Reply To Would You Buy Uchi For Its Dividends?

Posted the other day. Would You Buy Uchi For Its Dividends?

I had some comments from Mohd Radzian who gave me his two cents. :D

• 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.

I replied.

• Had my views on this documented on this stock way back in 2007. See this forum http://sahamas.net/forum61/5459.html

Mohd Radzian replied again

• 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.

Radzian,

I am replying you in a new post as I want to leave some clickable links for you.

If I am not mistaken, there were no new ESOS program in 2008 and I do not think there will be any in 2009 either. Simply because the previous ESOS has yet to be fully exercised.

Regarding directors ESOS. You can see Uchi's last reported annual report here: Annual Report 2007 (see page 38 for director interest - and compare versus comments posted on posting #12 http://sahamas.net/forum61/5459-2.html .

Let me share some thoughts about Uchi's dividends.

If you have the time, perhaps you might want to compile your own table on Uchi's historical dividends.

Let me do a simple one.

In the year 2007 (I use year and not fiscal year for easy, quick reference), Uchi paid the following dividends. (I have always stated from day one that Uchi is a good growth stock and a good dividend stock ... **)

• Final Dividend
• Special Dividend
• Special Dividend
• Interim Dividend
• Special Dividend

In the year 2008

• Special Dividend
• Final Dividend
• Interim Dividend

That's all that was paid. Do compare the total paid.

Now let's look at some issue.

1. Now earlier, I just said that Uchi is a good growth stock. Now this has changed. The growth did not slow down but DECLINED.

2. Its cash balances is declining rapidly.

3. The dividends paid out is less, when one compares 2008 to 2007.

4. Net profit margin based on unaudited fy 2008 earnings is an impressive 47.8%. However it pales in comparison to what Uchi has done since fy 2004.

And yes, based on current price, one does have the justification to invest in the stock for its dividends.

Should one invest in it despite the 4 issues mentioned?

Well I cannot answer this for you because I am not a financial advisor. All I can do is lay out these facts and hope these facts can help you as a second opinion.

Rgds