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.

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.

How to apply Rule of 72 in trading?

After released of the Rule of 72 article, few of the readers send me email and asking how to apply it in the trading?

The article mentioned about how many years to double your money with the specific rate of return. As such, we can apply the same to the trading.

If we set our each trade with 5% return, then you used 72 divided by 5%, you will get around 14.4.
It just simply means that you will trade 15 times with each time 5% return, your money will be double.

Refer to table below, if you only have 2 counter to trades and only trades 2 times per week, you will just need 7 trades to double your money. Is it tough?

In the past few articles, I wrote a few trades counter like Parkson, CCK-Wa and Ucrest. These three counter can be easily trades by achieving 5% each trades.

For example, CCK-Wa can be buy at 10 sen and sell at 10.5 sen. The return is exactly 5%. If you can sell at 11 sen, you are going to double money faster.

For Parkson, can buy at 25 sen and sell at 25.6. The return is 6%. Do you get the idea?

The Rule of 72

Do you know how long it may take for your investments to double in value? The Rule of 72 is a quick way to figure it out. The rule of 72 is the most important lesson on investing that I ever learnt. What does this means?

It just simply mean that if it take 72 divided by annual return you are getting from any investment instrument. Then it will come out the number of years it to double your money.

For example, used Fixed Deposit as an example, the current 12 months Fixed Deposit Rate say is 4%. Then 72/4 = 18. It means that you need 18 years to double your money with 4%.

If you are savvy investor and you are able to make 12% per year, then 72/12=6 years. You will just need 6 years to double you money!

If you think this is still not good enough and we only can reference to Warren Buffett which his annual return is about 21%.

Buffett's biggest claim to fame is the track record of strong returns that he's put together at Berkshire Hathaway. Over a history that spans more than 50 years, Buffett has more than doubled the overall stock market's return, producing average annual gains of nearly 21% compared to the S&P 500's 10%.
With this return, 72/21 = 3.4 years

For example, you have RM50,000 and with annual return of 21%, your money will grow to RM100,000 in 3.4 years.

Vice versa, The Rule of 72 can also be used to estimate the interest rate necessary to double the value of an investment in a particular number of years. For example, to double an investment in 6 years requires an interest rate of about 72/6 = 12 %.

Why is this important?
A lot of people wanted to become millionaire, but how? Through saving? Through business? through employment? Everyone become a millionaire has to start from somewhere. Refer to the tabulation below.

This table just an illustration if you have RM1,000 and you double it every time, you will become Millionaire after 10th double. After understand this table, what is in your mind?

The chances of you having RM1,000 saving in your bank is high now. If you are working adult, or colleague student, RM1,000 is an easy job. If you do not have it, you can easily earn this in 2 to 3 months by just doing a GRAB driver!

For those working adult, you do not need to have 10th times to double your money, chance that you are having saving of RM16,000 or RM32,000 if you are working adult for sometime. So you are only 5 times away to become a millionaire. If you do not have that amount after working for few years, then I will say that you do not have investment problem but money management problems. Make sense? I will not go into this for this article here.

Let's focus on the rule of 72 here now. From RM1,000 to RM32,000 is very easy to reach. You do not need any investment vehicle to do that. You can work hard, work extra hours, work 2-3 jobs a day etc in order to save that amount of money.

However, if you want to grow your money from RM32,000 to RM1,000,000 it is very tough and the only way to reach there is through investing. From RM32,000 to RM1,000,000, you only needs five doubles to reach millionaire.

For those who have saving of RM128,000, you only requires three double to become millionaire! Do you get the idea of the table? Look at the table again and check your bank account now, how far is it for you to become millionaire?

Now the next table I will put in the annual return rate to see how will it turn out to be?

 Okay, let's go down to the reality, if you are having RM128,000 in your bank now with FD of 4%, you will need 3 times of double to reach million dollar. Each double going to take you 18 years. That means 18 years x 3 = 54 years! Do you have time to enjoy your million dollar by then? You better have a better return rate to work for you. My guess is at least 12%. So that three double will take you only 18 years to become millionaire.

How do we sum up here?
We know that we are about three to five double away to become a millionaire. Then the annual return you get is important factor to reach your million dollar goal. Do you get this interesting concept?

Start investing as early as possible with decent annual return today.

What has been done for past month?

For start, quick market update for last week:
- The market pulled back to a three-week low last week after climbing to its highest in four months about two weeks ago.
- The local market performance was in line with most of the markets globally except for the US market which climbed to a historical high. This indicates weak market confidence and the FBM KLCI remained in the red year-to-date while other markets are in the black.

What above to do with us if we are not in the market?

One of the readers of our blog share with us his trading track record by following the trading ideas.
He has been trade on the CCK-WA since April

The article he follow is Trading Ideas - LIONIND (4235), MRCB (1651) and CCK (7035)

Below is his result of the past 3 months trade.

Refer to the Table of his trade, he is doing pretty well and able to trade it wisely. I asked how does he do it since it almost Buy at the lowest and Sell at the highest. Refer to the chart below for better illustration.

