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Monday, April 30, 2007

Market Outlook for the month of May 2007

Recently, we have been deluged with many bullish reports about the outlook of our market as well as our economy. A lay person would very likely be drawn into the stock market due to such positive reports.

What must be pointed out here is that the technical outlook of the market is really not so bullish. As highlighted by my earlier report entitled "Deja Vu?", the short-term uptrend line has already been violated on April 19 & despite the technical rebound that followed, the KLCI has yet to recover above its short-term uptrend line.

In addition, the daily MACD has done a bearish crossover on April 27. I have included 2 MACD indicators in the chart below. The top MACD is the one that I normally use i.e. the MACD where the moving averages are calculated on weighted basis. The bottom MACD is the one that most people use i.e. a MACD where the moving averages are calculated on exponential basis. For simplicity, let's call the top MACD, MACD 1 & the other MACD 2. I use MACD 1 because it gives an earlier crossover than MACD 2. (On the chart below, the crossover for MACD 1 & MACD 2 are denoted as "a" & "b", respectively). Nevertheless, MACD 1 can lead to whipsaw if you are not careful as it is a highly sensitive indicator.

For example, in mid-February, MACD 1 has already issued a warning. I was waiting for the KLCI to break its short-term uptrend line as well as further confirmation from MACD 2. Unfortunately, when both of these events happened, the KLCI dropped off so fast that most investors would not be able to sell at a decent price. Today, we have the alignment of all three events; MACD 1 & MACD 2 have put in the bearish crossover & the uptrend line has most likely been broken. As such, I believe that we have to be very cautious over the next few weeks. A correction may happen anytime. For some, it may be a good time to "sell in May & go away".


Chart: KLCI's daily chart as at April 27 (courtesy of Quickcharts)

Tenaga is at its short-term uptrend line support of RM11.50

Tenaga has been drifting lower from its recent high of RM12.40 recorded on April 17 & 18 this year. It is now resting on its short-term uptrend line support at RM11.50. This level should be a good entry level for Tenaga, which has been valued by many analyst as high as RM12.50-13.00. The next supports will be the horizontal support level of RM11.40 & RM10.90, while the next resistance level will be at RM11.80 & RM12.40.


Chart: Tenaga's daily chart as at April 27 (courtesy of Quickcharts)

Maybank is at its short-term uptrend line support of RM12.00

Maybank has been drifting lower from its recent high of RM13.00 recorded on April 9 this year. It is now resting on its short-term uptrend line support at RM12.00. This level should be a good entry level for Mayabnk, the top bank in Malaysia. The next supports will be the horizontal support level of RM11.50 & RM11.10, while the next resistance level will be at RM12.50 & RM12.80.


Chart: Maybank's daily chart as at April 27 (courtesy of Quickcharts)

BJtoto may test its uptrend line support of RM4.40

BJToto has been drifting lower from its recent high of RM4.96 in February this year. It may test its medium-term uptrend line support at RM4.40 in the next few days. This level should be a good entry level for a stock which pays good dividend. The next supports will be the horizontal support level of RM4.30 & RM4.00, while the next resistance level will be at RM4.50 & RM4.70.


Chart: BJToto's weekly chart as at April 27 (courtesy of Quickcharts)

Sunday, April 29, 2007

New CW to be listed on Monday- IOICorp-CD

On Monday, IOICorp-CD will be listed. It is the first CW issued by Deutsche Bank (Malaysia) Bhd & it was distributed by Kenanga Investment Bank Bhd.

IOICorp-CD will be the first European-style CW to be traded on the Bursa as compared to the existing American-style CWs currently available. The difference between these 2 types of CWs is that the American-style CWs allow the holder to exercise the conversion option at anytime he/she chooses (up to the expiry date), while a holder of an European-style CW can only exercise the conversion option on the expiry date.

Some may feel that the flexibility afforded by an American-style CW makes it somewhat superior to an European-style CW. This flexibility may come in handy when the CW somehow trades at a discount, not an uncommon phenomena on the Bursa. In theory, that should not happen. The value of a CW is made up of 2 parts; the intrinsic value (the underlying share price less the exercise price) as well as the time value (the difference between the CW price & the intrinsic value). By converting a CW before its expiry date, the holder is destroying the time value portion of a CW. As such, issuers of European Style CWs argue that the additional flexibility granted by an American Style CW is superfluous.

