Sleeping Giant: WASEONG (5142)

Hi Readers,

I was in KL attending training and had the opportunity to catch up with my friends (some of you😉) and you were asking for other energy counter that I plan to buy in after Dayang. My response was give me some time to dig into the sector again. For new readers, Dayang was shared to my friends back in October'18 and second buy in February'19. By the time it reaches $1.50, everyone is out from this counter. The simple rationale behind the exit is because the "positive" earnings is still lower compared to its performance at the peak in 2014. Will I buy in to Dayang again? The answer is yes when the opportunity arises due to (1) technical analysis (2) sustained improving performance. After going through the energy sector, WASEONG (5142) which is still undervalued and beaten up caught my attention. It is always safer to buy when prices are at a cyclical low than when its high and hitting the headlines.

As we all know, crude oil is the energy staple for most of the inhabitants of planet earth, and actively traded commodities. The price of crude oil is extremely sensitive to geopolitical events. In other words, energy sectors is cyclical. I will not go into the details of difference between Brent crude oil and WTI crude oil as you can research about it on the web. Similarly, I will also not go into the details between the upstream and downstream energy related businesses. 

First thing first, lets look at how did I arrive at Waseong selection. To do so, I look at the overall energy sector again and picked the service providers that could benefit from the crude oil price recovery in long term. Then, I filtered it down to by market cap and also the company must be reporting positive PE. As such, I was able to shortlist 8 service providers that met my initial screening criteria as shown in Image 1. I have also included the valuations from Price / Book perspective as I am looking to buy at cyclical low. With that, I was able to further shortlist Waseong and UZMA (7250). Next, I started to look into its financial performance specifically profitability and clean balance sheet - ROE%, ROA% and debt/equity as shown in Image 2. By looking into Waseong and UZMA profitability and balance sheet, I was able to further zoomed it down to Waseong which is more attractive compared to UZMA. 

Image 1: Shortlisted 8 service providers that reported positive PE

Image 2: Profitability of the 8 shortlisted companies

Let's look at the cyclical trends and correlations between Waseong and crude oil price as shown in Image 3. It is clearly observed that both the high and lows for Waseong and crude oil price is happening at the same time. There is a strong correlations. Since 2016, crude oil price has been making its recovery and so does Waseong. However, starting 2018, Waseong share price dropped significantly compared to the crude oil price. In fact, crude oil price corrected up towards early of 2019 but Waseong share price stayed beaten up. The divergence at this point triggered me to dig deeper into what is happening. By looking into its historical book order, it is obvious that the book order directly influenced the sentiment of Waseong as shown in Image 4; thus causing the divergence.

Image 3: Cyclical trends and Correlations of Waseong and Crude Oil Price

Image 4: Waseong Book Order by Q4 each year and % by Category

While Waseong share price continued to be beaten up, there is a range bound opportunity within the cyclical trends which is between $0.81 to $1.70 as shown in Image 5 driven by its book order. Any increase of its book order reported by end of each quarter will definitely help to boost the sentiment of this counter; thus awaken the sleeping giant!

Image 5: Waseong Share Price Range Bound ($0.81 to $1.70)

As shown in Image 3 that Waseong share prices correlated to crude oil price, hence, the risk that I am watching that could affect  crude oil directions in coming weeks:

1. Higher oil prices:
• Strong oil demand in US and US oil exports is growing
• Oil sanctions on Venezuela and Iran resulting in lesser amount of oil in the market
2. Lower oil prices
• Slowing economy in Europe resulted in declines of European oil market
• Chinese demand for oil as economic indicators pointing to slowing activities. Oil prices tends to drop in response to weak factory activity and export data. 

My strategies to invest (longer holding time) in Waseong:

1. 1st buy: 
• Risk buy - Initiate a buy and choose to set a stop loss at $0.70 cent and below or further sluggish book order. 
2. 2nd buy:
• Whenever share price of Waseong closes the gap down on 26-Feb-2019. Share price to close above $0.88 cents
3. Subsequent buys:
• Whenever Waseong is awarded new contracts resulting in increase of book order; total book order showing increased trend reported by end of each quarter
4. Target Profit:
• Following rate of returns, or
• The levels shown in Image 5
5. Managing risk/reward:
• Splitting the buy in into several transactions is to ensure that I keep my average price low enough in such that you minimize risk and maximize reward.
• Personally, I will try to keep my average price below $1.00 

Separately (being conservative), I can always start my 1st buy when share prices of Waseong closes the gap down and $0.81 becomes the support or stop loss level. 

Other strategies to trade (shorter holding time) the services company shortlisted above: (exclude Waseong)

1. Pick a few high profitability and clean balance sheet companies (use image 2)
2. Perform technical analysis on the selected counters
3. Develop a trading plan and execute accordingly
4. Monitor the performance of the companies traded and its technical

Disclosure: The information above is for sharing purposes without any understanding of investment targets and needs of readers. References to the price movements and fundamentals data is informational based on my analysis and data obtained from sources believed to be reliable at the point of writing. Please do your own due diligence before initiating a position as this article is not a recommendation to buy.