His response is, he only set his desired Price to BUY or to SELL till GOOD IS DONE.
GTD is available in all local trading platform and it last for 30 days. He is saying, sometime he did not know the trade is done until the email is prompted. The moment he see the notice of contract done in his mailbox, he sill set the next trade accordingly. As such, he did not monitor the market closely and just leave it till done.

Homeriz (5160)

Hi Readers,

I would like to share this counter after reading its latest Q3'19 report. I find it interesting and can be a good addition to your dividend stocks collections. For your information, furniture counters were the darlings of 2016 as it recorded impressive gains on the share price. Since then, many were hoping for the return of furniture counters and many false start. It is understood because there wasn't much boost on the sectors. However, with recent trade wars whereby 25% tariffs were slapped on furniture from China and MYR weakening to beyond 4.10, it is helping to boost many of the furniture counters earnings. I have shared Liihen previously and would like to bring your attention to Homeriz. 

Homeritz Corp Bhd an investment holding company, designs, manufactures and sells upholstery furniture products. The company provides upholstery home furniture products consisting of leather and fabric-based sofas, dining chairs, and bed frames; and lifestyle furniture products under the Eritz brand. It is also involved in the property investment activities; and design, manufacture, and sale of furniture and furniture parts. The company’s majority revenue comes from Asia and Pacific market.

Why Homeriz? I read its latest QR and the net profit margin of 18.6% caught my attention as shown in Image 1. The company has been investing on automated equipment to minimize the dependency on human labor; foreign workers mainly which is subjected to levy. Though government has announced reduction of levy, it will be a bonus in the short term for the company. The on-going effort in cost reductions has to continue. Current quarter result is also boosted by MYR weakening and lower raw materials. Additionally, the company announced a $0.02 cents of first interim dividend. This is also a positive development as 2018 total dividend payout was $0.025 cents with first interim dividend at $0.01 cents. With the on-going development, there is a possibility of Homeriz to pay total dividend beyond $0.025 cents. 

Image 1: Homeriz Last Two Years Quarter Report Results 

Technically, the chart is showing double bottom at $0.58 cents as shown in Image 2. Price has since moved up again recently and with the better prospects, there is evidence that it will move higher.

Image 2: Double Bottom on Homeriz at $0.58 cents

As the company has announced a $0.02 cents for first interim dividend, the target price based on its cash flow is trending at $0.82 cents based on the previous target set by HLG, the intrinsic value is $0.66 cents at 15% rate of returns and total dividend of $0.025 cents. What it meant is that when the price is below $0.66 cents, it is a strong buy from dividend perspective. Any increase in dividend payout and target price will yield higher returns from Homeriz investment. 

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.

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.

Power of Zero Cost Averaging

Hi Readers,

It was a slow month for us due to school holiday, Raya festive seasons and weak market breadth despite uptick in KLCI index. The last few weeks market movement was mainly driven by local institution such as EPF and KWAP swooping in on selective blue chips and selling positions at the same time. Foreign fund continued to shy away from Malaysia as can be seen below extracted from MIDF Research Report.

Image 2: Net Flow of Foreign Fund into SEA Emerging Markets

Image 1: YTD Performance of Major Market

As usual, there is always much abuzz whenever big institutions like EPF and KWAP buying or selling. Buying is always seen as good thing and possible good news coming while selling is always seen as bad thing. However, if we really look at it closely, what EPF and KWAP did is a mere zero cost averaging or risk management or generating cash flow. How can we adopt the approach and does it really beneficial for us as retail investor? Have you been using the zero cost averaging method to manage your positions?

By definition, the idea behind zero cost averaging is to sell enough shares for a profit to equal the cost of those shares without selling them all. As retail investor, the bottom line for us is profitable positions and generating extra cash - cash flow. Our wish is always to ride the trend to the maximum and staying as long as possible with minimum emotional decisions - buy and sell. Hence, zero cost averaging is a powerful method that should be adopted by retail investors as well. In general, there should be sufficient diversification in our portfolios to minimize risk. There are 3 types of portfolios that we should all have in the long run:

1. Growth Stocks:
• Riding the growth of the company; sales growth outpaced profit growth; sustainable growth
• Accumulating over a period of time, accumulate during weakness
• Typically positions held is more than 3 years
2. Dividend Stocks:
• Company that distributed consistent dividend payout yielding more than conventional fixed deposits. Capital appreciation from the stock price is a bonus.
• Accumulate during weakness when it is selling below its intrinsic value
• Positions held as long as there is continuous dividend payout
• This portfolio tends to perform well during period of uncertainties 
3. Trading Stocks
• Short term holdings riding the bullish sentiments with the main purpose of generating cash flow
• Positions held can be minimum of 3 weeks to 6 months

For all the readers that have been following us, you will noticed that we have been sharing stocks that falls into the 3 categories above. You can use the zero cost averaging method to manage all your positions in your portfolios and growing it over TIME. So, what it takes to do so:

