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Thursday, December 27, 2007

UEMBLDR has tested its strong horizontal support

UEMBLDR broke its strong horizontal support at RM1.15 on December 19, when it closed at the low of RM1.13. Over the next three days, UEMBLDR's share price recovered above that support; thus this strong horizontal support still remained in tact.

Over the next few weeks, UEMBLDR's share price could recover further to test its overhead resistance levels at RM1.30, RM1.45 & RM1.60. As such, UEMBLDR- at the overnight price of RM1.19- could be a fairly rewarding Trading Buy, for a holding period of 2 to 3 months. Setting a stoploss for this trade must take into account the next strong horizontal support (and a psychological support) of RM1.00. Thus, the stoploss maybe set at, say RM0.95.


Chart: UEMBLDR's weekly chart as at December 26 (courtesy of Quickcharts)

Monday, December 24, 2007

Merry Christmas & a Happy New Year!

2007 has been an exciting year. A year, which has started with great promise, has now come to a quiet end. While the index is higher than where it was at the beginning of the year, the traded volume has dwindled substantially. Huge swings in February & August had taken a heavy toll on many market participants.

During these holidays, let's take a break from the market & spend some time with family & friends. There should be sufficient time to make plans for the challenges and opportunities when 2008 is upon us. I like to take this opportunity to wish you and your family a Merry Christmas and a Happy New Year!

Airasia's crude oil options dealing

In the Star newspaper today, there is a report that Airasia might suffer some setbacks from selling of call options relating to oil (go here). Buried deep in the report entitled "Caucasian crisis deepens" is this item, reproduced in full:

AirAsia Bhd's share price felt a downdraft over the last three weeks. That caused its price to spiral downwards amid heavy selling to a nine-month low of RM1.59 on Friday.

That occurred after two foreign brokers issued reports late last month, warning that the budget airline company was vulnerable to oil options it took on. Counter-parties could exercise their call options to buy oil from AirAsia at US$90 a barrel, which put it at risk if oil rose above that price.

Its CEO Datuk Tony Fernandes said those options “have been taken out with a plain vanilla option at US$79 two weeks ago.” Hence, “there is no exposure anymore” to the early option, he told this column.

It is observed the airline has started to show a trend of high growth as its operating profit rose to RM145.7mil in its first quarter ended Sept 30, 2007 compared with RM52.8mil in the same quarter last year. This could be attributed to economies of scale as Asia's biggest budget airline rapidly expanded under a management astute at managing its fleet operations and finances.

I have highlighted the important part of this report in bold & italic. There are 2 possibilities regarding Airasia's dealing in call options relating to oil.

  • Firstly, Airasia might have sold or written these call options because it felt that oil prices were heading lower & it could do without too much hedging or it might benefit from falling oil prices. Subsequently, the oil prices took a tumble. At that point of time, Airasia could do 2 things: it could choose to do nothing & continue to enjoy the falling oil prices, or it could buy new call options (plain vanilla option, in Tony's word) at lower prices in order to re-establish its hedge against future hike in oil prices.

  • Secondly, Airasia could have sold or written these call options in order to benefit from a correction in oil prices. After oil prices had fallen off, Airasia went into the market to buy new call options (plain vanilla option, in Tony's word again) at lower prices; thus benefiting from the correct prediction of the direction of oil prices.
What is the difference between these 2 scenarios? In the first scenario, Airasia would be viewed as a dynamic airline that watches its most important cost component (oil prices) carefully & actively managing the hedging of this cost component. In the second scenario, Airasia is an overly aggressive company that crossed the line between hedging & speculation in its dealing in call options relating to oil. I do not have the fact to come to a definite conclusion. My feeling is that Airasia is a well-managed company which is not likely to engage in speculative activity as feared by some.


Chart: Crude Oil chart as at December 21 (courtesy of SuperCharts by Omega Research)

UMcca reported big jump in net profit

UMcca has just announced its results for QE31/10/2007. Its net profit increased sharply by 62.2% q-o-q or 122.5% y-o-y to RM27.7 million while its turnover also increased by 39.7% q-o-q or 87.6% y-o-y to RM65.1 million. If you compared its last 4 quarters' results with the preceding 4 quarters', you will see that its net profit has jumped by 172% from RM28.6 million to RM77.7 million, while turnover has increased by 62.2% from RM111 million to RM181 million.

Based on its closing price of RM7.20 as at December 21 & its last 4 quarters' EPS totaling 58.0 sen, UMcca is now trading at a trailing PE of 12.4 times. I believe that there is still further upside of about 15-20% to this stock in the medium-term.



