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Wednesday, January 17, 2018

ANNJOO: At the Uptrend Line!

In the past 2 years, Annjoo enjoyed a price run-up of more than 6 folds, from 60 sen to almost RM4.00. This makes Annjoo the best performing steel producer in our market.

Annjoo's share price has pulled back to its uptrend line in the current correction. If you stick to the rule that a trend remains intact until it has reverse, then this would be a buying opportunity. While indicators - like ADX & MACD - are cautioning against possible break of the uptrend line, until that has happened the trend remains intact.    


Chart 1: ANNJOO's weekly chart as at Jan 16, 2018 (Source: Malaysiastock.biz)

Why did Annjoo drop so much in the past 2 weeks? The drop in Annjoo's share price could be due to the correction in steel rebar prices in China in the past 2 months. Rebar prices peaked at 4950 yuan in December last year, and is now trading at 3800 yuan- a drop of 25%!


Chart 2: China Steel Rebar Price chart as at Jan 16, 2018 (Source:Sunsirs.com)

Is this a short-term correction or has steel rebar prices peaked? Looking at the chart below, we can see that the last 2 years rally is fairly similarly to the 200-2008 rally which ended during the Global Financial Crisis. While there is no crisis on the horizon, a reversal in the price uptrend could lead to lower steel prices and lower earning for steel companies.


Chart 3: Global Steel Rebar Price chart as at Jan8, 2018 (Source: Steelbenchmarker.com)

Based on the above, we must be careful to avoid over-exposing ourselves to a sector that's in peak earning today. As for Annjoo, you would have to monitor closely and be prepared to take the necessary action to reduce your position in the event the share price breached the uptrend line at RM3.60.

2 comments:

Chun Mun said...

hi alex,
what is your opinion about WTHORSE? Would it gain from the strengthening Ringgit?

Alex Lu said...

Hi Chun Mun,

WTHORSE's financial performance has been deteriorating in the past 2 years. Its revenue has been sliding due to sales decline of nearly 20%. Its PBT has dropped as much as 75%.

Despite the poor financial performance, WTHORSE's share price has declined only about 20%. Nevertheless the decline is enough to break below the long-term uptrend line at RM1.95-2.00 in August 2017. Go to: https://www.tradingview.com/x/nRtY8e55

The share price is trying to climb back above the long-term uptrend line, at RM2.02-2.03. Go to: https://www.tradingview.com/x/7VmopunG

It needs to have a very convincing story to get investors to buy into the stock. The best way will be to report good earning numbers.