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Friday, January 23, 2009

Gong Xi Fa Cai



I would like to wish my readers a Happy Chinese New Year. I will take a short break over the holidays and will return on Thursday, January 29.

Timber products prices tumbled

Timber products prices tumbled sharply in the 1st half of January 2009, reflecting the severe contraction experienced by the construction & furniture industries, both locally & overseas. This explained the sharp drop in the prices of timber stocks, such as WTK & Ta Ann.


Chart: Malaysian Timber Products Prices (from Jan 2008 to Jan 2009) [Source: ITTO]


Table: Malaysian Timber Products Prices (from Jan 2008 to Jan 2009) [Source: ITTO]

Obama on the Hudson

A picture that paints a thousand words. Absolutely amazing!



Via The Big Picture.

Ranhill may have a bullish breakout

Ranhill, which had completed its takeover of Ranhill Utilities in October last year, has recently broken above its medium-term downtrend line (see the weekly chart, Chart 1 below). On closer study of the daily chart (Chart 2), we can see that Ranhill's bottoming & reversal follows the pattern known as three-fan lines. The share price is now pushing against the third fan line at the RM0.85-87 level. A breakout above this level could lead to a strong rally in the share price. First target: RM1.00. Second target: RM1.20.


Chart 1: Ranhill's weekly chart as at Jan 22, 2009 (source: Quickcharts)


Chart 2: Ranhill's daily chart as at Jan 22, 2009 (source: Quickcharts)

(As at 10.14 am, the share price is at RM0.87. More to come on this post)

I believe the main reason for the steady recovery in Ranhill's share price is the value derived from the complete ownership of Ranhill Utilities. Firstly, there is a renewed sense of urgency to restructure the water industry in Malaysia. I must admit that I am not very familiar with this issue, which is perpetually in a state of flux. I remember vaguely that the proposal to nationalize the various states' water concessions, excludes the Johor state (which appears illogical, correct me if I'm wrong).

Whatever it is, the fact that Ranhill had proceeded to privatize Ranhill Utilities last year could mean that the management of Ranhill had come to the conclusion that Ranhill Utilities would enhance the value of Ranhill. If Ranhill Utilities were to be nationalized, Ranhill expects to be well compensated. Ranhill acquired the remaining shares of Ranhill Utilities which it did not own (about 29.6% or 87.2 million shares) at RM3.50 per share. In a very simplistic term, Ranhill expended RM305 million to acquire the remaining shares of Ranhill Utilities which it did not own and these additional shares would likely to contribute RM67 million to its bottom-line (i.e. 29.6% of annualized net profit of RM226.7 million for FY2008 as per its 3Q2008 results). The acquisition was priced at only 4.5 times its FY2008 earning!

Secondly, Ranhill will be announcing its results for 2Q2009 ended 31/12/2008 in the 3rd or 4th week of February. This set of results should reflect the positive contribution from the privatization of Ranhill Utilities, which was completed in early October 2008. Assuming an additional contribution of RM17 million from Ranhill Utilities, we would arrive at a net profit of RM20 million for 2Q2009 ended 31/12/2008 (i.e. adding RM17 million to the net profit of RM3.0 million for 1Q2009 ended 30/9/2008). This means that Ranhill's EPS would be about 3.4 sen for 2Q2009 ended 31/12/2008 and, going forward, its full year's EPS would be about 13.2 sen. Based on yesterday's closing price of RM0.82, Ranhill is trading at a PE of 6.2 times. While this is nothing to shout about (in this bad time), Ranhill's share price may deserve some re-rating. Whether it has been fully priced in, is another matter.

Ranhill did a massive kitchen-sinking exercise in 4Q2008 when it wrote off the amount receivable of RM556 million from the Melut Basin project in Sudan as well as recognizing losses totaling RM48 million incurred in Oil & Gas sector. This led to a net loss of RM719 million reported in that quarter.

Wednesday, January 21, 2009

Heck of a job, Dubya

This would be really funny, if it wasn't so sad.



Taken from NakedShorts, who stole it from Nick Anderson, Houston Chronicle, via Slate.