The share price of UMcca has been rising in a steady uptrend until mid-August 2007. Then, it went on a sharp rise- riding on the crest of a boom in the price of CPO. From a low of RM4.88 in mid-August, the share rose to above RM7.00 today. In the short-term, one can expect a fair bit of volatility on this stock. Despite the potential upside in the stock, a correction of its sharp price gain cannot be ruled out.


Chart: UMcca's weekly chart as at December 21 (courtesy of Quickcharts)

Based on the good results, UMcca is still a BUY for the medium-term.

Friday, December 21, 2007

Haio's good performance continued

Haio reported its results for QE31/10/2007 recently. Its net profit increased by 28.8% q-o-q or 84.2% y-o-y to RM9.1 million while its turnover has grown 35.8% q-o-q or 92.3% y-o-y to RM80.5 million. If you compared its last 4 quarters' results with the preceding 4 quarters', you will see that its net profit has jumped by 116% from RM13.4 million to RM28.9 million, while turnover has increased by 63.1% from RM152 million to RM248 million.

Based on its closing price of RM3.26 as at December 21 & its last 4 quarters' EPS totaling 40.3 sen, Haio is now trading at a trailing PE of 8 times. This means that Haio is still relatively inexpensive.



Haio is still moving in a strong & steep uptrend. Immediate uptrend line support is RM2.95-3.00.

Chart: Haio's weekly chart as at December 21 (courtesy of Quickcharts)

Based on cheap valuation, Haio is still a good BUY for the medium-term.

Wednesday, December 19, 2007

TSM surprised with 2 quarters of good profit

One of the first companies that I have posted a BUY call was a company called Juan Kuang (go here & here). It is an auto parts manufacturer, which has been affected by the slowdown in the auto sector. The company has recently changed its name to TSM Global Bhd ('TSM'). You can see from the first table that TSM's financial performance has been pretty steady despite the contraction experienced by the industry.



Its latest quarterly results for QE31/10/2007 shows that its net profit has increased 23.7% q-o-q or 286% y-o-y to RM6.8 million (see the table below). While its turnover has increased by 12.4% y-o-y to RM54.5 million, it actually dropped by 14.4% when compared to the preceding quarter's number. The better profit was attributable to new business for new models such as Perodua Viva, Nissan Latio & Toyota Vios. TSM has benefited from an extraordinary gain from the sale of an investment of RM1.57 million for QE31/10/2007. If this were excluded, TSM's net profit for QE31/10/2007 would be about RM5.21 million. This means that its net profit would be lower by 5% as compared to the net profit for QE31/7/2007.

If TSM can maintain its current profitability, it might report an earning of 35 sen for the FY2008, or 40 sen for FY2009. At yesterday's closing price of RM1.12, TSM is trading at a trailing PE of 3.2 times (or, a forward PE of 2.8 times).



From chart, you can see that TSM has been range-bounced for the past 2 & 1/2 year between RM0.94 & RM1.54. The psychological RM1.00 horizontal support is currently supporting the share price. Technically speaking, TSM has yet to show any bullish sign that has attracted a BUY call.


Chart: TSM's weekly chart as at December 18 (courtesy of Quickcharts)

TSM is an attractive stock trading at a cheap PE multiple of about 3 times. I rate TSM as a long-term BUY because its technical picture has yet to turn bullish.

(I have subsequently amended a small portion of the post. The amended portion is shown in bold, italicized lettering.)

IGB is coming very near to its support at RM1.90-2.00

IGB is coming very near to its horizontal support of RM1.90-2.00. In addition, you can see that the uptrend line support for IGB is at RM1.90. As such, IGB could be a good Trading Buy at RM1.90-2.00, with a stoploss set at RM1.80-85.


Chart: IGB's weekly chart as at December 18 (courtesy of Quickcharts)

VS' net profit grew at slower pace

VS' net profit increased by 3.0% q-o-q or 30.9% y-o-y to RM21.1 million, while its turnover increased by 4.7% q-o-q or 19.0% y-o-y to RM290 million. For the past 3 quarters, you would notice that VS' turnover was holding steady at about RM280-290 million, while net profit was holding steady at about RM20-21 million (for past 2 quarters).



VS has experienced a very rapid growth in the past 2 years, but the past few quarters may have shown that a slowdown may have occurred. While this maybe a good thing for any company, investors might become jittery & decide to take some profit. Nevertheless, it is heartening to note that VS' share price is still not too far off its recent high of RM4.20-26. It may not be a bad idea to cash in some profit from this investment (see earlier post). Admittedly, the chart has not given any SELL signal at this moment, but a sharp correction after its recent sharp rise cannot be ruled out.


