Monday, July 13, 2009
Sunday, May 17, 2009
Regardless, all is not lost.
Second quarter may stil be slow. But, I have written before the 4th Quarter is the estimate period of earning breakthrough the recession deadlock and grow positively, contributing to the dividend. With some probability, 3rd. may also be a blessed one for investor of Uchi.
More so, one important element of Uchi's balance sheet shows zero debt and is never near bankruptcy stage.
To understand Uchi performance last year and this year, let understand what Uchi does and it's relation with the economy. Uchi makes electronics products which is then assembled into electrical appliances and sold mostly in Europe and USA. The recession that we faced today started in USA in December 2007. It is also noted that the peak of the recession is at the first quarter of 2009. Consequently, the effect of recession do has a certain effect on Uchi's earning. Hence, this can be expected to be reflected in Uchi's profit and loss account.
Let see some of the highlight of Uchi performance along the quarters when the recession starts.
From the above table, when US recession starts in December 2007, it's effect is reflected in the 1Q of 2008. When the recession peak, it effect is reflected in the 1Q 2009.
The profit after tax (PAT) at 1Q 2009 is a mere RM 2.7 million compared to RM 18 million in 1Q 2008. It suggests that the fix cost of Uchi is approximately around RM 9-10 million ia quarter or RM 3 million a month. Uchi will achieve economic of scale when the revenue is around RM 26 million. (The effect of exchange rate is not discounted).
If the recession situation improve from (Q1 2009 to Q4 2008) for the 3 three consecutives next financial quarters, then a dividend rate of 10 sen per share (next year) can be achieved for fiscal year 2009. I am hopeful that this occurs as within my expectation.
However, if the economic situation does not improve, then Uchi management needs to do some cost cutting measures. Amongst the cost cutting measure are:-
- Embark on "reducing wastages" campaign and instill saving culture mentality.
- Offering the staff a reduction of salary with reduction of working time.
- Reduce the perks and benifits of the directors and management.
- Withold salary increase until situation improve.
- Renegotiate other fixed cost element such as rental of offices, land or equipment (if any).
Saturday, May 2, 2009
With that historical frame of mind, I tried to research some facts regarding the swine flu pandemic to gather a conclusion on its effect on the world economy.
The 2009 Swine flu pandemic originated from Mexico and as at 30th of April, 11 countries has confirmed cases related to swine flu with 800 global caseload and 20 death, thus with mortality rate of 2.5%.
In order to contain the infection, Mexican President, Mr. Felipe Calderon ordered a partial shutdown on Mexico economy by asking the people to stay at home for 5 days. His order is logical and necessary but a little bit too late. Nowadays, people mobility is faster than the restraining order due to the convenient of air travel Eighty percent of the cases of swine flu outside Mexico comes from people who visited Mexico. Indeed, it has some capability in affecting other countries' economy if the same restraining order is given world wide.
Presently, there is a restraining order, but only localised at international airport. The health authorities either try to detect the symptom of swine flu either through passenger's declaration or termography unit or quarantine the passengers at the airport or some other localised place. It is still dependent of one factor - how smart the virus can evade detection. If I place this into an equation it will be like this.
Effect on economy = A.(Percentage of people who brought the virus) - B. (effectiveness of detection) + C.(Ability of virus to avoid detection).
The equation means that if the percentage of people coming from flight who hosted the virus is large, unless the health authority is very efficient to detect the symptom of swine flu, then it will have a significant effect on the world economies.
Directly, it is a matter of "how confident we are on the health authority to contain the sickness".
If there is a high confident level, it means that any significant selldown is a opportunity to buy.
Reversely, any selldown may mean the reversal of the current bull market.
Let pray that the disease is contained in Mexico and at international airports not for the sake of investing but for the sake of our health and wellness :)
Sunday, April 26, 2009
Nevertheless, in a cycle of one decade, there will be one chance to get real gain with 95% confidence level. The concept of purchasing share is to purchase when the price is low.
But not all low share should be bought. I recommend to concentrate at share which could give high return in term of dividend relative to the current share price.
Try to avoid bad counters. Investors can check the performance of the company through internet. For example, if it is predicted that a company will give 12 sen dividend during the worst time and the company price is at RM 0.90, for all sake, it will turn to be a good buy.
But, if the compnay is in PN17 list or has probability that it is going to bankrupt, then these counters should be avoided regardless of how low the price has gone through. This technique is to help the investors to safeguard their investment. It is better to gain less than to lose all investment.
Next, is to the task to predict when the share is at the lowest level. This is quite a difficult predicting job to do and it consists of a lot of reading. Basically, it consists of two factors - (1) Prediction given by prominent people and (2) The acceptance of government head regarding present and near future state of their economy and their actions. Non-acceptance means that prediction can go wrong.