WTHorse's bottomline improved again

WTHorse announced its results for 3Q2008 ended 30/9/2008 on November 19, 2008. Its net profit increased by 21.0% q-o-q or 37.0% y-o-y to RM16.4 million. Turnover increased marginally by 1.8% q-o-q or 24.1% y-o-y to RM134.5 million. For 4 quarters to 30/9/2008, WTHorse's net profit increased by 31.0% from RM42.5 million to RM55.7 million, while its turnover has increased by 16.3% from RM412 million to RM479 million.



WTHorse's financial position as at 30/9/2008 is deemed satisfactory. Its current ratio has improved from 2.2 times as at 31/12/2007 to 2.7 times as at 30/9/2008. Gearing ratio (i.e. borrowings to shareholders' funds) has dropped from 0.34 to 0.25 during the same periods.

WTHorse (closed at RM1.05 yesterday) is now trading at a PE of 4.4 times (based on last 4 quarters' EPS of 24 sen) or at a Price to Book of 0.5 times (based on NTA per share of RM2.32 as at 30/9/2008). At these multiples, WTHorse is deemed very attractive.

WTHorse is still in a downtrend, with resistance at RM1.05. While the share price had surpassed the downtrend line on a few occasions in the past 2 weeks, the thin volume does not support a conclusion that a bullish breakout was in-hand. At best, WTHorse may move sideway & begin its bottoming phase.


Chart: WTHorse's weekly chart as at Jan 20, 2009 (source: Quickcharts)

Based on attractive valuation, WTHorse could be a good stock for long-term investment.

Tuesday, January 20, 2009

Efficen may have bottomed

Efficient E-Solutions Bhd ('Efficen') is involved in the provision of integrated outsourcing solutions in data and document processing (DDP) to banks, stock-broking companies, insurance companies and telecommunications operators. DDP covers services ranging from data extraction, conversion, formatting of documents to data printing and the preparation of printed documents for distribution via post. The Company also provides electronic bill presentment services, which includes data capture, archival and retrieval, and electronic distribution.

Listed on the Mesdaq Board in January 2005, Efficen was transferred to the Main Board in October last year. The transfer to the Main Board would enhance the image of the company as it embarks on its overseas expansion. The first overseas foray is its investment in Hong Kong in the middle of last year.

Its recent financial results has been quite encouraging, albeit a slight decline in net profit in the last 2 quarters. Its turnover for the past 4 quarters increased by 16% when compared to the preceding 4 quarters, while net profit increased by 14%.



Efficen's financial position is satisfactory, with current ratio at 5.6 times & gearing ratio (borrowings to shareholders' funds) at a negligible 0.1 times.

Efficen (closed at RM0.105 yesterday) is now trading at a PE of 4.2 times (based on last 4 quarters' EPS of 2.5 sen) or at a Price to Book of 0.9 times (based on NTA per share of RM0.12). At these multiples, Efficen is deemed very attractive.

Efficen made a recent high of RM0.28 in December 2007. Since then, the share price has been dropping & it made a recent low of RM0.08 in October 2008. Efficen has a strong horizontal support at RM0.09. Recently, Efficen has surpassed its medium-term downtrend line. Further consolidation around the RM0.10 level is likely.


Chart: Efficen's monthly chart as at Jan 19, 2009 (source: Quickcharts)

Based on attractive valuation & mildly positive technical outlook, Efficen is a good stock for long-term investment.

Friday, January 16, 2009

Market Outlook as at January 15, 2009 (a second take)

I like to revise a bit of my earlier post on the same subject as my Quickcharts program has just been upgraded. On closer scrutiny, it appears that KLCI has tested its immediate short-term uptrend line support at 895 (not 880 as previously stated) over the last 2 days. This support is still holding up the index presently. Its next short-term uptrend line support will be at 860. We can also expect psychological support at 850 & thereafter horizontal support at 835.


Chart 1: KLCI's daily chart as at Jan 15, 2009 (source: Quickcharts)

I have appended below the monthly chart of the KLCI. The upgraded Quickcharts program includes data as far back as 1988. If I were to draw an uptrend line connecting the 'low' recorded in Dec 1987, but skipping the extreme plunge suffered in the final months of the Asian Crisis, then our KLCI long-term uptrend line support is at 730-40 level. Looking at the 3 indicators (MACD, Williams %R & DMI), it is too early to call a bottom for this market.


