Sunday, July 05, 2020

Market Outlook as at 6 July 2020

Last week, FBMKLCI rallied and re-established its position just above its previously violated uptrend line, SS. The recovery was fairly broad-based though the big gainers were concentrated in the glove stocks and the technology stocks.


Chart 1: FBMKLCI's daily chart as at July 3, 2020 (Source: Malaysiastock.biz)

The rally among the glove stocks, which is part of the health care sector, helped to push the health care index to a new high.

 Chart 2: BM Health Care index's daily chart as at July 3, 2020 (Source: Malaysiastock.biz)

Similarly, the rally in the tech stocks has pushed the Technology index to a new high in the current rally! At a close of 43020, Technology index is not far from its all-time high of 44610 recorded in January 2018.


Chart 3: BM Technology's daily chart as at July 3, 2020 (Source: Malaysiastock.biz)

The rally in tech stocks had earlier shown its potential when it helped FBMACE to make a new high in the current rally (see Chart). If you looked at the monthly chart (Chart 5), you will see that FBMACE has just surpassed the line connecting the high recorded its April 2015 & January 2018. This could mean that FBMACE may continue to trend higher. However, we should be careful to avoid a bull trap since the FBMACE stocks have rallied substantially over the past 4 months after it came off a deep selldown in March which was a bear trap.


Chart 4: FBMACE's daily chart as at July 3, 2020 (Source: Malaysiastock.biz)

Chart 5: FBMACE's monthly chart as at July 3, 2020 (Source: Malaysiastock.biz)

In the current market, where winners keep getting pricier and non-performers remain dull (if not down), it is hard to recommend stocks with strong conviction. If the market is too confusing for you, then you should stick to cash or those stocks that you are comfortable investing in. Just tell yourself, you have good companies if you are sitting on cash or staying on the sideline (here and here).

Technology Play: Which Sub-sectors or Stocks to Buy?

Last week, tech stocks have chalked up significant gain. If you wondering how to identify laggard tech stocks to add to your portfolio or watch list, this is one way you can consider.

Firstly, you need to identify which sub-sectors have shown out-performance. The Technology sector is divided into 4 sub-sectors: Digital Services, Semiconductors, Software and Technology Equipment. Below I have shown the steps to look at one of the sub-sectors, Digital Services. Then you choose "Price Change" and sort it by "Descending" order to filter out the out-performers.  


Diagram 1: How to pick out stocks in a sub-sector within the Technology sector

Below are the tables of out-performers for all the 4 sub-sectors of the Technology sector. You would notice that there are more gainers among the "Semiconductor" and "Technology Equipment" sub-sectors. This is not surprising as Malaysia is stronger in manufacturing than software or services.


Table 1: Top performers in the Digital Services sub-sector within the Technology sector


Table 2: Top performers in the Semiconductor sub-sector within the Technology sector


Table 3: Top performers in the Software sub-sector within the Technology sector


Table 4: Top performers in the Technology Equipment sub-sector within the Technology sector

After you have narrowed down the out-performing sub-sectors, you can choose the stocks to track or to buy. Assuming you want to buy the laggards; you should study their financial performance and the reason for their poorer financial performance. If you feel that the poorer financial performance may change, and the company's financial position is fairly sound, then you may position yourself in these laggards and wait for their turn to go higher.

You may try the same approach for Health Care sector. You will soon get the confirmation that this sector is pretty much all about glove stocks.

Diagram 2: How to pick out stocks in a sub-sector within the Health Care sector


Table 5: Top performers in the Health Care Equipment & Services sub-sector within the Healthcare sector

Look at the long list of out-performing glove stocks & related CWs above. The laggards among the glove stocks are not really laggards nor are they cheap. In my opinion, the whole glove stocks universe has gone up so much that you have to accept them not as value stocks, but as growth stocks which come with a high premium. The high premium can be justified if the earnings growth continues. If it stopped - or the market perceived that it may stop - the rollback can be very sharp.

That's what happened in late June when the market learned that glove prices have softened (here). Since then, the share prices rallied again, which could only mean that the report of the softening of glove prices was wrong or exaggerated. Anyway, that's the risk that you have to take if you get into glove stocks now.

The above are the steps that you can use to identify the out-performing sub-sectors in the Technology and Health Care sectors, and then you can pick up certain stocks to buy or track according to your investing or trading strategy. Good luck!

Monday, June 29, 2020

Market Outlook as at June 29, 2020

Last week, FBMKLCI closed just a tad below its uptrend line. This - together with the a convincing breakdown of the uptrend line for FBM70 - will likely point to further weakness ahead for our market for this week.