Chart: VS' weekly chart as at December 18 (courtesy of Quickcharts)

Tuesday, December 18, 2007

YTL's current selldown is overdone?

YTL Corp ('YTL') share has recently 'ex' for a Restricted Offer for Sale ('ROS') of 1 YTLPower share for 15 YTL shares owned. The ex-date was on December 12th. Thereafter, the share price took a sharp plunge to a low of RM7.05 on December 14th & 17th. This drop had effectively wiped out all the price gain for YTL when it rallied off its low of RM7.20 on November 22nd to hit a high of RM8.70 on December 6th & 7th.

Was the sharp spike in the share price & the subsequent plunge attributable to the ROS of the YTLPower shares. I don't think so. If you were to value this entitlement, a YTL shareholder with 1000 YTL shares would receive only 67 YTLPower shares at RM0.50 each. Using the closing price of YTLPower as at December 12th of RM2.62, the gain from the ROS is about RM142.

The last time YTL made a similar ROS was in December 2006. That ROS was more generous at 1 YTLPower share for every 10 YTL shares owned, offered at a price of RM0.50 each. After the ex date, the price adjustment was milder, i.e. from RM6.95 to RM6.20. The gain from this ROS is about RM180 (based on YTLPower share price of RM2.30 for the weekended December 9th, 2006). Thereafter, YTL resumed its uptrend & hit a high of RM8.10 before the February & March selloff set in.

Based on yesterday's price of RM7.20, YTL has broken below its uptrend line support of RM7.40. A quick return to the RM7.40 level is important. We are seeing that rebound today. If successful, YTL could be a good Long-term Buy at RM7.40 (with a stoploss set at RM6.90, i.e. 10 sen below the psychological RM7.00 support).


Chart: YTL's weekly chart as at December 17 (courtesy of Quickcharts)

Airasia is testing its uptrend line support

Airasia is about to test its uptrend line support at RM1.68. In the past 2 occasions where the share price has breached the RM1.70, they have gone to low of RM1.62 in August & RM1.67 just last month. This time, it may do the same again, especially with the uptrend line support lying not too far away. Thus, Airasia could be a good Trading Buy at RM1.68 or therabout, with stop loss at RM1.60 (8 sen below the uptrend line support of RM1.68).


Chart: Airasia's weekly chart as at December 17 (courtesy of Quickcharts)

Commerz is testing its uptrend line support

Commerz is testing its uptrend line support of RM10.40. We can also expect strong support from the psychological support of RM10.00. A rebound from these supports is likely. Thus, Commerz could be a good Trading Buy, with a stop loss at RM9.90 (i.e. 50 sen below the uptrend line support of RM10.40).


Chart: Commerz's weekly chart as at December 17 (courtesy of Quickcharts)

Monday, December 17, 2007

EONCap is testing its uptrend line

EONCap is testing its uptrend line support at RM6.10 today. This is also a strong horizontal support. EONCap has dropped back form its high of RM8.45 recorded on July 13th. At the current level of RM6.10-15, EONCap could be a good Trading Buy, with a stop loss set at RM5.80 (i.e. 30 sen below the uptrend line support-cum-horizontal support of RM6.10).

Chart: EONCap's weekly chart as at December 14 (courtesy of Quickcharts)

Timecom- a Trading Buy

Timecom has corrected very sharply after recording a high of RM1.44 on July 31st. It has hit a recent low of RM0.72 on November 28th & December 4th. That is 50% off its high of RM1.44 as well as coinciding with a tentative uptrend line support of RM0.73. Without considering Timecom's financial performance & condition, I believe that this could be a good level for a strong rebound in this stock. As such, Timecom is now a good Trading Buy, with a stop loss at RM0.68 (5 sen below the tentative uptrend line support of RM0.73).


Chart: Timecom's weekly chart as at December 14 (courtesy of Quickcharts)

Tuesday, December 11, 2007

MSNiaga, a possible contrarian buy

Background

Mesiniaga Bhd ('MSNiaga') is involved in sale & service of IT products & related services. Its subsidiaries are involved in the provision of management training, consulting & outsourcing services and sales of networking cables & related products.

Past 5-year Financial Performance

The group's turnover has been increasing steadily from RM230 million to RM322 million, from FY2002 to FY2005. In FY2006, its turnover dropped marginally to RM316 million. I expect current year's turnover to equal that of FY2006. Pre-tax profit, which was maintained at RM27 million for FY2002 & FY2003, dropped to RM23 million in FY2004-2006. This is likely to drop further to RM10 million in the current year.



Recent Financial Results

MSNiaga's net profit for QE30/9/2007 increased by 43.9% q-o-q or 82.4% to RM3.5 million. Its turnover has increased by 7.1% to RM85.8 million from RM80.1 million recorded in the same quarter last year. Nevertheless, the turnover is lower than the preceding quarter's turnover of RM108.5 million.

