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Tuesday, July 28, 2015

Mieco: Time to take profit

Yesterday, it was announced that the new major shareholder of Mieco, Purnama Kuantan, has ceased to be the major shareholder when the conditional letter of agreement in relation to the sale & purchase of Mieco shares due to failure to fulfill condition precedents to the transaction since July 20 (here). Purnama Kuantan- linked to Datuk Mohamed Moiz J.M. Ali Moiz of BRDB Development Sdn Bhd ("BRDB") - had earlier acquired 56.76%-stake in Mieco from Ambang Sehati Sdn Bhd and BRDB (here). The latter companies are also controlled by Datuk Mohamed Moiz. 

I don't know how a "restructuring" of shareholding among Datuk Mohamed Moiz's group could fail to be consummated. I also equally surprised that this fact was not disclosed earlier since it was knwon on July 20 and only announced to Bursa Malaysia on July 27 (here).

Since the share price has rallied significantly, I think it is a good idea to take profit on this trade.


Chart: Mieco's monthy chart as at July 28, 2015_9.45am (Source: ShareInvestor)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Mieco. 

Monday, July 27, 2015

FTSE China A50 broke July 9 low

Today, Chinese stock market plunged again. It broke below the recent low of 11067 recorded on July 9. In fact, it was trading below 11000 right now. See Chart 1 below.


Chart 1: FTSE CHINA A50 d20150727_3.00pm (Source: investing.com)

From Chart 2 below, we can see that 11000 is more than a psychological support; It is also a strong horizontal support. We will have to wait and see whether the Chinese Plunge Protection Team can salvage the market right now.


Chart 2: FTSE CHINA A50 d20150727_3.00pm (Source: investing.com)

As expected, the call & put warrants are trading with big losses and gain. This is an arena for the die-hard or professionals where the volatility is astronomical. If FTSE CHINA A50 could not recover from 11000 mark, the put warrant prices will continue to go up. If  FTSE CHINA A50 can recover from 11000 mark, the put warrant prices will drop back sharply.


Table: CHINAA50 Call & Put Warrants as at 3.30pm 
 

Friday, July 24, 2015

CCB: Bottom-line soared

Background

Cycle & Carriage Bintang Bhd (‘CCB’) is the largest dealer of Mercedes-Benz motor vehicles in Malaysia, involved in retail and after-sales service.

Its After Sales centres will provide vehicles complete care, from routine maintenance work to complete restoration of your vehicles plus retailing Mercedes-Benz Merchandise items.

Mercedes-Benz Sales Rising

Based on latest Motor Vehicles sale data (up to the month of May), we can see that the Mercedes-Benz sale volume has risen substantially. It is currently sitting in 7th position- rose from 15th position in July 2014. It managed to chalk up a sales volume of 3970 in 5 months of this year as compared to 3876 for the first 7 months of last year.

Diagram 1: Malaysia's MV Sales for May 2015 & July 2014 (Source: MMA, via MotorTrader)

Worldwide, Mercedes-Benz sales volume rose 15.7% to 960589 for first 6 months of the year. In Asia-Pacific ex-Japan & China, the sale volume grew by 25.5% to 86629.

Diagram 2: Mercedes-Benz's Global Sales for 1H 2015 & 2014 (Source: Media.Daimler)  

Recent Financial Performance

CCB's top-line and bottom-line rose gradually over the last 3 years. That steady increase suddenly went exponentially. The reason given for the improved top-line and bottom-line are:

  • Unit sales up 46%
  • Higher earnings from Mercedes-Benz operations 
  • Dividend received from Mercedes-Benz Malaysia (“MBM”)
 
Chart: CCB's last 12 quarters' P&L (Source: ShareInvestor.com)

Valuation

CCB received a dividend of RM11.2 million from MBM for 1H2015. In FY2014, it did not receive any dividend from MBM due to poor financial result. In FY2013 & FY2012, CCB received dividend totaling RM11.2 million respectively, in 2 equal tranches. Does this mean that CCB may receive another dividend of RM11.2 million from MBM this year? If so, CCB's FY2015 EPS could be as high as 57 sen. CCB (closed at RM3.46 yesterday) is now trading at a PE of 6 times. In addition, CCB may pay out dividend again after suspending in FY2013 & FY2014. It paid out dividends totaling 10 sen in FY2012 & FY2011. If it does the same in FY2015, the DY for the stock is 2.9%.


