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Thursday, February 15, 2018

Happy Chinese New Year

I like to wish everyone a very Happy Chinese New Year. May the Year of the Dog bring you good health and abundant happiness along with success in your career, business and investment.


Artwork by Lu Yee Ann





Supermx: Earnings Jumped

Result Update

For QE31/12/2017, Supermx's net profit rose 29% q-o-q or 59% y-o-y to RM36 million while revenue rose 8% q-o-q or 42% y-o-y to RM336 million. Revenue rose y-o-y due to strong demand for gloves and higher output recorded. Profits rose due to higher revenue recorded, higher production capacity and also improved operational efficiency.


Table 1: Supermx's last 8 quarters' P&L


Graph 1: Supermx's last 45 quarters' P&L

Below is a comparison of the last 4 quarters' revenue, PBT, PAT, NP & EPS of the top 4 glove manufacturers against the preceding 4 quarters' numbers. This comparison is a bit unfair for Kossan because its latest result is QE30/9/2017 whereas Harta and Supermx have the results for QE31/12/2017 & Topglov's result is for QE30/11/2017. Since I am trying to make a point about Supermx, it sufficed that we compare it with Harta & Topglov. We can see that Harta's revenue and profits have the highest increase among these 4 companies. This is followed by Supermx and then Topglov. The point to note is that Supermx is finally catching up with the other players in this sector- something we have not seen for a while.


Graph 2: Top 4 glove manufacturers' recent changes in financial performance

Valuation

Supermx (closed at RM2.20 yesterday) is now trading at a PER of 16x (based on last 4 quarters' adjusted EPS of 13.70sen). At this PER, Supermx is the cheapest glove manufacturer listed on Bursa. From the table below, we can see that the other 3 players command PER ranging from 31 to 47 times. If we were to value Supermx at the average PER of 36.7 times and discount that by 20%, Supermx's fair value would be RM4.02.


Table 2: Glove Manufacturers' valuation by PER & PBR

The market is probably assigning a lower PER for Supermx because its major shareholder, Stanley Thai was found guilty of insider’s trading. He was sentenced to a 5-year jail term & a fine of RM5 million. Stanley is appealing that decision. I believe that a 20%-discount is sufficient to factor in the risk of business interruption if the appeal is rejected and Stanley has to serve the jail sentence.

Technical Outlook

Supermx is moving within a large band between RM1.70 and RM3.30. Within this trading band, its immediate support is at RM2.00 & immediate resistance is at RM2.40.


Chart: Supermx's monthly chart as at Feb 14, 2018 (Source: ShareInvestor)

Conclusion

Based on satisfactory financial performance and attractive valuation, I am revising my rating for Supermx from a HOLD to a BUY.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

BAT: Earnings Plummeted


Result Update

For QE31/12/2017, BAT's net profit dropped 45% q-o-q or 74% y-o-y to RM78 million while revenue dropped by 8% q-o-q or 17% y-o-y to RM700 million.

Revenue decreased by 7.5% due to decline in sales volume of 3.0% compared to immediate preceding quarter as well as decline in higher price segment. The Group registered market share growth from 53.6% in the third quarter to 53.9% in the fourth quarter of 2017 with Dunhill registering a 0.7%-decrease in market share to 37.7% while Aspirational Premium brands, Peter Stuyvesant and Pall Mall, increased their market share to 10.9%. The group entered the Value For Money (VFM) segment in October 2017 through the introduction of Rothmans. In the fourth quarter of 2017, Rothmans stood at 1.8% market share and was becoming the fastest growing brand within the VFM segment, exiting 2017 at 2.8% market share.

Operating expenses were 39.1% (RM33 million) higher than preceding quarter. Operating expenses, excluding the provision of impairment for prepaid excise duties of RM21 million, increased 14.9% (RM13 million) versus immediate preceding quarter.

After deducting restructuring expenses of RM1.4 million which consisted of on-going cost of the project and outplacement programs, operating profit declined 44.4% (RM84.1 million) when compared to the immediate preceding quarter.


Table 1: BAT's last 8 quarterly results

BAT's revenue and profits have been on a decline for the past 3 years. There is no sign that these have hit hot the bottom.