Notwithstanding the above, we can see from the table below that the new CW has a higher premium than the existing 2 CWs. As such, I believe the upside of this CW will be quite limited.

Friday, April 27, 2007

Ajiya reported a lower net profit

Background

Ajiya Bhd ('Ajiya') is principally involved in the manufacture and supply of materials used in the construction and building based industries in Malaysia.

Recent Financial Results

The group has just announced its financial result for QE28/2/2007. For that quarter, Ajiya's net profit has increased by 62.8% y-o-y but dropped by 16.4% q-o-q to RM3.1 million. It attributed its decline to stiffer competition. During the same periods, its turnover has gained 4.1% q-o-q or 34.5% y-o-y to RM57.4 million.

Valuation

Based on its closing price of RM1.28 as at April 27 (today) & its last 4 quarters' EPS totaling 19.0 sen, Ajiya is trading at a PE of 6.7 times. This is deemed fairly undemanding, given the likely pick-up in the building material sector. This sector will benefit from the improvement in the property sector as well as more activities in the construction sector.

Technical outlook

From the chart below, we can see that Ajiya share price has clearly bottomed out. Nevertheless, its upside is very limited as it has not been able to surpass its strong horizontal resistance at RM1.30/31 level. A break above this level could be the beginning of the uptrend for this stock.

Chart: Ajiya's daily chart as at April 27 (courtesy of Tradesignum.com)

Conclusion

Based on improving financial performance, Ajiya could be a good BUY for medium-term investment. For traders, you should wait for a break above the resistance of RM1.30/31.

Tuesday, April 24, 2007

Maemode's net profit jumped in QE28/2/2007

Background

Malaysia AE Models (“Maemode”) is involved in the designing, manufacturing, installation and marketing of material handling and conveyor systems and parts.

I've posted on Maemode on September 1st last year (go here) when it was trading at about RM1.13. Its share price has risen only marginally to about RM1.30/40 level.

Recent Financial Results

Its latest quarterly results for QE28/2/2007 has shown a marked improvement in its topline & bottomline. Its net profit jumped by 81.2% q-o-q or 21.0% y-o-y to RM6.7 million. This was achieved on a turnover which has increased by 36.4% q-o-q or 15.0% y-o-y to RM105.6 million. The improved topline & bottomline was mainly due to the better business performance of the oversea sales.



Valuation

Based on today (April 24)'s closing price of RM1.35 & the EPS of 19.1 sen for the last 4 quarters, Maemode is now trading at a PE of 7.1 times. On the other hand, if Maemode can maintain its last quarter performance going forward, it might record a full-year EPS of 28 sen. On that basis, the share could be trading at a PE of 4.8 times. At either multiple, Maemode's current valuation is undemanding.

Technical Outlook

The share price has been moving up slowly & supported by its 200-day SMA (currently at RM1.20). Overhead, it will encounter resistance at its long-term downtrend line at RM1.38/40. A break above this downtrend could mean more upside for this stock.


Chart: Maemode's daily chart as at April 24 (courtesy of Tradesignum.com)

Conclusion

Based on undemanding valuation, Maemode is a good investment for the medium-term. A break about RM1.40 could signal further upside for the stock, making it a good trading BUY.

Airasia has surpassed the RM2.00 level

Airasia has broken above its all-time high of RM1.97 on April 20. Today, it appears to be breaking above the RM2.00. If this breakout can sustain, I believe Airasia may have more upside, which may make this stock a good trading BUY.


Chart: Airasia's weekly chart as at April 23

Note: This is strictly a technical call without any consideration of the company's financial performance.

Maybulk pulled back to its uptrend line support at RM4.00

Maybulk share has gone ex its final dividend of 12 sen per share & special dividend of 18 sen per share today. As a result, its reference price was adjusted downward from its closing price for yesterday (April 23rd) of RM4.40 to RM4.10. In addition, the share price has also traded down by 4 sen to RM4.06 at the close of the morning session.

Looking at the chart below, you can see Maybulk share price has been moving in a short-term uptrend line, with support at RM4.00. Notwithstanding, the adjustment for the big dividend payment as noted above, I believe Maybulk share is a BUY at RM4.00.


Chart: Maybulk's daily chart as at April 23

Thursday, April 19, 2007

Déjà vu?