For example. let say that a number of corporate figures and government treasury around the world qualitatively mention that the 1Q is going to be the worst hit time for the economy, then it is with a tolerance of 2-3 months that this can be the worst hit time only and only when the government head of the most affected economy of the world has accepted it's nation current state of economy and is acting on it.
It is quite difficult right. But with this kind of judgement, we may have got it at the lowest price only and only if the price has gone done ( which followed the world market) and stabilizes at a certain level.
The assumption that I make over here is that, though the share price moves south to reflect the adverse economic impact on the company bottomline, but it will reach bottom when it hit the worst period of economy and subsequently the share price moves upward in advance of the future state of company profit because of efficient investors investing in the market.
And when is to sell ?
Basically, when it is predicted that the global economy will be in bad shape in 8 months time. For all you know, run away from the share market and protect your golden eggs for golden age. This is the best safety precaution that I know of.
Friday, March 13, 2009
Tuesday, March 10, 2009
The world looks in bad shape now, very bad..but there is some light in Citibank even though the bank's share value has dropped to around 1 USD per share.
For all the bad things that we know, now the CEO of Citigroup said that the bank had an operating profit for January and February 2009. The first, since the 4th quarter of 2007. It gives the first shallow sign that the bailout in US is working.
Well, when "everyone around" whispers and says things are doom and gloom, it signals that it is time to invest. But, the investment suitable during this period is investment on value and not on growth. Therefore, it is important to select the company which will give the highest value on our investment with respect to the entry price. During recession, "value" is important since this ensure that the company gives a margin of safety for investor.
There are a few criteria that is looked at when investing in a company by value investing. Basically, it means buying shares which appear under-priced by fundamental analysis. For the news of Citygroup... see below.
Pandit: Citi operating at profit through February
Tuesday March 10, 7:43 am ET
By Stephen Bernard, AP Business Writer
In the letter sent Monday, CEO Vikram Pandit said Citi had an operating profit of $8.3 billion before taxes and special items through February. Pandit said the first-quarter performance so far has been the bank's best since the last time it recorded net income for a full quarter -- that was in the July-September period in 2007.
Provisions that could offset all or part of the operating profit include credit losses, write-downs and additions to loan-loss reserves. Pandit did not disclose the size of any potential provisions.
Citi has been among the hardest hit banks by the ongoing credit crisis and recession. It has been forced to take tens of billions of dollars in write-downs and loan losses since late in 2007 as the value of its investments plummet and more customers fall behind on repaying loans.
The New York-based bank has posted five consecutive quarterly losses, including a fourth-quarter loss of $8.29 billion.
During January and February, operating revenue was $19 billion, just $2 billion shy of the full-quarter average during 2008.
The letter was written to reassure employees as Citi's stock has taken a beating in recent weeks and as it has embarked on a plan that will increase the government's stake in the bank.
Citi shares closed Monday at $1.05, down 84 percent since the beginning of the year.
Late last month, Citigroup and the Treasury Department agreed on a deal that will give the government up to a 36 percent stake in Citi. The government, along with other private investors, will convert some of their $45 billion in preferred stock into common shares. If the maximum amount of preferred stock is converted, current common stockholders will see their ownership stake fall to about 26 percent.
That plan comes after the government provided Citi the $45 billion in capital in two installments late last year. Part of that $45 billion will be the capital converted to common stock. The government also previously agreed to cover a portion of losses on hundreds of billions of troubled assets and loans as Citi looks to right itself.
Government officials are drawing up contingency plans just in case Citigroup stumbles further and needs more support, according to a report Tuesday in The Wall Street Journal citing anonymous sources. The Journal said the discussions are preliminary and wide-ranging for possibilities that government officials do not expect to occur.
The stock conversion by the government and private investors is aimed at stabilizing and strengthening key capital ratios for the bank. Stabilizing a bank's financial strength has become vital in recent weeks as the government runs stress tests on banks to determine their long-term viability under various economic conditions worse than the current recession.
In the letter, Pandit said Citi has run its own stress tests for the bank at levels worse than those being used by the government. He said he is confident in the bank's capital position based on those tests.
Citi has been working in recent months to return to profitability. Among its plans, the bank is shedding assets and reducing staff to streamline operations. Citi has already announced a plan to sell a majority stake in its Smith Barney brokerage unit to Morgan Stanley.
Citi is also pursuing a plan to split its operations, separating the traditional banking businesses from the riskier operations that have been the primary driver of losses in recent quarters.
Sunday, March 8, 2009
- The yield cant be sustained for next year as the recession looms.
- Earning will be reduced.
- Prolonged recession may hurt Uchi's earning in the long run.