Graph: BAT's last 44 quarterly results

Valuation

BAT (closed at RM29.06 yesterday) is now trading at an adjusted PER of 16.9 times (based on the last 4 quarters' EPS of 172.6 sen). BAT has paid out quarterly dividend payment totaling of169 sen; thus giving a Dividend Yield of 5.8%. If BAT's revenue & profits were to stabilize, the stock will be an attractive stock as these multiples are fairly attractive for a well-managed MNC.

Technical Outlook

BAT broke its long-term uptrend line, SS at RM52 in April 2016. In the last 2 months, it broke the psychological support at RM40 as well as the horizontal line at RM38. Today it broke another psychological support of RM30.00. Its next support is at the horizontal line at RM27.


Chart: BAT's monthly chart as at Feb 14, 2018 (Source: Shareinvestor.com)

Conclusion

Based on dateriorating financial performance and bearish technical outlook, BAT is a stock to be avoided. However once the company's revenue and profits have made a bottom, it could be a good stock to invest in as it is a well-managed company.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Tuesday, February 13, 2018

CSCSTEL: Earnings Recovered

Results Update

For QE31/12/2017, CSCStel's net profit rose 5.6% q-o-q or 139% y-o-y to RM15 million on the back of higher revenue -which rose 13% q-o-q or 288% y-o-y to RM267 million. Group’s revenue rose q-o-q due to substantial increase in total sale volume and higher selling prices for all its steel products. As a result, the Group's profit before tax rose to RM19 million this quarter compared with RM16 million achieved in the previous quarter. (Note that effective tax rate on consolidated profit before tax for the current period was lower than the statutory income tax rate of 24% due mainly to tax effect of income not taxable in determining taxable profit; and tax effect of utilizing re-investment allowance.)


Table: CSCStel's last 8 quarterly results


Graph: CSCStel's P&L for last 41 quarterly results

Valuation

CSCStel (closed at RM1.51 yesterday) has a PER of 9.3 times (based the last 4 quarters' EPS of 16.19  sen). At this PER multiple, CSCStel is deemed fairly attractive.

Technical Outlook

CSCStel has broken below its intermediate uptrend line, SS at RM1.70 in late November last year. Shortly thereafter, it also broke to the downside of its descending triangle, ABC at RM1.63. This means CSCStel may continue to slide.


Chart 1: CSCStel's daily chart as at Feb 13, 2017 (Source: MalaysiaStock.Biz)

If you look at the monthly chart, CSCtel has been rising in an upward channel since 2006. It is now slightly below the middle line. If the share price weakens further, it is likely to go to the lower line. Thus it is important that CSCtel must recover above the middle line at RM1.55.


Chart 2: CSCStel's weekly chart as at Feb 13, 2017 (Source: MalaysiaStock.Biz)

Conclusion

Based on satisfactory financial performance and fairly attractive valuation, CSCStel is a good stock for long-term investment. However we have to track this stock closely as its technical outlook has turned negative.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

GCB: Strong Earnings from Lower Material Costs


Results Update

For QE31/12/2017, GCB's net profit rose 10-fold y-o-y to RM31 million on the back of a 9%-decline in revenue to RM494 million. Compared to the immediate preceding quarter (QE30/9/2017), net profit rose 4% while revenue was lowered by 9%.

Revenue dropped y-o-y mainly due to decrease in sales volume of cocoa solids and overall selling price of cocoa products. The profit before tax rose y-o-y mainly due to improved margin (due to lower bean purchase price) and also unrealized gain derived from commodity future contract.


Table: GCB's last 8 quarterly results


Graph: GCB's last 53 quarterly results

Valuation

GCB (closed at RM1.99 yesterday) is now trading at a trailing PER of 10.7 times (based on last 4 quarters' EPS of 18.65 sen). At this PER, GCB is deemed fairly valued.

Technical Outlook

GCB has broken below its uptrend line, SS at RM2.10 on January 17. In addition it has gone below the 10-week SMA line which has guided the share price higher since June 2017. The technical outlook for GCB is mildly bearish.


Chart 1: GCB's weekly chart as at Feb 12, 2017(Source: Malaysiastock.biz)


Chart 1: GCB's weekly chart as at Feb 12, 2017(Source: Malaysiastock.biz)

Conclusion

Based on good financial performance and reasonable valuation, GCB is a good stock for long-term investment. However we should be careful not to over-invest in GCB as its  technical outlook is mildly negative.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Friday, February 09, 2018

F&N: Earnings dropped y-o-y

Result Update

For QE31/12/2017, F&N's net profit rose more than 4-fold q-o-q to RM107 million on the back of a 9.5%-increase in revenue to RM1.07 billion. The huge jump in net profit is attributed to restructuring cost totaling RM50.2 million incurred in the immediate preceding quarter. When we compared the latest result with the same quarter last year, we can see that net profit  dropped 16% while revenue was lowered by 2%.

