SAMCHEM (5147): A piece of rock? A gem? A gem of the old rocks?

Hi Readers,

Good evening and I hope that all of you had a great weekend with your family. There were asks on SAMCHEM (5147) recently on whether it can be considered as a growth stock for long term investing.  There were concerns on its debt level too despite breaking the RM1 bil revenue mark. Is Samchem a piece of rock or a piece of hidden gem? A recap of what I shared previously on what it meant by sustainable growth stock: one that has constant increase in sales growth outpacing profit growth, one that continues to re-invest its earnings. Such stocks will eventually perform better than the unsustainable growth stocks.

Samchem Holdings Bhd is Malaysia based chemical distributor firm. The company and its subsidiaries operates in two segments namely, Chemical distribution and blending which comprises of distribution of polyurethane (PU), intermediate, specialty chemicals and blending of customized solvents and Audio video and ICT distribution segment, which deals in Retail sale of audio video and trading and distribution of information and communication technology (ITC) system. Most of its revenue is earned from chemical distribution and blending segment from Malaysian market, whereas remaining through Vietnam, Singapore, and Indonesian market.

Let's dig into its financial performance for recent years and I have put up the quick facts in the images below. As shown in Image 1 below, 2016 and 2017 was a good year for Samchem and the share price moved up gradually from $0.40 cents to high of $1.27 by end of 2017/Jan'18. Thereafter, the share price started moving downwards until cum to date. Further drilling into its financial reports yielded a situation of smaller profit margins at the back of growing revenue, and negative cash flow in 2017 and 2018. That explained the decline in its share price. 

Image 1: Samchem's financials extracted from klse.i3investor web page

Let's drill deeper into its financial performance and I have put up a summary of the findings which includes its revenue growth, profit growth and also its debt as shown in the images below. Image 2 showing the ratios and margins extracted from Wall Street Journal and also the cum to date (ctd) consolidated statement of cash flow from its recent Q2'19 QR. Additionally, I have also computed the recent years revenue, profits and cash flow performance.

Image 2: Samchem's ratios and margins and snipshot of consolidated statement of cash flow from Q2'19 QR

Looking at the summary above, the revenue for Samchem is growing faster than its profit growth. Malaysia, Vietnam and Indonesia segment growth is impressive and less significant from Singapore. It is also noted that 2017 and 2018 recorded negative cash flow as mentioned earlier and that explained the decline of its share price driven by its financial performance. However, based on latest Q2'19 QR, there is also signs that its cash flow is starting to turn positive. Hence, it will be interesting to observe further its upcoming QR. If the company can continue to maintain positive cash flow, there is evidence that we may see Samchem's share price to start moving together with its improved performance.

Using the ratios and margins extracted from Wall Street Journal web page, it is also noted that its total debt to equity ratio is on the high side at 157.79% while long term debt to equity is at 6.03% (highlighted in red box). What it meant here is that Samchem has high short term debt instead of long term debt. Long term debt is crucial as it is affected by changes on interest rates. On the other hand, short term debt can be a problem when it comes to liquidity. The difference between long term debt and short term debt would be the timing itself. Long term debt has repayment duration of more than a year. 

To determine whether will there be a problem of liquidity, we can look at its working capital ratio or commonly known as current ratio - the ratio of current assets to current liabilities. Current assets include cash, inventory and accounts receivable. Current liabilities include accounts payable and short-term debt. A current ratio greater than 1.0 may indicate adequate liquidity, but a ratio less than 1.0 usually does not. Vice versa, a current ratio that is too high may indicate a problem with its current assets which requires management attention; normally its either inventories or trade receivables. With that, I have calculated the current ratio for Samchem for the last two years until its recent quarter performance and its above 1.0 which indicates sufficient liquidity as shown in Image 3 below. Additionally, I did a quick comparison with one of its peer, Luxchem and Luxchem has current ratio of more than 2.2 which is at higher risk compared to Samchem. 

Image 3: Samchem's current ratio based on 2018 Annual Report and Q2'19 QR

As long as the management continues to do its due diligence in managing its performance and coupled with fiscal policy that supports mega projects in Vietnam, Malaysia and Indonesia, there is a chance for Samchem to further strengthens its position as the billion ringgit revenue company.

Technically, Samchem share price is currently trading sideway between the range of $0.55 to $0.61 cents for the last few months as shown in Image 4 below. There is also a possibility that Samchem price action may form a rounding bottom if the management can continue to deliver a better financial performance at the back of positive fiscal policies in Malaysia, Vietnam and Indonesia.