MSNiaga suffered a net loss of RM1.7 million in QE31/3/2007 when its turnover dropped to RM42.6 million due to the deferment of projects.



Current Financial Position

As at 30/9/2007, MSNiaga's financial position is deemed satisfactory. Its liquidity position is healthy as reflected by its current & quick ratio of 3.14 & 2.94, respectively. Gearing ratio is negligible at 0.06 times. In term of working capital management, one will note that the inventory's turnover period has improved slightly from 17 days as at 31/12/2006 to 13 days as at 30/9/2007. If there is any concern about MSNiaga, it must be its high Trade Debtors figure. This has increased from RM153.2 million as at 31/12/2006 to RM165.3 million as at 30/9/2007, or 160 days to 176 days. I do not know the quality of these debtors and would have to depend on the management to determine whether these debtors are collectible. Presumably, any doubtful debts have been adequately provided for.

Valuation

Based on MSNiaga's closing price of RM1.64 as at December 12th, the stock is trading at a trailing PE of 11.0 times (using its past 4 quarters' EPS of 15.0 sen) or 0.6 times its book value (using its NTA per share of RM2.80 as at 30/9/2007).

Technical Outlook

From Chart 1, we can see that MSNiaga share price has been drifting lower since making a high of RM18.90 in February 2000 (no doubt benefiting from the dotcom bubble). During the period from May 2005 to June 2007, the stock was trading between RM2.40-2.90. In July 2007, the the strong horizontal support of RM2.40 gave way & the stock trended lower (see Chart 2). From the low of RM1.60, MSNiaga has rebounded to test its downtrend line resistance at RM1.65-68 in the past 4 days. Unable to break through this resistance, the price is drifting lower again. A break above this downtrend line could potentially signal a temporary bottom for the stock.


Chart 1: MSNiaga's monthly chart as at December 11 (courtesy of Quickcharts)



Chart 2: MSNiaga's daily chart as at December 11 (courtesy of Quickcharts)

Conclusion

MSNiaga is a very attractive stock at the current level, where it is trading at a PE of 11.0 times its trailing earning or 0.6 times its book value. Ignoring the all-time high of RM18.90 recorded in the dotcom bubble period of 2000, the share price is substantially lower than its high of RM4.00-6.00 in 2002-2003. A sustained recovery in the Malaysian economy may see stronger spending in ICT industry; thus benefiting MSNiaga. At the current price, MSNiaga could have discounted substantially all its bad news.

APPLE-C1 & EXMOBIL-C1 listed

Today, we have the listing of 4 CWs from OSK, i.e. APPLE-C1, CHOLAND-C1, EXMOBIL-C1 and PINGAN-C1. I do not intend to cover the CWs of the Hong Kong-listed CHOLAND and PINGAN, for now. Instead, I shall look at APPLE-C1 and EXMOBIL-C1. The main terms are highlighted below (together with GOOGLE-C1).



Based on yesterday's closing price of the underlying shares & this morning price (at 9.30 am) for the CWs, their premium are computed & shown in the above table. It is unfair to compare EXMOBIL-C1's premium with those of APPLE-C1 & GOOGLE-C1, since the latter 2 CWs should command a higher premium because of their higher volatility. One may prefer APPLE-C1 over GOOGLE-C1 as the former instrument is trading at a lower premium than the latter.

The Valuation Measures for the 3 underlying stocks are presented below. You may note that both APPLE & GOOGLE are currently trading at PE of about 50-56 times their trailing earning, while EXMOBIL trades at 13 times its trailing earning.


Data provided by Capital IQ

I have presented below the daily charts for all 3 stocks. We can see that all 3 stocks have risen quite significantly since their August low. The price gain are very substantial for APPLE & GOOGLE (at 75% and 53%, respectively), while EXMOBIL has risen by 18% during that period.


Chart 1: APPLE's daily chart as at December 10 (courtesy of Yahoo Finance)



Chart 2: GOOGLE's daily chart as at December 10 (courtesy of Yahoo Finance)



Chart 3: EXMOBIL's daily chart as at December 10 (courtesy of Yahoo Finance)

Based on the rising trend of all 3 stocks, one may expect this trend to continue. If so, the aggressive approach is to position ourselves in the CWs of these stocks. This is a high risk trading strategy in a very volatile period, where one should not be surprise if the price of the underlying stocks were to adjust downward sharply. If this were to occur, the drop in the price of the CWs would be even sharper.

