Of dividends and sustainability (2)

Continuing from our previous piece: It is not surprising that most companies that pay consistent dividends also have strong balance sheets, in that the cash pile can be utilised to buffer against short-term earnings shortfalls.

 

Take for instance, UAC. The company raised payout levels in years of weak earnings to keep dividends from falling too steeply. Payout in 2008 was as high as 95% before falling back to 74% last year on the back of a recovery in earnings.

 

However, weak earnings prospects may see dividends being pared back, again, this year. Although sales were up 11% year-on-year (y-o-y) in 1H10, net profit dropped 16% over the same period as a result of competitive pricing pressure. Excluding the RM3.3 million in one-off gains, earnings fell by a steeper 51% y-o-y. With rising cost of raw materials such as cement and pulp, UAC expects further margins erosion in 2H10.

 

Meanwhile, its cash pile has been reduced to roughly RM29 million at end-June 2010, from as high as RM178 million back in 2006 — as the result of earnings weakness in the ensuing years and a RM90 million loan to its holding company.

 

Net dividends totalled 19.5 sen per share in 2009, or 74% of net profit, which gave shareholders a return of 5.6% at the current share price of RM3.46. The company indicated that dividend payout in 2010-2011 would be at least 60% of profits. But looking at its current pace of earnings, we doubt investors will earn a similar yield on the stock this year.

 

UAC is one of the largest manufacturers of cellulose fibre cement products in the country. Fibre cement products are used primarily in residential houses as ceilings, roofing, cladding, eave lining and partitioning. It also manufactures steel roof trusses used for public buildings like schools, computer labs and polytechnics.

UAC is 65.2% owned by the Boustead group, which is in turn controlled by Lembaga Tabung Angkatan Tentera.

 

Cash pile keeps YHS’ dividends fairly steady

Similarly, Yeo Hiap Seng (M) Bhd’s strong cash position — net cash totalling RM89.1 million at end-June 2010 — helped keep dividends fairly steady despite earnings swings over the past few years.

 

For instance, the home-grown food & beverage company paid net dividends totalling 6.75 sen per share in 2009, despite reporting net loss of RM11.1 million dragged down by some RM15.3 million in non-cash assets impairment charges. Its existing cash pile is sufficient to cover 8.6 times dividends at this level.

 

Positively, investors could be rewarded with higher dividends this year. The company’s underlying business fared much better in 1H10, operating earnings improving to RM10.8 million from RM1.7 million in the previous corresponding period. YHS attributed its improvement to lower raw material costs and better overhead costs control. Net profit for the period strengthened to RM300,000, after taking into account RM11 million in assets impairments, from a net loss of RM6.6 million in 1H09.

 

We estimate net dividends this year could improve to 10 sen per share, which would give shareholders a net yield of 6.8% at the current price of RM1.47.

 

From a small shop making soya sauce, YHS has grown over the years, expanding its product range to include soya bean and Asian traditional beverages, chilli and culinary sauces, sesame oil and instant noodles — marketed under household brand names such as Yeo’s, Cintan and Justea.

 

Can TM sustain larger than earnings payout?

Whilst a strong balance sheet can provide buffer against short-term earnings swings, dividends that consistently exceed earnings would be difficult to sustain over the longer-term, particularly if the capital expenditure requirements remain high.

 

Telekom Malaysia (TM) could be such a case. The telco currently has a dividend policy of RM700 million or 90% of net profits, whichever is higher. It stuck to this policy despite earnings falling to RM643 million in 2009. Earnings looks likely to fall short again this year — net profit totalled roughly RM184 million in 1H10, excluding non-cash forex gains.

 

Its fixed voice business has been on the decline in recent years with the shift towards cellular phones. Meanwhile, its dominance in the fixed broadband segment may also come under pressure with the increasing consumer preference for mobile solutions, for both voice and data.

 

TM is betting heavily on its fibre-to-home high-speed broadband business to rejuvenate growth — but uptake has been slow and upfront costs are high. The HSBB project carries a RM11.3 billion price tag, of which just about RM2 billion has been spent so far. Taking off the RM2.4 billion that will be covered by the government, TM has to fork out some RM8.9 billion in investments. In addition, its annual maintenance capex could total some RM1 billion. The company estimates capex of some RM2.4 billion this year.