Image 4: Samchem's price actions and possible rounding bottom

Looking at both the fundamentals and technicality of Samchem, I would say Samchem value increases (fundamentals) while the share price is declining; a gem of the old rocks. Hence, there are two possible trade setups that can be considered:

1. Long term positions:
• Initiate the first position at $0.58 +/- 3%
• Add positions if upcoming quarter showing positive developments on its cash flow while maintaining revenue growth
• Exit according to your own rate of returns or using the levels above as a guide
• Remarks: If the next two QRs showing that revenue starting to decline and cash flow worsens, one should consider to exit the position. Vice versa, one can continue to hold and ride its recovery if the upcoming QRs showing positive progress. 
2. Short term positions:
• Entry: Breakout above $0.61 cents or reversal at $0.525 cents
• Exit: According to your own rate of returns or using the levels above as a guide
• Stop loss: If share price closes below $0.525 cents
• Remarks: Alternatively, one can also wait for its upcoming QR to determine the entry positions using risk reward ratio. Do take note that Samchem has 272 million shares only and selling can be a challenge. 

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.

WASEONG (5142): Is the Giant Awakened?

Hi Readers,

First of all, thank you for the private messages and I am happy that you are making huge gains from Waseong (5142) which we have posted back in Mar'2019 [Sleeping Giant: WASEONG (5142)]. This marked the second oil and gas sector counters after Dayang that you have made huge gains. Everyone is excited with Waseong and wanted opinions on what's next specifically Is the Giant Awakened?

Recap of the strategy in Mar:

To add positions if Waseong closes the gap down above $0.88 cents and $0.81 cents becomes the support or stop loss level. Additionally, to keep Waseong holding price below $1.00 for long term. Continue to add whenever Waseong is awarded new contracts resulting in increase of book order; total book order showing increased trend reported by end of each quarter

As we have spent sufficient details in analyzing its fundamentals and financials, I will not go through it again. I have briefly checked it and there is no changes to its fundamentals as is. Hence, I will be looking from the technicality and price actions perspective. 

Image 1: Waseong Price Actions

As shown in Image 1, Waseong has rebounded strongly with high volume for the last one week from the low of $0.60 (tripple bottom) to close at $0.855 cents yesterday. What I am seeing right now it is attempting to close the previous gap down and moving towards its previous high around $0.90 cents (red circle).

As it is approaching the previous high after one week of strong movement, there is a possibility that we should see profit taking. Additionally, there is no announcement of new contracts awarded thus far and current movement could be due to (1) undervalued (2) oil and gas theme which is at play. As such, below are the few strategies that can be adopted:

1. Riding the trend:
• One can choose to exercise partial zero cost averaging to lower down your average
• Sell a portion of it as such that your average is below $0.72 cents to $0.60 cents
• If it retraces to $0.755 to $0.835 range or new contracts announced, you can add positions again using the fund that you have sold earlier
2. Locking in Profit
• One can choose to exit positions if the gains is sufficient for you. Once you have exit it, you must not feel bad for selling earlier if it continues to go up or happy if it goes down. Your emotions should be kept at bay. 
• Re-initiate position if there is contract announced over the next few months and using risk/reward ratio with the levels above as a guide
3. Long term position:
• One should consider to lock in some profit to generate cash flow and lowering your average price further. 
• This step is important as no stock will continue to go up everyday and when there is a pull back or corrections, your emotions will be affected greatly which defeats the purpose of our journey here - TIME with family.
• Add position again if there are contracts announced over the next few months and using risk/reward ratio with the levels above as a guide

Is the giant awakened? I would say the giant is stretching after a long sleep to loosen its muscle 💪Until new contracts announced and price stabilizes above $0.88 cents, then, the giant is fully awaken and heading back to its previous high of $1.70. 

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.

Possible Bottom Fishing: JTIASA (4383)

Hi Readers,

I was reading the statistics published by Department of Statistics Malaysia for the month of August 2019 over the weekends and the summary of exports extracted as below. Overall exports were down but there were increases notably in the areas of palm oil & palm oil-based products and timber/timber-based products. Hence, that led me to drill into JTIASA (4383). 

Extracted from DOSM website:

On a month-on-month basis, in August 2019, the export unit value index recorded a marginal decline of 0.1% to 115.3 points which was mainly attributed to the decrease in the index of manufactured goods (-0.8%), inedible crude materials (-0.5%) and chemicals (-0.2%). Meanwhile, the export volume index also recorded the same trend with a drop of 7.5% to 132.6 points. The drop was led by the decrease in the index of machinery & transport equipment (-16.0%), mineral fuels (-10.5%) and inedible crude materials (-8.1%). In seasonally adjusted terms, the export volume index decreased 10.6% to 128.3 points.

When compared to the previous year, both the export unit value and volume indices declined 0.1% and 0.6% respectively.

Additional details extracted from TheSunDaily:

However, increases were recorded for palm oil and palm oil-based products (+RM844.3 million); refined petroleum products (+RM349.6 million); timber and timber-based products (+RM34.5 million); and natural rubber (+RM12.6 million).