Chart 1: FBMKLCI's daily chart as at June 26, 2020 (Source: Malaysiastock.biz)

Chart 2: FBM70's daily chart as at June 26, 2020 (Source: Malaysiastock.biz)

2nd & 3rd liner stocks are likely to have drop only slightly, as shown by the sideways movement of FBMSCAP. Then again, these stocks did not raise sharply, except for a selective few and the chart is showing a pattern that looks like a rounding top. If this index were to break down below 11500, the decline will likely be more broad based. 

Chart 3: FBMSCAP's daily chart as at June 26, 2020 (Source: Malaysiastock.biz)

If you looked through all the indices of the various sectors on Bursa Malaysia, the ones that stood out are the health and technology sectors. The health sector has benefited from the huge rally for glove stocks and "pandemic" stocks while technology stocks have rallied due to the rally for e-commerce and related stocks. One surprising sector that has managed to keep its uptrend line in tact is plantation sector. See the charts below.

Chart 4: BM Health's daily chart as at June 26, 2020 (Source: Malaysiastock.biz)

Chart 5: BM Technology's daily chart as at June 26, 2020 (Source: Malaysiastock.biz)

Chart 6: BM Plantation's daily chart as at June 26, 2020 (Source: Malaysiastock.biz)

For the next few days, you can expect the broad market to be weak and trading to be choppy. 

Friday, June 26, 2020

YeeLee: De-listing from 1 July 2020

YeeLee will cease trading on 1 July 2020 as the stock will be de-listed from the exchange after the major shareholder(s) have successfully acquired more than 90% of its issued shares. For more, go here.

In May, the major shareholder(s) extended its offer to buy out minority shareholders from 12 May 2020 to 23 June 2020 at a price of RM2.06 per share, which is lower than the earlier offer price of RM2.33 per share in the unsuccessful take-over offer in April 2019.

Yesterday, the major shareholder(s) have offered to buy out any remaining minority shareholders' shares even after the de-listing of the stock at the same price of RM2.06 per share, up to 24 September 2020. For more details & "Acceptance Form", go here.


Chart: YeeLee's daily chart as at 26 Jun 2020 (Source: Malaysiastock.biz)

If you are a minority shareholder of YeeLee, you have a choice of (1) holding onto the shares of a private company or (2) selling off the shares in open market (before 1 July 2020) or by accepting the offer by the major shareholder(s) before 24 September 2020. 

My recommendation is to selling off YeeLee shares whichever way is to your convenience. If you still like to be invested in a stock with YeeLee DNA, you can consider Spritzr, a natural mineral water company that's currently part of the YeeLee group. 

Thursday, June 25, 2020

PERMAJU: A Warning!

The euphoric rally among 3rd liner stocks experienced in the past 1-2 months has generated much excitement in the market. Some of these stocks have doubled up in a matter of days, with no regards to fundamental. This may come to an end soon.

As the harsh economic reality starts to bite, weaker companies would have to raise funds to tie over the dry months and years ahead. An example is PERMAJU which is now implementing a Rights issue of Irredeemable  Convertible Preference Shares (RCPS) at an issue price of RM0.05 each (which comes with free warrant) on the basis of 10 RCPS together with 1 free warrant for every 2 shares owned. The ex-date for this Rights issue is on July 13. You can see the announcement of the ex-date on Bursa Malaysia on June 19 (here) triggered the sell-down of the stock.

Chart: PERMAJU's daily chart as at June 24, 2020 (Source: Malaysiastock.biz)

On the other hand, there are a few stocks that tried to avoid calling for Rights issues. Instead they chose to raise fund by way of private placement. Their share prices rallied in the past few days. Examples are CNASIA and IRIS. The logic, if you accept it as logical, is that the major shareholders have to push up the share price in order to induce investors to buy into the private placement. Sometimes this effort of logic works. Oftentimes, it doesn't. As Abraham Lincoln once said; “You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.”  

Be careful out there.

Spritzr: Earnings Poised to Rise


Result Update

For QE31/3/2020Spritzer's net profit rose 35% q-o-q or 14% y-o-y to RM8.8 million while revenue rose 6% q-o-q but dropped by 2% y-o-y to RM93 million. The Group revenue rose q-o-q due to  increase sales volume. The Group recorded a profit before tax of RM13.2 million during the current quarter ended 31 March 2020, representing a 61% increase from the RM8.2 million recorded in the immediate preceding quarter ended 31 December 2019 mainly due to increase in sales revenue and decrease in cost of raw materials.


Table: Spritzer's last 8 quarterly results

Spritzr' top-line has been rising steadily for the past 14 years and its bottom-line looks poised to break into new high!


Graph: Spritzer's last 56 quarterly results

Financial Position

As at 31/3/2020, Spritzr's financial position is deemed very healthy with current ratio at 3.3 times and total liabilities to total equity at 0.2 time only.