Diagram 3: CCB's 1H2015, 1H2014 & 1H2013 P&L (Source: Company via Bursa website)

 
Diagram 4: CCB's FY2014, FY2013 & FY2011 P&L (Source: Company via Bursa website) 

Technical Outlook

CCB has broken above its downtrend line at RM2.20 in May. The share price could potentially test the "horizontal" line ('AB') at RM6.00.


 Chart 2: CCB's weekly chart as at July 23, 2015 9Source: ShareInvestor.com)

 
 Chart 3: CCB's monthly chart as at July 23, 2015 9Source: ShareInvestor.com)

Conclusion

Based on good financial performance, fairly attractive valuation & positive technical outlook, CCB could be a good stock for long-term investment.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, CCB.

Thursday, July 23, 2015

Feel the Fear ... and Do it Anyway!

Recently, I read an interesting article entitled “Release the Condor” written by Jeffrey Saut, a renowned fund manager. In his article, Jeffrey explained how the phrase “Release the Condor” came about. To wit:
A long time ago in a galaxy far, far away, there was an advertising company trying to come up with a video commercial to introduce Buick's new car. After a number of the ad company's proposals were turned down, they came up with the idea of the car cruising on a road down the side of a mountain with an eagle superimposed flying over it. Buick loved it. There was, however, one problem; you cannot capture, or tame, an eagle. Therefore it was decided to use a condor. Here too there was a problem, the ad agency could only find one captive condor in the world; and, it was at a zoo in Lima, Peru.
After arrangements were made, the camera crew showed up on a cliff in the Andes Mountains to film the commercial. With all cameras rolling the call was given to "release the condor." But instead of soaring into the sky, the condor plummeted hundreds of feet to its death because after years of captivity it had forgotten how to fly. Subsequently, any time something bad was about to happen, or something bad had just happened, advertising companies shouted "release the condor!"
The condor story has nothing to do with the rest of this post. I have included it here because I love the story. In the same article, Jeffrey share this gem of investment advice from J.P. Morgan CEO James Dimon, who recently told reporters anxious for news exactly what they didn't expect to hear. In Jeffrey's words:
Everything is fine, so stop freaking out. Indebted Greece is on the ropes and might leave the euro, it's true. China's main stock market index recently went into free fall… Why worry about these things? They won't really change the investing world much. "You have to separate the financial markets from the economy," Dimon said when quizzed about China. "You can't expect any economy to have perpetual growth at 10%." Does Dimon know something we don't know? Yes ... and no. More accurately, he has come to accept a basic fact about stock markets and the news cycle that all long-term investors should recognize - that there is no real link between specific "disastrous" events and the performance of the stock market.
Then, Jeffrey brought in a similar idea from a recent article published by Horizon Kinetics:
This concept espoused by Jamie Dimon is what we attempted to convey in last month's Gleanings report titled "Feel the Fear ... and Do it Anyway." As expressed repeatedly in these missives, "The equity markets do not care about the absolutes of 'good' or 'bad' but only if things are getting better or worse, and things are getting better!" Yet, it is human nature to worry about the "good" and "bad" things that constantly bombard investors. However, as a successful investor, "[You need] to accept a basic fact about stock markets and the news cycle that all long-term investors should recognize - that there is no real link between specific 'disastrous' events and the performance of the stock market."
Meanwhile, back to Malaysia, the political situation, which was absolutely bad, managed to get even worse. Last week, the shit hit the fan when BN-controlled Government brought out a video confession by Lester Melanyi, a Sarawak journalist who claims that the 1MDB scandal is really a conspiracy, built on falsified documents, intended to topple our Prime Minister. This serious allegation runs smack against the earlier serious allegations of the theft of billions of ringgit from the national wealth fund, 1MDB.

The 1MDB story is now moving into high gear. The arrest of directors of 1MDB-linked companies that had allegedly transferred fund into our Prime Minister’s personal accounts and the resignation of Lim Kok Wing as our Prime Minister’s PR advisor seem to suggest that our Prime Minister is having a tough time. On the hand, the police’s threat to arrest those named by Lester Melanyi as well as the travel restriction put on DAP’s Pua & PKR’s Rafizi seem to suggest that the battle is joined.

