Invest into Nestlé Malaysia Berhad (4707)

NESTLÉ (M) Bhd’s share close RM145.50 on last Friday 17 May 2019. For past one year, it has hoovering between RM143 and RM150. Nestle is the highest-priced counter on the local exchange. Nestlé is the confectionary giant from Swiss

The fast-moving consumer goods maker now trades at 51.5 times, trailing 12-month earnings per share. Nestlé currently yields 1.92%, the yield is dropping with the price appreciated. If I can remembered correctly, the yield for Nestlé was 4% in year 2013 with the price hovering around RM68. Nestlé has grown its dividend every year since 1996, and its dividend has grown at a 12.5% annual clip since 2001. (Note: these rates are in the company’s reporting currency, the Swiss franc.)

I cannot forecast how will Nestlé grow in future. Looking back 40 years ago, my parent drink Milo, I drink Milo, and my son is consuming Milo everyday also. With this I have no doubt: 30 years from now, Nestlé will still be in business, and the company will be selling a lot more food and drink products than it is today.

Other than Milo, Nestlé other portfolio are big sounding names that most know and heard of like Kit Kat, Movenpick, Nespresso and many more. I just back from cuti-cuti Malaysia at Batu Ferringhi, Penang. During the 3 days there, my family brought a lot of Nestlé products like Milo, Nescafe, Maggi Mee, Kit Kat, Koko Crunch etc….

These are the kinds of products that tend to have stable demand, even in a recession. Times would really have to be hard for a person to forgo ice cream or chocolate candy.

My previous investment story

In 2013 June, I was introduced to value investing, is my first year investing to KLSE. One of the stock we evaluate is Nestlé. First impression is Nestle is damned ‘expensive’. It was cost around RM68 at that time, and it is the highest stock in the KLSE. Technically it is expensive because to buy the minimum number of 100 shares, you would have to pay RM68 x 100, which comes up to RM6,800 at that time. I still recalled that in the class, everyone saying it is expensive. The instructor told us, if you comment expensive, it will be even higher in the times to come. It is true that the price already double in just 6 years!

For current Price at RM145.50 x 100 shares = RM 14,550

Look back what I did at year 2013 with below details,

I bought in 200 shares of Nestlé Malaysia Berhad (4707) with average price of RM68.60. I am impatient and sold it after 1.2 years. Only able to pocket in 1% profit. What if I did not sell and hold till today?

 Based on the above, CAGR calculation, Nestlé Malaysia Berhad (4707) has performed at 13.52% growth rate. A phenomenal growth for a stock in just a span of 6 years. I looked like a dumb now if I am patience enough to hold it till now. I trust there are a lot of people out there like me.

My next investing Strategy for Nestlé

Nestlé is not as hard-hit during economic crises. AS you can see, even with one year of holding in 2013 till 2015 the price do not increased much. So let's not expect huge 10% – 20% jumps in stock price from Nestlé. Instead, you will get a steadily increasing flow of dividends and capital gains (long term).

While having lunch with my ex-colleague last Friday, since this is "Expensive" stock, she is suggesting to save up the monthly income to buy into Nestlé regularly, e.g 6 months for 100 units. or 12 months 100 units when there is yearly bonus payout. 

Below are the 2 strategies defined, you may re-do based on your ability.

What will be you comment? Do leave a comment below or suggestion.

Can I trade with RM6000 capital?

Since we published the trading idea, there are a lot of newbie interested and have wrote to ask how to start if they only have RM6000 only. In this article, I am sharing with you one of our student following our article and trade accordingly to her own style.

For many newly established investors, the prospect of actively trading in the markets can be intimidating. Although mastering the markets may take years of patient study and practice, there are a variety of relatively straightforward stock trading strategies that you can begin using right away.

Trading Strategies for Beginners

Before you get bogged down in a complex world of highly technical indicators, focus on the basics of a simple trading strategy. Many make the mistake of thinking you need a highly complicated strategy to succeed in trading, but often the more straightforward, the more effective.

Key elements:

Money management – Before you start, sit down and decide how much you’re willing to risk. You have to prepare yourself for some losses if you want to be around when the wins start rolling in.

Time management – Manage your time well by doing some study and research. Look out for opportunities when market is dipping.