Chart 2: KLCI's monthly chart as at Jan 15, 2009 (source: Quickcharts)

The recommendation applies, i.e. we should avoid taking new or large trading positions in the market until the outlook has improved.

Note: The DMI indicator is similar to the Average Directional Index given by Tradesignum.com. The 2 black lines plotted to represent +DMI & -DMI make for hard reading (not the fault of the program).

Thursday, January 15, 2009

Market Outlook as at January 15, 2009

The market outlook has deteriorated significantly over the past 2 days. The KLCI is likely to drift lower to test its immediate short-term uptrend line support at 880. If that support failed, it will test the next short-term uptrend line support at 860. We can also expect psychological support at 850 & thereafter horizontal support at 835. I am unable to access Quickcharts, as the service provider is presently upgrading the software. My alternative source for charts, i.e. Tradesignum has not updated their charts since January 8th. Thus, I have to fall back on Bloomberg, whose charts I am unable to copy & upload onto this blog. To access the KLCI chart on Bloomberg, go here. A daily chart of KLCI up to Jan 8 is attached (Chart A).


Chart A: KLCI's daily chart as at Jan 8, 2009 (source: Tradesignum.com)

The sudden deluge of negative news flow-- on everything from slumping retail sale during the Christmas season; temporary shutdown by Toyota (unthinkable just 6 months ago); big jump in unemployment numbers everywhere; the start of Quantitative Easing in the US; and, more losses announced by banks-- have probably put an end to the nascent rally in the equity markets, worldwide. I have attached below the daily charts for S&P500, FTSE, Hang Seng, Singapore's Strait Times & Shanghai's SSEC indices for your review. All these charts show that the short-term uptrend has ended. The SSECI is ahead of the other 4 markets and, if it can be a guide, the other markets will probably be moving sideway, with a downward bias in the weeks ahead. The same may apply to our KLCI.


Chart 1: S&P500's daily chart as at Jan 15, 2009 (source: Stockcharts.com)


Chart 2: FTSE's daily chart as at Jan 15, 2009 (source: Stockcharts.com)


Chart 3: HSI's daily chart as at Jan 15, 2009 (source: Stockcharts.com)


Chart 4: STI's daily chart as at Jan 15, 2009 (source: Stockcharts.com)


Chart 5: SSEC's daily chart as at Jan 15, 2009 (source: Stockcharts.com)

Based on the above, we should avoid taking new or large trading positions in the market until the outlook has improved.

Supermx broke above its downtrend line

The recent announcement by Supermax Corporation Bhd ('Supermx') to cut further investment in APL Industries Bhd ('APLI'), has led to the cancellation of APLI's proposed rights issue. With this, APLI's restructuring exercise has been terminated. APLI has been suspended as at today, pending its de-listing from the Exchange.

Supermx had acquired a 14%-stake in APLI in 2005 in order to grow its rubber glove business. In addition, it had also acquired a 23%-stake in Seal Polymer Industries Bhd ('Seal'), which has subsequently been turned into a subsidiary of Supermx. The growth by acquisition pursued by Supermx has proven to be more problematic than the organic growth approach adopted by its rivals, Topglove & Kossan. With the successful integration of Seal into the group in 2006 & the recent decision to terminate all efforts to restructure APLI, Supermx's management will be free from distraction & turn its attention to managing its business.

Despite the above-mentioned problem, Supermx managed to record fairly decent financial performance in the past 2 years. For 3Q2008, its net profit increased by 12.2% q-o-q or 8.7% y-o-y to RM15.5 million, while turnover increased by 26.4% q-o-q or 64.7% y-o-y to RM244 million. The increased turnover resulted from an additional 10 production lines installed in the Group’s Lahat and Kamunting Raya plants in 1H2008 and higher selling prices (due to adjustment for higher input cost & appreciation of the USD, its billing currency). The higher turnover has more than offset the small erosion in profit margin; resulting in higher net profit.