 

With gearing of almost 40%, or net debt totaling RM2.93 billion at end-June 2010, it would appear that unless earnings improved significantly something would have to give, perhaps sooner rather than later — either to pare back on capital spending or dividend payments. — InsiderAsia

Intraday Trading on KBUNAI & GENM-CL

1. I got strike twice today, first it was Kbunai that hit 22sen in the morning and gotten rid of it in the afternoon session at 22.5sen. Then hit on GENM-CL again at 14.5sen and just lucky/managed to dispose off at 15sen right before it turn to pre open/close market time. :) Lucky me. :) but don't try this at home you might get yourself burn.....badly i mean. By the way Morgan Stanley has rating cut on GENM, may have some selling force tomorrow....!?

2. Just bought a wireless modem router to replace the home single LAN port unit. As i am currently having 2 units of notebooks and 2 units of PCs, just not enough to serve them all. Cost me RM100 for that. :)

3. My friend offer me a 13 years old car Peugeot after knowing that i intend to get a second hand car but what the hack !! already having a 13 years old junk still offer me to get another junk ???

4. Just received my GENTING dividend, again a very very insignificant amount. :)

Of dividends and sustainability

Earlier this year, the broader market rally was led by big-cap blue-chip stocks, which lifted the benchmark FBM KLCI 17.1% year-to-date. This was followed by rotational interest in the infrastructure, construction and building materials sectors on the back of the unveiling of several big government projects.

 

Plantation stocks then saw some renewed interest as crude palm oil prices bounded higher.

 

Of late, there was a noticeable shift in interest towards lower-liner stocks, which also carries a dose of speculative flavour. Trading volume jumped — the average daily on-market volume, so far this month, rose to roughly 1.18 billion shares, the highest recorded since January 2010.

 

Trading on the local bourse would probably remain fairly upbeat in the near term, in line with improved sentiment in the global markets. Nonetheless, some caution may be warranted. For stock prices to rise further, earnings will have to keep pace. But uncertainties continue to dog the global economic outlook while increased volatility in currencies and commodity prices would affect margins.

 

More risk-averse investors may turn to yield stocks for their steady dividend incomes. Some are looking further, beyond the usual suspects such as BAT, DiGi, Panasonic Malaysia and Berjaya Sports Toto, to smaller companies with high dividend payout that may offer better yields.

 

Apollo: Flattish growth but net yield at 5.7%

Apollo Food Holdings is one such company. The company distributed between 57% and 71% of its net profit to shareholders over the last five years.

 

Although earnings growth has been somewhat patchy, the company has maintained annual net dividends around 18 to 19 sen per share, except for FY09 ended April (at the height of the global financial crisis) when it was reduced to 15 sen per share.

 

The Johor-based company manufactures chocolate wafer products, layer cakes and Swiss roll products for both the domestic and overseas markets. Exports accounted for some 42% and 31% of the company’s sales and operating profit, respectively, in FY10.

 

Sales were up 11% year-on-year (y-o-y) in 1QFY11 but net profit was down 24% y-o-y, affected partly by lower gains from assets disposals as compared with the previous corresponding quarter. We expect full-year earnings will probably be flattish compared with FY10.

 

Despite the absence of a strong growth outlook, Apollo’s share price has fared quite well, having recovered smartly from the lows in December 2009. This is likely attributed, at least in part, to its higher than market average yields and strong balance sheet.

 

Apollo is sitting on net cash totalling RM56.9 million and net tangible assets of RM2.62 per share as at end-July 2010. Assuming net dividends totalling 19.3 sen per share, the same level as last year, shareholders will earn a net yield of 5.7% at the current share price of RM3.40. We estimate the stock is now trading at roughly 11 to 12 times forward earnings.

 

Past payments may not always be indicative of future dividends

Clearly, the sustainability of dividends is a key issue for yield stocks. Traditionally, high-yielding stocks tend to have steady and predictable income and cash flow streams and low capital expenditure requirements, for instance, independent power producers and mature industries like gaming. Consumer stocks too generally fit the profile but this is not always so. Investors will still have to assess their individual operational risks.

