Icon8888 Gossips About Stocks
(Icon) Mercury Industries (1) - Benefiting From Low Oil Price and Profit Guarantee Of New Assets
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1. Background Information
Mercury was listed on the Bursa in 1991. It was principally involved in manufacturing and trading of car paint. However, in 2015, it diversified into construction business.
Based on 40.2 mil shares and price of RM1.42, the company's market capitalisation is RM57 mil.
The group has net assets of RM58 mil, loans of RM30 mil and cash of RM9.4 mil. As such, net gearing is 0.36 times.
The group has been consistently profitable. Even in 2008, they reported net profit of RM4.6 mil.
Annual Result:
Based on FY2014 net profit of RM4.8 mil, historical PER would be approximately 11.9 times.
The group reported EPS of 5 sen in the latest quarter ended 30 September 2015.
Quarter Result:
2. Car Paint Division
The group exports closed to 20% of its products.
According to the Company's annual report for the financial year ended 30 June 2015, the export division benefited from the weak Ringgit :-
Low oil price benefits the Group. However, weak Ringgit will result in higher import cost.
So far, the low oil price seemed to outshine the weak Ringgit, resulting in margin expansion.
As shown in table above, the operating margin of the group's car paint division expanded from 14.3% in FY2014 to 28% in September 2015 quarter.
(I am unable to explain 2015 June quarter profit margin dip. One possible reason is seasonaility. The group's 2014 June quarter was also relatively weak compared to other quarters).
The company's business is resilient because it supplies to the auto refinish industry.
3. Construction Division
To diversify into construction, in 2015, Mercury acquired 70% equity interest in Paramount Bounty Sdn Bhd (PBSB) for cash consideration of RM42 mil.
As part and parcel of the deal, the vendors of PBSB provided a guarantee of RM6.6 mil PAT per annum for EACH of the financial year ended 31 December 2015, 2016 and 2017 respectively.
Based on 70% equity interest, Mercury will be entitled to RM4.62 mil PAT per annum. The group raised RM30 mil borrowings to part fund the acquisition. Based on 6% interest rate and assume 25% tax, net interest expenses should be RM1.35 mil per annum. This should lead to earnings accretion of RM3.3 mil. Based on 40 mil shares, EPS should be enhanced by 8.2 sen.
The acquisition was completed on 3 August 2015. The September 2015 quarterly result reflected 2 months contribution from PBSB.
4. Concluding Remarks
(a) As mentioned above, the weak Ringgit will boost export profit margin but at the same time will result in higher import cost. But this could be offset by lower raw material cost caused by low oil price.
There is not sufficient information for us to determine the exact effect. But the September 2015 quarter showed a massive expansion of paint division profit margin from 14% in FY2014 to 28%. We will just have to wait for next quarter result to see whether it is sustainable.
(b) The group's car paint business is resilient as the customers are from the refinishing segment.
The acquisition of construction division will result in EPS accretion of at least 8 sen per annum over next 2 years.
Not all people are comfortable with growing by M&A. Neither am I. But for this particular case, I decided to close one eye and not think too much.
No matter what you say, the group's earnings visibility for the next two years (until 31 December 2017) will be quite good.
Two years is a long time, many things can happen. But this is the stock market, no risk no return. |
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Discussions
7 people like this. Showing 50 of 62 comments
LOL baby doll, barbie doll, babi doll, all she can play, but don't play real share
2016-01-18 23:08
Paperplane, i suggest u go buy so puzzle, monopoly, UNO cards or baby doll play with desa better...both of you suck
2016-01-18 23:09
Everytime i look at paperplane name come out in forum...i sure laugh 1st because i know that what i gomna read from his latest statement sure is a joke from a moron 3 billion fund manager...hello 2 bilion, i think you manage 3 billion from your monopoly games la
2016-01-18 23:11
Tkp2...dont blame him la..he expert in playing barbie doll, got -5% consider biggest achievement in his life lo...paperplain..i laugh at u non stop
2016-01-18 23:14
I am skeptical of the acquisition. This is because its balance sheet has deteriorated significantly. Goodwill is up RM30m, Accounts Receivable up RM40m, Long-term loan up RM40m, Accounts payable up RM18m and Cash down RM9m. Optimistically assuming all Accounts Receivable is collectible (though it is more than 6 months of sales, very slow moving), the company's net tangible asset is RM67m or RM1.67 per share worse off now than 9 months ago. It took big loan and pay its own cash for a business that comes with lots of accounts receivable and payable. I will give it 50/100 points for value proposition at the current price. My guideline: 80/100 is the minimum a share must score for me to place my money on.