Supermx (closed at RM0.97 yesterday) is now trading at a trailing PE of 4 times (based on last 4 quarters' EPS of 24 sen) or at a Price to Book of 0.6 times (based on NTA per share of RM1.59 as at 30/9/2008). At these multiples, Supermx is deemed fairly attractive.

Supermx has broken above its immediate downtrend line resistance at RM0.85 as well as surpassing the strong horizontal resistance of RM0.90. The breakouts, which were achieved on relatively thin volume, could be followed by a short rally as Supermx tries to catch up with its rivals, Topglove & Kossan (both of which had rallied upwards in the past few weeks). With or without a rally, Supermx's bottoming phase may set in if its share price can maintain above the RM0.90. If that happened, we can look forward to a more sustainable rally in this stock in the future.


Chart : Supermx's daily chart as at Jan 8, 2009 (source: Tradesignum.com)

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

Wednesday, January 14, 2009

Maybulk- riding on the potential recovery of freight rates & crude oil

Maybulk has recently completed its proposal to acquire 22.08% stake in PACC Offshore Services Holdings Pte Ltd (POSH) for US$221mil (RM802mil). POSH, which is a subsidiary of Pacific Carriers Ltd (a member of the Kuok Group in Singapore that also owns 34.5% stake in Maybulk), operates more than 50 vessels and plans to acquire another 50 vessels over the next three years. POSH's fleet, which includes anchor handling tugs, anchor handling and supply tugs, tug and barge sets, accommodation barges and heavy lift barges, caters for the needs of the offshore oil & gas sector.

The valuation of companies or businesses in the oil & gas sector has suffered from the sharp downturn in the price of Crude Oil. As noted in a previous post, Crude Oil prices could be poised for a reversal. From Chart 1 below, we can see a potential 'head-and-shoulders' reversal pattern taking shape (with H denoting the 'head' & 'S1 & S2' denoting the 'shoulders'). A reversal is deemed completed if the WTIC index crossed above the neckline, currently at USD49-50. A reversal in Crude Oil prices would provide the catalyst for a re-rating of companies or businesses in the oil & gas sector.


Chart 1: WTIC's daily chart as at Jan 8, 2009 (source: Stockcharts.com)

The main business of Maybulk is its shipping business. While the freight rates had dropped for many shipping companies, we have seen that Maybulk was not badly affected (go here). The collapse of freight rates can be clearly seen from the daily chart of the Baltic Dry-bulk Index (below). Nevertheless, there is sign that the BDI may have bottomed.


Chart 2: BDI's daily chart as at Jan 13, 2009 (source: InvestmentTools.com)

A recovery in freight rates & Crude Oil prices could lead to a re-rating of Maybulk. From Chart 3 below, we can see that Maybulk has broken above its immediate downtrend line resistance at RM2.50. The next resistance will be the 200-day SMA of RM3.30 (which coincides with the long-term downtrend line) & the strong horizontal resistance of RM3.50.


Chart 3: Maybulk's daily chart as at Jan 8, 2009 (source: Tradesignum.com)

Based on the above, a shareholder of Maybulk should track the performance of Crude Oil prices & freight rates closely, with an eye on adding to his position in this stock.

IJM broke above its immediate downtrend line

IJM broke above its immediate downtrend line resistance at RM3.50. In addition, it has surpassed its December high of RM3.32 last Wednesday (Jan 7) and its 20-day SMA has cut above its 50-day SMA on Monday (Jan 12). With all these positive signs, I believe IJM could be testing the RM4.00 psychological level soon.


Chart: IJM's daily chart as at Jan 8, 2009 (source: Tradesignum.com)

IJM remained a good BUY for long-term investment.

Monday, January 12, 2009

Kencana- a Trading Idea

The next trading oil for the Oil Services sector is Kencana. Its results for 1Q2009 ended 31/10/2008 shows the net profit has increased by 41.4% q-o-q or 83.5% y-o-y to RM33.1 million. Its turnover is only 3.5% higher than the preceding quarter, but 35.7% lower than the turnover of the previous corresponding quarter. The company attributed its higher net profit to higher profit margin.