Valuation

Spritzer (closed at RM2.00 yesterday) is now trading at a PE of 13.0 times (based on last 4 quarters' EPS of 15.39 sen). At this PER, Spritzer is still deemed fairly attractive for a consumer stock. Its dividend yield is on the low side at 2.25%.

Technical Outlook

Spritzr has been moving sideways for the past 4 years, between RM2.00 and RM2.50. In March, Spritzr broke below the RM2.00 support and went as low as RM1.70. It has since recovered back above the RM2.00 mark.


Chart : Spritzer's monthly chart as at Jun 24, 2020  (Source: Malaysiastock.biz)

Conclusion

Based on satisfactory financial performance, healthy financial position and attractive valuation, Spritzer is a good stock to consider for long-term investment.

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.

Monday, June 22, 2020

Market Outlook as at June 19, 2020

Last week's correction has brought the FBMKLCI to the medium-term uptrend line, SS at 1500. The index is now hovering just below the long-term downtrend line, RR which stretches back to April 2018. With MACD hooked down and Stochastic RSI in the oversold territory, the index may continue to consolidate for a while. A break below the 1500 level could send the index to the 1450 level, which is the line connecting the recent lows after the rally began in March.

Chart 1: FBMKLCI's daily chart as at June 19, 2020 (Source: Malaysiastock.biz)

The weakness among the blue chip stocks - especially among the glove stocks - have not stopped the play among the 2nd and 3rd liner stocks. In fact, small-cap stocks and tech stocks have been charging higher, which reflects a similar trend in Nasdaq. See the charts for Dow and Nasdaq below.

Chart 2: FBMACE's daily chart as at June 19, 2020 (Source: Malaysiastock.biz)

Chart 3: DJIA's daily chart as at June 19, 2020 (Source: Stockcharts.com)

Chart 4: Nasdaq's daily chart as at June 19, 2020 (Source: Stockcharts.com)

Based on the above, I believe the broad market may hold steady for this week. Trading will continue to be choppy, and it will favor those who are nimble and ruthless. Good luck!!

Thursday, June 18, 2020

MYEG: Poised for Breakout?

In the current unstable environment, there are a few stocks that are still sticking to their resistance levels. The question to ask is why? Why are they dropping back? One of such stocks is MYEG which is still pushing again the upper line of its trading range at RM1.50-1.52..  


Chart: MYEG's daily chart as at Jun 17, 2020_4.00pm (Source: Malaysiastock.biz)

Its CWs are also trading at fairly high premium.


Table: MYEG's CWs with minimum tenor of 90 days

Something is cooking here. Watch out!!

GPacket: No Hurry to Sell

After 3 weeks of painful profit-taking, GPacket and GPacket-WB have dropped back to their respective tentative uptrend lines. If they do not break below the uptrend lines, they may find their support here and slowly begin their recovery. Both securities may be at a good level for slow accumulation. 

Chart 1: GPacket's daily chart as at Jun 17, 2020_4.00pm (Source: Malaysiastock.biz)

Chart 2: GPacket-WBs daily chart as at Jun 17, 2020_4.00pm (Source: Malaysiastock.biz)

Tuesday, June 16, 2020

Market Outlook as at June 16, 2020

Our market took a severe blow yesterday. The FBMKLCI has dropped back below the 200-day SMA line as well as the downtrend line, SS which stretches back to April 2018. The indicators have turned bearish with MACD hooked down and Stochastic RSI below 50. 

Chart 1: FBMKLCI's daily chart as at Jun 15, 2020 (Source: Malaysiastoc.biz)

The question that arose is whether the all green light which I pointed out earlier (here) is now negated. The conditions that must be satisfied on the weekly basis are:
    1. Index rose above both 10 & 20-week SMA lines
    2. MACD crossed above the MACD signal line
    3. Stochastic RSI was above 80 (or, in oversold territory)
    4. +DMI crossed above -DMI and continued to diverge

Chart 2: FBMKLCI's weekly chart for 1997-1999, 2007-2009 and 2018-2020 (Jun 15) (Source: Malaysiastoc.biz)

Looking at the weekly chart above, the index is still meeting the above conditions. However, we cannot ignore the warning sign of the failed breakout above the downtrend line, RR. Together with the failure to stay above the 200-day SMA line (as highlighted in Chart 1 and Chart 3), we have to be careful that the market uptrend may fail to take off & reverse. 

Chart 3: FBMKLCI's daily chart for 1997-1999, 2007-2009 and 2018-2020 (Jun 15) (Source: Malaysiastoc.biz)

We will watch the market for the next few days to assess whether the current severe correction will change the trajectory of the market, resulting in more consolidation.