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.