From Wikipedia, we learn that the term "déjà vu" describes the experience of feeling that one has witnessed or experienced a new situation previously (go here). From the 2 charts below, we can see why one may experience this compelling sense of familiarity today.

What we have just witnessed today is the breaking of the immediate uptrend line as well as the 10-day SMA at the 1310 level. On the past 2 occasions that we have witnessed these twin events, the market experienced a nasty bout of correction. The only saving grace for today is that the KLCI has managed to recover & close marginally below the breakdown level. This makes tomorrow a very crucial day indeed.


Chart 1: KLCI's daily chart as at April 19 (overlaid with uptrend lines)



Chart 2: KLCI's daily chart as at April 19 (overlaid with 10-, 20-, 30- & 50-day SMA)

If the KLCI were to break below 1310 as well as the important psychological 1300 level, you may have to reduce your position at bad prices or face the prospect of even worse prices in the days ahead.

Tuesday, April 17, 2007

3 new CWs to be listed on Wednesday- AMMB-CA, Bursa-CD & Digi-CA

Tomorrow, we will see the listing of 3 new CWs i.e. AMMB-CA, Bursa-CD & Digi-CA. The main terms are listed below together with comparable CWs.



The first 2 CWs i.e. AMMB-CA & Bursa-CD were issued at premium comparable to similar CWs and, as such, they are likely to trade at only a small gain to their IPO price. The market will be looking forward to the third CW i.e. Digi-CA. Digi, which has become a darling stock amongst investors looking for strong growth & good dividend payout, has seen its share price rising to a level that is out of reach for many retail investors. Digi-CA may offer a good alternative to the underlying share. Nevertheless, Digi-CA will not come cheap as its premium, basing on its IPO price, is at a whooping 22%. Then again, less attractive CWs were issued in the past few weeks that traded at even higher premium. So, I do not rule out Digi-CA having a good showing tomorrow, especially in an environment where our KLCI is knocking at the all-time high.

Humeind has a bullish breakout

Hume Industries (M) Bhd ('Humeind') has a breakout to the upside at RM4.00 today. Yesterday, the stock gained 20 sen to close at RM3.94, on a substantially higher volume of 1,088,900 units traded. Today, it gained 28 sen to close at its daily high of RM4.22, on a volume of 1,542,900 units traded.

From the daily chart below (Chart 1), we can see that Humeind share price is moving in a short-term uptrend line, with support at RM3.50/54.


Chart 1: Humeind's daily chart as at April 16 (including price gain for April 17)

With this bullish breakout, Humeind may test its immediate horizontal resistance of RM4.50 and, if it can surpass that level, it may test the following horizontal resistance of RM5.00.


Chart 2: Humeind's weekly chart as at April 16

After 2 days of sharp price run-up, it would not be prudent to charge into this stock immediately. If the price were to weaken over the next day or two, Humeind could be a good buy at RM4.00/10.

This is strictly a technical call without any consideration of the company's financial performance.

KLCI surpassed its all-time high of 1332

This morning, the KLCI has finally surpassed its all-time high of 1332, which was recorded on January 5, 1994. I've appended below the monthly chart for the 16-year period from Quickchart (Chart 1) as well as the daily chart from October 1993 to April 1994 from Tradesignum (Chart 2) for your viewing. As usual, this important point will likely act as a resistance to the current rally. At the time of writing this post (11.00 a.m.), the KLCI has already pulled back to 1327 from its morning high of 1334. How much will this pullback be? Given the recent sharp run-up, I believe that a 2-3% pullback is not unlikely.


Chart 1: KLCI's monthly chart as at April 16



Chart 2: KLCI's daily chart from October 1993 to April 1994

Thursday, April 12, 2007

Commerce-CC listed today

I have missed out on the listing of Commerce-CC today. This may become a more frequent occurrence as more & more issuers get into the act of issuing new CWs. In the past, one can get the news of a new CW coming up from CIMB via its Financial Portal or from OSK via its OSK188.com. Commerce-CC is however issued by AMInvestment Group, which I do not track. Of course, one can get the information from Bursa's announcement section, but that section is getting too crowded as more CWs are issued.

