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Zhulian- poised to test its all-time high of RM2.00

2012-01-27T17:41:00.000+08:00

Results Update

Zhulian has recently announced its results for QE30/11/2011. Its net profit increased by 18.4% q-o-q or 18.6% y-o-y to RM28.8 million while turnover eased off 5.4% q-o-q but rose 2.3% y-o-y to RM86.8 million. The improved bottom-line was attributed to higher share of profit from an equity-accounted investee of RM792k and forex gain.

Table: Zhulian's last 8 quarterly results

Chart 1: Zhulian's last 21 quarterly results

Valuation

Zhulian (closed at RM1.97 today) is now trading at a PE of 9.4 times (based on the last 4 quarters' EPS of 20.9 sen). For a company with a CAGR of about 10%, Zhulian's PEG of about 1 time is deemed fair.

Technical Outlook

Zhulian has slowly risen steadily in the past few weeks. It is poised to test its recent high of RM2.00 soon. If it can break above the RM2.00 mark, Zhulian's uptrend could continue.

Chart 2: Zhulian's weekly chart as at Jan 27, 2012 (Source: quickcharts)

Conclusion

Based on good financial performance and fair valuation, Zhulian is rated a HOLD. If the stock were to break above the RM2.00 mark, it may be a good trading BUY.

Puncak- the bottoming phase may be over?

2012-01-27T12:31:00.003+08:00

Puncak declined from a high of RM3.00 in September 2010 to a recent low of RM0.96. It then formed a base over the past 6 months, at RM0.96-1.33. If it can break above the RM1.33, the bottoming phase may have completed. It may begin its recovery stage. Its immediate resistance would be the intermediate downtrend line at RM1.55.

The fair value for this stock varies significantly. MIDF has a target price of RM1.32 as per its report in November 2011 (here) while OSK valued it at RM3.65 in May 2011 (here). I believe that the company is worth more than RM2.00 and as such, the stock is an attractive stock to consider for a recovery play.

If Puncak can break above the RM1.33 level, it could be a trading BUY.

Chart: Puncak's daily chart as at Jan 27, 2012_12.00pm (Source: Quickcharts)

Mudajya may continue its recovery

2012-01-27T09:40:00.003+08:00

As noted earlier, Mudajya is an attractive construction stock with strong experience in the building the power plant. Since that post, the stock has been inching higher. Recently, the rise was capped by the horizontal resistance at RM2.57. Today, it broke above that level. With this, Mudajya may test the next resistance is the horizontal line at RM2.75 and then the intermediate downtrend line at RM3.00.

Based on this, I think Mudajya can be a good trading BUY.

Chart: Mudajya's daily chart as at Jan 27, 2012_9.30am (Source: Quickcharts)

Cenbond has a bullish breakout

2012-01-26T15:50:00.003+08:00

Cenbond has just broken above its strong horizontal resistance at RM0.85. It has also surpassed its all-time high of RM0.88. Based on this double breakout, Cenbond's technical outlook is very bullish. Its immediate target is RM1.00.

Cenbond is involved in paper & plastic packaging. It has 2 lines for the production of stretchable film. For 1H2012 ended 30/9/2012, Cenbond reported a net profit of RM7.7 million on a turnover of RM90.6 million. Its annualized EPS for FY2012 is about 12.8 sen. At RM0.89 now, the stock is trading at a PE of 7.0 times.

Based on technical breakout, Cenbond could be a good trading BUY.

Chart: Cenbond's monthly chart as at Jan 3, 2012 (Source: Tradesignum)

Market Outlook as at January 26, 2012

2012-01-26T08:00:00.000+08:00

Our market has been recovering cautiously after the selldown in July-September. This recovery is reflected in the medium-term uptrend line, SS. The recovery rally had encountered strong resistance which triggered sharp pullbacks. These pullbacks can be fitted into a 3-fan downtrend line, with the market currently testing the third fan-line (R-R3). With the negative crossover noted in the MACD indicator, there is a good chance that the rally will not be able to surpass the resistance at 1525. This could set the stage for a correction in the market. FBMKLCI may pullback to the medium-term uptrend line support at 1510 or the psychological 1500 level. A break below the 1500 level could lead to a longer consolidation in the market.

Based on the above, you should exercise careful discretion in your trading.

Chart: FBMKLCI's daily chart as at January 25, 2012 (Source: Tradesignum)

Semicon stocks poised for recovery

2012-01-25T11:05:00.007+08:00

The Philadelphia Semiconductor Index (SOX) has broken above its intermediate downtrend line (see Chart 1 & 2 below). In addition, SOX has broken above the 200-day SMA line and a few of the indicators are turning upward. However, I believe SOX will not rally immediately as the ADX is still flat & will probably turn upward over the next 2-3 weeks. This will give us time to accumulate some semicon stocks.

