A Gem Stock - LONBISC

Take a simple look at Lonbisc. A company main business on manufacturing and marketing cakes and snack food.

Use to be classified under one of the high dividend yielding stock in my list but not anymore since year 2008. Recently Lonbisc has just been given 3% TE dividend, that represent a 3% DY based on current price. EPS has step up further in 1H to 9.16sen inline with the grow on revenue for 1H where a 20% increase in tandem.

Assuming, the current momentum stay on, we would expect the EPS to reach 23.58sen for the 2 remaining Q. That will represent a PE of 4.45sen. If the company resume it dividend payout ratio of about 50%, then a minimum 10sen dividend is possible in future.

For a counter to trade in EPS of 23.58sen (in future) and having a strong NTA of RM2, that is 50% discount there basing current price. So my simple way of conservative calculation of fair value for this counter, should be around 5 X 23sen = 1.15.

This could turn out to be a gem stock. At current RM1.04 should be worth buying.

Dividend-paying companies

Personal Investments - By Ooi Kok Hwa

Despite investing in profit-making companies, a lot of investors have been complaining that they are not getting the desired returns from the companies that they have invested in.

One of the main reasons is that these companies usually pay very low dividends or no dividends to their investors.

Hence, even though these companies make good profits from their businesses, they are not sharing the profits with their minority investors.

Companies that pay good dividends to their investors imply that the major shareholders of these companies are willing to share their wealth with minority investors.

Given that minority investors have no control over these companies, they have only two sources of returns from their investments, namely dividend returns and capital gains.

If the companies refuse to reward their investors with good dividends, then investors need to make sure that they buy low and sell high in order to get capital gains.

Warren Buffett proposes one concept, which is called the one-dollar premise - for every dollar profit that a company makes, it either pays one dollar dividend to its shareholders or if that dollar is being retained, it needs to bring additional one dollar market value.

Companies with good management will always try to maximize the wealth of their investors.

The following table will show the importance of dividends to an investor.

Assuming you have invested in Company A with an average cost of RM15.

Company A generates earnings per share (EPS) of RM1.00 with price-earnings ratio (PER) of 15 times and pay out 80% of its profits as dividends or dividend per share of RM0.80.

Hence, with the purchase price of RM15, the dividend yield (DY) is 5.3%.

We also assume that Company A has a constant PER of 15 times and dividend payout ratio of 80% for the next 20 years.

Annual growth rate of EPS is 8% based on our country’s average nominal GDP growth rate of 8%.

For the first 10-year period, given that our original cost of investment is fixed at RM15, our dividend yield will be getting higher and higher.

For example, first year DY of 5.3% is computed based on DPS of RM0.80 divided by RM15.

And second year DY of 5.8% is calculated based on DPS of RM0.86 (RM0.80 x 1.08) divided by the same original purchase price of RM15.0.

As the company’s businesses continue to grow and generate higher profits, as long as the company practices a fixed dividend payout policy (our example is based on a fixed dividend payout ratio of 80%), investors’ DY will increase.

At Year 10, given that our purchase price remains the same at RM15, with a DPS of RM1.60, our DY is 10.7% (1.60/15.0).

Thus, the average DY for the first 10-year period is 7.7%.

Coupled with the annual capital gain of 8% (the share price has grown by annual growth rate of 8% from RM15 to RM29.99), investors will generate an annual total returns rate of 15.7% (7.7% + 8%)!

If we keep this stock for another 10-year period, our next 10-year annual total return is 24.7% (16.7% + 8%)!

From here, we can see that if we have invested in good companies that always reward their investors with very high dividend payments, our returns will be huge if we hold it long term.

Normally, consumer-based companies and companies that do not need high capital expenditures will be able to reward shareholders with good dividend payments.

Besides, major shareholders must be willing to share their profits with their investors through good dividend payments.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

Useful Information About REITs

Some useful information about REITs.

BJTOTO - Remain a Cash Cow

As expected the earning for 3Q2010 is in-line with my forecast of 97millions. BJTOTO is truely miss out a dividend this time round. Will there be a dividend in 4Q2010 ?? The chances of a dividend is better as compare to 3Q2010 as the earning is expected to be remained for 4Q2010 where it should stood at around 8 - 9sen.

Assuming 4Q2010 contribute 8sen EPS, that will give a total of 30.86sen EPS. As 19sen has been payout as advance dividend, thus, 30.86 - 19 = 11.86sen remaining for a possible dividend in 4Q2010. The introduction of the new game Supreme 6/58 may boost some earning for 4Q2010 but conservatively, would remain my estimation of 8sen EPS for 4Q due to competitive market from other betting operator.

Without clear sign of catalysts such as dividend, BJTOTO would likely to trade side way. Long term holder like me would of course dissapointed with no dividend, however, it provide opportunity of building up your piles while it is on weakness as i believe a cash cow machine would remain as cash cow machine, no matter how hard it fall. After all this is just a minor and temporary set back and recovery should be imminent.

Is Penny Auction Legal ??

A friend approached me & introduced an auctions site "PennyAuction". Wondering what is that ? Googled and found below :-

Site 1 :-

Swoopo is an online entertainment auction (a.k.a. penny auction) where individuals purchase bids to place towards an item that’s up for sale. The cost of the bids are usually $0.75 and once placed they raise the price of the item by either $0.15 or $0.01 depending on the product. A 20-second countdown timer is reset by each time a new bid is placed and when the timer reaches zero, the last bidder wins.

Site 2 :-

[Penny auctions] offer new televisions, computers, game consoles, appliances, handbags, gold bars and more for starting prices of a penny to 15 cents, depending on the site.

