More Feedback On Uchi

The comments were getting far too crowded. Sorry but this is how blogspot is.

"Reply To Radzian On Uchi Once More" attracted more comments.

Mohd Radzian said...

• One thing that an individual investor don`t do is to call up the company and ask and you get the info ... ehem something privy but important. I did just that, a long distance call from Japan.
  
  You were right. Uchi was dreadful to be bought at RM 3.20. I 120% agree with you.
  
  Earning & dividend were on decline partly due to RM appreciation.
  
  There are multiple factors that affect earning and dividend, some are known and some are unknown. To analyse these do multiple linear regression analysis. If the variable is assumed to be non-linear, at best is neural network but try to avoid over-fitting. But the beauty of these analysis, they gives error measures that indicates the % of the influence by unknown variables.
  
  It may give an answer about future dividend and earning.
  
  In my 2 cents view, I am still contend that Uchi is a good buy at RM 0.84 for me who is satisfied with dividend yield of 10%. Further more, I think, there will be capital appreciation once we are out of the economy doldrum due to increase of earning.

hhc1977 said...

• Yo,
  
  my 2 cent
  
  1)How trustworthy will be the PR department information esp they dont need to be legally responsible with what they said. If they choose to give unbalance/selective information discharge, then it should raise a big red flag. isnt a honest company is what we should trust for long term?
  
  2)If my memory is still right, one big gov fund bought in uchi at the up-trend. Anyway, this was what was Uchi being held then. High growth with superior dividen.
  
  3)If company can be accurately "predicted" with fancy analysis, then we wont have LTCM and current mess. trying to think KISS
  
  4)Well, it takes seller and buyer to make a trade. The 10% div yield is based on 2 serious uncontrollable variables, price and dividen declared. How can u be sure its price will stay as it is? How can you be 100% sure that the board will make the same payout year in and year out? If more people (big fund or major shareholder) thinks they get better value, why do u think they will stay in?
  
  My last argument: The most important factor is really management integrity (honesty). If i cant trust the management in good time, how could i trust them with my money when the going is getting tough? Survivor of the fittest...

Mohd Radzian said...

• Let me reply to you point to point basis based on your numbering.
  
  1) Trustworthy is a variable that can only be measured over time. I measure this by comparing official result with unofficial result when the actual result come out circa May 2009.
  
  2)It is the people who made the decision for the big government fund. People tend to be erroneous as their long term vision may be capped by unseen variable. Currently, the price is at the downside. Even I predicted a drop of dividend from 12 sen (14.7%yield) to 10 sen (12% yield) next year. But this is still very attractive considering 1.5year period of investment.
  
  3) Having an analysis is better than having no analysis. Of course having more known variable in analysis is better than having less known variable in the analysis. An analysis may go wrong when unknown variable significantly influence the dependent variable (earning and dividend). In any of these analysis, the words are statistically significant at 95% confidence level and correlation coefficient. Both are significant.
  
  4)Price is uncontrolled because it contain one big unknown variable that is people emotion. People's emotion can be irrational before rational news comes out. That is why certain people bought at high price (ust like the government fund) only to see that the price is too high.And some people sell at low price only to see that they lose when the price moves up. Entry level is important as much as patient.
  
  Dividend is more predictable using the regression analysis and - more known independent variable one has, a better correlation between dividend and the variables can be obtained. Uchi dividend is more predictable because unlike other big conglomerate, its earning are less choppy.
  
  The board currently has a dividend payout ratio of 70%. This is a drop from almost 95% previously seen.It can be changed. Just like other shares, board's decision is very much unpredictable. The most that I can do is to write to the board to give my opinions and ideas on how to increase earning and dividend in the future. Earning, nevertheless can be much better predicted than dividend especially in the case of Uchi.
  
  5. Integrity is very important. That is why point 1) is stated as above. I dont know what integrity issue that you are pointing to.
  
  Do they behaving like a politician who promise something like "star and moon" and yet they dont deliver it or is it the stock broker report which lacks accuracy that you point to?
  
  Both 2 points are different. If the stock broker report lacks accuracy, then one should note the stock broker firm and the person who made the analysis for future accuracy sensitivity.

Some comments for Radzian.

Ok let me butt in for here and offer some second opinions too.

Price. Yes, we all understand and we all know very well what price stands for. And as rightly pointed out by you.

• Price is uncontrolled because it contain one big unknown variable that is people emotion. People's emotion can be irrational before rational news comes out.

However, let's not forget on one massive point here, which is you are focusing on how great the dividend yield is for Uchi based on the price of 84 sen.

And what't the key words?

The amount of the dividend and the price paid for the investment.

Fact for Uchi.

Dividend paid for Uchi is declining. Sales is declining.

And the justification is there to expect to declining dividends for this year and next year too.

Price paid is so, so important.