F&B Malaysia revenue grew by 12.1% q-o-q to RM600.4 million mainly due to lower revenue in the immediate preceding quarter since that was right after the Hari Raya festive season. F&B Malaysia operating profit (excluding one-off items in the preceding quarter) improved by 119.2% to RM41.2 million due to higher volume, lower manufacturing overheads and operational cost savings.

F&B Thailand revenue grew by 6.2% q-o-q to RM468.2 million mainly due selling-in for New Year festive season. F&B Thailand operating profit (excluding one-off items in the preceding quarter) improved by 124.5% to RM75.6 million compared with the preceding quarter mainly due to higher revenue, lower advertising and promotional spending, and favourable input costs.


Table: F&N's last 8 quarterly results


Graph: F&N's last 45 quarterly results

Valuation

F&N (closed at RM29.90 yesterday) is now trading at a PER of 36 times (based on last 4 quarters' EPS of 82.7 sen). At this PER, F&N is deemed overvalued.

Technical Outlook

F&N has rallied after it broke above a triangle at RM25.80-2.6.00. The rally peaked at RM30.30, which is about RM4.00 above the breakout level. That's approximately the distance between the lower line and upper line in the triangle at the widest points in the month of November 2016. Having achieved the 1-to-1 extension, F&N is likely to consolidate this gain for the next few months.


Chart 1: F&N's weekly chart as at Feb 8, 2018_10.00am (Source: Shareinvestor.com)


Chart 2: F&N's monthly chart as at Feb 8, 2018_10.00am (Source: Shareinvestor.com)

Conclusion

Based on demanding valuation and weaker financial performance, I rate F&N as a SELL.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post.
 However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Thursday, February 08, 2018

Harta: Bonus is coming

Result Update

For QE31/12/2017, Harta's net profit rose 71% y-o-y to RM113 million while revenue rose 32% y-o-y - to RM603 million. Compared to the immediate preceding quarter, PBT rose a meager 1% on the back of a 3%-increase in revenue while net profit was unchanged.

Revenue increased 3% q-o-q driven by higher sales volume which increase by 4.0% in line with increasing demand from customers. PBT rose 1% q-o-q mainly due to higher sales volume despite lower average selling price.


 Table: Harta's last 8 quarterly results


Graph: Harta's last 41 quarterly results

Proposed Bonus Issue

Harta has proposed a 1-for-1 bonus issue when it announced its latest results. This is the 4th bonus issue after the earlier 3 bonus issue of shares and 1 bonus issue of warrants:
  • In Sep 2010, bonus issue of shares of 1-for-2
  • In May 2012, bonus issue of shares of 1-for-1 cum bonus issue of warrants of 1-for-5
  • In Sep 2015, bonus issue of shares of 1-for-1
Valuation

Harta (closed at RM11.50 yesterday) is trading at a trailing PER of 46 times (based on last 4 quarters' EPS of 25.03 sen). This high PER can only be justified by the high earning growth of 60% achieved in the past 4 quarters. 

The group may be able to sustain this high earning growth based on the recent statement to the press, Harta managing director Kuan Mun Leong updated that the group’s Next Generation Integrated Glove Manufacturing Complex (NGC) is well on schedule to meet growing demand. "We have completed commissioning of Plant 4 with all 12 production lines operational and construction has commenced on Plant 5. In addition to this, we aim to launch our world-first non-leaching antimicrobial nitrile examination gloves by the second quarter of 2018.” For more, go here.

Technical Outlook

Harta is in a long-term uptrend, with share prices moving within an upward channel. The price movement was so bullish that it broke above the upper line of the channel at RM8.00, and rose to a high of RM12.18!


Chart 1: Harta's monthly chart as at Feb 7, 2018 (Source: Shareinvestor.com)

Looking at the weekly chart below, I believe the upside for Harta in the near term is fairly limited. On the other hand, it is possible to it to pullback to RM10.00 over the next few months.