Monday, December 10, 2007

More details of TM's demerger announced

TM has announced full details of its proposed demerger (go here), which was first announced on September 28 (go here). The proposal involves the splitting up of TM's businesses into 2 separate entities, i.e.
  1. TM International, which will undertake the mobile and non-Malaysian businesses of the TM Group, which is presently being carried out collectively by Celcom and the various operating subsidiaries and associated companies of TM International; and
  2. The new TM, which will carry on the retail, domestic and global wholesale fixed-line voice, data and broadband services and other telecommunication and non-telecommunication related businesses in Malaysia and regionally.
Based on the latest announcement, an existing TM shareholder with 1000 units of share will get 1000 units of the new TM share; 1000 units of TM International share; and a special dividend of 65 sen (less tax of 27%) upon completion of the demerger. With the complete details, investors will be able to appraise the value of TM more confidently. Since the structure is not unconventional and the only goody is the special dividend, I expect the immediate boost to the share price of TM to be limited (maybe, a rise of 30-50 sen). We must bear in mind that the share price of TM has increased by 15% from RM9.70 on September 27 to RM11.20 as at last Friday (December 7). Longer term, an existing TM investor, who holds onto the new TM share & TM international, might see greater combined price appreciation if the benefits of the demerger (i.e. greater autonomy & accountability) can be harnessed.

Thursday, December 06, 2007

Maybank poised to go higher

Maybank has recently broken above its downtrend line at the RM11.60 level. With this breakout, Maybank is poised to move higher. I believe that the next upleg could well commence when Maybank share price has surpassed the horizontal resistance at RM11.80. This morning, Maybank has traded at this level & it has even touched the RM11.90 (for a mere 10 lots done). If Maybank can surpass the RM11.80 with good volume & follow-through in the following few days, it could be a good trading buy.


Chart: Maybank' daily chart as at December 5 (courtesy of Quickcharts)

Alternatively, you can consider Maybank-CE or Maybank-CF. The terms of these CWs are:
  1. Maybank-CE (exercise price: RM12.40, exercise ratio: 10 for 1, expiry date: March 28, 2008)
  2. Maybank-CF (exercise price: RM11.80, exercise ratio: 2 for 1, expiry date: June 30, 2008)
Based on yesterday's closing prices, the premium of Maybank-CE & Maybank-CF are 12.3% & 12.9%, respectively. The final CW, Maybank-CA is more attractive as it is trading at a discount of 1.9%. Unfortunately, it's due to expire on January 28, 2008. In addition, Maybank-CA is not a cash-settled CW. One would have to subscribe for the underlying share at the exercise price of RM9.72.

More than another year-end rally?

Yesterday, our KLCI gained 11.96 points to close at 1427.77. At this level, the KLCI has surpassed its recent high of 1423.81 recorded on November 1st (see Chart 1 below). The year-end rally has started with a bang, from the re-quotation of the restructured Sime Darby on November 30th. As noted in my earlier post (go here), Sime Darby's theoretical value should be about RM8.81, but on re-quotation, it traded to a high of RM12.10 before closing at RM11.00 at the end of that day. This 25%-jump in the value of the top stock on our bourse has caused the KLCI to gap up (from its close at 1374.32 on November 29th to its opening level at 1408.09 on November 30th). This was also followed by strong rally in Tenaga (as noted in this post) as well as a breakout in TM (go here). Maybank may participate in this rally as well (see the next story). The big question now is, Can the rally sustain beyond the year-end?


Chart 1: KLCI's daily chart as at December 5 (courtesy of Quickcharts)



Chart 2: Crude Oil chart as at December 5 (courtesy of SuperCharts by Omega Research)

The continued recovery in the Dow and the correction in the price of Crude Oil (see Chart 2 above) may have provided the catalysts for this rally in the market. Despite the sharp gain among the blue chips, the rally has yet to broaden out. The second- and third-liners are still very quiet. Overall market volume has yet to increase significantly. So, all signs seem to point to a short rally for window dressing. If so, one may be better served by selling into this rally.

Tuesday, December 04, 2007

TM poised to go higher

TM has been testing the strong horizontal resistance of RM11.00-20 (on 5 separate occasions) for the past 10 months. Yesterday, it managed to surpass that level by a mere 10 sen to close at RM11.30. Volume traded was quite large. If there is follow-through today, TM might challenge the overhead resistance at RM11.70, 12.10 & 12.70. As such, TM could be a good trading buy.