Despite the current explosive state of Malaysian politics, I couldn’t help but be amazed by the resilience in our stock market. If you look at the index charts below, you could see that many of them – not just the blue-chip laden FBMKLCI - have recovered from the recent low. In fact, almost all of them are pushing against their respective intermediate “downtrend”. This doesn’t look like a market that is unduly worried about a potential collapse of our government. In fact, this market looks decidedly sanguine - unperturbed by our messy politics – and in search of the next investment idea.


 
Chart 1: FBMKLCI's daily chart as at Kuly 21, 2015 (Source: ShareInvesor)

 
Chart 2: FBM70's daily chart as at Kuly 21, 2015 (Source: ShareInvesor)

 
Chart 3: FBMACE's daily chart as at Kuly 21, 2015 (Source: ShareInvesor)


Chart 4: FBMSCAP's daily chart as at Kuly 21, 2015 (Source: ShareInvesor)

Based on the above mildly positive near-term technical outlook, I think that we can increase our exposure to the market slightly. My preference is for value stocks with good dividend yield, such as BJToto. Hopefully, these condors will fly. Good luck.

Wednesday, July 22, 2015

Kenanga's Third Quarter Market Outlook

Kenanga has just issued its 3rd Quarter Market Outlook, entitled "NO MORE EASY MONEY". The gist of the report is as follows: 

Temporary Bottom? Despite inspired by the Malaysian Sovereign Rating upgrade, we do not rule out that a temporary bottom could have formed as the recent price corrections were steep in nature and the “Discount” between FBMKLCI to its consensus index target has widened to 7.5%, which is the -2SD-level below its trailing 3-year mean of 4%. Moreover, we gathered that the “Premium” of FBMKLCI valuation, as per consensus Fwd. PER, has also been narrowing against regional peers. Besides, we also believe the decline in average foreign shareholding of FBMKLCI could taper off. This is because the average foreign shareholding is still on an uptrend since early 2013 and the recent decline in the average foreign shareholding has been deviating from its regression trend significantly, which could suggest an “oversold” condition, at least in the short-term.

Nonetheless, downside risk remains intact. Owing to both domestic and external uncertainties, coupled with the negative technical picture and weaker investment sentiment as well as higher market volatility, persistent foreign outflow could be a concern despite the reasonably strong domestic liquidity. Besides, we also notice that the market dynamics are highly correlated to share financing as well. So far, FBMKLCI and its Fwd. PER have been declining in tandem with the lower percentage of Loan for Share Financing to Total Loan. Should this lending continue to decline, this will put pressure on the equity market.

Therefore, we have lowered our index target lower to 1,810 (from 1,845 earlier) on lower target FY16E PER (18.4x vs. 19.0x earlier) and minor earnings and target prices adjustment. This target is also backed by FY15E earnings growth of 2.5% and a stronger growth of 7.8% in FY16E.

Focused Sector & Stock Picks. We continue to like high-yielding stocks such as BJTOTO (OP, TP: RM3.72). Stocks in resilient sectors such as Telco, Healthcare, Education and Consumer F&B will also be our preferred choices. Among these sectors, we choose TM (OP, TP: RM7.80), TOPGLVE (OP, TP: RM7.90) and SASBADI (TB, TP: RM2.68) as our 3Q Top Picks. While the weakening trend of ringgit remains favourable to exporters, we are selective and prefer laggards. As such, we select TOPGLVE as our Top Pick from glove sector for the quarter. Nonetheless, we do see further upside for some exporters such as MPI (OP, TP: RM8.90) and SLP (OP, TP: RM1.76) despite their superb performances. Of course, we also continue to focus on our other Overweight sectors like Construction and Logistics. MITRA (OP, TP: RM2.35) and CENTURY (TB, TP: RM1.19) are the chosen ones from these sectors. Other Top Picks are ARMADA (OP, TP: RM1.55), BJAUTO (OP, TP: RM3.14), and PESTECH (OP, TP: RM6.11) despite our Neutral rating on Oil & Gas, Auto and Power Utility sectors. For short-term traders, it is worthwhile to consider bottom-fishing stocks, especially big caps, which are trading near their respective 52-week lows. We believe these heavily bashed down stocks could stage a quick rebound from their recent lows.

If you to a more visual presentation of Kenanga's 3rd Quarter Market Outlook, checkout the short video clip.



Digging through the Market Strategy Report, I came across 2 long-term charts that warn us to be cautious in this market. I have appended them below:

1) Based on cycle analysis, FBMKLCI could be in a down time cycle.