For your information: Jaya Tiasa Holdings Bhd is an investment holding company, operates as a timber producer in Malaysia. Business activity of the group is breakdown into various segments which include logs trading, manufacturing, oil palm, and others. Through its subsidiaries, the company manufactures a product such as sawn timber, blockboard, plywood, veneer and related products which are sold in the market of Asia Pacific, Middle East, Europe and Latin America. In addition, the firm also provides air transportation services and it is further engaged in the development of oil palm plantations.

The nature of JTIASA business is related to the details extracted from DOSM and TheSunDaily; specifically in the areas of exports. Will there be opportunity to trade JTIASA in coming months?

Fundamentally, I need to validate the palm oil and timber business for JTIASA to ensure that it is contributing to the exports index in Aug'19 as published by DOSM. With that, I have extracted some of the facts from its recent corporate presentations as shown in Image 1 and also month to month production figures from 2018 until cum to date as shown in Image 2.

Image 1: Extracted from JTIASA recent corporate presentation

Image 2: JTIASA Monthly Production Figures Published from 2018 to cum to date

Looking at Image 1, JTIASA's palm oil sector will contribute significantly to its revenue and the strategy put in place in terms of plantation showing it has high percentage of prime mature palm oil trees that has high ffb yield. Jul to Sep monthly production figures is also showing higher output and it will be interesting to see how it contributes towards its bottom line.

Technically, there is an opportunity for bottom fishing as shown in Image 3. To do so, I have also included comparison between its share price movement correlating to FBMPALMOIL Index (orange line chart) and FCPO (blue line chart). 

Image 3: Comparison between JTIASA and FBMPALMOIL INDEX and FCPO futures price

From the chart, there is strong correlation of its share price with FBMPALMOIL Index. It is also good to note that there is a slight gap between the index and FCPO price. From the share price perspective, JTIASA is currently near its support of $0.43 cents and immediate resistance at $0.65 cents. Will JTIASA starts its rounding bottom move towards $0.65 cents? With that, there are several trade setups that can be considered for JTIASA (4383) as shown below:

1. Aggressive traders:
• Entry: $0.47 +/- 3%
• Stop Loss: Price closes below $0.43
• Exit: According to your own rate of returns or the levels in Image 3
• Remarks: JTIASA next QR (Q1'20) is estimated to be released by end of Nov'19. Hence, it is recommended to observe the next two monthly production figures. A slower production figures in Oct and Nov may impact its Q2'20 QR but not its upcoming QR.
2. Conservative traders:
• Entry: $0.43 +/- 3%
• Stop Loss: Price closes below $0.415
• Exit: According to your own rate of returns or the levels in Image 3
• Remarks: One can also choose to enter upon confirmation of reversals if it goes down below $0.43 cents and wait for it to go above $0.43 cents again. 

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.

What to do with D&O (7204)

Hi Readers,

There were asks recently on D&O (7204) from my friends and the questions are from two different perspectives as summarized below. Hence, I will generalized it as what to do with D&O?

1. Friends who has initiated stop loss previously at $0.635:
• Can I re-enter again as recently seems to be active?
2. Friends who has been holding for its fundamentals and continued buying until recently:
• Should I take profit and wait for opportunity to buy again?
3. Friends who called seeking opinions to buy at $0.50 to $0.525:
• Should I take profit? 

In previous posting back in Apr'19, I have shared my opinions with regards to sustainable growth stocks - one that has constant increase in sales growth outpacing profit growth, one that continues to re-invest its earnings. Such stocks will eventually perform better than the unsustainable growth stocks. Let's look at the fundamentals perspective on whether are we seeing a continuous growth or stagnant growth. I have extracted the recent quarter report and details with regards to its sales/revenue as shown in Image 1. Additionally, I have also extracted the summary of its financial performance from klse.i3investor web page which is nicely laid out in the table form as shown in Image 2. 

Image 1: Extracted from recent quarter report highlighting revenue growth

Image 2: Extracted from klse.i3investor web page

Looking at both the image, one can conclude that despite the fact that automotive industry is facing slowdown worldwide starting in 2018 and going into 2019, D&O revenue for automotive (main focus) is still going up by 4.3% for the 1st half of 2019 compared to 1st half of 2018. What it meant here is that D&O is winning market segment share; especially in Europe market as shown in Image 1. Based on the results, I am in the opinion that it is still growing healthily despite the external headwinds. Additionally, if you look at Image 2, you will noticed that Q3 and Q4 tends to be a stronger quarter for D&O. If you are following OSRAM's development, similar seasonality is being observed. Hence, it will be interesting to observe the next two quarter's earnings report. Longer term, the trends of electric cars and LEDs will continue to grow. 

Technically, indeed there is an increase in activities recently for D&O as shown in Image 3. It first attempted breakout from its year long downtrend line in July and challenged its resistance at $0.635. Two attempts were made to breakaway from the resistance line and in both attempts, a long legged doji formed which signifies indecision and potential reversal. Indeed it came down again but supported by the previous downtrend line. 