Chart 1: SOX's weekly chart as at Jan 16, 2012 (Source: Stockcharts)

Chart 2: SOX's weekly chart as at Jan 16, 2012 (Source: Yahoo Finance)

The best play for this sector is the market leader, Unisem. The good entry to Unisem is at RM1.20. Gtronic & MPI would bring up the rear, with good entry at RM0.90 & RM3.00, respectively.

Chart 3: Unisem's weekly chart as at Jan 16, 2012 (Source: Tradesignum)

Chart 4: Gtronic's weekly chart as at Jan 16, 2012 (Source: Tradesignum)

Chart 5: MPI's weekly chart as at Jan 16, 2012 (Source: Tradesignum)

SMRTech- a promising IT stock

2012-01-25T10:09:00.005+08:00

Background

SMR Technology Bhd ('SMRTEch') is involved in the provision of IT solutions for human resource development. It recently secured a 1-year contract of RM14 million from the Human Resources Ministry (here). This is on top of a 3-year contract of RM89.5 million secured in 2010 from the Ministry of education for the recruitment & management of English language teaching consultants and to implement the In-Service Teacher Training for English Language Teachers (ELT) in primary schools (here).

Recent Financial Performance

SMRtech's financial results for QE30/9/2011 is deemed satisfactory with net profit of RM2.3 million while turnover is at RM10.7 million. From Chart 1 below, we can see SMRTech's top-line & bottom-line have soared in the past 6 quarters.

Table: SMRTech's last 8 quarterly results

Chart 1: SMRTech's last 14 quarterly results

Valuation

SMRTech (closed at RM0.215 on Friday) is now trading at a PE of 4.5 times (based on last 4 quarters' EPS of 4.8 sen). At this PE multiple, SMRTech is deemed fairly attractive.

Technical Outlook

SMRTech broke above its downtrend line at RM0.15 in second half of 2011. The horizontal resistance at RM0.20 has capped its rise for the past 9 months. Last week, the stock broke above the RM0.20 mark. This may signal the begin of a play for the stock. First target is RM0.25. Second target is RM0.35.

Chart 2: SMRTech's weekly chart as at Jan 16, 2012 (Source: Tradesignum)

Conclusion

Based on satisfactory results, large contracts in-hand, undemanding valuation and positive technical outlook, SMRtech could be a good trading BUY.

Happy New Year 2012

2012-01-20T17:19:00.002+08:00

According to the Chinese Zodiac, 2012 will be the year of the Water Dragons. Water is expected to calm the Dragon’s fire. Water Dragons are known to be capable of seeing things from different points of view. As such, they can make good decisions. Let hope that the world leaders can do the same and take the courageous moves that would pull the global economy out of its present doldrums.

Meanwhile, let's enjoy the 4 days' break & spend time with our friends & family. I wish everyone a Happy & Prosperous New Year.

Source: ChinaInstitute

MBMR may have a bullish breakout

2012-01-20T11:23:00.004+08:00

Yesteday, MBMR broke above its 3-fan downtrend line at RM3.40. This morning, it broke above its strong horizontal resistance at RM3.50 (on good volume). With this double breakout, MBMR could rally to the psychological RM4.00 level & then to the all-time high of RM4.50-4.60.

Based on this technical breakout, MBMR could be a good trading BUY.

Chart: MBMR's monthly chart as at January 3, 2012 (Source: Tradesignum)

Maybulk & Haio- Strong rally! Time to take profit?

2012-01-19T11:35:00.004+08:00

Presently, two stocks have rallied despite uninspiring financial performance. The first stock is Maybulk, the shipping company that is part of the Robert Kuok group. Maybulk tested its long-term downtrend line at RM2.25. Unless there is breakout above the downtrend line, I feel that you should sell into the present rally.

Chart 1: Maybulk's weekly chart as at Jan 19, 2012_11.00am (Source: Quickcharts)

The second stock which has rallied very well is Haio. The chart looks very nice as the stock has broken above the 40-week SMA line at RM2.01. At the present price of RM2.30, Haio is trading at a PE of 15 times. At that multiple, Haio is fully valued. Despite the bullish technical outlook, I feel investors should take profit on their investment in Haio, especially when it approaches the resistance at RM2.40.

Chart 2: Haio's weekly chart as at Jan 19, 2012_11.00am (Source: Quickcharts)

For my recent posts on Maybulk & Haio, go here & here.

Huayang may continue its uptrend

2012-01-19T00:19:00.000+08:00

Results Update

Huayang has just announced its results for QE31/12/2011. Its net profit rose 5% q-o-q or 90% y-o-y to RM14.6 million while its turnover rose 11% q-o-q or 71% y-o-y to RM84 million. The improvement due mainly to better performance in the property development segment.

Table: Huayang's last 8 quarterly results

Chart 1: Huayang's last 14 quarterly results

Chart 2: Huayang's profit margin for last 14 quarterly results

Valuation

Based on the current price of RM1.36, Huayang is now trading at a PE of 4 times (based on last 4 quarters' EPS of 34 sen). At this multiple, Huayang is deemed inexpensive.