 

Take for instance, Hai-O Enterprise, which saw its share price fall sharply since hitting a high of about RM4.70 in March 2010. Established in 1975, the company has over the years morphed into a household name offering a wide range of Chinese medicines, medicated tonics, wellness, beauty and healthcare products.

 

Hai-O had done very well, with sales and net profit growing at compound annual rate of 36.6% and 62.2% from FY06 ending April and FY10, respectively — driven mainly by its multi-level marketing (MLM) business, which accounted for 82% of sales and 79% of pre-tax profits in the latest financial year. Other divisions, including wholesale, retailing and manufacturing make up the remaining balance.

 

Hai-O: Poor earnings outlook likely to affect dividends

However, both sales and earnings plunged sharply in 1QFY11, by about 63% and 58% y-o-y, respectively. The company’s MLM business was negatively affected by more stringent rules on member recruitment following amendments to the Direct Sales Act.

 

Outlook for the rest of the financial year remains poor as Hai-O restrategises its business. Hence, even though the company is maintaining its minimum 50% dividend payout policy — and has net cash totalling over RM96 million at end-July 2010 — the expected earnings contraction will almost certainly mean lower dividends in the foreseeable future.

 

At the pace of earnings decline in 1QFY11, net dividends this year would be less than half the 22.5 sen per share — which gave net yield of 5.6% at the prevailing price of RM3.22 — paid in FY10.

 

Brighter outlook for White Horse

The outlook for White Horse, on the other hand, is looking brighter. The company appears to be on track for another good year. Sales in 1H10 were up 17% y-o-y to RM254.7 million while net profit grew 39% y-o-y to RM29.6 million. At this pace, earnings will comfortably exceed last year’s RM60.5 million.

 

The company, established in 1992, is today one of the largest manufacturers of ceramic and homogenous tiles in the country. Demand is expected to remain robust given the prevailing upbeat outlook for the property sector.

 

White Horse upped net dividends to 10 sen per share last year, from seven sen per share in 2008, on the back of a 16% growth in net profit. Better earnings in the current year bode well for further increase in dividends.

 

But conservatively assuming dividends remain at 10 sen per share, the stock is still offering an attractive net yield of 5.8% at the current price of RM1.72. There appears limited downside given that its shares are now trading at little over six times estimated earnings and below its net assets per share of RM2.60. White Horse had marginal net debt of RM4.9 million at end-June 2010.

We will discuss a few other high-yielding stocks in our next piece.

Another Choice

1. Just recieved GENM's dividend of 3.6sen. :) but, this is just insignificant amount as i have sold most of it and left some tiny units behind. Nevertheless, still happy with the dividend. :)

2. Visited another car today, end '07 Honda City VTEC asking for RM59K. Very good price and outside look excellent but interior a bit dissappointed, nevertheless, i think still a good buy but think about it not sure is there any fishy thing behind it? why bother to sell at such a price if the car still in excellent condition ?? really puzzle me ?? 

3. Have pre-parked a buy on one punting counter, hope can make a quick trade and lunch money tomorrow. :)

Buying A Car

1. Have been sourcing around a second hand car this few days. Thinking of changing current 13 years old junk to around 5 years old Japanese car. The above seem alright to me a '07 HONDA CITY 1.5 iDSI but asking last price of RM61K (Excluding insurance + Puspakom checkup Fee). Not sure it is worthwhile if one compare with new car come with 3 years warranty with lower interest rate. New car with the latest model around RM85K. Just a mere 24K difference and it is hassle free. Hard to make a decision.........

2. Cepat chalk up 19sen today. wow !! not bad, not bad. Other second liner counters seem to be moving as well including Kfima.

3. Gen SP up 2sen to $2.24 pending the result in Nov. :)

4. Have bought in some the stock that i mentioned last week. Today garner 3.5sen already. :)

5. Sold some AMFIRST at RM1.23 today with contra gain. :) DPU should be up soon in early NOV.

Genting Singapore target to $2.45 /Golden Agri leads gains in palm oil firms

CIMB raises Genting Singapore (G13.SG) target to $2.45 from $1.88, reiterates Outperform, says Dow Jones.

 

“Together with a market leadership position, albeit a diminishing one, our estimates imply that Singapore’s overall gaming market could be worth about $6.3 billion-$7.5 billion by 2011-12, which is commendable given the short ramp-up period.”