Chart: TM' daily chart as at December 3 (courtesy of Quickcharts)

Alternatively, you can consider TM-CF or TM-CG. The terms of these CWs are:
  1. TM-CF (exercise price: RM9.50, exercise ratio: 10 for 1, expiry date: May 23, 2008)
  2. TM-CG (exercise price: RM10.50, exercise ratio: 5 for 1, expiry date: July 21, 2008)
Based on yesterday's closing prices, the premium of TM-CF & TM-CG are 4.9% & 9.3%, respectively. The final CW, TM-CE is cheaper in absolute term but it has a very short period to maturity (as its expiry date is on January 4, 2008). A CW with such a short period to maturity is very, very difficult to trade in.

Monday, December 03, 2007

Tenaga rebounding...

Tenaga is currently enjoying a typical clearing rally from an oversold low. A rally that is fast, furious & prone to failure. From the daily chart below, we can see that Tenaga's downtrend accelerated in July. This immediate downtrend was broken on Friday on big volume. The rally, which continued today, has managed to surpass a few horizontal resistance to hit RM10.00 at the end of the morning session. Can this rally continue further & challenge the next downtrend line resistance at RM10.60? I think this is not a very likely scenario. I believe that a correction might set in & the stock may then consolidate its recent price gain before advancing further. Those who missed out on this stock can add to their position in such a correction.


Chart: Tenaga' daily chart as at November 30 (courtesy of Quickcharts)

Friday, November 30, 2007

MEMS' accounting irregularities

On November 27, MEMS announced that it was not able to issue its Audited Financial Statements by 30 November 2007, as the “external auditors have expressed concerns over certain transactions relating to revenue and property plant and equipment… the Board has resolved not to recognize revenue of RM19.72 million. As a result of this, the unaudited consolidated revenue for the financial year ended 31 July 2007 will be revised to RM53.7 million. This will consequently result in the unaudited profit after tax for the financial year ended 31 July 2007 to be reduced from RM21.47 million as announced on 27 September 2007, to RM13.45 million.” A special committee has been set up to look into this matter.

Before this announcement, the market was relying on MEMS' unaudited 4th quarter financial statement to assess the company's financial performance & position. Based on that statement, MEMS' net profit for FYE31/7/2007 has increased by 54% from RM14.0 million to RM21.5 million on the back of a 46%-increase in turnover from RM50.2 million to RM73.4 million. Now, this has to be revised down.


Based on the adjustment announced, it seems that MEMS' net profit for FYE31/7/2007 has actually declined by 3.7% (instead of a gain of 54%) while its turnover has only inched up by 7.0% (instead of 46%), when compared to the previous year's results. MEMS' EPS for FYE31/7/2007 will be lowered to 2.05 sen while its NTA per share would probably be adjusted from RM0.187 to RM0.175.

Chart: MEMS' weekly chart as at November 29 (courtesy of Quickcharts)

Since the announcement on November 27, MEMS share price has dropped by 46% from RM0.36 (at the close of November 27) to RM0.195 (at the close of November 29). This may appear to be disproportionate to the seriousness of the matter in hand. Here, we need to consider the following:

  1. Why were these "sales" booked in the accounts earlier?
  2. Are there any further accounting adjustment of a negative nature?
  3. What are the reasons for the slow growth in MEMS' turnover given that its products were reportedly cheaper than its competitors?
  4. Are the existing shareholders (such as Legg Mason) willing to overlook this serious accounting problem?
As noted in my previous update ( go here), Legg Mason has taken a 5.4%-stake in MEMS in March. This reputable fund manager has invested in MEMS because its products were on the verge of gaining global acceptance. Back then, MEMS was reported to have secured 2 contracts for supply of silicon microphones & sensors, which would boost its turnover by the RM140 million a year. Is MEMS encountering any problems in relation to the performance of these contracts?

With the above questions still unanswered, I believe that it is too early to make any call on MEMS.

The new Sime Darby (or, Synergy Drive) Theoretical Price

Based on the closing price of the various acquiree companies that will be merged to form the new Sime Darby (or, Synergy Drive) & the applicable Swap Ratio, the Theoretical Price of the new Sime Darby (or, Synergy Drive) can be computed (as shown below). For example, a shareholder of the original Sime Darby can choose to exchange his shares for the shares in the new Sime Darby (or, Synergy Drive) at a Swap Ratio of 1.23. The Swap Ratio is arrived at by dividing the original Sime Darby price as at the Offer Date with the Theoretical Price of the new Sime Darby (or, Synergy Drive). As the share prices of the various acquiree companies have appreciated, the Theoretical Price of the new Sime Darby (or, Synergy Drive) was bumped up.