Technical Outlook

Huayang is presently pressing against its overhead resistance at RM1.36-1.37. If it can break above this resistance, Huayang may hit a high of RM1.70 (assuming a 1-to-1 gain of 35 sen from the breakout level of RM1.36).

Chart 3: Huayang's weekly chart sa at Jan 16, 2012 (Source: Tradesugnym)

Chart 4: Huayang's monthly chart sa at Jan 16, 2012 (Source: Tradesugnym)

Conclusion

Based on attractive valuation, continuing good financial performance & positive technical outlook, Huayang could be a good stock for medium-term investment.

BJFood is likely to continue its uptrend

2012-01-18T17:15:00.003+08:00

BJFood was listed in March ay an IPO price of RM0.51. For the 6-month ended 31/10/2011, it reported a net profit of RM4.5 million on a turnover of RM38 million. Annualized EPS is about 6.3 sen. At the current price of RM1.09, the stock is trading at a PE of 17 times.

BJFood had announced two substantial corporate developments, as follows:

- Proposed acquisition of Berjaya Starbucks Coffee Company Sdn Bhd for RM71.698 million; &
- Proposed JV to set up Kenny Rogers Roasters business in Indonesia (a 51%-stake costing RM1.91 million).

To finance the Starbucks acquisition, BJFood has also proposed a Rights Issue of 4 shares (with 4 free warrants) for every 5 shares owned at a price to be determined later. For more on the Starbucks acquisition & Rights Issue, go here. For more on the Indonesia JV, go here.

In the past few days, BJFood has been trying to break free of the horizontal line at RM1.03. Today, it gained 4 sen to close at RM1.09, albeit on a volume of 4024 board lots. It looks like the stock may continue to rise steadily & test its recent high at RM1.17.

Based on the bullish breakout at RM1.03, BJFood could be a good trading BUY or medium-term investment. The stock falls under the consumer theme play that I had written about earlier.

Chart 1: BJFood's daily chart as at Jan 18, 2012 (Source: Quickcharts)

Chart 2: BJFood's weekly chart as at Jan 18, 2012 (Source: Quickcharts)

PChem may have a bullish breakout

2012-01-18T16:47:00.000+08:00

PChem broke above its downtrend line at RM6.35 as well as its horizontal line at RM6.40 yesterday. With this breakout, PChem is likely to rise further. As at 4.30pm, it was trading at RM6.63- a gain of 12 sen over yesterday's close of RM4.51.

Based on the bullish breakout, PChem could be a trading BUY.

Chart: PChem's weekly chart as at Jan 18, 2012_4.30pm (Source: Quickcharts)

E&O- Any suit will do?

2012-01-17T12:19:00.004+08:00

E&O is rallying today. At the close of the morning session, it was at RM1.49- up 8 sen from the close of RM1.41 yesterday. If we ignored the two big dips in December 2008 & March 2009, we can draw an intermediate uptrend line with support at RM1.30. Its long-term downtrend line will pose resistance at RM1.60. E&O tested its uptrend line in November 2011. Now, it is likely to continue to rise & it may test its downtrend line at RM1.60. Can it break above that resistance?

Readers may recall that a minority shareholder had filed a suit against Securities Commission for failure to compel Sime Darby to undertake a general offer when it bought a 30%-stake in E&O from three substantial shareholders at a price of RM2.30 a share. That price was substantially higher than the market price then and since it gives Sime Darby management control of the company, there is ground to argue that Sime Darby should make a general offer. Is E&O rising because of that suit? For more on the suit, go here & here.

What I can say is that the sign of a possible rally was flashed out by the market action for the three CWs- E&O-CA, E&O-CB & E&O-CC. We saw huge volume traded over the past two days for all three CWs. Something is about to be announced for E&O.

Since the stock is already up 8 sen, I rate the chance of E&O testing the RM1.60 resistance as equal to the chance of it dropping back to the starting price of about RM1.40. As such, this is not an easy trade. Only for the nimble traders.

Chart: E&O's weekly chart as at Jan 16, 2011 (Source: Tradesignum)

Emivest- may have a bullish breakout UPDATED

2012-01-17T08:52:00.004+08:00

NOTE:

I REGRET TO ADVISE THAT EMIVEST IS THE SUBJECT OF A PRIVATIZATION EXERCISE WITH THE BUY-OUT OFFER AT RM0.90. SINCE THE STOCK IS NOW TRADING AT RM0.88-0.89, THERE IS NO UPSIDE TO THIS STOCK. AS SUCH, THIS POST IS NOT ACTIONABLE.

Emivest broke above its horizontal resistance at RM0.87-0.88 yesterday. It could potentially go to RM1.10 as its previous two upside breakouts in 1H2009 & 2H2010 had resulted in gain of about RM0.20. On weakness, the stock may pull back to its support levels at RM0.83-0.85 (from the 10, 20 & 40-week SMA lines).