 

2) As per Elliot Wave Theory, FBMKLCI could have peaked in 2014 at 1896.



A market caught between a possible down cycle and a potential peak is market where easy money is getting scarce. Thus, we have to be very careful in our stock selection as well as putting money at risk in this market.

Tuesday, July 21, 2015

Perwaja: A Cautious White Knight Found!

Last week, we have the announcement of  the Regularisation Scheme of Perwaja and its subsidiaries  (here). The newspapers in reporting the scheme seems to put more emphasis on the entry of a white knight - Chinese conglomerate Tianjin Zhi Yuan Investment Group Co Ltd ("Zhi Yuan")-  to help revive the company (here and here). I hope to expand a bit on the scheme to enable shareholders to decide whether they want to go through with the exercise or exit the stock early.

The scheme in brief looks like this:


Diagram 1: Perwaja's Proposed Restructuring Scheme

The essential parts of the scheme are:
1) The Balance Sheet Restructuring, where 95% of its par value of the shares capital and the entire share premium, will be offset against accumulated losses.
2) Recapitalization, where a Special Issue of RM1.7 billion (in 4 tranches) to Zhi Yuan and a 4-for-5 Rights Issue of up to RM534.4 million, will be carried out. 
3) Debt Restructuring where total liabilities of RM2.238 billion will be first reduced by waivers to RM1.683 billion and then replaced by Term Loans, Installment scheme and shares. See Diagram 2.

Diagram 2: Perwaja's Proposed Debt Restructuring

The Special Issue of RM1.7 billion will be staggered over 30 months from the date of fulfillment of all conditions precedent to the restructuring scheme:


Diagram 3: Proposed Zhi Yuan's 4-tranche investment in Perwaja

There are two things that I found 'interesting' about the white knight and its investment in Perwaja. Based on the write-up given, we learned that Zhi Yuan is a small company by Chinese standard, It has a registered capital of RM303 million and 2000 employees. More importantly, it is not stated anywhere that it has experienced in the business of manufacturing steel products. This raised questions of the sponsors' financial capacity and managerial expertise.


Diagram 4: Brief Write-up on Zhi Yuan

Secondly, Zhi Yuan, which would have 2.5 billion shares out of 3.06 billion shares at the "entitlement" date of the Rights Issue (ignoring new shares to be issued for the unlikely conversion of Perwaja-WA), will be entitled for 2 billion Rights shares. It is only willing to subscribe for 500 million Rights shares.  The responsibility of finding takers for 1.5 billion Rights shares will fall on Perwaja. Who would want to sink in RM300 million if the sponsor seems rather reluctant to do so?

This level of caution - plus the staggered capital injection in 4 tranches by Zhi Yuan - doesn't inspire confidence.


Diagram 5: Zhi Yuan's Rights Issue Subscription

If you go to Perwaja's announcement of Changes in Shareholdings (here), you will see that its director, Pheng is slowly disposing his stake in the company (here and here). After all, the share price has risen from RM0.10 in early April to just under RM0.30 today.

I think you would do well to follow in Pheng's footsteps in reducing or disposing off your investment in Perwaja.

Note: 

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Perwaja.

Dnonce: Poised for Uptrend

Background

Dnonce Technology Bhd ("Dnonce")  is involved in 3 main businesses- Supply Chain Products & Servuces; Contract Manufacturing Services & Supply of Packaging Materials.

Technical Breakout

Dnonce broke above the line connecting its recent peaks, AB at RM0.48 yesterday. See Chart 1 & 2. This could well signal the beginning of an uptrend for the stock, which broke above its long-term downtrend line, RR in 3-4 months ago. However, its share prices have remained stubbornly stuck at RM0.40-0.46 all the while- until yesterday.


Chart 1: Dnonce's daily chart as at July 20, 2015 (Source: ShareInvestor.com)


Chart 2: Dnonce's weekly chart as at July 20, 2015 (Source: ShareInvestor.com)


Chart 3: Dnonce's monthly chart as at July 20, 2015 (Source: ShareInvestor.com)
(Note: As at 9.45am, Dnonce is trading at RM0.55.)