Image 3: Price actions for D&O

It stayed at $0.49/$0.495 for a short period and started moving up strongly beginning Sep'19. At this point some of you called on whether can get in and my response was yes. What is developing right now is the price actions is in a sideway consolidation mode. The same resistance of $0.635 will be attempted again in near future in my opinion. The volume has been increasing recently and I am in the opinion that there could be some funds/institution that may have initiated position or increase its holdings. Most funds/institution prefers growth stocks at a bargain.

Combining both the fundamentals and technical development, below are the possible options to answer the question of what to do with D&O:

1. Holding D&O as growth stock (long term)
• Keep your average near $0.50 cents by locking in some of the profits at $0.635 +/- 3%.
• Observe the development in the automotive industry and its upcoming Q3 report. If the growth remains, you can still add on more positions gradually whenever it consolidates. 
2. Holding D&O as trading stock (short term)
• Observe the development near its resistance at $0.635. If you are happy with the gains on hand currently, you can consider to sell it currently or near its resistance.
• Once sold, you can observe its technical development, if $0.635 becoming a new support, you can get in again. If it started going down, you can initiate position at $0.50 to $0.55 range.
• If it is able to breakout above $0.635, there is a possibility that traders are placing bet that its Q3 and Q4 earnings will be better than Q1 and Q2. 

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 fundamental data and 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 Stocks: SCGM (7247)

Hi Readers,

I was looking into my screening results for trading stocks and SCGM (7247) triggered my screening rules for trading stocks. Trading stocks for me are stocks with positive momentum and the intention is to ride its bullish trend for short term. It can be as long as the trend persists.

SCGM Bhd (7247) is an investment holding company. The company along with its subsidiaries is a thermo-vacuum form plastic packaging manufacturer. Its business segments are Manufacturing and Investment holding. It derives most of its revenues from Manufacturing segment. The group is principally operating in Malaysia.

Image 1 below showing the trend the development for SCGM. Looking at the chart below, the share price finally broke out from its year long falling wedge pattern beginning of Sep'19. The trend continues to build upon its recent QR which was announced on 24th Sep. As it is a trading stock that came up from my screening rules, I will not drill into its QR or the fundamentals of it for now; until the company completely switch to biodegradable materials. Will be analyzing its technical strictly.

Image 1: SCGM Price Actions and Trends development

 Chronology of technical patterns/candlesticks development:

1. 11th of Sep:
• Price breakaway from its year long falling wedge pattern with high volume. A positive sign that traders are taking a bet that its upcoming QR will be good.
2. 24th Sep:
• Price further moved up strongly with even higher volume and crosses above the 200 days daily MA. A growing bet that the QR at the end of the day will be good. And, indeed the QR results is pretty good (+130% qoq, +107% yoy).
3. 27th Sep:
• A long legged doji appeared at the top which coincides with its resistance at $1.20. Price action for the day was Open: $1.18, High:$1.25, Low: $1.16, Close: $1.18. A long legged doji often signifies indecision after a strong uptrend or downtrend. In this case, it appeared after a strong uptrend and at its resistance. The forces of supply and demand are nearing equilibrium and that a trend reversal may occur. The trend reversal may just be a blip, indecision of future directions including possible entering a consolidation mode.
4. 30th Sep:
• The share prices closes at $1.16 (-1.7%). While it is still uncertain at this point, I will be watching how the price actions evolves over the next few days or weeks. A typical consolidation can be as short as 3 to 5 days and as long as 3 weeks. Anything beyond 3 weeks signifies further weakness on its price actions. Time to get out from the trade.

Based on the chronology above and the latest candlesticks which is a long legged doji, there are two setups that I will wait for it to develop before initiating a position. I am also aware that SCGM has 193M shares only which means selling it can be a challenge.

1. Bullish trend resumes:
• Entry: Price rises and closes above $1.25 (above the long legged doji)
• Stop Loss: Price closes below $1.16 (below the long legged doji)
• Exit: According to your own rate of returns or the levels in Image 1
• Remarks: As it is a trading stock, one can use the risk/reward ratio to determine the appropriate trading plan and lot size. Time and volume matters when it comes to chart patterns development. 
2. Entering consolidation phase:
• Entry: Price falls to the range of $1.065 - $0.945 or reversal to close above $0.945
• Stop loss: Price closes below $0.945
• Exit: According to your own rate of returns or the levels in Image 1
• Remarks: If it is entering consolidation phase, one can wait for the completion of wave 2 before entering. There is no rush to initiate a position as wave 3 is always the longest wave from Elliot Wave perspective; provided the behavior of buyer and seller exhibit Elliot Wave Theory. Time and volume matters when it comes to chart patterns development.

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.