Chart: Emivest's weekly chart as at January 16, 2012 (Source: Quickcharts)

Emivest reported an impressive 264%-jump in its net profit to RM12 million on the back of a 35%-increase in its turnover to RM196 million for QE30/9/2011 (here). The increased turnover was attributed to the commencement of operation of 2 new feedmill plants at Port Klang & Vietnam. However, we must note that the increased plant capacity has resulted in higher gearing of 1.3 times as at 30/9/2011 as compared to 0.96 time as at 31/12/2010. Based on its closing price of RM0.885 yesterday, Emivest is now trading at a current PE of 2.2 times (based on annualized EPS of 40 sen).

Based on technical consideration & attractive valuation, Emivest could be a good trading BUY as well as a good long-term investment stock (albeit with a medium risk profile).

Proton- finally sold!

2012-01-16T15:59:00.007+08:00

They say that the best time to eat a humble pie is when it's warm. I will admit, I was wrong about the Proton sale. Khazanah has agreed to sell its 42.7%-stake in Proton to DRBHicom at RM5.50 a share.There will also be a MGO by DRBHicom. Proton closed at RM5.18 on Friday. For more, go here & here.

There will be some questions raised about the proposed sale. The first question would be whether Khazanah should have a more transparent process to sell its stake in Proton. By limiting your choice of buyers, you are not getting the best people to takeover the sick national car project. Would Proton improve or would it get worse after the sale? If it get worse, do we have to bailout the privatized Proton?

The second question is whether Proton will continue to enjoy subsidies as well as protection from imported cars? It was reported that Proton received subsidies totaling RM416 million in FY2008-2010 (here). The reason that Proton enjoys this subsidies is because it belongs to Khazanah. It should not be entitled to subsidies once it has been privatized.

The third question to ask is whether Khazanah could have obtained a better price for Proton. The way the sale was carried out, it would only guarantee that Khazanah will not get the best price and obversely, the buyer will get a good deal. As I see it, Proton is a classic case of a company that is worth less than the sum of the parts. Since DRBHicom bought Proton at a very low price, it can easily strip the company off its excess assets, such as its land in Shah Alam. The sale proceed can be applied to pay down its debts. It would then run a leaner operation at a decent profit, especially with government subsidies to tap on.

Finally, the biggest question to ask is why DRBHicom, a group owned by Syed Mokhtar? This businessman has acquired many assets & businesses that belonged to the government over the past few years, from ports to airports, and from postal service to Proton car distribution (and, now Proton car production). It was even picked to takeover Bernas (after a Hong Kong-based company, Wang Tak Co Ltd secured controlling stake in Bernas) & the sugar refining business of Robert Kuok. Why is Syed Mokhtar getting the preferential treatment?

Imagine how much Malaysia could have benefit if we have sold off Proton years ago to the highest bidder? In 2005, VW approached Khazanah to buy over its stake at RM10 apiece (here). In addition to getting a higher price & not having to pay for the subsidies to Proton for the past few years, Malaysian car buyers could have enjoyed lower-priced cars; thus each family would have saved tens of thousands of ringgit. Then, our automotive sector would have been opened up and we could have hundreds of feeder factories set up in Malaysia, employing thousands of graduates & vocational school leavers. All in all, Proton has been a heavy burden for Malaysians from all walks of live. Even after the sale of Proton to DRBHicom, I doubt whether we see the end of this saga.

MMC- Are We There Yet?

2012-01-12T10:10:00.007+08:00

MMC is a well-diversified conglomerate, with interest in Transport & Logistics; Energy & Utilities; and, Engineering & Construction. Whenever it ventures out to bid for big contracts, MMC often acts as Kemosabe to Gamuda's Lone Ranger. For that reason & its rather underwhelming financial performance (here), MMC never seems to get respect from the market. Well, that's about to change.

Chartwise, MMC looks poised for an upswing. From Chart 1, we can see that MMC is now pressing against the intermediate downtrend line at RM2.75. A breakout above this downtrend line could be the start of a rally for the stock. Its immediate resistance is the horizontal line at RM2.90 and then at RM3.15. Its immediate support is at the horizontal line at RM2.70 & then at RM2.50.

Based on the above, you should keep a close tabs on this stock.

Chart 1: MMC's daily chart as at Jan 12, 2012_12.10pm (Source: Quickcharts)

Chart 2: MMC's weekly chart as at Jan 12, 2012_12.10pm (Source: Quickcharts)

Rubber glove sector-part 2

2012-01-11T12:30:00.005+08:00

The other three rubber glove stocks have also broken above their downtrend line. They are or will be testing a strong resistance shortly.