Makes no changes to FY10-12 earnings projections, but sees potential upside from licensing of junket operators, RWS maintaining current market leadership over longer period.

"We continue to believe that Singapore, with its higher earnings growth prospects, superior EBITDA margins and stable regulatory framework deserves to trade at a premium to the Macau operators."

Adds, given recent sharp price outperformance, there are risks of short-term weakness, especially if quarterly earnings disappoint.

Shares of Singapore-listed palm oil firm Golden Agri-Resources rose 4.4% to $0.60 on Monday, on prospects for higher demand for palm oil amid concerns of a shortage of soy and corn crop in the U.S.

Over 78 million shares had changed hands by 0202 GMT.

The U.S. Department of Agriculture slashed its estimates for soybeans and corn crop by 2% and 4% respectively on Friday, due to warmer weather in August.

“The U.S. report about cutting its corn, soy crop estimates blew expectations. These are all substitutes for palm oil, so investors are turning more bullish and revisiting the sector again,” said a local trader.

Shares of Indofood Agri Resources climbed 3.9% to $2.38, with over 5 million shares changing hands.

Dividend Income = Compounding Income

1. Just received BJTOTO 8sen dividend. :)

2. Atrium just declare 3rd Interim Income Distribution of 2.15sen. Not bad. :)

3. Sold my KFIMA at RM1.30 this morning. Making handsome profit. :)

4. GAB making a record high at RM8.84 before settling at RM8.71. wow, more up side i believe. Tax not increase, this should be on song together with CARLSBG. Nice one. :)

5. Will be increasing more REITs under my belt hopefully. :)

6. No trading for me today. Still hesitating of getting back GENM-CL. Will monitor closely on this.

7. CEPAT has a good up swing following a good CPO surge. As mentioned early this is good for short trade when it is still hovering around RM0.93 to RM1.

8. Have just spotted a counter which is worth for longterm hold and investment. Will unveil soon once i gotten enough of them. :)

9. REITs counter all on the rock today. :)

What is REITS and how to get monthly dividend payments from it

A LOT of investors, especially senior citizens, are hoping to get consistent and regular dividend payments from stocks.

In this article, we will look into constructing an investment portfolio, which consists of real estate investment trusts (REITs), to get monthly dividend payments.

 

A REIT is a real estate company that pool investor funds to purchase a portfolio of properties. Normally, it has two unique characteristics: investment in income-producing properties, with almost all of its profits distributed to investors as dividends.

 

From the table, based on the latest stock price (as at Oct 18) and on assumption that the same dividend payments will be paid over the next 12-month period, almost all REITs will provide about 7%-8% dividend yields. Based on our observations, most of the REITs will try to pay higher dividends over the years. Hence, if the overall economy continues to recover, some REITs may pay even higher dividends for the coming few years.

 

Due to them only listing at the middle of this year, we have excluded CMMT and Sunreit.

 

As mentioned earlier, a lot of retirees would like to invest in investment assets that can provide a consistent and regular dividend income. Therefore, we think that REITs can provide a good alternative to the retirees. From the table, except for Arreit, Atrium, Axreit and Hektar, all other REITs will make dividend payments twice per year. Most of them will pay their dividends in the month of February and August. Hence, if an investor would like to receive his dividends other than the above two months, he may need to diversify their REITs into holding many types of REITs.

 

Based on the list of REITs in the table, we can see that, except for the month of January and April, dividend payments were being made at different months throughout the year, thus investors can receive a stream of dividend income by buying into different types of REITs.

 

Investors can build a REIT portfolio consisting of a few REITs which make dividend payments at different months of the year. The following is just one of selection options available for consideration.

 

Based on the current price dated on Oct 18, assuming that the same dividends will be paid in the next 12 months, a portfolio with AMfirst, Arreit, Atrium and Hektar can generate a dividend yield of more than 8% (see table). Besides, by buying with equal amount into these four REITs, investors can get dividend payments for almost every month, except for the month of January, April, July and October.

 

Nevertheless, investors need to understand that the above selections are solely based on the assumption that these REITs will reward investors with the same dividends and pay during the same month as shown in the table above.