Start small – Whilst you’re finding your feet, stick to a maximum of three stocks during a week. It’s better to get really good at a few than to be average and making no money on loads.

Education – Understanding market intricacies isn’t enough, you also need to stay informed. Make sure you stay up to date with market news and any events that will impact your asset, such as a shift in economic policy.

Consistency – DO not let your emotion kick in. You need to let maths, logic and your strategy guide you, not nerves, fear, or greed.

What is her result?

From March 2019 onwards, she choose 2 stocks from the following articles:

i) PARKSON (5657)

ii) Trading Ideas - LIONIND (4235), MRCB (1651) and CCK (7035)

Stock she picks for her trade are:

a)      Parkson

b)      CCK-WA (she choose Warrant due to lower entry cost compare to CCK)

Since she only has a capital of RM6000, she has to control each trade below RM6000. Her target is to make at least 7% gain for each trade. Her first trade is on Parkson and make 6.9%.

Subsequent 2 trades is on CCK-WA and both trades make 7.5%. Refer to below for the details of each trade.

You may think that the result is not fantastic, but for a beginner with starting capital of RM6000, the result is incredible. She is not spending too much time on the screen. Just follow the trades advice given and wait to close. You can see, only 3 trades in 2 months.

With capital of RM6000 and earn RM875 in 2 months. The yield is 15%!

Stock to Watch: UCREST (0005)

Good day to everyone,

The week started with a surprise from Donald Trump on the tariffs threat on Chinese products. The message spooked the global market worldwide with DJIA down by 500 points before recouping some of the losses when the market opened and China market was down by 4%. KLSE was not sparred and it was an opportunity to start looking again. Hence, I was looking at my charts / watchlist and UCREST (0005) caught my attention again 😄 My friends would have recalled back in May'18 whereby I have asked them to buy Ucrest during Ivan's wedding dinner. We were riding the uptrend all the way until 0.40 cents and sold out everything by then. 

UCrest Bhd is a technology provider company which engages in network design, product development, and software development. The firm provides a solution for broadband, wireless and networking products, and services. The company provides technical services to customers such as Telco, ISP, broadband operators, hotel operators, property developers, enterprises and wireless hotspot operators. The groups are engaged in projects related to networks, security systems, and the Internet of Things (IoT) Cloud software application areas. Majority of the revenue comes from the sale of the Internet of Things (IoT) Cloud hardware platform. The company makes its major revenue from Sales of Goods segment and has operations in Russia, Malaysia, and Singapore.

Why would I look at my charts whenever market is spooked? The inspiration came from none other than Warren Buffett:

Quote from Warren Buffett

Its easy to just say the quotes but how do you apply that? For me, it boils down to the homework that has been done upfront and waiting for the opportunity. Below are the steps that I am using:

1. Pre-work:
• Create a watchlist of stocks that you are following. A list of 20 to 50 stocks is good and if you can do more, its even better.
• Update each individual stocks valuations and its charts (support, resistance, key SMAs)
• You can choose to use some apps with stock alerts like KLSE Screener or Chart Nexus (paid subscriptions) that will trigger you when your watchlists triggered the price actions that you have been waiting for.
2. Monitoring:
• When it triggers, check its fundamentals (latest quarter report or annual report or any red flags) and its technicals. If there are no red flags, then, you make a move with your predetermined trading plan (entry/exit). 
• Once done, you wait again and follow your trading plan. 

Back to Ucrest, my last entry in May'18 was at $0.205 and since exiting at $0.40, I have been waiting for it to come down again. Yesterday market panic brought Ucrest down to $0.22 cents and triggered the alert that I have set since last year.

Image 1: Daily Ucrest Chart

Image 2: Weekly Ucrest Chart

Image 1 showing technical support at $0.22 while mid term support at $0.20. It is currently at oversold region as shown in Image 1. As for Image 2, the 200 days MA for the weekly chart is at $0.175. Technically, Ucrest is approaching a level that is very attractive for trading.