1. Latexx has just broken above the horizontal resistance of RM2.00. The next resistance is at RM2.30.

Chart 1: Latexx's weekly chart as at Jan 11, 2012_12.00pm (Source: Quickcharts)

2. Adventa needs to break above the horizontal resistance of RM1.80.

Chart 2: Adventa's weekly chart as at Jan 11, 2012_12.00pm (Source: Quickcharts)

3. Topglov will face strong resistance at the horizontal line RM5.40.

Chart 3: Topglov's weekly chart as at Jan 11, 2012_12.00pm (Source: Quickcharts)

Of the above three rubber glove stocks, I feel that Latexx may be a better bet. If Adventa can break above the RM1.80, it can also be a good choice.

Rubber glove sector- part 1

2012-01-11T12:22:00.003+08:00

Stocks in the rubber glove sector are moving very well today. Below are three stocks that have achieved breakout.

1. Supermx has broken above its "horizontal" line at RM4.00. Potential target is RM4.75-4.80.

Chart 1: Supermx's weekly chart as at Jan 11, 2012_12.00pm (Source: Quickcharts)

2. Kossan has broken above its horizontal line at RM3.30. Potential target is RM4.00.

Chart 2: Kossan's weekly chart as at Jan 11, 2012_12.00pm (Source: Quickcharts)

3. Harta has just broken above its all-time high at RM5.90 as well as its psychological RM6.00 level. Potential target is RM7.00.

Chart 3: Harta's weekly chart as at Jan 11, 2012_12.00pm (Source: Quickcharts)

Based on the above technical breakout, all three stocks are considered good trading BUY.

Hapseng may commence on its next upleg

2012-01-11T09:57:00.003+08:00

Hapseng is starting on its next upleg. The stock broke above its intermediate downtrend line in October. Thereafter, it consolidated in a saucer formation for the past 2 months. Today, it broke above the saucer formation at RM1.62. With this breakout, Hapseng is now a good trading BUY as well as being a good medium-term investment.

Chart: Hapseng's daily chart as at Jan 11, 2012_9.55am (Source: quickcharts)

LPI's bottom-line weighed down by share of Motor Pool losses

2012-01-11T08:22:00.000+08:00

Results Update

LPI announced its results for QE31/12/2011 two days ago. Its net profit dropped 13% q-o-q to RM39.3 mllion while turnover rose by a marginal 1% to RM239 million. When compared to the corresponding quarter lst year, LPI's net profit rose 6.5% while turnover jumped by 25.5%.

The decline in net profit was due to the sharing of huge losses incurred by Malaysian Motor Insurance Pool (of which LPI's share was RM11.1 mil) & decline in investment income.

Table: LPI's last 8 quarterly results

Chart 1: LPI's last 24 quarterly results

Valuation

LPI (closed at RM14.08 yesterday) is now trading at a PE of 20 times (based on last 4 quarters' EPS of 70.13 sen). Based on its CAGR of 15% over the past 4 years, LPI's PEG ratio is about 1.3 times. At this PEG multiple, LPI is deemed fairly valued.

Technical Outlook

LPI rebounded from its horizontal support at RM11.50. It has just surpassed its horizontal resistance at RM14.00- albeit on thin volume. If it can recruit sufficient buying support, the stock may continue its uptrend.

Chart 2: LPI's daily chart as at Jan 9, 2012 (Source: Quickcharts)

Conclusion

Based on mildly bullish technical outlook, LPI is rated a trading BUY (or a HOLD for those who have the stock). However, the stock is fairly valued, which means that its upside may not be substantial. If it can rally after the bullish breakout yesterday, you should aim only for a RM1.00 upside move. Good luck!

Picorp may have a bullish breakout

2012-01-10T14:38:00.002+08:00

Picorp has brpken above two resistance levels today. They are the horizontal resistance at RM0.245 & the intermediate downtrend line at RM0.25. Its next resistance level are at RM0.28 & then at RM0.36.

Based on this, Picorp could be a good trading BUY.

Chart: Picorp's daily chart as at Jan 10, 2012_2.45pm (Source: Quickcharts)

CBIP has just broken above the horizontal resistance of RM4.70

2012-01-10T10:03:00.002+08:00

This morning, CBIP has just tested its recent high of RM4.73 recorded on December 6. It went to an intra-day high of RM4.75. In the process, CBIP broke above its horizontal resistance at RM4.67-4.70. CBIP is likely to fix the ex-date for its proposed bonus issue of 1-for-1 soon. Such generous bonus issue can lead to a small rally in the share price.

Based on the above resaons, CBIP could be a good trading BUY. Potential targets are RM5.20 & RM5.70.

Chart: CBIP's daily chart as at Jan 10, 2012_10.00am (Source: Quickcharts)

Canone & Harvest- may rally today?

2012-01-09T08:18:00.005+08:00

Today, all eyes will be on Canone & Harvest. Canone has announced that it has received the Federal Court's go-ahead to proceed with its purchase of 32.9% of Kian Joo Can factory Bhd (KJCF) for RM241.12mil (here) while Harvest will see its designation uplifted today (here).