1. Create a portfolio tracker
2. The information below should be in your tracker
• Initial cash allocated per stock
• Last price
• Cash balance
• Shares value
• Unrealized profit/loss
• Buy and Sell Transactions (price and quantity)
• Dividend received
• Profit/Loss
• Balance of Investment (quantity and value)
• Average holding cost (Balance of investment value - Dividend Received)/Bal. quantity
3. The tracker can be used to manage the situations below:
• Record down dividends received - bring down average holding cost
• Locking in profits to generate cash flow - bring down average holding cost
• Reducing positions for losing positions to minimize risk - increase average holding cost temporarily, reduced quantity and reduced further losses, lower the average holding cost in future when opportunity arises
• Regardless whether its a winning or losing positions, you will have full visibility on the current status and understood what it takes moving forward
• Staying in a position as long as it takes while bring down the average holding cost, to the extend of zero cost / free shares

Therefore, big institutions like EPF and KWAP buying or selling is not as scary as we thought. The reason behind is that their fund managers are managing the positions that they are holding. Many of retail investors failed to understand the power of zero cost averaging. When we exit a profitable positions, we will never be able to buy back at such lower price again. 

I hope this article will give you a guide on how to create a simple portfolio tracker and apply zero cost averaging method to manage your positions.

Good luck and all the best!!!

p/s: We will be sending a sample tracker that we have created to assist you in creating the tracker that suits your own needs. We will send it to the email that was deposited via our blog (on the right side of the blog page). Please be on the lookout for our email that contains the sample tracker. Have fun in learning the method of zero cost averaging. 

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 TEOSENG (7252)

Hi Readers,

Some of our friends requested for analysis on Teoseng (7252) due to the heavy sell down recently by the directors. Many were stuck as the price dropped significantly after posting a great quarter results. Many bought in due to the great quarter results and the euphoria of chicken stocks due to the listing of Leong Hup (LHI) IPO. Teoseng is a subsidiary of Leong Hup whereby LHI has approximately 28.4% ownership as of 2018. 

Teo Seng Capital Bhd engages in poultry farming business. The company operates through Investment Holding; Trading of Pet Food, Medicine, and Other Related Products; and Poultry Farming segments. It produces eggs. The firm also manufactures and markets paper egg trays and animal feeds, as well as distribute food, medicine, and other health products. In addition, it trades in and generates energy through the establishment of biogas plants; and is involved in the wholesale, import, and export of eggs products. Further, the firm provides waste management and cool room services. It also produces, processes, preserves, and wholesales meat and meat related products; and engages in the fertilizer and agriculture businesses. The firm earns most of its revenue from Poultry Farming segment.

In terms of its financial performance, Teoseng reported an impressive Q1`19 performance (Image 1) which led to the euphoria of chasing the particular stocks. Questions arises of why would the directors sell down the shares of Teoseng if the performance is good? No one knows exactly and I do not know either. What we can see from Image 1 is that Q2 tends to have lower performance historically for the last two years. There is so many possibilities / speculations of what is going on. On top of that, there are lots of chicken and eggs (poultry) listed businesses on KLSE which makes it a tough competition out there. These are control items in Malaysia and one can follow the price which is published here: http://flfam.org.my/ 

Image 1: Teoseng Quarterly Financial Performance

As the nature of the business is seasonal/cyclical plus with control items, cost play an important role on top of demand and supply. Teoseng's cost of good sold (COGS) is pretty good whereby it is less than 70%. Typical throughput time for layer hens (for eggs) reproduction to start producing eggs is about 6 months while broiler (for meat) is about 5 to 6 weeks. Eggs shelf life is about 5 to 6 weeks if it is properly refrigerated. The fundamentals for Teoseng looks good and if you are planning to hold it for longer time, you will have to average down at some point. If you are trading for continuous good Q2'19 report out after good Q1'19, there seems to be a risk that needs to be managed moving forward as the chicken eggs price has dropped approximately 4 cents during the Raya festive season (~one month locked down price) compared to CNY festive season in Q1 (~10 days locked down price). Q4'18 and Q1'19 eggs price is much higher compared to the price in May and Jun as found in the link above. Hence, there is a possibility that it will report lower earnings compared to Q1'19.

Technically, there is possibility that complex head and shoulder top formations is building up as shown in Image 2. The formations has yet to be completed though with left shoulder and head formed (red dots). Confirmations of the pattern is required and as such, the rebound from $1.02 should move towards the $1.18-$1.23 region (blue dot). Upon reversal at that level, the price will naturally move lower thereafter. A downward slopping head and shoulder top formations indicates weakness in the share price. This could be due to the underlying fundamentals of chickens and eggs price. One thing to note is that such formation requires time to build.

Image 2: Teoseng price actions indicating possible head and shoulder top formation

In my opinion, below are the strategies that can be used:

1. If your original plan is to invest in Teoseng for long term
• Observe the price actions for the next few weeks
• If it can reach the blue dot levels, you can either choose to reduce some position first and reenter at lower price; or do nothing about it
• A good entry to average down will be between $0.72 cents and $0.86 cents
• Do monitor the chicken and eggs price from the link I shared above
2. If your original plan is to trade Teoseng and you are stuck now
• Observe the price actions for the next few weeks
• If it can reach the blue dot levels, you can either choose to reduce some position if it is profitable or exit the position with smaller gains.
• You can choose to trade between the levels shared above and using risk/reward ratio.  

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.