Commerce-CC has returned a bit of normality or sanity to the CW's pricing after 2 earlier batches of CWs, which were issued with excessively high exercise ratio, opened at premium of 40-50%. Commerce-CC, which traded at premium of 13-16% for most of today, is still on the expensive side. This maybe attributable to a drop in the underlying share price yesterday & today. This drop in the underlying share price was also seen on the listing of Commerce-CB on February 9 (see Chart 1 below), which could be due to cash extraction by the holders of the underlying shares. Cash extraction is a form of risk management whereby the investors sell off some of their investment in the shares (to realize their profit) but continue to have an exposure in that stock by buying its CWs. As witnessed in the 2 weeks' period after the listing of Commerce-CB, the underlying share price & the price of Commerce-CB did recover. However, Commerce-CB's price has since drifted lower as its premium of 10% (or more) was probably considered by the market to be on the high side (see Chart 2 below).

Looking closely at Chart 1, I believe that the downside for Commerce may be limited as the share price is approaching its 20-day SMA of RM10.10/20. We can also expect the RM10.00 psychological support to kick in. A rebound in the share price from this point onwards may see it testing its recent high of RM11.00 again. As for Commerce-CC, we can expect support at its IPO price of RM0.33, which is just 3 or 4 sen away from its closing price of RM0.365 today. It will very likely to benefit from any rebound in the underlying share price. As such, I believe Commerce-CC could be a relatively safe trading buy at RM0.33.





Chart 1: Commerce's daily chart as at April 12



Chart 2: Commerce-CB's daily chart as at April 12

Wednesday, April 11, 2007

HPI maintained its good performance

I’ve highlighted the good financial performance of HPI, a manufacture of corrugated carton & plastic packaging products in January this year (go here). Except for a quick price run-up from RM0.86 to RM0.98 in January (which was maintained for a period of a few weeks up to end-February), the share price has since drifted back to the RM0.80-85 level again.

Yesterday, HPI announced its results for QE28/2/2007 where its net profit has increased by 5.0% q-o-q or 43.3% y-o-y to RM3.3 million. Its turnover, which has increased by 20.6% to RM70.0 million from RM58.0 million recorded in the previous corresponding quarter, is marginally lower than the preceding quarter's turnover.



Based on today (April 11)'s closing price of RM0.82 & the last 4 quarters' EPS of 28.1 sen, HPI is trading at a PE of 2.9 times. How is that for being cheap?


Chart: HPI's daily chart as at April 11

From the above chart, we can see that HPI is in a short-term uptrend, with support at RM0.78.

Based on cheap valuation, HPI is a very good stock for medium-term investment.

Tuesday, April 10, 2007

Market Outlook as at April 10, 2007

Looking at the chart below, I believe our market is likely to take a short breather very soon. The important question is whether the mild correction will happen after the KLCI has crossed the 1300 psychological level or before. If it is the former, we can expect the 1300 level to act as a support. If the latter scenario panned out, the correction will likely to be a bit sharper, with the KLCI testing its 10-day SMA at the 1265/70 level. Nevertheless, I expect this level to hold & the KLCI to test the all-time high of 1332 on its next upswing. Whether the KLCI can overcome that all-time high level will be something that we will look at later.



Chart: KLCI's daily chart as at April 10

Friday, April 06, 2007

SCOMIMR to benefit from high demand for energy

Background

Scomi Marine Bhd is involved in the provision of Marine Logistics and Offshore Marine Support Services, in the South East Asia and Middle East regions. Whilst Indonesia will remain as the main focus region for the Marine Logistics, it has also made inward progress into the Malaysian and Middle East market via the carrying of bulk coal and the deployment of its tugs and barges to cater for transportation requirement of construction material in the Middle East.

The group, which has a fleet of 150 vessels that include utility vessels, AHT, tugs, barges, accommodation barges and landing craft, derived 75% of its income from the marine logistics and 25% from the offshore marine support industry for the oil and gas for the financial the financial year ended Dec 31, 2006.


Prior to 30th September 2005, SCOMIMR was formerly Habib Corporation Bhd, a company involved in the retailing of jewellery products. It was taken over by Scomi Group Bhd & a new business of offshore support services was injected into SCOMIMR via the acquisition of the marine logistics services from a Singapore-listed company, Chuan Hup Holdings Ltd ('Chuan Hup'). In July 2006, SCOMIMR divested its jewellery buciness to M.S. Habib Holdings Sdn Bhd.