We can compute the average Implied Theoretical Price of the new Sime Darby (or, Synergy Drive) to be RM8.81 as at October 17. Since then, the market has gone through a lot of changes. Two things could affect the price of the new Sime Darby (or, Synergy Drive). They are the injection of Bakun Dam into the group & the appreciation of the price of CPO (the main business of the group). Assuming that we exclude the Bakun Dam factor (because it was common knowledge that the government was planning to do so), the CPO factor must be accounted for. From October 17 to November 29, the Plantation index has gone from 6848 to 7239 (or 5.7%) and if we factor this rise into the price, the Fair Value of the new Sime Darby (or, Synergy Drive) could be about RM9.31.

Tuesday, November 27, 2007

Toyota-C1- an interesting CW

Today, we have the listing of 4 CWs from CIMB, i.e. Toyota-C1, Bursa-CH, TM-CG and CCCC-C5. I do not intend to cover the CWs of Bursa-listed companies nor the Hong Kong-listed CCCC, for now. I will instead look at Toyota-C1 only. The main terms are highlighted below.



Based on the morning closing price of this CW at RM0.47 & the Toyota Motor Corp (Stock Code: 7203) as at 14.27 Tokyo time of Y6080, this CW was trading at a premium of 12.64%. At this premium, the CW is not cheap but not at sky-high premium that we have witnessed earlier. Looking at the chart of this stock & its key statistics, a case can be made for buying Toyota at the present price as well as buying the new Toyota-C1.

Toyota is probably the world's largest auto maker (for more details from Wikipedia, go here). Its shares are traded in Tokyo Stock Exchange ('TSE') as well as on other exchanges such London Stock Exchange ('LSE') & New York Stock Exchange ('NYSE'). For the purpose of valuing of Toyota-C1, the share price as traded in TSE will be used (see Chart 1).


Chart 1: Toyota's monthly chart as at November 26 (courtesy of TSE)

From Chart 1, we can see that Toyota share price has been correcting for the past 1 year. On November 22, the share price hit a low of Y5750 before rebounding. On further weakness, the share price may find support at the tentative uptrend line support of Y5500 or the horizontal support at Y5400. However, you can see that the faster 5-mth MA is poised to cut below the 25-mth MA, which will be a bearish sign. A strong rebound is needed to negate this negative sign.

To get a second look at Toyota's share price, I have appended the price chart of its trading in USD on the NYSE (see Chart 2 below).


Chart 2: Toyota's daily chart as at November 26 (courtesy of Yahoo Finance)

This chart also shows that the stock is near its tentative uptrend line support at USD105/6 or its horizontal support of USD108/9. Like the earlier chart, we can see that the faster 200-d MA is also poised to cut below the slower 300-d MA. Again, a strong rebound is needed to negate this bearish sign.

Based on Key Statistics provided by Yahoo Finance ( an extract provided below), we can see that Toyota is trading at attractive multiple of about 10 times its earning.


Based on fairly attractive valuation & a potential rebound in the price of Toyota share, the Toyota-C1 could well-surprise many to the upside. A slow entry over the next one or two weeks' time might be a safer option as one would be able to see whether the Toyota share price would cease to threaten its uptrend line as well as seeing the end of the initial market-making activities that tend to hold the CW at an artificially high price. If the share price does not break any of the above-mentioned uptrend line, a good entry to Toyota-C1 would be around the RM0.40 level (paying a premium of 10%).

Tongher testing strong support of RM3.36-40

Tongher has just announced its results for QE30/9/2007 . Its net profit declined by 38% q-o-q or 26% y-o-y to RM15.2 million while its turnover of RM139 million is slightly lower than that recorded in QE30/6/2007 but 58% higher than that reported in the same quarter last year. The poor performance was attributed to lower demand for its products, which coupled with higher raw material costs, has resulted in a drop in its profit margin.



The share price has dropped back since making its high of RM4.53 recorded on October 1st. The sharp price run-up in September & October preceded the bonus issue of 1:3, which went ex on October 16. Since then, the share price has corrected back about 22% (based on yesterday's closing price of RM3.52). In this morning session, the share price dropped 12 sen to close at RM3.40. This is very near the strong horizontal support of RM3.36-40 level, where a rebound may happen. If this support is violated, then the share price may test its uptrend line support at RM3.06-10 level. The uptrend line support could be a entry level for this very well-managed company.

Based on the last 4 quarters' EPS of 61 sen, Tongher is now trading at a trailing PE of 5-6 times. We do not know what's Tongher's future EPS will be, but assuming that it is 30% lower than the last 4 quarters' EPS, Tongher could be earning about 43 sen per share. Thus, at the price of RM3.40, it may be trading at a future PE of 8 times. Even at this adjusted earning, Tongher is still an attractive stock. Watch this stock closely.