 

We also understand that apart from the above four REITs, some other REITs may reward investors with even higher dividend payments.

Quick Scalp Trade on KBUNAI

1. The proposed 500 acre "eco-nature" integrated resort in KK, Sabah by the government last month would stir some excitement to KBUNAI as many believe that this company is likely to be a beneficiary from the proposed project.

2. I did a quick scalp on KBUNAI this morning. Buying at 0.255 and sold all of them at 0.26. Making some quick money in just mere 12 minutes. :)

3. I wish to highlight here, this is not my preferred method in dealing with shares investment. I did it out of boreness and capitalised on the bull. In normal circumstances, you hardly has any chance in dealing in this kind of trades. Dividend yielding and undervalue stocks are still my long term preference. :)

4. Added more stake on AMFIRST today, expected it to announce 2Q in early Nov and DPU of 4.5sen minimum. :)

Who Suffers The Most ??

1. Just received my KFIMA dividend. Share price closed at RM1.22 today, not bad, some sign of up surge is coming. :)

2. MHB that i applied last week came back with unsuccessful status. Not mistaken its been oversubscribed by 7.7 times. Whoever, gotten them is just like striking a gold mine. :) Good luck to those successful applicant.

3. Had lunch at mamak restaurant next to our office with colleague the other day. Noticed that the price gone up like 50% for all drink and food. Teh Tarik use to be RM1.30 has now increase to RM2.00. What a jump !! This will be nice if our pay can rise the same margin. :)

4. Not only food and drink increase in price, my apartment maintainance fee also gone up by 10%. This is really a crazy market. Inflation is always on the beat. Nevertheless, i have no choice but to increase my parking bay rental that i rented out couple of years back by another 20%, luckily the tenant has no objection to it. This is what we called the chain reaction by passing down the cost to consumer. At the end, who will suffer ? still us the RAKYAT !! :(

5. US is currently on the RED zone, droping by more than 1% but our market is on the isolation mode, likely tomorrow should be able to continue up trend.

Citigroup Reports Third Quarter 2010 Net Income of $2.2 Billion; $0.07 Per Share

Net Income Up from $101 Million or $(0.27) Per Share in Third Quarter 2009
Third Quarter 2010 Income from Continuing Operations of $2.6 Billion; $0.08 Per Share
First Nine Months 2010 Net Income of $9.3 Billion
Third Quarter 2010 Revenues of $20.7 Billion and Expenses of $11.5 Billion
Tier 1 Capital Ratio of 12.5%; Tier 1 Common Ratio of 10.3%
Tier 1 Common of $103.7 Billion and Allowance for Loan Losses of $43.7 Billion
Tangible Book Value Per Share3 of $4.44

Citicorp Revenues of $16.3 Billion, Net Income of $3.5 Billion

Citi Holdings Revenues of $3.9 Billion, Net Loss of $1.1 Billion


not bad not bad. i do hope a sustainable profit every Q. :)

Budget 2010/2011: Comments from Guinness Anchor, Carlsberg

Impact of the Budget 2010/2011 on the beer and stout industry

Charles Ireland, managing director of GUINNESS ANCHOR BHD:

Guinness Anchor Berhad (GAB) today issued a statement in response to the Government’s move to not impose an increase in excise duty.

GAB welcomes the news that the Government has decided not to raise the excise duty on beer and stout for the coming year, particularly in this economic downturn which has had a significant impact on both businesses and the man-on-the-street.

At the current duty levels, Malaysia already has the second highest duty on beer and stout in the world after Norway.

As such we believe the Government was prudent to not impose another round of excise duty increase as this would have exerted tremendous pressure on the industry that is already operating in an extremely difficult and challenging environment.

It would have also put further pressure on the F&B industry and tourism, who continue to face serious challenges with consumers still cautionary on spending.

GAB hopes that the Government will consider a review of excise duty structure to bring it in line with global best practises. We would like to work with Government to set up a working committee for this purpose.

Soren Ravn, managing director of CARLSBERG BREWERY MALAYSIA BHD:

It was positive that the government had decided not to raise the excise duty on beer and stout for the coming year.

A duty increase would have had adverse impact on all the stakeholders connected to the industry.