Recent Financial Performance

From Table 1, we can see that Dnonce has a steady revenue for the past 10 years. Its bottom-line started to improve since 2010. However, its result took a heavy knock in late 2011 when its Contract Manufacturing operation in Thailand was submerged in the Great Thailand Flood. For 2 quarters (QE30/11/2011 & QE29/2/2012), the group took losses from assets write-off and later from retrenchment expenditures.


Table 1: Dnonce's last 10 yearly P&L (Source: ShareInvestor.com)

In the past 4 quarters, Dnonce's revenue has crawled back- albeit at the expense of lower profit margin. 


Table 1: Dnonce's last 10 quarterly P&L (Source: ShareInvestor.com)

In the last quater (QE28/2/2015), Dnonce reported a big jump in the revenue from the Supply of Packaging Materials. This- plus good performance from the other 2 divisions- pushed Dnonce's net profit to RM0.7 million for QE28/2/2015. For 1H2015, net profit amounted to RM1.7 million. This translates to an annualized EPS of 7.6 sen.


Diagram 1: Dnonce's segmental results for 1H2015

Financial Position

As at 28/2/2015, Dnonce's financial position is deemed weak. Current ratio is marginal at 0.97 time while gearing is high at 2.2 times. The high gearing was due to high investment in non-current assets, such as Property, Plant & Equipment of RM42 million & oddly a trade receivable of RM43 million. This unusual trade receivable figure is likely to have arisen from a reclassification of other receivable, deposit & prepayment - which declined by RM30 million. See below:


Diagram 2: Dnonce's Balance Sheet as at 28/2/2015

Proposed Corporate Exercise

In March, the company proposed a corporate exercise, outlined below:


Diagram 3: Dnonce's Proposed Corporate Exercise

What is interesting is that it has proposed a capital reduction of 75 sen per share. This will yield a credit of RM33.8 million which is much higher than the accumulated losses of RM15.7 million as at 28/2/2015. This means that the company is likely to announce losses in the next 1-2 quarters that necessitates a higher credit in order to cover for the losses. In my opinion, this losses is likely to come from the full or partial write-off of the unusual trade receivable of RM42 million.

Valuation

Dnonce (closed at RM0.53 yesterday) is now trading at a PE of 7 times (based on annualized EPS of 7.6 sen). Its Price to Book is about 0.5 time (based on NTA of RM1.11 as at 28/2/2015). At this multiples, Dnonce is reasonably valued.

Conclusion

Based on technical breakout, Dnonce could be a good trading BUY. Its valuation is not demanding. Its performance has potential for improvement- as is its financial position.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Dnonce.

Thursday, July 16, 2015

Selamat Hari Raya

In these troubling times, let's take a moment to reflect on the peace and harmony that we have enjoyed thus far. We will quickly realize how fortunate & blessed we are to live in a peaceful nation endowed with rich natural resources, favorable climate & free from natural disasters. With such abundance and good fortune, we can easily take things for granted. The recent violent protest in Low Yat Plaza is a wake-up call  and a reminder that this peace and harmony is very fragile.

Let's dedicate ourselves to preserving the peace and sustaining the work of our forefathers who conceived this nation for all of us to live in. If the truth is told, the work is actually not all that hard. What is required is courage, sincerity & civility from everyone, especially our political leaders. We need to have the courage to push back the work of agitators, provocateurs and troublemakers – even if they are our own people. We need to stand up for the truth even if the truth is troubling & inconvenient. And, most important of all, we need to stand together as Malaysians and carry on the work of conciliators, builders and peacemakers so that the peace that we so cherished will not be lost. When the peace reins, we will have time to celebrate our diversity.

To all my Muslim readers, I wish you Selamat Hari Raya.


Source: smk2pangkalping.com

Kheesan: Uptrend continuing

Yesterday, Kheesan broke above its intermediate downtrend line, RR at RM0.77. This morning, it surpassed the April high of RM0.815. With these double breakout, Kheesan is continuing on its prior uptrend. See Chart 1.


Chart 1: Kheesan's daily chart as at July 16, 2015_9.25am (Source: ShareInvestor.com)

 Kheesan broke above its long-term downtrend line, RR at RM0.56 in April. Its immedaite resistance is at RM1.00 and beyond that, RM1.60. See Chart 2.

 
Chart 2: Kheesan's monthly chart as at July 16, 2015_9.25am (Source: ShareInvestor.com)

Based on technical consideration, Kheesan is a good trading BUY. For more on Kheesan, you can check out my earlier post (here).

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Kheesan.