Reply To Radzian On Uchi Once More

Got the following comments on "Reply To Would You Buy Uchi For Its Dividends?"
Mohd Radzian said...

• I have gone through the forum thread on ESOS and it was rightly diagnosed for 2007.
  
  However, in 2009, due to ESOS exercise price, it will not contribute much to weakness to EPS.

That is correct. Uchi's stock price has plummeted which means that it's quite unlikey to see any ESOS being exercised.

Point for consideration was that minority shareholders did not like the huge percentage of ESOS was granted. Yes, currently we all know that there has been no exercise of ESOS due to the unfavourable exercise prices. And to aggravate the case, some shareholders had posted on Sahamas on their displeasure with how the two Kao brothers had the majority of the ESOS pie. This is something that real long term investors do not like to see.

• Current threat (2009) is global slowdown. As at end of February (2 months of 1st.Quarter), the estimated revenue is 6 million USD.
  The question is , what would it be for the rest of 10 months.

Firstly I do not wish to talk revenue. I am sorry. Revenue is simply less important than net earnings. This is my flawed method.

Now regarding the figures, I have no idea where you get your data from. Here is the link (it's not a permanent link due to Bursa's webspace management) Quarterly rpt on consolidated results for the financial period ended 31/12/2008. Uchi's reported earnings was for 2008 Q4.

What matters for me is unaudited net profit for fy 2008 is at 58.748 million. Previous year it did 78.228 million.

On a q-q basis? Q3 Uchi made 12.736 million. Q4 it made 11.042 million.

I do not know about you but what it is clearly stated is that Uchi's earnings declined on a q-q basis and also on a y-y basis. (If you insist on revenue, revenue too declined)

So what can I want to expect for fy 2009?

I do not know. 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.

• Nevertheless, my estimate on the least payable dividend for next year is 9 to 10 sen per share. I can go wrong as this is only an estimate through regression of earning and projected earning for 2009.
  
  Thanks for the financial statement for 2008. I have gone through the balance sheet. Reduction of cash reserves is balanced by the increase of non-current asset ( possibly due to the plant in China) and reduction of current liability (payables). So cash reduction is not alarming.

Let me show you again the DECLINE in dividends. The following screen shot was taken for Uchi's latest Q4 quarterly earnings.

See the drastic decline in dividends paid? What if future dividends decline again?

As I believe that you would understand very well that cash balances and earnings all goes hand in hand in how one estimate future dividends.

I look at the decline in dividends paid and I compare it with the cash balances and earnings and I see one clear common factor.

The decline in dividends paid co-incided with the decline in cash balances and the decline in earnings. Which is rather common sense since with less earnings, one can only expect less dividends.

So with the decline in earnings would it flawed to expect a decline in dividends paid?

I would assume this too.

Which is why I would AGREE with you that it's possible that Uchi would only pay about 9 to 10 sen dividend this fiscal year.

Now this sum would be great if one's cost of investment is based on current stock prices.

However, on the other hand, this stock has fallen of a cliff. It used to be above 3.20. Now why I am remembering this 3.20 figure? No it's not plucked from the ball park but this figure is from my memory of folks declaring loudly that Uchi should be purchased as a dividend stock and that many funds are accumulating the stock for the same reason. Well, the out-of-the-world superb dividend yield based at 3.20 is now looking not so good if Uchi pays only 9-10 sen this year! Would these funds be disappointed? (see how these funds got burned chasing the stock for its dividend yield?)

Look at the stock now.

• What puzzling me more is the grey zone of the actual effect of the expansion plan in China where it is skewed negatively by recession. Without recession, would it contribute positively to earning growth or not is yet to be proven.

I do not understand their venture into China at all.

• Even if that can be proven once recession subsides, the current price of Uchi is very attractive for current and future dividend.

Now this issue is too subjective.

I am no paid financial advisor hence I can not offer you any investment advice. All I can do is repeat what things stand for Uchi, based on current stock price, the dividend yield is attractive but with the decline in key issues such as earnings, cash balances and profit margins, this investment will have its risks.

I hope you are aware of this and not insist on purely investing on a stock for its dividends.

Dividends can always be reduced as seen in Uchi and the decline in earnings would strongly mitigate any potential gains derived from the stock's dividends.