Stock to Watch: SPSETIA (8664)

Hi Readers,

Budget 2020 is around the corner and there are several sectors that were not doing well for the past one year and especially the bearish property sectors as shown in Image 1. Apart from huge properties overhang, we are also seeing strict lending requirements. There are growing calls from the industry for government intervention to help with the properties overhang situations including lowering the minimum requirement for foreigner to purchase properties in Malaysia. Nevertheless, there are some signs that recent downtrend is significant enough that its forming a falling wedge patterns. Yet to be known on whether reversal is in the horizon. 

Image 1: Bearish property sectors

Knowing that the overall sector is bearish, the question here is that are there any value hidden in property stocks. Value investing focuses on strong financials within the company while the share price offers attractive margin of safety. Hence, the requirements would be share price going down while value going up. Strong financials to be would be improving operating cash flow, free cash flow and value to shareholders from dividend perspective. 

As such, I started digging into SPSetia (8664) after reading its recent quarter report and corporate presentation for 2019. SP Setia Bhd is a general real estate company that reports in three segments: property development, construction, and other operations. The vast majority of Setia’s revenue is generated by its property development business, which focuses on developing residential and commercial facilities, followed by its construction segment. Setia’s construction segment focuses on building and highway construction. The company considers merger and acquisition investment as a component of its operational growth strategy.

It is not a surprise that current share price of SPSetia continues to be on a downtrend as shown in Image 2. The downtrend is significant enough that a falling wedge is also forming based on the recent price actions. Looking at the trend in the image, SPSetia attempted breakout from downtrend line and only to fall into sideway consolidation within the range of $1.39 to $1.50. It is also good to take note that overall trading volume is on the rise recently which is good. 

Image 2: SPSetia falling wedge formation and entering sideway consolidation

Next is to look at the overall financials from cash flow perspective and corporate strategy. To do this, I have extracted the financial information from its annual report, recent quarter report and also information from its 2019 corporate presentation summarize in Image 3 and Image 4. Looking at the summary in Image 3, the operating cash flow and free cash flow for SPSetia is growing at a rate of 12.4% and 28.1% respectively at the back of declining share price. Additionally, there are 4 key areas that SPSetia is focusing on currently especially on the clearing unsold stocks and disposal of non-strategic land banks. Both of these actions will further strengthen its financial in future. It is progressing well thus far as we are seeing a reduction by 12% in its unsold stocks shown in Image 4. 

Image 3: Financial information extracted from annual report, quarter report and 2019 corporate presentation

Image 4: Strategies adopted by SPSetia extracted from 2019 corporate presentation

SPSetia has been paying dividend yoy as shown in Image 5 and 2019 dividend payout is trending at $0.09 cents. There is also a range of target price (TP) provided by investment banks (IB's) recently. While I have my own calculations on what is the appropriate target price in the long term, I have included both calculations in Image 5 to determine its intrinsic value. Using the lowest target price by Kenanga IB which is $1.85, the intrinsic value is at $1.54 while using my own target price, the intrinsic value is at $1.78. In both cases, the current share price is below its intrinsic value based on 0.09 cents dividend payout yearly.

Image 5: Dividend payout yoy and IB's TP. Calculating intrinsic value using IB's target price and my own TP

Going back to value investing, current share price is on the downtrend well below its intrinsic value while cash flow is going up which is meeting my own criteria. Combining both the technicality and financial aspects of SPSetia, few possible trade setups that I am considering:

• SPSetia as Dividend stocks
• Entry: Buy below intrinsic value
• Exit: When it reaches the target price
• Remarks: One can leverage the power of zero cost averaging when the price hits your own target or when it hit the target valuations to generate additional cash flow. 

• SPSetia as Trading stocks
• Entry: Breakout above the upper line sideway consolidation (>$1.50). 
• Stop Loss: $1.39 and below
• Exit: According to your own rate of returns or the levels (Image 1)
• Remarks: Aggressive trader can consider to buy at lower range of sideway $1.39 if the support here is not broken. 

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 as this article is not a recommendation to buy/sell.

Astro (6399)

Hi Readers,

Back in June 2018, Astro was removed from the 30 stocks of FBMKLCI component index following a semi annual review by Bursa Malaysia and FTSE Russell.  This is due to the fact that Astro was among the worst performers as of Nov 2017 when the KLCI was last reviewed as its market cap fell by 53.9% to RM6.83 billion from RM14.8 billion on Nov 30. The share price dropped from a high of $2.90 in Oct'17 to low of $1.30 by May'18. A new low of $1.05 by Nov'18. 

What has changed since then was that Astro share price was moving within a major triangle consolidations as shown in Image 1 below. 

Image 1: Astro share price performance

The fact that it is in triangle consolidations, there is possibility that it will trigger a breakout upwards or downwards. Hence, there is a need to dig further into its performance and future trends to determine trading/investment opportunity.

Astro shares is heavily owned by institutions; more than 87% based on the top 30 shareholders list in its annual report. Any move by institution tends to be a strong signal as institution has access to information that retailers does not have. It will be months later before retailers get a hand of the information. To observe institution moves, I am depending on the top 30 shareholding list in annual report; which is a year later. Hence, I did a comparison between top 30 shareholders in 2018 annual report and 2019 annual report. While there are changes, the ones highlighted in red in Image 2 are new addition to the list.