The Federal Court's decision is definitely positive for Canone but it may not lead to further rally in Canone's share price as the stock had rallied before the good news was announced. On the other hand, Kianjoo's share price may drop because the chance of a bonus issue & an attractive warrant issue will be very dim, if not ruled out completely.

However, Kianjoo may rally later if a fight for control were to developed. The stake that the receiver sold to Canone may not be big enough to deter such a fight. This may explain why Canone has taken a suit to block Kianjoo's proposed bonus issue and rights issue of warrant (at only RM0.01 each). The possible logic before that move by the Sees and Canone's possible concern are intriguing.

I believe the proposed issuance of bonus shares isn't the area of concern because the bonus shares should go to the existing shareholder, Kian Joo Holdings S.B and by default to Canone since it has acquired this stake. It is the proposed warrant issue of 1-for-4 that could give rise to problem. What if Kian Joo Holdings S.B. abstained from subscribing for this warrant? Then, the Sees can swoop in and scoop up a substantial portion of the warrants. They can potentially buy up enough warrants to constitute 10-20% of the enlarged shares & warrants of Kianjoo. This warrant holding plus whatever shareholdings that the Sees has accumulated todate could match Canone's stake of 32.9% (acquired from the receiver). The fact that Canone had factored this concern in its deliberation means that the possible difference between the stake held by the Sees and itself may be as small as 10% of the enlarged shares & warrants. Without the rights issue of warrrant, the difference would be slightly more- possibly 13%. Is that enough to deter a fight for control of Kianjoo?

On Harvest, I believe we will see a rally similar to what we saw in Iris in 2006 when that stock was uplifted after a 6-week designation. Just a point to note, Iris re-tested its preceding high of RM1.40 after the upliftment of its designation but it subsequently dropped back to the low of RM0.14. For more of Iris's roller coaster ride, go here.

Maybulk- a recovery rally?

2012-01-06T16:43:00.013+08:00

Recently, we saw huge volume of CWs traded in the market. This reminded me of the active trading of CWs in 1st quarter 2007. As you may know, CWs were first introduced in 4th quarter of 2006 and trading interest only picked up a few months later. The increased activities coincided with the sudden bull rally in early 2007. I started covering CWs in October 2006, with an introductory post (here) and the first two updates (here & here). 1st quarter 2007 was a crazy period when we witnessed trading volume of 3 billion securities traded a day- something which we have not seen again. In fact, the trading in the 1st quarter of 2007 was substantially contributed by penny stocks and cheap CWs. The market corrected sharply after the CNY 2007 (which fell on February 4, 2007). After that baptism of fire, punters treated CWs with greater caution until now.

Recently, we saw CWs attracting huge volume & chalking up spectacular gain. Among the notable gainers were CWs for such stocks like JCY, Proton & MAS. While the gain in the CWs is justifiable due to the rise in the price of the underlying shares, one couldn't help but get that deja vu feeling.

One good example of a share which has risen sharply is Maybulk (see Chart 1). Along with that sharp rally, we saw even more spectacular rise in the related CWs- Maybulk-CB and Maybulk-CC (see Chart 2). Maybulk has declined steadily over the past 4 years (after peaking at RM5.50) to hit a recent low of RM1.40 (see Chart 4). Is that reason enough to buy this stock? Based on the daily chart (Chart 1), we can see that the technical outlook is promising as the stock has broken above its intermediate downtrend line as well as its 100-day SMA line (around RM1.73-1.74). Can it continue to rally?

Chart 1: Maybulk's daily chart as at Jan 6, 2011 (Source: Tradesignum)

Chart 2: Maybulk-Cb & Maybulk-CC's daily chart as at Jan 6, 2011 (Source: Tradesignum)

Chart 3: Maybulk's monthly chart as at Jan 6, 2011 (Source: Tradesignum)

I do not see any catalyst for a re-rating in the stock. Shipping rates are adrift again after a short rally in October 2011 (see Chart 4) while its latest financial performance is disappointing, to say the least (see Chart 5).

Chart 4: BDI's weekly chart as at Jan 6, 2012 (Source: investmenttools.com)

Chart 5: Maybulk's last 22 quarterly results

Based on the above, I still feel that it is too early to be bullish about this stock. Maybulk is trying to find a bottom and a long-term investor should wait for a pullback before committing funds into the stock. If there is a sharp pullback in the share price, we can expect a bigger percentage pullback for the CWs. Be careful when you trade in CWs!

Consumer is King!

2012-01-05T17:00:00.004+08:00

If you run through all the indices of the sectors on our local bourse, you would discover that Consumer index is the only sector that has surpassed its high recorded in June or July 2011. The rise in Consumer index in 2011 was propelled by multi-national companies such as Nestle, F&N, Dutch Lady. This has now spread to local companies. These companies basically satisfy the needs of the consumers, by providing such basic goods such as food, beverages & apparel, as well as providing basic services such as consumer financing (AEONCR) & healthcare (KPJ). This week, we've also seen some companies that produce goods for & provide services to consumer companies, starting to rally. Among them are flexible packaging companies, such as Daibochi & Tomypak and can producers, such as Kianjoo and Canone.