Industry outlook

With the high demand for energy, there is an increase in exploration and production activities, especially in the offshore area. This presents opportunities for the offshore support services operator, such as SCOMIMR. The group has explained higher utilization rate of its vessel, which has increased to 95% in December 2006 from 85% a year ago. (You may like to read this article about the increasing demand for drill-ships & possibly other vessels for servicing offshore exploration and production. Go here).


With the high price of crude oil, the demand for coal has also improved. The group will benefit from this increasing demand for coal by power generation plants in Malaysia & Indonesia. Here, many investors must have been disappointed by the lack of big contracts from the Malaysian side, contrary to earlier expectation.


There is an interesting article about the Peh family's proposed privatization of Chuan Hup in the Edge last weekend (go here). The story raises the question of why do they want to privatize Chuan Hup since its main assets is its 28.9%-stake in SCOMIMR (part payment received from the disposal of its marine logistics services business to SCOMIMR). Does the Peh family expect SCOMIMR's fortune to improve soon?


Recent Financial Results

For FY2006, SCOMIMR reported a net profit of RM80.5 million on a turnover of RM442 million. For QE31/12/2006, its net profit dropped 18.7% q-o-q or 4.5% y-o-y to RM21.3 million while its turnover has increased by 4.0% q-o-q or 22.8% y-o-y to RM114 million. The drop in its net profit was due to lower contribution from its associate, CH Offshore Ltd, from RM17.4 million to RM6.5 million. This drop was attributable to exception gain from the disposal of a vessel in CH Offshore Ltd, in the preceding quarter.


Table: SCOMIMR's last 8 quarters' results (with post-acquisition period highlighted in yellow)

Valuation

Based on its FY2006 EPS of 11.9 sen & its closing price of RM0.915 yesterday, SCOMIMR is now trading at a PE of 7.7 times. This is fairly attractive.

Technical Outlook

SCOMIMR has dropped from a high of RM2.87 in Dec 2005 to a low of RM0 .685 in Dec 2006 (see Chart 2 below). While the long-term downtrend is still in tact, the stock is recovering, with the share price moving in a short-term uptrend, with support at RM0.80. If it could surpass its recent high of RM1.12, the uptrend for this stock could begin.



Chart 1: SCOMIMR's daily chart as at April 5



Chart 2: SCOMIMR's weekly chart as at April 5

Conclusion

Based on attractive valuation but still weak technical outlook, SCOMIMR is a stock to be accumulated on weakness.

Astro has tested its long-term uptrend line at RM4.60/70

Astro broke its medium-term uptrend line support at RM5.40 on February 27 (see Chart 1 below). Shortly thereafter, it reported a loss of RM71 million on a turnover of RM578 million for QE31/12/2006. The loss was attributable to Astro's accounting for the operating loss of RM100 million in PDTV, its start-up JV in Indonesia. As a result of this loss, Astro's FY2006 net profit of RM160 million is 29.9% lower than last year's net profit. Turnover for FY2006 has however increased by 10.5% from RM2.01 billion to RM2.22 billion.



Chart 1: Astro's daily chart as at April 5

Nevertheless, Astro's share price has just tested its long-term uptrend line at RM4.60/70 on March 29 & re-bounded. I believe Astro's share price could be on the recovery track.


Chart 2: Astro's weekly chart as at April 5

Based on the above, Astro is a BUY if the share price were to drop back marginally.

Thursday, April 05, 2007

3 new CWs to be listed on Friday- PBB-CC, Tenaga-CE & YTL-CC

Tomorrow, we will have the listing of 3 new CWs i.e. PBB-CC, Tenaga-CE & YTL-CC. Their main terms are tabulated below, together with the terms of the existing related CWs for comparison purposes.



Looking at the above table, you will see 2 of the 3 CWs listed on Tuesday (April 3) i.e. PBBank-CB & YTL-CB, that were so mispriced by the market that they still attract a premium of above 20% (i.e. 25% for PBBank-CB & 33% for YTL-CB). The main reason for this mispricing is the public is not used to CWs with big exercise ratio- a problem which I have highlighted before. Well, the 3 CWs to be listed tomorrow will have equally big exercise ratio i.e. 10-to-1 for all 3 CWs and I am afraid that the public will again fall for these so-called 'cheap' CWs.