Chart 2: Harta's weekly chart as at Feb 7, 2018 (Source: Shareinvestor.com)

Conclusion

Despite the improved operating performance, strong leadership in the glove sector and capable management team, I think it is a good time to take some profit on this stock.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Market Outlook as at February 7, 2018


Looking at the daily charts for FBMKLCI and FBM70, you will see that we had 2 gap-down days on Monday & Tuesday, which were followed by a gap-up day yesterday. The gap between Monday & Tuesday was so big that it accommodated the entire range of trading yesterday. The fact that the high of yesterday was lower than the low of Monday, shows that the buying enthusiasm was rather thin. In that sense, DJIA did better than us yesterday. However, I like to look at DJIA as the leading market and their market action yesterday seems to suggest that we will have a weak follow of the rebound - something which traders watching the market would have felt in the afternoon. 


Chart 1: FBMKLCI's daily chart as at Feb 7, 2018 (Source: Shareinvestor.com)


Chart 2: FBM70's daily chart as at Feb 7, 2018 (Source: Shareinvestor.com)


Chart 3: DJIA's daily chart as at Feb 7, 2018 (Source: Stockchart.com)

I like to give a quick take on crude oil and CPO charts. Brent crude has broken its uptrend line. Its next strong support is at USD65.


Chart 4: BRENT's daily chart as at Feb 7, 2018 (Source: Stockchart.com)

CPO is in a downtrend line, with strong support at RM2300. It will probably trade between RM2300 and RM2500 for the next few weeks.


Chart 5: CPO's daily chart as at Feb 7, 2018 (Source: Investing.com)

Based on the above, caution is the order of the day. Keep a check on your trading activity, and invest carefully (even, stingily). Good luck!

Tuesday, February 06, 2018

Market Outlook as at February 6, 2018


DJIA plunged to the 100-day SMA line yesterday before it recovered slightly to close at 24346. Nevertheless, DJIA lost a whopping 1175 points- it's greatest point loss in history. I believe the stage is set for a technical rebound today.


Chart 1: DJIA's daily chart as at Feb 5 2018 (Source: Stockcharts.com)

The sharp drop in DJIA caused sharp drop in stock market everywhere. Malaysia is no exception. FBMKLCI dropped below 1800 in the morning session (made an intraday loss of 1795). We can see from the weekly & monthly charts below that this level of 1795-1800 is a good support level. If DJIA were to stage a technical rebound today, we may see stocks jumping up tomorrow.


Chart 2: FBMKLCI's weekly chart as at Feb 5 2018 (Source: Snareinvestor.com)


Chart 3: FBMKLCI's monthly chart as at Feb 5 2018 (Source: Snareinvestor.com)

I believe that stocks at the current prices are worth buying- not selling. However, please exercise careful discretion if you choose to venture into the market now. Good luck!! 

Monday, February 05, 2018

DJIA: A 666-point Drop


Last Friday, Dow Jones Industrial Average ('DJIA') shed 666 points- making it the biggest single-day daily drop in 2 years. On the weekly basis, DJIA lost 1100 points- its biggest loss in the past 9 years. In my opinion, there are 3 likely reasons for the sharp drop:
1. Fed is about to embark on a roll-back of its easy money policies. Recently it has given indication that it may even hasten its rate hike schedule; 
2. The stock market is significantly over-bought; and 
3. The Russian collusion cum obstruction of justice investigation against the Trump administration is approaching the home stretch. The probability of a constitutional crisis is very likely as Trump and his Republican supporters are not the kind of people who play by the rules; they believe in alternate truth, and seem to live in a parallel universe. Thus, the stage is now set for a test of the rule of law in the US, the greatest democracy in our life time. 
Meanwhile, DJIA broke the 20-day SMA line at 25939 last Friday. The 20-day SMA line has been supporting the index in its previous corrections for the past 5 months. DJIA may test its 50-day SMA line at 25016 this week. Notwithstanding technical rebound along the way, I expect the correction to persist for a few weeks and DJIA to find support at the 100-day SMA line at 23982. Global equity markets will see similar correction, albeit of a slightly small magnitude. Volatility will be the order of the day. My advice is to reduce your trading activities. However, as correction will flush out stocks at better valuation, you should be prepared to buy into the market when the share prices are below their valuation. Good luck!


Chart: DJIA's daily chart as at Feb 2, 2018 (Source: Stockcharts.com)

Thursday, February 01, 2018

USD-MYR: Near-term Target 3.80

It is now quite well-accepted that our MYR is on a strengthening mode. There are a few reasons to explain the strengthening of our MYR, ranging from crude oil recovery to interest rate hike. The main reason is the steady growth of our economy at 5.5-5.6%.