Good luck and all the best!!!

PARKSON (5657)

Hi Readers,

Back in February, I posted an image with quotes from Michael Covel: Trading is a waiting game. You sit, you wait and you make a lot of money all at once. And, for the month of Mar, I would like to share a quote from Warren Buffett: The stock market is a device for transferring money from the impatient to the patient. 

The commonality between the two beautiful quotes is that Patience is utmost important in trading or investing. The amount of hard work combing through financial reports for opportunities or red flags and charting the particular equity/stock/counter for entry/exit trading plan goes a long way.  Once a position is initiated, what is left behind is patience. Bitter it may be but its fruit is always sweet. Hence, Cash and Patience is King at the end of the day. 

With that, I would like to share Parkson (5657) which is famous for its brick and mortar retail business and decade long decline share prices. Unfortunately, no one dares to touch Parkson due to its declining business and share price. Is it really that bad or is there something in Parkson that is worth taking calculated risk and wait?

Fundamental analysis:
In this analysis, I have added AEON and PADINI for comparison with Parkson as both are considered to have huge presence in terms of retailing business. As there are many factors to be considered with regards to fundamental analysis, my personal pick is the net cash on hand as it represents the ability to sustain the business. The growth in e-commerce has definitely challenged the brick and mortar retailers to rethink their business model. Based on the data in Image 1 below, Parkson has the highest net cash position and considered to be cheap (at current price) from valuations perspective.

Image 1: Net Cash and Book Value per Share

Technical analysis:
Personally for me, the decline is within the wave 3 of major bearish trend (Image 2) and has yet to break to a new low. Recent development of its price actions which is a mini rounding bottom (Image 3) observed may have supported the earlier projection of wave 3 completion. If this is true, we should be expecting a wave 4 which is a correction to the major bearish trend (Image 3). Wave 4 formation should be a rounding bottom as well. 

Image 2: Wave count projections for Parkson (5657)

Image 3: Mini rounding bottom observed for Parkson (5657)

Image 4: Rounding bottom projection of Parkson's Wave 4

The price actions following the completion of the first mini rounding bottom pattern (Image 3) will be slow and maybe subjected to frequent interruptions to the extend of tiring out the impatient investor, but there is a possibility of yielding eventually a significant profit. This counter is not suitable for trader hoping to trade for short term gain. I prefer to keep this in my portfolio for a longer period of time. I will be on the lookout for potential upside to $0.45 cents and a breakout beyond this level with high volume will bring it further to $0.65 cents.  

Disclosure: I have been holding Parkson since 2018 and the analysis above is based on available data extracted from sources believed to be reliable at the point of writing. I have no business relationship with Parkson and the information above is purely my own opinions. Please do your own due diligence as this is not a recommendation to buy.


Good luck and all the best!!! 

Bearish outlook on TOPGLOV (7113)

Hi Readers,

Some of our friends requested for opinions on TOPGLOV (7113) and we are more than happy to share it with everyone. Disclosure: I/We do not have any positions in Top Glove and do not intend to initiate positions until share price of Top Glove reaches a rather cheap valuations. The information below is for sharing purposes without any understanding of investment targets and needs of readers. References to the price movements and fundamentals data is informational based on my analysis and data obtained from sources believed to be reliable at the point of writing.

Summary of Red Flags:

1. Potential ringgit strengthening against USD to 3.95 - 3.86 range will further erode Top Glove's net margin despite maintaining/improving the revenue (Image 1)
2. On going litigation between Top Glove Corporation Bhd and Top Care Sdn Bhd against Adventa Capital Pte Ltd which may last until end of 2019
3. Higher days of inventory and lower inventory turnover based on Top Glove's report which could signal overcapacity in the glove markets (Image 2)
4. Current share price signalling selling pressures since the high of  RM6.36 and has been going downwards since then. A failed attempt to break above RM5.20 (down-sloping neckline; unusually weak) on 20-Feb further signaled that bear is taking over (Image 3)
5. Overall KLSE Main Market Health Care Sector Median PE ratio at 24.68 while Top Glove's PE ratio is at 27.29. Current Price/Book of Top Glove is at RM4.9 versus 5 years average of RM3.70

Image 1: USD/MYR Potential Trends Pointing to MYR Strengthening

Image 2: Top Glove Inventory Management Performance

Image 3: Price Actions of Top Glove

Possible trade setups as below:

Aggressive Trader/Investor:

Entry Price: RM4.22 +/- 3%

Stop Loss: RM3.60 and below

Exit: According to your target rate of returns / the levels in the chart (image 3)

Conservative Trader/Investor:

Entry Price: Watch for reversal at RM4.22 / RM3.60. Reversal as in price going below the levels and rebounded above. 

Stop Loss: Either RM4.22 (if entry above RM4.22) or RM3.60 (if entry above RM3.60

Exit: According to your target rate of returns / the levels in the chart (image 3)

Good luck and all the best!!!