To "win" a product, shoppers must first buy a bundle of 10 to 700 bids for 60 cents to $1 each. Shoppers use one each time they place a virtual bid on a product. Each bid raises the price of the item by a penny to 15 cents, depending on the site. Some have automatic bidding functions similar to eBay.

Doing the math and not getting carried away is important: The final price of a product that retails for $100 might be $29, but the total price paid could be much more, depending upon the number of bids used. If a shopper bids 10 times at $1 a bid, for instance, the total price paid would jump to $39. And, there is the real possibility of using all your bids without getting the product.

Auction winners generally get their item for about 65 percent off retail but could save as much as 98 percent if there are few bidders.

Since the sites make the bulk of their revenue from the purchase of bids, they profit most when they feature a product that elicits a bidding war.

Personally, i think this type of business is more like gambling, as bidders may not able to bid successfully even spending all it bids. Secondly, it might link to legality issue where this area may be questionable since there isn't any involvement from the government and has thus far regulated this. Thirdly, the margin profit is just too tremendously huge that lead me to probably think this is a scam to bidders though the successful bidders will get thier product but the majority bidders have failed. I think better avoid this kind of activities.

Keladi Maju Berhad

Accumulate for an upside target to 19sen

Company background

KM’s key businesses are property development and property investment in

Kedah. It specializes in low and medium cost residential projects, commercial

offices, light industrial factory buildings for SMIs. KM has established a name

and solid reputation, especially in developing affordable quality properties,

delivered on timely basis.

KM’s major flagship projects include Taman Mutiara, Taman Mahsuri and

Taman Lagenda. Due to its strong management, it has consistently achieved

an average net profit margin of 21% over the last 10 years.

Technical outlook: Oversold, accumulate at 15sen

KM’s share price has surged from 52-wk low of RM0.105 in Mar 09 to 52-wk

high of RM0.19 in May 09 before consolidating range bound between RM0.15

to RM0.175 for the last nine months.

We are optimistic of KM’s mid to long-term technical outlook as share prices

continue to maintain its posture along the RM0.15 (250-d SMA) over the past 9

months. Key support is RM0.14 (61.8%FR from RM0.105-0.19) whilst the

upside resistance levels are RM0.16 (38.2%FR), RM0.17 (23.6% FR) and

RM0.18 (8-month high).

12M target price at RM0.19

Our 12-month target is RM0.19, based on 8.6x FY10 PE (in line with its 5-year

average 9x PE) and 0.83x PBV (5-year average 0.9x). At 8.6x, KM’s target PE

is also trading at 25% discount to its peers historical PE of 11.4x.

At 15.5sen, KM’s 9.7% dividend yield is the highest in the property sector.

Furthermore, its 7.1sen net cash per share is 46% of current share price. On an

ex-cash basis, KM is only trading at 3.8x FY10E P/E. Therefore, we feel that its

downside risk is limited.

13 Years Old Car

I just could not tolerate my 13 years old junk gave too much of jittering noise from the engine. The noise started the moment the engine get ignited. The noise get worst after switching on the aircond. Visited car workshop on Saturday, tauke told to replace timing belt, bearing & fan belt, estimated total cost about RM400.

Visited another workshop to get second opinion, after all this is just an old car no harm getting another qoute. Luckily end up spending just RM83 for a fan belt & alternator belt replacement, that include workmanship as well.

Sometime is good to get second opinion, you might save lots of time, journey & money. Just like shares investment, be sure you know where to look for answer.

A Closer Look at BJTOTO

Taking a closer look at BJTOTO, many have expected a dividend for 3Q including me. Judging the table above, I have to lower my dividend payout for BJTOTO to 3sen to 4sen and wish to call back the 5 to 8sen dividend previously have predicted, if a dividend were to declare. Take a look at below :-

1Q EPS = 7.97sen

2Q EPS = 7.62sen

Assuming 3Q result remain unchanged, in which I presume there isn’t much unexpected result, thus,

3Q EPS = 7.73sen

Total expected EPS = 7.97 + 7.62 + 7.73 = 23.32sen

19sen has been paid out as advance dividend previously. Hence,

23.32 – 19 = 4.32sen

If BJTOTO do not truly want to ‘miss’ out dividend for every Q, they would have to declare at least some dividend, in which I would expect ranging from 3sen to 4sen only.

This is as much as they can do for now I presume.

High Dividend Yield Stocks

Above the latest REIT closing price as at 2/3/2010.

As one should know by now, dividend play an important role in cushioning your share price, it is also serving as a good catalyst driven the share price up when a good result is announced with better dividend payout. Refer to my previous posting for dividend here and assessing REITs here.

Another important factor is “timing”. Yes, the date for REITs dividends to be paid. It is utmost important that any good result couple with higher dividend will somehow spur some excitement on share price. All REITs have a tendency to pay 90% of it net profit to shareholder as dividend or other may call it income distribution in which I find it very attractive, thus, it is worth taking a closer look if one were to opt for long term dividend and steady income "for living". Generally below are the dates of month that we should focus on :-

JAN     Ahp, Alaqar, Arreit, Atrium, Axreit, Bsdreit, Hektar, Qcapita, Stareit, Twrreit, Uoareit

MAY    AMFIRST, ATRIUM, AXREIT, HEKTAR

AUG     Ahp, Alaqar, Arreit, Atrium, Axreit, Bsdreit, Hektar, Qcapita, Stareit, Twrreit, Uoareit

NOV     AMFIRST, ATRIUM, AXREIT, HEKTAR

Knowing the months which draw nearer and REITs that may announce dividend, we may at least gauge when to increase or reduce our stake on them. Preferably holding most of it when the value you think is right and engaging them in long hual for its dividend. So, put a little effort there and enjoy picking your REITs and building up your wealth. Till then happy trading and couple with my favorite quote “May The Best Price be Yours”.