Consumer sector could be the next theme play in our market and if the past two breakouts can be a guide, this theme play can last for a while. The last breakout was in August 2009 and it lasted 24 months to July 2011. The rally before that started in April 2006 & lasted 22 months to January 2008.

Chart: Consumer index's monthly chart as at Jan 3, 2012 (Source: Quickcharts)

Long live the Consumer King!

Cocolnd broke above its downtrend line at RM2.20

2012-01-05T15:07:00.004+08:00

Cocoaland Holdings Bhd ('Cocoland') has just broken above its intermediate downtrend line and its strong horizontal line at RM2.20. The breakout is on very thin volume. If the stock can stay at or above this breakout level, the outlook for the stock could turn positive.

For the 9-month ended 30/9/2011, Cocolnd reported a net profit of RM10.5 million on a turnover of RM123 million. Based on this earning, Cocolnd's annualized EPD for FY2011 is expected to be about 8.1 sen. Based on this earning, Cocolnd (at RM2.35) is now trading at a PE of 29 times. At this PE, the market is pricing in an aggressive CAGR of 30% for the stock (based on the assumption that the market accepts a PEG ratio of 1 time). This may not be unreasonable as Cocolnd is 23% owned by F&N. For more, go here.

Based on technical consideration, Cocolnd could be a good trading BUY. this is especially so if the share price eased back closer to the RM2.20 level.

Chart: Cocolnd's daily chart as at Jan 4, 2012 (Source: Tradesignum)

Canone- can or not?

2012-01-05T12:32:00.002+08:00

A Technical Update

In the morning session, Canone rose 24 sen to close at RM1.30. We can see that the stock broke above its intermediate term downtrend line at RM1.02-1.03 two or three days ago, on thin volume. See Chart 1.

Chart 1: Canone's daily chart as at Jan 4, 2011 (Source: Tradesignum)

This morning, the stock rose sharply on volume of 40,000 board lots. It has surpased the high of 2010 of RM1.23. Its next resistance is at RM1.45 and then at RM1.65.

Chart 2: Canone's monthly chart as at Jan 3, 2011_plotted on log scale (Source: Tradesignum)

What could have triggered such a big move in Canone? Is it a favorable court ruling on its application for injunction against Kianjoo's proposed bonus issue and rights issue of warrants? Is it a favorable ruling on the case of the bid to buy over Kianjoo? Any one of these scenario would be positive for Canone but negative for Kianjoo.

Mudajya- an attractive value stock

2012-01-04T17:27:00.008+08:00

Background

Mudajaya Group Bhd ('Mudajya') is involved in construction, manufacturing, trading & plant hiring and property development. It was a high flyer which was brought down to earth in 2010 after allegation of improper dealing in its Indian operation. This allegation was not proven after audit investigation but the stock failed to recover its shine. For more on its recent trouble, go here.

Industrial Outlook

Mudajya is primarily involved in the construction of power plants. This company may benefit from the plan to build additional power plants with capacity of 4500MW by 2016. The additional capacity include the 1000MW expansion of the Janamanjung power plant and the 1000MW expansion of the Tanjung Pin power plant. For more, go here & here.

Recent Financial Results

Despite the above-mentioned problem, Mudajya is a profitable concern. For the last 4 quarters, it reported a net profit of RM222 million on a turnover of RM1.146 billion. Its net profit increased by 15% over the preceding 4 quarters while turnover increased by 35%.

Table: Mudajya's last 8 quarterly results

Chart 1: Mudajya's last 12 quarterly results

Financial Position

Based on the financial statement for 30/9/2011, Mudajya is deemed to be in a strong financial position. Its current ratio stood at 2.88 times while it has no bank borrowings. Instead, it has cash & bank balances totaling RM200 million. At the same time, its shareholders' funds amounted to RM956 million. The large shareholders' funds was needed to finance its large debtors, which is equivalent to a collection period of 154 days. Being a contractor for large power plant project, I believe this debtors' collection period is not excessive.

Technical Outlook

Mudajya has declined from its high of about RM4.50 in July 2010 to a recent low of RM1.80 in September 2011. In the process, Kudajya tested its long-term uptrend line. Currently, that support is at RM2.00.

Chart 2: Mudajya's monthly chart as at Jan 3, 2012 (Source: Tradesignum)

Conclusion

Based on strong financial position & good financial performance; attractive valuation; and, positive technical outlook, Mudajya is a good stock for long-term investment. It could benefit from the planned increase in capacity in the power sector.