Image 2: Top 30 shareholding based on 2019 annual report

Based on the changes above, there is evidence that the funds/institutions believed that Astro will continue to pay dividend and possibly undervalued. Looking at its financial performance and dividend yield as shown in Image 3, I did an estimate calculations to determine its intrinsic value as shown in Image 4 using target price of $2.00 given by investment banks (IBs) such as Public Bank and Kenanga.

Image 3: Astro FY19 Quick Facts and Financial Highlights extracted from its 2019 Annual Report

Image 4: Astro's Intrinsic Value

Using the target price given by IBs of $2.00 and assuming Astro continues to pay 9 cents dividend per share and my 15% required rate of returns, the intrinsic value for Astro is $1.65. What it meant for me is that if Astro share price is below its intrinsic value, its a good buy based on its dividend payout. 

Combining both the financial performance and technicality of its price actions, few possible trade setups can be considered:

• Astro as Dividend stocks
• Entry: Buy below intrinsic value
• Exit: When it reaches the target price
• Remarks: One can leverage the power of zero cost averaging when the price hits your own target or when it hit the target valuations to generate additional cash flow

• Astro as Trading stocks
• Entry: Breakout above the upper line of the triangle (>$1.42)
• Stop Loss: $1.23 and below
• Exit: According to your own rate of returns or the levels (Image 1)

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 as this article is not a recommendation to buy/sell.

Homeriz on the move

Hi Readers,

Back in July, we shared Homeriz (5160) due to its attractive dividend yield. You can refer to the archive in July folder. Below is the recap of the trade setups:

Possible trade setups:
Entry: Below $0.66
Stop loss: $0.58 and below
Target profit: According to your rate of returns or the levels above
Remarks: As this is considered a dividend stocks from my perspective, one should hold as long as the company continues to pay dividend at minimum of $0.025 cents per year. One can leverage the power of zero cost averaging when the price hits your own target or when it hit the target valuations to generate additional cash flow.

There is a noticeable consolidation since then but did not trigger the stop loss of $0.58 cents as shown in the updated chart below. Right now, it is showing interesting move particularly last Friday whereby a noticeable gap up above the 50 days moving average with high volume. Technically, that is a breakout and there is sufficient evidence that it will continue its move upward. Unless the gap closes, any minor retracement moving forward is a good opportunity to add in. In any technical chart patterns formation, it takes time and one should take note of that.

Additional point to take note is that Homeriz is expected to report its Q4'19 performance by end of October. As we know, trade wars between US and China has resulted in additional tariffs on furniture from China and this goes well for Homeriz. Seasonally, second half of the year tends to be a stronger quarter performance for furniture counters and we have seen Poh Huat reported a good QR last Friday as well. (+18.19% qoq and +22.49% yoy).

Homeriz: Breakaway gap on 20th Sep and possible rounding bottom/complex inverted head and shoulder formation 

Homeriz: Financial performance improved strongly compared to the previous year

Looking at both the financial data and technical chart, there is evidence that Homeriz will continue its uptrend. Having said that, there is always a risk that there may be surprises in quarter reporting and hence, one can exercise cost averaging by selling a portion of your winning position to lower down your average when the opportunity arises as you continue to ride its trend at the back of improving QR and higher dividend payout. 

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 as this article is not a recommendation to buy/sell.

Waiting for improved sentiments

Hi Readers,

Some of you have been asking to post more articles or trading stocks over the last few weeks. My response was that the market breadth is still weak and its better to stay sideline while waiting for the for improved sentiments. I am in the opinion that we can start to pay attention to the market now. Looking at the KLCI performance in Image 1, it is currently on a sideway consolidation (shaded in blue). On 30th Aug, it attempted a breakout from downward trendline and only to see it going back into sideway consolidation on 3rd Sep. This was due to MPC decision to maintain the OPR rate after 25 basis points cut in May'19. Hence, still waiting for KLCI index to break above 1611 at the back of improve global sentiments.

Image 1: FBMKLCI Performance on Sideway Consolidation

Additionally, central banks worldwide are announcing rate cuts as well in order to boost respective local economies due to the uncertainties of global slowdown, escalating trade wars and possible a messy Brexit. Below are some of the rate cuts by central banks recently:

• European Central Bank (ECB) announced rate cuts and quantitative easing for eurozone on 12th Sep; interest rates reduced by 10 basis points
• Turkey and Denmark announced rate cuts on the same day as ECB rate cuts
• US Fed announced rate cuts of 25 basis points on 18th Sep
• China lowered its lending reference rate to 4.25 per cent from the one-year official benchmark of 4.35 per cent
• At the point of writing, there are more than 30 central banks around the world have cut interest rates this year in the effort to boost up local economies

The impact of the rate cuts will take effects gradually while central banks continues to monitor the risk of external headwinds mentioned above. While rate cuts is intended to boost local economies, it may have an impact to the currencies as well. A cheaper currencies will be good for exporter but resulting in more expensive imports and thus bringing inflation into the picture. If there is no growth, there is no inflation as the saying goes.

Having said that, its good to start observing the market especially on undervalued counters that got beaten up. An improved sentiments in coming months will definitely help it recover towards its fair value. 

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 as this article is not a recommendation to buy/sell.