I did a check on its financials to ensure that there are no red flags and below is the summary extracted for Ucrest:

Image 3: Ucrest last 2 years financial performance

Looking at the financials, a quick glance would have been red qoq and yoy performance. 😃 It is true indeed. However, have a look at its net profit margin (NP Margin) and its higher compared to the previous year despite lesser quarterly revenue. If you were to look at its 2018 Annual Report, you will notice that Ucrest spent most of its earnings on intangible assets as shown in Image 4. There is strong evidence that Ucrest is moving towards higher net margin and profitability in future. Intangible assets are typically intellectual property - patents, copyrights, proprietary softwares. In the case of Ucrest, it is the proprietary softwares. 

Image 4: Extracted from Ucrest 2018 Annual Report

Looking at the technicality and the fundamentals of Ucrest, my personal opinion is that this should be in your watchlist as well. 

Possible trade setups:

Entry: $0.22 +/- 3%

Stop loss: $0.17 and below

Target profit: According to your rate of returns or the levels above

Remarks: One can split the entry into multiple transactions as part of risk management on your capitals. Watch for the support level. A reversal at the support level indicates a move towards upside. 

Good luck and all the best!!!

Disclosure: The information above is for sharing purposes without any understanding of investment targets and needs of readers. References to the price movements 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/sell.

Trading Idea: LIIHEN (7089)

Hi Readers,

First of all, Happy Labor's Day and Selamat Menyambut Hari Buruh to all my friends, family members and all readers. May you have a great day and time off with your family and friends. Last month trading ideas did well though CCK started on the negative end only to end in the positive region as of last Friday. It was a good month for all our readers and the rebound in KLSE market lead to improving market breadth. 

Here we are again looking for new trading idea and I would like to bring your attention to LIIHEN (7089). Lii Hen Industries Bhd is engaged in the manufacturing and sale of furniture. Its products include bedroom sets, occasional products, utility products, sofa sets, buffet and hutch products, dining furniture and others. In addition, the company is also involved in Plantation and other segments. Plantation segment cultivates rubberwood trees, and Others segments include the firm's investment holding activities. Geographically business presence of the group can be seen across the Malaysia, USA and in other countries of which USA regions account for the majority of revenue.

LIIHEN has just published its annual report and it continued to demonstrate double digit percentage sales growth which is impressive and has been growing for the last 10 years. 

Image 1: Liihen 10 Years Revenue Growth, Net Profit (NP) Margin and ROE

There were blips in 2017 on its net profit margin and ROE due to the higher raw material cost, labour cost (minimum wages) and also forex impact. As can be seen from the chart, the profitability started improving again in 2018 while the revenue continued growing.

Technically, looking at the daily chart, one may easily think that its a downtrend. However, my recommendation would be to look at weekly chart. From the weekly chart shown in Image 2, it is obvious that Liihen price action is a consolidation and going through a healthy retracement. In fact, Monday's price action stops at the 200 days MA at $2.57 and on Tuesday, the price rebounded to close above the 200 days MA pointing to strong support.

Image 2: Liihen Price Actions against key SMAs. Support at 200 days MA

In summary, I personally believed Liihen offers an attractive opportunity for us to trade for the coming months due to the reason below:

1. Growing sales and profitability despite the slowdown in 2018 as can be seen from Image 1
2. Healthy weekly consolidations and supported by 200 days MA as shown in Image 2
3. There is only 180M shares for Liihen and its small cap. As we know, small caps returns has been on the positive side so far. And at such a small market cap plus positive profitability, it can easily move up
4. I did a valuations on Liihen based on its 2018 annual report reported free cash flow. Based on 180M shares, per share value is estimated at $3.61. Current share price offering close to 30% margin of safety. Its definitely an attractive opportunity for such a strong fundamental counter
5. Overall market breadth is improving and we have the power of overall market supporting us

Possible trade setups:

Entry: $2.69 +/- 3%
Stop loss: $2.13 and below
Target profit: According to your rate of returns or the levels above
Remarks: Watch for breakout above $3.20; Liihen will be reporting its Q1'19 earnings by end of May and I will be watching that as well. If the revenue generated is at the range of 190M to 200M, Liihen is on track for a great year.




Once again, Happy Labor's Day, Good luck and All the best!!!




Disclosure: The information above is for sharing purposes without any understanding of investment targets and needs of readers. References to the price movements 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/sell.