The decision was in line with the government’s Economic Transformation Programme (ETP) where the key focus areas, Tourism and the Wholesale and Retail sectors have been identified as National Key Economic Areas (NKEAs) of key importance to the Government for driving economic activity, development and growth to transform Malaysia to a higher income nation.

Carlsberg Malaysia will continue to be part of the catalyst to drive the economic growth in the areas of FDIs, Tourism, and Retail sectors while at the same time continuing to reinvest in the local economy through production and capacity expansion; our workforce and Corporate Social Responsibility initiatives.

Carlsberg Malaysia is fully committed to Malaysia and will continue to support the government in its economic reform to boost growth and attain developed-nation status.

Everyone Would Smile When It Goes Beyond 1500

1. GAB just declared 35sen T.E dividend. Look at these group of investors above, non-stop acquiring GAB shares. Would GAB end up RM10 and above in the near future to come ?? certainly will hold tight on this. :)

2. Just received dividend of 7.5sen from CARLSBERG.

3. CPO price on the surge, plantation stocks would likely bullish as well during this period of time. CEPAT would likely to do a catch up comparing to other big player like IOICORP. At a price of RM1.0x should be worth taking a quick trade on this.

4. KFIMA has been silent for a while and it been trading between 1.10 to 1.17 so far. Time is ripe to surge higher due to higher CPO price and overall broad market rally.

5. Steel would get more demand and consumption in near future.

6. Come Nov 2010, GENSP will announce its result. Today closed at S$2.12, would it take to next level to S$3 after yet another expected good impending result ? I of course, certainly hope so. :)

7. I would said, it is a right timing for me to increase my stake on C the other day. See how it price has surged to USD4.24 pending the result announcement on this 18 OCT 2010........ ;)

8. I am certainly not putting more money into stock market at this moment, so, there being no other matter to do, i just submit an application of new IPO of MHB (Malaysia Marine) today. Hopefully, luck is on my side. :)

Strike Again On Genm-CL !!

1. Got it through again for GENM-CL, bought them at 0.175 and sold at 0.18. Quick trade with lunch money again. :) Not bad. :)

2. Just gotten 100% dividend from IOICorp. Seem like market is bullish on plantation. May be is time for plantation stocks to rally ?

3. Still holding about 70% stocks on hand.

Next up: Tax hike for brewers?

Now that two of the three so-called “sin sectors”, cigarettes and gaming, have seen taxes raised this year, expectations are high that the brewers are next in line.

 

Earlier in June 2010, gaming companies saw pool-betting duty raised from 6% to 8%. The latest round of tax increase for cigarette manufacturers, of three sen per stick, was announced earlier this week ahead of Budget 2011, which is to be presented on Oct 15.

 

Of the three sectors, cigarette manufacturers have been the worst affected, having been slapped with tax hikes every year for the past eight years. By comparison, brewers are “luckier” — they have been spared of any tax increase since 2005.

 

Back then, the government raised excise duty by 23% to RM7.40 per litre and introduced a new 15% Ad Valorem duty payment on the ex-brewery price for beer products. But at the same time, it also reduced sales tax to 5% of the ex-factory invoice price on all products sold. The net tax increase was thought to be around 8%-9%.

 

As such, many expect the time is ripe for fresh tax hikes — by as much as 10% — in Budget 2011. The government has hinted as much.

On the other hand, brewers contend that beer taxes in the country are already one of the highest in the world, second only to Norway. Government tax payments amounted to over 48% of Carlsberg Brewery’s revenue last year.

 

Like the cigarette industry, it is feared that further tax hikes — and the resulting higher selling prices — will fuel smuggling. Smuggled or illicit beer is estimated to make up roughly 20% of the local beer market. Volume sales of the duty-paid malt liquor market dipped in 2005-2006 after the last round of tax hike before recovering in 2007-2008. Industry volume sales are estimated to have declined by roughly 2% in 2009, impacted by the global downturn, but are expected to grow in the single digit this year.

 

Higher taxes and prices could send volume sales growth back into negative territory — affecting the earnings of the two local breweries, Guinness Anchor and Carlsberg.

 

Guinness fared better over past few years

Of the two, Guinness appears to have weathered the intensely competitive operating environment better. The company charted steady growth in sales and profits over the past decade, thanks, in part, to its success in gaining a steadily larger slice of the domestic market. At present, its market share is estimated at roughly 57%, up from about 45% back in 2001.