The best way to figure out where USD-MYR is going is to look at the chart. Chart 1 below shows very clearly that USD-MYR broke below its uptrend line at 4.25 in September 2017. It went to a low of 4.17 and attempted to climb back to its uptrend line in November. It went as high as 4.24- missing the rising uptrend line at 4.33.


Chart 1: USD-MYR weekly chart from July 2013 to January 2018 (Source: Investing.com) 

If you looked back at USD-MYR movement from 2008 to 2013, you would see the opposite, where USD-MYR broke above its downtrend line at 3.00 in September 2011. Here we are given a lesson in technical analysis which I would enumerate here:
1. The upside breakout of a downtrend line marks the end of the current downtrend.
2. The end of a downtrend means a significant bottom has been achieved; thus it is relatively safe to buy.
3. The end of a downtrend could lead to two possible scenarios- a sideways movement or an uptrend

The upside breakout of USD-MYR was followed by a sideways movement that lasted 23 months from September 2011 to July 2013.


Chart 2: USD-MYR weekly chart from July 2008 to June 2014 (Source: Investing.com) 

I am sharing this observation because there are some investors who feel that USD-MYR will continue to drop after the breakdown of the uptrend line as noted above. I believe that it is not a very likely scenario because Malaysian exporters would be badly affected if our MYR were to strengthen too rapidly. Thus I believe BNM will intervene in the forex market to slowdown the strengthening of our MYR, especially if the level of USD1 to MYR3.80 is threatened. That's the level that our MYR was pegged to the USD during the period of capital control from 1999 to 2005.

Astro: Earnings may get a Boost from WC2018

Results Update

For QE31/10/2017, Astro's net profit dropped 40% q-o-q or 3% y-o-y to RM147 million while revenue dropped 2% q-o-q and y-o-y to RM1.40 billion.

Revenue dropped y-o-y mainly due to a decrease in subscription, advertising and licensing revenue, offset by higher production revenue. The decrease in subscription revenue was mainly due to lower package take-up. The decrease in advertising revenue was due to subdued advertising market. The decrease in licensing revenue was due to loss of content recovery for sports channel.

Net profit decreased y-o-y due to decrease in EBITDA, which was offset with impairment of investment in associate of RM15.1 million in the corresponding quarter and lower net finance costs. Lower net finance cost was due to favorable unrealized forex gain arising from unhedged non-current balance sheet liabilities comprising, finance lease liabilities and vendor financing.
(Note: Astro's result for QE31/10/2017 was announced on December 6, 2017.)


Table 1: Astro's last 8 quarterly results


Graph: Astro's last 25 quarterly results

Prospect for FY2019

Being the main provider of live sport event, Astro is likely to get a boost from FIFA World Cup 2018. To compute the financial impact, I have compared the increase in revenue and  profit for the TV segment from FIFA World Cup 2014. We can see the TV segmental revenue & profit for 1H2015 increased by 13% and 28% respectively. Net profit rose by 25% from RM213 million to RM266 million in 1H2015.

Assuming the same level of increase were to happen in 1H2019, then revenue & segmental profit would increase to RM3.057 billion & RM764 million respectively while net profit would increase to RM552 million. Divided by total shares outstanding of 5214 million, 1H2019 EPS would be about 10.6 sen. Assuming 2H2019 EPS is about 6 sen, then Astro's full-year earning for FY2019 would be about 16.6 sen- giving the stock a prospective PER of 15.7times.


Table 2: Astro's forecast earning for 1H2019

Valuation

Astro (closed at RM2.60 on Thursday) is now trading at a trailing PE of 18 times (based on last 4 quarters' EPS of 14.09 sen). In addition, Astro paid out dividend quarterly which amounted to 12.50 sen for the last 4 quarters; giving the stock a decent DY of 4.8%. Based on the above PER and DY, Astro is fairly attractive.

Technical Outlook

Astro is transitioning from a downtrend to a sideways trend, with resistance from the line, XY and support from the line, AB.


 Chart: Astro's weekly chart as at Jan 30, 2018 (Source: Malaysiastock.biz)

Conclusion

I like to revise Astro's rating from a HOLD to a BUY based on steady financial performance, relatively attractive valuation & potential boost from WC2018.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.