Wednesday, April 04, 2007

Which ductile iron pipemaker to buy: YLI or Engtex?

The current issue of The Edge newsletter has an article entiltled “Pipemakers expect flood of orders”, which states the followings:

  • Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), a 70% subsidary of Puncak Niaga Bhd, plans to increase its capital expenditure for water pipe replacement to RM700 million for this year and next.
  • About half of the RM700 million capex for pipe replacement in the next two years will go towards the purchase of pipes.
  • Syabas has requested contractors to only use ductile iron pipes. Syabas has appointed Laksamana Wibawa Sdn Bhd, a company linked to Puncak Niaga's executive chairman Tan Sri Rozali Ismail, as the sole supplier of steel and ductile iron pipes. However, Laksamana only has a mild steel pipe plant, so it still needs to source ductile iron pipes from external parties such as YLI Holdings Bhd (YLI) and Engtex Group Bhd (Engtex).
  • YLI has been manufacturing such pipes since 1994 and its production capacity stands at 75,000 tonnes per annum. Engtex is able to produce 30,000 tonnes of pipes per annum.

In the past 2 days, YLI has gained 15.1% from RM2.19 (last Friday’s close) to RM2.52 (yesterday’s close) while Engtex has similarly increased by 11.4% from RM1.23 to RM1.37. Which of these 2 companies is a better investment?

1. YLI

Background

YLI is involved in the manufacture of ductile iron pipe & related products. In addition, it has a wholly-owned subsidiary in China that is involve in the production of petroleum coke as well as having a 37%-stake in a water-treatment plant in China.

Recent Financial Results

YLI's latest quarterly result is for QE31/1/2007. For that quarter, its net profit dropped 4.7% q-o-q or 1.8% y-o-y to RM4.2 million while its turnover increased by 0.7% q-o-q or 20.3% y-o-y to RM36.3 million. When we compared the last 4 quarters with the preceding 4 quarters, we can see that its net profit has increased by 6.3% from RM13.7 million to RM14.6 million while its turnover has increased by 23.6% from RM102 million to RM126 million.



Valuation

Based on the last 4 quarters' EPS of 14.8 sen & yesterday's closing price of RM2.52, YLI is now trading at a PE of 17 times.

Potential Impact of Syabas' Capex

We cannot assume that the entire amount of Syabas' next 2 years' Capex will be shared out between YLI & Engtex because I do not believe the slack in their capacity is that substantial. A fairer assumption is that both companies' topline & bottomline may increase by a figure of 20-30%.

For YLI, I shall assume that a slightly higher growth rate of 30% for turnover & net profit, resulting in EPS for FY2007/8 of 19.2 sen. As such, its PE will drop to 13.1 times.

Technical Outlook

From Chart 1c below, we can see that YLI has just broken above its long-term downtrend line at RM2.35 yesterday (April 3). This has also coincided with the breakout above the 1-year trading range of RM1.60-2.40 (see Chart 1b below). Nevertheless, the sharp rise on relatively thin volume might not be sustainable. In fact, at the close of today (April 4), the share price has retraced considerably from the intraday high of RM2.70 to close at RM2.50; thus, forming a 'shooting star'. This potentially bearish pattern could herald some correction ahead. As long as the RM2.35/40 is not violated, the outlook for YLI could be still bullish.



Chart 1a: YLI's daily chart as at April 3



Chart 1b: YLI's weekly chart as at April 3



Chart 1c: YLI's monthly chart as at April 3

2. Engtex

Background

Engtex is involved in the manufacture of ductile iron pipe & related products as well as distribution of pipes, valves & fittings for telecommunication, fire-fighting & air-conditioning systems.

Recent Financial Results

Engtex's latest quarterly result is also for QE31/1/2007. For that quarter, its net profit dropped 64.5% q-o-q or 206% y-o-y to RM1.1 million. Its turnover has similarly dropped by 10.6% q-o-q to RM109.5 million, albeit 27.6% higher than the previous corresponding quarter. The drop in the net profit was attributable to impairment loss suffered by one of its subsidiaries, which amounted to RM1.47 million during that quarter.

When we compared the last 4 quarters with the preceding 4 quarters, we can see that its net profit has increased by 47.7% from RM5.8million to RM8.6 million while its turnover has increased by 27.0% from RM355 million to RM451 million.



