Uchi's dividend has fallen. What if the dividend falls again next year?
And if you would really want my opinion, my answer is that ...
I will not invest in Uchi now for its dividends! I call it a PASS. And the reasons are so clear.
1. Product revelancy is an issue.
2. Plunging sales is an issue.
3. Plunging profits is an issue.
4. Plunging cash is a big issue.
5. Plunging dividends is also an issue.
And when you add in the fact that the owners had shown their utter greed in the shambolic ESOS, I am afraid that I would rather avoid this stock.
Yes, integrity is the biggest issue! Make that point 6.
That's my frank opinion.
And if Uchi goes up, it goes up.
It's not a problem at all for me.
Missing this opportunity in Uchi would not cause me to loose sleep because I know very well that simply isn't an investment for me.
And yes, it's never a crime to sit out and I would rather sit out than to risk my imoney just for the sake of the dividends.
The concerns is simply too huge to ignore.
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