2016-01-18 23:18
KB, long story, last year he bought Asdion wa to convert to Asdion to arbitrage, and suddenly Asdion mother drop gua gua. Me and Icon keep laughing at him, until he can't tahan and show us the proof in excel spreadsheet that he instead make somemoney, and in that spreadsheet, it show a profit of RM700, but before that he keep bluffing he earn big money, hahahaha.
2016-01-18 23:21
Hahahahaha...rm700? Walao...i one day also can earn rm700 in my char kueh tiow biz liao la...he is 3b fund manager la...but i just discover paperplane is 3b fund manager of monopoly game...laugh die me
2016-01-18 23:23
LOL, so now you know, he is just tiny small retail player, I guess his fund is around RM5k
2016-01-18 23:25
Posted by Koon Bee > Jan 18, 2016 11:26 PM | Report Abuse X
Let it go...let it go?? U go play lego better la...paperplane why u like playing toy and monopoly games but not real stock market?? Barbie doll la, monopoly game la..lego la...i dunno maybe next thing u play is cooking or masak masak...hahahahahahha...my stomach so pain
2016-01-18 23:27
Walao...700/5000 really not bad liao lo...gv him another 20 years..maybe his 5000 could become 50k...hahahahahahhahah...5k fund said 5k la..apala talk nonsense 3b fund manager
2016-01-18 23:28
Paperplane result:
Started amount rm5000
2015 : profit rm700
Total fund RM5,700
2016: loss -5% (-rm285)
Total fund RM5,415
Hahahahahahaha
2016-01-18 23:31
Aiyoh...when this rm5415 will become 50k? 30 years kah?? I think my maid can earn better than paperplane
2016-01-18 23:33
Paperplane panic today because he saw DJ drop another 390 point which is the same on last friday...but he dunno today DJ close shop...hahahahaha...laugh die me...i laughing non stop 1/2 hour on his stupid statement
2016-01-18 23:35
Tkp2, luckily just now u correct paperplane tonight DJ close...if not tomorrow he panic selling his air asia, rm5415 become rm4k++ only...hahahahaha
2016-01-18 23:36
maybe he thought his computer got problem, tomorrow spend 2K buy computer, then only left 3K for him to play stock
2016-01-18 23:41
This is really a joke of 2016
Joke 2015 is rm700
Joke 2016 is this DJ -390 point joke
2016-01-18 23:46
KB, let's keep track of his stupidity:
Joke 2015 is rm700
Joke 2016
1) -5% target
2) DJ -390 point joke
2016-01-18 23:48
Good morning..aiyoh paperplane, DJ open -390 point and closed -390 point leh...you panic now...hahahaha...by the way this poor paperplane not aware Dj was close yesterday until tkp2 have to remind him...hahahaha...3b fund manager woh...shame of u la paperplane
2016-01-19 08:42
this guy going everywhere attack ppl after losing lots of money in geshen, comcorp, tguan etc..........list too long
2016-01-19 12:32
wow when icon8888 sifu write article the stock sure up 。 icon8888 sifu many follower 。icon you got buy iqgroup right ? Write about iqgroup let me earn little milk money to my son。prtasco .... Tat all also good company , I buy at low price but not yet up 。
2016-01-19 18:18
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Icon8888
paperbrain mah
2016-01-18 23:07