Chart: Tongher's weekly chart as at November 26 (courtesy of Quickcharts)

Monday, November 26, 2007

WTHorse reported higher net profit for QE30/9/2007

WTHorse's net profit increased by 22.8% q-o-q to RM12.9 million on the back of a 3.6%-gain in turnover to RM108.4 million. This is, however, still marginally lower than that reported in the same quarter last year. Nevertheless, the sign of a recovery in WTHorse's financial results is clearly on the way.



The chart below shows that the share has done a 'test of the low' in the past few weeks. The stock did not make a new low and, with its MACD hooking up, it could be poised to recover soon.


Chart: WTHorse's daily chart as at November 23 (courtesy of Quickcharts)

In view of the good financial results & mildly positive technical set-up, WTHorse could a good buy at the current price.

TGuan reported a good profit for QE30/9/2007

TGuan's results for QE30/9/2007 was fairly good. Its net profit increased by 114% q-o-q to RM5.3 million on the back of a 8.6%-increase in its turnover to RM137.5 million. The net profit is, however, lower than that reported in the same quarter last year due to higher raw material cost, higher operating expenses (such as freight cost & electricity charges), higher interest expenses and continuing losses incurred by a newly-established subsidiary in China.



Despite the improved financial performance, TGuan's share price has continued to slide. We will have to wait & see how the market receive this good set of results for TGuan.


Chart: TGuan's daily chart as at November 23 (courtesy of Quickcharts)

Based on the good results in the last quarter, TGuan is good contrarian BUY despite the poor technical outlook. At the current price of around RM1.00, the stock is trading at a PE of 5 times (if TGuan can continue to maintain an earning similar to its EPS achieved in the last quarter).

Latitud announced a poor set of results for QE30/9/2007

Latitud's results for QE30/9/2007 was a disappointment. Its net profit dropped 48% q-o-q or 85% y-o-y to RM789k while its turnover declined 0.4% q-o-q or 3.8% y-o-y to RM102.3 million. The poor result is attributable to the following:
  1. lower production output due to the closure of the Ijok, Selangor plant while the output from its new Vietnam plant has yet to pick up sufficiently as commercial production has only commenced in June 2007;
  2. higher operating losses from its Thailand plant; and
  3. higher raw material cost & transport expenses.
Due to the above, Latitud incurred a pre-tax loss of RM786k as compared to a pre-tax profit of RM977k recorded in QE30/6/2007. After adding back tax credit of RM515k and minority interest of RM1.06 million, Latitud still managed to chalk up a small net profit of RM789k.



Latitud has rebounded off its strong horizontal support of RM1.20. While the poor financial performance in the last quarter may lead to short-term weakness for this stock, the past few weeks' share price movement could be indicating that Latitud's share price might have bottomed. Its recovery would have to wait, for now.


Chart: Latitud's daily chart as at November 23 (courtesy of Quickcharts)

I still believe that Latitud is still a good long-term buy at prices between RM1.20-1.30.

Wednesday, November 21, 2007

Uchitec may have peaked

Uchi Technologies Bhd ('Uchitec') is involved in the manufacture & sale of controller modules for consumer & industrial electrical & electronic appliances. Uchitec, which was listed in July 2000, has become one of the darling stocks among the investors due to its impressive financial performance & the steady rise in its share price.

In the past 4 quarters, its net profit seems to have hit a plateau. According to its latest quarterly results fro QE30/9/2007, Uchitec's net profit has dropped 13.4% q-o-q or 17.8% y-o-y to RM18.7 million while its turnover has also declined by 2.5% q-o-q or 5.3% y-o-y to RM39.2 million. The company attributed the decline in its net profit to the appreciation of Ringgit as well as changes in the product mix.



Based on the 9-mth performance, Uchitec is expected to register a small decline in its net profit for FY2007, which will break its profit track record, which shows a consistence growth since 2002. The group could recover from this small setback in FY2008 when its new plant in China is set to start operation.



Technical analysts may take a bearish view of Uchitec's recent share price decline. The share price seems to have peaked at RM3.40 & broke below its long-term uptrend line support of RM2.90 on November 2nd.


Chart: Uchitec's monthly chart as at November 20 (courtesy of Quickcharts)

Based on the technical SELL signal noted, it is advisable to avoid Uchitec for now.

Tuesday, November 20, 2007

Market Outlook as at November 19

The KLCI has been struggling to stay above its medium-term uptrend line for the past few days. It looks like a losing battle as the uptrend line support continued to inch upward, while the index failed to gain ground. Currently, the uptrend line support is at 1396 while the index closed at 1380 yesterday. The KLCI is likely to move sideway in the near future within the range of 1350-1390 until a new trend emerges.


Chart: KLCI's daily chart as at November 19 (courtesy of Quickcharts)