Valuation

Based on the last 4 quarters' EPS of 10.4 sen & yesterday's closing price of RM1.37, Engtex is now trading at a PE of 13 times.

Potential Impact of Syabas' Capex

Like YLI, I shall assume that Engtex will enjoy a moderate jump in its pipe-making business. The overall impact on Engtex's topline & bottomline will be smaller as Engtex's distribution business is very large when compared to its pipe-making business. I shall assume a growth of 15% for Engtex, thus resulting in EPS for FY2007/8 of 12.0 sen. As such, its PE will drop to 11.4 times.

Technical Outlook

While, its daily chart seems to show that the stock has broken out of an ascending triangle at the RM1.30 level, its medium- to long-term outlook is still uncertain. Its share price is still trapped within the trading range of RM0.85-1.50 (see Chart 2b below) & its long-term downtrend line is at RM2.95/3.00.



Chart 2a: Engtex's daily chart as at April 3



Chart 2b: Engtex's weekly chart as at April 3



Chart 2c: Engtex's monthly chart as at April 3

Conclusion

Based on technical consideration, YLI looks like a better bet than Engtex. The 2 companies' financial performance is about the same, but Engtex is slightly cheaper than YLI in term of valuation. Nevertheless, YLI with an annual ductile iron pipe-making capacity of 75,000 tonnes may chalk up higher growth going forward as compared to Engtex's annual capacity of 30,000 tonnes. I would prefer YLI to Engtex based on all the above consideration. Good entry level for YLI is around RM2.35/40.

Tuesday, April 03, 2007

Waseong has a bullish breakout at RM2.63

On March 29, Wah Seong Corporation Bhd (‘Waseong’) & Dialog Group Bhd (‘Dialog’) announced a Joint Venture Agreement ("JVA") between Waseong's wholly owned subsidiary company, WASCO Energy Ltd ("WascoE") and Dialog's wholly owned subsidiary company, Dialog Systems (Asia) Pte Ltd ("DSA") to invest in a new joint venture company ("JVC") for purposes of a joint venture on a 50% (WascoE) : 50% (DSA) basis.

The purpose of the Joint Venture is to promote and market the entire range of products and services offered by both DSA and WascoE and to use the JVC as the Joint Venture's focal point to network and jointly explore, market and develop business opportunities worldwide.

Since the announcement, Waseong has surpassed its horizontal resistance of RM2.63 to close at RM2.70, on March 30. It gained another 10 sen yesterday (April 2) & as at 4.30 p.m. today, the stock is trading at RM3.02. Waseong would be a BUY if the Waseong share price were to pull back to RM2.80/90, over the next few days.


Chart 2: Dialog's monthly chart as at April 2

Incidentally, Dialog had a breakout at the RM0.70 in November last year & that stock has gone up by 150%. Hopefully, we can see a similar big move in Waseong as well.

Chart 2: Dialog's monthly chart as at April 2

Note: I've posted on Dialog's earlier breakout in November last year (go here).
Again, I have to reiterate that this is strictly a technical call without any consideration of the company's financial performance.


New CWs trading at premium of 50%! (re-posted)

The 3 new CWs listed today, i.e. Genting-CD, PBB-CB & YTL-CB were very well-received by the market. I do wonder whether the players know how high is the premium for these CWs now?

I've mentioned before the pitfall of issuing CW with excessively high exercise ratio (see this post). To wit,
"The high exercise ratio of these CWs would improve affordability but an 10-for-1 exercise ratio for a share trading in the RM10-20 bracket and an 4-for-1 exercise ratio for a share trading below RM5.00 is really pushing the limit. Are we likely to see a CW issued one day for Genting with an exercise ratio of 25-for-1? If you cannot afford to buy too many a high priced CW, then you should buy less. After all, one can buy in multiples of 100 units. This lowering of the price of CWs would only induce retail players to throw caution into the wind; the result of which is only too predictable."
What I've written, is now staring at me. For example, Genting-CD was trading at RM0.415 as at 9.10 a.m this morning. At that price, this CW is trading at a premium of 50%! How high is that premium? Let's put it this way; a person who has bought 50 units of this CW at total cost of RM20.75, is betting that in 6-month period, the share of Genting will exceed the price of RM59.75 (i.e. exercise price of RM39.00 plus total cost of 50 units of Genting-CD). Is it likely that Genting will jump by 50% in 6 months' time? By the way, Genting was trading at RM39.75 as at 9.10 a.m. this morning.