Kencana is poised to test its medium-term downtrend line resistance at RM1.53-55 level. A break above this downtrend line, together with the 20-day EMA crossing above the 60-day EMA, could signal the beginning of a decent rally for Kencana. With the 200-day SMA flattening out, the downside for Kencana is likely to be limited.


Chart: Kencana & OSX's daily chart as at Jan 9, 2009 (source: Tradesignum.com & Stockcharts.com)

Based on the above, Kencana could be another good proxy for a play on a reversal in Crude Oil prices. Good entry level for this stock is at RM1.30-35.

Sapcres- a Trading Idea

Sapcres is one of the largest Oil Services company in Malaysia. Its results for 3Q2009 ended 31/10/2008 shows the net profit has increased by 10.6% q-o-q or 58.3% y-o-y to RM36.9 million. Turnover has jumped by 74.7% q-o-q or 69.2% y-o-y to RM1.05 billion.



From the chart below, we can see that Sapcres' price movement nearly mirrors the Philadelphia Oil Services index (or, OSX), with two notable differences. Firstly, the OSX made a lower 'low' in December 2008 which Sapcres managed to avoid. Secondly, OSX made a higher 'high' in January 2009 (compared to November 2008 'high') which Sapcres failed to do. The OSX looks set for further recovery-- probably awaiting a reversal in Crude Oil prices-- and the same probably applies to Sapcres.


Chart: Sapcres & OSX's daily chart as at Jan 9, 2009 (source: Tradesignum.com & Stockcharts.com)

Based on the above, I think Sapcres could be a good proxy play for a reversal in Crude Oil prices. Good entry level for this stock is at RM0.80-85.

Crude Oil poised to reverse

Crude Oil had a good rally last week. WTIC rallied off December low of USD35.13 to reach an intra-day high of USD50.47 on last Tuesday before correction set in. Its close at USD40.83 on Friday. Compared to other commodities, Crude Oil's downtrend seems to be intact (see Chart 1 below).


Chart 1: WTIC's daily chart as at Jan 9, 2009 (source: Stockcharts.com)

I have done some comparison between WTIC and two other indices, i.e. the Philadelphia Oil Services index and AMEX Oil Index. The Philadelphia Oil Services Index (ticker symbol OSX) includes 15 of the largest oil service companies involved in the drilling and servicing of marine and land oil and natural gas wells (go here for more). The AMEX Oil Index (ticker symbol XOI) includes 13 of the leading companies involved in the exploration, production, and development of petroleum (go here for more).

I have lined up the 1-year daily chart of WTIC, OSX and XOI below (Chart 2). From this chart, we can see that before the WTIC peaked in July 2008, OSX had begun to move sideway, while XOI had begun to move lower [see the pink lines]. This bearish divergence signaled a potential top in WTIC. Now, the opposite can be observed. We can see a bullish divergence [see the light blue lines]- with WTIC firmly trending lower, while OSX & XOI both recording a short-term uptrend (within a medium-term downtrend). A potential reverse in WTIC over the next 1 to 2 months is on the card.


Chart 2: The daily chart of WTIC, OSX & XOI as at Jan 9, 2009 (source: Stockcharts.com)

Based on the above, we should consider positioning in Oil stocks in anticipation on a reversal in Crude Oil prices. When this finally happens, Oil stocks would likely to receive a big boost.

Thursday, January 08, 2009

Plantation outlook as at January 7, 2009

The Plantation index rose sharply in the past few days, in tandem with the rise in CPO prices. While the Plantation index is undergoing some correction today, it may find support at the 100-day SMA of 4500, before rebounding. Further upside is possible but I doubt it would be able to overcome the strong resistance posed by the horizontal line of 5250. In the medium-term, I believe the Plantation index would likely to trade in a range between 4000 & 5000 for many months, before the direction of its next move is clear. This conclusion is based on the steepness of the 100-day SMA.


Chart 1: Plantation's daily chart as at Jan 7, 2009 (source: Tradesignum.com)

Similarly, I believe that CPO's upside move will face strong resistance from the horizontal line of RM2250.