 

Sales grew at a compounded rate of more than 8% annually, from RM670 million in FYJune01 to RM1.36 billion in FY10. Over the same period, net profit increased at an even faster pace of 11.2% per annum, from RM58.7 million to RM152.7 million in the latest financial year.

 

By comparison, Carlsberg’s earnings growth has been patchier. Whilst sales increased at a compounded annual rate of about 2.3% between 2000 and 2009, net profit dipped to RM75.9 million last year from RM110 million in 2000. Indeed, Guinness’ shares had outperformed Carlsberg over the past five years. Shares of Guinness are currently trading at RM8.46, compared to RM5.75 at the start of 2006 whilst Carlsberg’s shares are hovering around the same levels as they were five years ago.

 

Expansion boost for Carlsberg

Nonetheless, Carlsberg’s prospects appear to be looking up. The company has been on an expansion trail, investing in Luen Heng F&B in November 2008 and Carlsberg Singapore in October 2009. The acquisitions have widened both its product range and market base — and appear to be paying dividends.

 

Carlsberg reported strong earnings in 1H10, boosted by contributions from Carlsberg Singapore. The latter accounted for RM28.7 million of its pre-tax earnings of RM69 million in the first six months of the year, and is well on track to meet the company’s estimated net profit contribution of RM37 million for the full year. At this pace, we estimate Carlsberg’s 2010 net profits to be sharply higher from last year’s RM75.9 million. In addition to operational synergies, the expansion in Carlsberg’s customer base is likely to temper the negative impact of a tax hike in the domestic market.

 

Carlsberg’s new ventures — Carlsberg Singapore was acquired for RM370 million — have come at the expense of dividends. The company lowered its dividend payout in 2008-2009 to 35% and 51% of profits, respectively, compared with the average payout of 108% in the preceding six years. The company has net debt of RM37.7 million at end-June 2010.

 

Assuming the same 51% profit payout this year, dividends will total 30 sen per share. That translates into a net yield of 4.3% at the current share price of RM5.20.

 

Guinness pays higher dividends

Guinness, on the other hand, remains focused primarily on the domestic market. With lower capital expenditure — estimated at roughly RM50 million in the current financial year — dividend payout has stayed high, averaging at some 85% of net profits in the past five years.

 

The stock will trade ex-entitlement for a final tax-exempt dividend of 35 sen per share on Nov 11.

 

Assuming dividends totalling 45 sen per share — the same as that for FY10 — in the current year, shareholders will earn a net yield of 5.3% at the prevailing share price of RM8.46.

 

Guinness is sitting on net cash totalling almost RM150 million at end-June 2010.

Snippets

Axiata Bhd’s 29.6% stake owned associate M1 Ltd is due to receive a capacity boost in Singapore. Singapore announced that it was allocating additional spectrum to three telecommunications companies in the Singapore after it decided not to proceed with the auction of a fourth 3G spectrum. Although it has only an associate’ stake, expecting any upside from M1 to trickle down to Axiata.

 

Genting SP’s third quarter result is expected to be release Nov 2010.

 

TopGlove announced a nearly 21% year on year drop in net profit.

Malaysia Marine & Heavy Engineering Holdings Bhd, a unit of MISC Bhd, said its initial public offering (IPO) may raise between RM1.94 billion and RM2.04 billion. Meanwhile, Malaysia Marine will offer IPO shares to individuals at RM3.61 or 95 per cent of the price charged to institutions once that has been fixed. Individuals would pay whichever is the lower amount.

 

The Election Commission (EC) has set Nov 4 as polling day for the Galas state assembly seat, if there is a contest, while nomination day is Oct 26 2010.

Bursa’s most expensive stocks

British American Tobacco (M) Bhd (BAT) is currently — and has been for some time — the most expensive stock, in terms of absolute share price, among all listed companies on the local bourse. But Nestle (M) is rapidly gaining ground, with its relatively stronger performance over the past few years. At this pace, might the food & beverage giant soon overtake BAT as the highest priced stock?

 

The similarities ...