The new & amended table


The earlier table (with errors noted)

Error explained


The error was due to the formula used to compute the premium for each CW. I should have known about the error as PBB-CB & YTL-CB were assigned much lower premium than Genting-CD under the earlier computation.

Monday, April 02, 2007

Errata: 3 new CWs to be listed on Tuesday- Genting-CD, PBB-CB & YTL-CB

On March 29, I've reported on the listing of 3 new CWs i.e. PBB-CB, Tenaga-CE & YTL-CB, supposedly on April 3. There is an error in that post due to some confusion between that batch of 3 CWs (consisting of CWs of PBB, Tenaga & YTL) to be issued by CIMB & another batch of 3 CWs (consisting of CWs of Genting, PBB & YTL) to be issued by OSK. The latter batch of CWs will be listed tomorrow & they are designated as Genting-CD, PBB-CB & YTL-CB. The other batch of CWs, which will likely be designated as PBB-CC, Tenaga-CE & YTL-CC, will be listed on Friday, April 6.

The terms of Genting-CD, PBB-CB & YTL-CB are tabulated below, together with the terms of the existing related CWs for comparison purposes.



I prefer the existing CWs (i.e. Genting-CA, Genting-CB, PBB-CA & YTL-CA) over the new CWs as the latter were issued at a higher premium. Any inconvenience caused by this error is most regretted.

Bombay Stock Exchange's BSESN dropped 3.75%

The Bombay Stock Exchange's BSESN dropped 490 points (or, 3.75%) to 12,582 point at 4.02 am ET (see Chart 1 below). The sharp drop was apparently due to The Reserve Bank of India's decision on March 30 to lift its overnight lending rates to a 4 1/2 year high of 7.75 percent as well as to raise the reserve requirement of banks to 6.5 percent from 6 percent. It was the central bank's third rate increase since December, aimed at stemming loan growth and inflation.



Chart 1: BSESN's intra-day chart as at 4.02 am ET

How bad is the current fall? The BSESN appears to be in a recovery path after the recent March sell-off, which has resulted in the BSESN breaking its medium-term uptrend line at the 14,000 level (see Chart 2 below). If the current drop were to break below the 12,300/400 level, we could see the re-commencement of the downtrend for the BSESN.



Chart 2: BSESN's daily chart as at March 30

Conclusion

The volatile global equity market has made intra-day & short-term trading very hazardous. While medium-term investors may be less affected, it may be timely to re-adopt the policy of "selling into strength, buying into weakness" until we have better visibility & stability in the market.

Utama's uptrend may continue

Utama has broken above its horizontal resistance of RM2.43/45 on Friday (March 30). Its immediate resistance is at the psychological RM3.00 level. Thereafter, it may test its February 2000 high of RM3.82.

You may buy Utama on weakness if the share can hold above the breakout level of RM2.43/45.

Chart 1: Utama's daily chart as at March 30

If you find that the share price of Utama has gone up too much & may pose high risk, then you may like to look at its holding company i.e. CMSB. CMSB has a 51.83% stake in UBG, which in turn holds 32.87% of RHB. RHB has a 64.87% stake in RHB Cap, which in turn owns 70% of RHB Bank Bhd. As you may recall, RHB was the target of takeover by Kuwait Finance House, EPF & Primus, which was only recently concluded with Utama selling its stake in RHB to EPF for a cash consideration of RM2.253 billion.

From the chart below, you can see that CMSB is poised to breakout of its ascending triangle pattern at the RM2.07/10 level. If it can breakout successfully, it may test its recent high of RM2.17 & thereafter the RM2.25-35 congestion area.

Buy CMSB only if it can breakout of the RM2.07/10 resistance successfully.


Chart 2: CMSB's daily chart as at March 30

Note: This is strictly a technical call without any consideration of the company's financial performance.

Kencana has broken above its downtrend

Kencana has broken above its medium-term downtrend line at the RM1.16/18 level on Friday (March 30). Its immediate resistance is at RM1.35 & thereafter, it may test its recent high of RM1.55.

You may buy on weakness if the share can hold above the breakout level.


Chart: Kencana's daily chart as at March 30

Note: This is strictly a technical call without any consideration of the company's financial performance.