Chart 2: CPO's weekly chart as at Jan 7, 2009 (source: ifs.marketcenter.com)

From the table below, I have computed the retracement of the Plantation index & 3 Plantation stocks (i.e. Asiatic, KLK & IOI). We can see that the Plantation index has retraced 90% of its gain from May 2005 to its all-time high, during the recent downtrend. In the current rebound, it has recovered (or, retraced) 32% of the lost ground. The 3 stocks had retraced between 83% & 96% of their gain from May 2005 to its all-time high, during the recent downtrend. In the current rebound, they have recovered between 26% & 37% of the lost ground. The stock that put in the biggest swing to the downside as well as the upside is IOI. Its downside move was exaggerated by reports of huge forex losses (which was subsequently confirmed to be true) & the recovery that followed was stronger than other plantation stocks (benefiting from a lower base).



Based on the above, I believe that those who have positions in the Plantation sector should take some profit when the index reaches the 5000-5250 level. Those who are nimble enough may trade the current pullback by opening positions when the index touches the 4500 level. It is advisable that you should set protective stops for any positions opened.

Tuesday, January 06, 2009

Topglove reported higher net profit

Topglove has announced its results for 1Q2009 ended 30/11/2008, where its net profit increased by 36.1% q-o-q or 16.2% y-o-y to RM34.2 million. Turnover has increased by 7.0% q-o-q or 14.7% y-o-y to RM386 million. The improved performance was attributable to higher turnover, lower latex & crude oil prices as well as favorable exchange rates.



Topglove (closed at RM4.02 today) is now trading at a trailing PE of 10.4 times (based on last 4 quarters' EPS of 38.6 sen) or at a Price to Book of 1.7 times (based on NTA per share of RM2.41). At these multiples & current market climate, Topglove is deemed fairly valued.

From the daily chart below, we can see that Topglove has been sliding from its high of RM10.00 in December 2006 to a recent low of RM3.50. In the past 3 days, the stock has gained 52 sen (from its close at RM3.50 as at 31/12/2008 to today's close of RM4.02) and it has surpassed its 100-day SMA of RM3.84. The stock is likely to consolidate its recent gain, before going higher.


Chart: Topglove's daily chart as at Jan 5, 2009 (source: Tradesignum.com)

Based on better financial performance, I think the worst could be over for Topglove. For those who like this stock, you may accumulate it slowly over the next few months. I believe the present share price may have run ahead of the stock's fundamentals. Personally, I prefer Kossan due to cheaper valuation.

Monday, January 05, 2009

Market Outlook as at January 2, 2009

Our market is poised to break above its medium-term downtrend line, with resistance at 890-895. Thereafter, it will encounter resistance from the horizontal line of 925 & 965. It looks like the CNY rally (or, the January effect) is about to kick in.


Chart: KLCI's daily chart as at Jan 2, 2009 (source: Tradesignum.com)

Note: As at 9.10 am today, the KLCI was trading at 906.62 (up 12.26 points from Friday's close).

Friday, January 02, 2009

Construction sector to benefit from pump-priming

The construction sector is expected to be the main beneficiary of any pump-priming exercise by the Government, in order to prevent the economy from slipping into a recession. As you can see from the Construction index's daily chart, a short-term uptrend has started (based on higher 'highs' & higher 'lows' achieved over the past 2 months). Nevertheless, the Construction index's upside move would encounter resistance by the prevailing medium-term downtrend. For your technical analysis, you may use the 100-day SMA as the medium-term downtrend line.


Chart 1: Construction's daily chart as at Jan 2, 2009 (source: Tradesignum.com)

Among the construction stocks, 2 stocks have broken above their respective medium-term downtrend line. They are Gamuda & Muhibah (see Chart 2 & 3, respectively).


Chart 2: Gamuda's daily chart as at Jan 2, 2009 (source: Tradesignum.com)


Chart 3: Muhibah's daily chart as at Jan 2, 2009 (source: Tradesignum.com)

Besides Gamuda & Muhibah, you can also consider IJM, WCT & MMC. All 3 stocks have dropped very substantially from their high & could rebound very quickly if the funds managers decides to accumulate them aggressively.