The two companies have long, established track records and good corporate governance. They are leaders in their respective industries with enduring brand names. BAT is estimated to have some 60% share of the domestic cigarette market, driven by the Dunhill and Pall Mall brands. Similarly, Nestle leads the market with its household brand names such as Milo, Nescafe, Maggi, Kit Kat and Nespray.

Both companies are, traditionally, viewed to have relatively low-risk businesses that generate steady cash flow. Indeed, they appeal primarily to yield-seeking investors with their higher-than-market average dividend payout. These characteristics still apply to BAT but investor expectations of Nestle appear to have changed somewhat.

And differences ...

Whilst BAT remains very much focused on the domestic market, Nestle’s strategy to expand its exports sales, in particular for the made-in- Malaysia halal products, appears to have rejuvenated its growth prospects — and investor interest in the company. Indeed, investors appear willing to pay a premium for the stock judging by its prevailing valuations.

The company is currently the largest halal producer within the Nestle world with a range of some 300 products exported to more than 40 countries worldwide. Its biggest markets are in the Middle East and Asean regions although it is also working to raise visibility in the European markets.

Between 2007 and 2009, Nestle invested some RM500 million in technical skills for halal manufacturing and production capacity to cater to the large — and growing — export market. Capital expenditure this year is estimated at RM140 million.

The investments are starting to bear fruits. In the first six months of this year, exports registered double-digit growth and accounted for roughly 24% of total sales. In 2006, exports contributed just over 16% to the company’s sales.

Competitive environment and earnings

Operating conditions are challenging for both industries. Nestle has to contend with volatile raw material prices and competition from generic and hypermarket house brands. Meanwhile, BAT continues to struggle within the increasingly tightly regulated tobacco industry, rising government taxes and illicit trade.

By comparison, however, Nestle has fared much better, especially in extracting greater profitability from sales. Its sales grew at a compounded annual rate of 4.6% whilst net profit expanded by over 10% per annum from 2007-2009. Over the same period, BAT’s net profit grew a pedestrian 1.24% per annum on the back of annual 2.8% growth in sales.

We estimate BAT’s net profit to decline by roughly 5.8% to RM703.5 million this year — in 1H10, net profit dropped 7.2% year-on-year (y-o-y) — and to fall further in 2011. The just announced three sen per stick hike in excise duty and resultant 70 sen price increase for a 20-pack of cigarettes are expected to send volume sales reeling. A 20-pack of premium and value brand cigarettes now cost a hefty RM10 and RM8.50 per pack, respectively. On the other hand, net profit for Nestle expanded 29% y-o-y to RM239 million in 1H10. We estimate net profit will total RM418 million for 2010, up 19%.

The disparity in the shares’ price performances underlines investor expectations for their earnings prospects. Nestle’s share price rose from RM24.40 at end-2006 to the current RM42, or up 72%. BAT shares are now hovering around RM48, up just 12% from RM42.75 at end-2006.

Even though Nestle’s yields are expected to be lower than BAT’s, its shares are trading at richer valuations. That suggests that investors remain relatively more upbeat on the company’s growth prospects going forward, even after taking into account gains over the last few years

Quick Scalp Trade Again on GENM-CL

WOW !! A scalp trade again on GENM-CL consecutively in a row for the second day. Managed to slip through by buying 0.175 in the morning and got it through during the "trading at last" at 0.18. :)

For a moment i thought would need to bring it overnight the next day to get rid of them but luckily got them off in an intraday instead.

Never try this unless you prepare to cut loss when market turn against you and it could be a very painful pinch if thing don't goes the right way.

Take a look at GENSP, today chalk up 4sen to S$2.08. Bravo !!

A Quick Scalp On GENM-CL Today

Manage to make a quick trade on GENM-CL today, bought them at 0.175 and sold off at 0.18. Whole transaction lasted within 10 minutes only. :)

This is extremely dangerous games, advise not to follow. Not all the time is Sunday, trading as such only could be done on bull and active market.

The intraday gain is enough to last me for another month of lunch money. Not bad for a 10 minutes job.

This week could still an up trend i believe.

Have loaded more "C" the another day. Keeping this guy for long term like GENSP. :)

Hopefully, after 3-5 years if i am still blogging, i will be "Laughing all the way to Bank." hahaha