Yes, we can all use the axiom that price is never controllable and due to the beast in the market, prices goes up and down in unpredictable manners. Sometimes the price move is rational and sometimes it isn't.

Take the 3.20 price mentioned earlier.

These were the prices exactly 2 years ago. The exact same argument. And most of all in early 2007, subprime was a word not heard by many. It was a non issue.

So what was one looking at back in Jan 2007 or better still, what would be an even more excellent comparison is that we used the 'after Uchi announced its Q4 earnings in Feb 2007' as a comparison. 27th Feb 2007 would be the date.

The table in posting Review Of Uchi Again would be valid - we just ignore the ttm (trailing twelve month) numbers.

Here is the quarterly link: Quarterly rpt on consolidated results for the financial period ended 31/12/2006

And the price to be used for reference would be the traded price on 1st March 2007, a day after the quarterly earnings and Uchi traded between 3.12 and 3.16.

So Uchi made 83.888 million for fy 2006. Q-Q growth is there and most important the earnings growth was as impressive as in the last years. Uchi's earnings grew from 73.578 million to 83.888 million. Earnings growth was there. Check.

Net profit margins was at an incredible and insane 54.7%. Check.

Dividend paid in year 2006 was impressive (Uchi paid some 71.478 million) (check) (however there is a warning sign here because Uchi actually paid more in year 2005! (87.311 million) (maybe a ? here!) , the cash balances still increased by another 10 million. Check.

However the price for an investment in Uchi was only around 3.14 (I used the mid traded price for Uchi on 1st March 2007).

ps: you can check the consistency in these comments and compared it versus blog postings ROI on Uchi and ROI on Uchi: Part II. Those two blog postings were actually made on the very same day Uchi made this Q4 announcement! And the next day I also wrote ROI on Uchi: Part III - the ESOS issue)

And in the company's quarterly announcement wordfile, the company mentioned the following.

• As of the date of this announcement, the Board of Directors proposed a final dividend of 6 Sen per share of RM0.20 each, exempt from income tax, a special final dividend I of 2 Sen per share of RM0.20 each, less income tax and a special final dividend II of 9 Sen per share of RM0.20 each, exempt from income tax for the year ended December 31, 2006.

If my calculation is not wrong, that should be around 17 sen to be given out as dividend. (Uchi's current one is only 6 sen!)

And with Uchi 'usually' paying another 10 sen in dividend at end of each year, the prospective investor in Uchi was looking at a possible 27 sen in dividend.

And it's certainly an attractive proposition of 8.6% yield based on the price of 3.14. (of course it would pale in comparison if your suggested estimated dividend (which I agree that it's a reasonable estimate) of around 9 sen holds true.

However, leaving out the present day factor, the reason to invest in Uchi at 3.14 for its dividends was just as solid. Uchi had earnings growth, great margins, solid cash flows + solid dividends.

And incredibly, some of my investing friends, exited the stock at around this time.

Why.

The ESOS issue was part of the integrity issue that many did not like. Some voted with their feet. Some voted against the increment of the ESOS (it was an ESOS of a mindblowing 15% over an existing ESOS which ultimately increases the share base by a mind blowing 22%, which ultimately dilute shareholders earnings by the same amount) but was disappointed that the ESOS was pushed throigh. So they too voted with their feet.

And what was so wrong with the ESOS again.

And as you would know, the company is run by the Kao brothers. Ted Kao and Ed Kao.

What was also questioned was the fact that the Kao brothers were granted a huge chunk of the ESOS. Around 12% each if not mistaken or 24% of the whole ESOS pie.

Now obviously the knowledgeable minority shareholders saw that this is not correct.

They questioned the INTEGRITY of the company.

They questioned why the excess.

They questioned if the ESOS (which clearly did not benefit the minorities) was pushed through by the board management because the two Kao brothers would be the main beneficiary.

And this was the clear INTEGRITY issue regarding Uchi.

Oh yes, a clear simple reason to defend what Uchi had done, would be to say that this is a common practice.

Yes, it's a common practice but if the minority shareholders do not understand that they are getting the short end of the stick, ultimately the minority will be screwed.

And so despite the sexy dangling dividend offered now by Uchi, perhaps you would understand why folks like hhc might not be interested at all.

I once posted, 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.

ps: As mentioned the other day.

• I would look at Uchi's main products and look at its relevancy on the face of a global recession. Yes I would use recession instead of slowdown.

Have you consider the relevancy of Uchi's product in the face of a prolonged global recession?

Yes, I have no doubt that one day the current global recession will pass us by.

No doubt at all.

However, between now and then, many things could happen.

For example, a prolonged recession could really, really hurt Uchi's earnings. And when it does, the dividend received now, might not be enough to compensate the loss in the stock price.

And needless to say, yes I understand the stock price would one day rise again.

But that would defeat the purpose of rushing and buying the stock now for the dividend.

And of course, I could be just as wrong IF the recession end soon.

Hope this helps as a second opinion as usual.