Jobst- at more attractive prices

2012-01-04T17:20:00.004+08:00

Recent Financial Results

For QE30/9/2011, Jobst's net profit declined by 13% q-o-q to RM11.6 million while turnover was maintained at RM36 million. When compared to the same quarter last year, net profit was up 20% on the back of a 18%-increase in turnover. The decline in net profit on a q-o-q basis was attributed to a drop in the fair value of the group's other investment of RM1.2 million, which was recognised in the P&L account. If this loss is excluded, the drop in the group's pre-tax profit would only be about RM600k (instead of RM1.8 million).

Despite the challenging operating environment, Jobst noted that the demand for recruitment advertising services is solid. As such, we can expect Jobst's financial performance to be satisfactory in the next financial year.

Table: Jobst's last 8 quarterly results

Chart 1: Jobst's last 22 quarterly results

Valuation

Jobst (closed at RM2.18 today) is now trading at a PE of 14.5 times (based on last 4 quarters' EPS of 15 sen). Jobst has a PEG ratio of 0.5 time, based on a CAGR of more than 30% for the past 3 years. At this PEG ratio, Jobst is deemed attractive.

Technical Outlook

The technical outlook for Jobst is bearish. Despite this outlook, I believe the stock could be well-supported at RM2.00-2.20. The negative outlook could simply be translated to a side-way market for the stock.

Chart 2: Jobst's monthly chart as at Jan 3, 2012 (Source: Tradesignum)

Conclusion

Based on attractive valuation, Jobst remained a good stock for long-term investment. however, you can expect the stock to trade side-way froa while with the support at RM2.00-2.20.

Be a good guest!

2012-01-03T09:47:00.003+08:00

Some readers may be a bit surprised that all the comments for my recent post, Harvest- a Riddle wrapped up in an Enigma? were favorable. The truth is there were two unfavorable comments which I'd treated as spams. One of these comments was rude and the other comment was a sarcastic comment from the usual "pest".

A personal blog is like a person's home. When you go to someone's home, you follow simple etiquette, such as speaking in a nice tone to the host or other guests. You can disagree with my post but you should not be disagreeable. Like the aforementioned article, I have accorded due respect to Coypond.

One of the websites that I follow, Pragmatic Capitalism has this rule, which I like:

Readers who denigrate authors or other readers will be banned without warning. This site does not tolerate any sort of reader abuse. The goal of this site is to create an environment that is conducive to learning and better understanding of the monetary system and the investment world. We expect readers to behave maturely and responsibly. We welcome and encourage intense and intelligent discourse, but the site adheres to a strict 1 strike policy. While it is your right to speak freely, it is not your right to behave childishly. Above all else, please enjoy the site. It is intended to be used as an educational tool and we hope the intelligent and mature debate will further that purpose. We hope readers will make an effort to respect that goal. Comments with excessive linking or foul language will be moderated before posting.

Please abide by this rule or you will find that your comment would treated as spam.

Happy New Year!

2011-12-31T18:04:00.001+08:00

Source: Just Marya Now

Here's wishing all my readers a Happy New Year. May 2012 be a kinder year to all our investment than the year that has just passed.

HARVEST- a riddle wrapped up in an enigma?

2011-12-30T15:13:00.005+08:00

A reader, Coypond has commented on my post entitled "Speculators, Be Smart!". He wrote a very lengthy comment which I reproduced below. I have prepared my equally lengthy reply and I'm wondering whether I should post it as a simple reply to his comment or as a separate post. If I post it separately, it may appear I am making a big thing out of a simple comment. Then again, I believe that Coypond may welcome a civil discourse. For the benefit of all readers, I will post it here and I would welcome your comment.

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CoyPond commented:

Alex Lu, I refer to your article “Speculators, be smart!” dated 26Dec 2011. You may have a point there, but in Malaysia vis-à-vis the KLSE it’s difficult to do so.

First & Foremost, I don't want you and the readers to think that I am a big time shareholder, and neither am I defending the management of HARVEST. I am just a small time investor who thinks that there is prospective value in this company from the recent newspaper reports and announcements.

I see that you have a lot of doubts about HARVEST. I doubted AIRASIA too when it first came on the scene. That was an opportunity missed – big time!

You have also said much in the article – much too much. You remarked, you insinuated – mostly bad, about HARVEST and about Raymond Chan. A good many of your remarks were based on assumptions, and when you “assume” all the time you know what that means – I rest my case. No! I must go on.

In the first place it’s quite unkind of you to say that Raymond Chan would be silly from all the newspaper reports of his mega projects, completed and ongoing ones. His flagship SAGAJUTA is a cash-rich company – you should feel free to check this out. So surely a man who has built up such a successful business conglomerate must know what he’s doing when he decided to use a listed vehicle which happens to be HARVEST in this case to expand his business further.

You asked “whether Harvest can carry out any construction contract?” Good question. Why not? You don’t need much to be a main contractor. All you need is good management, ample finances for operational expenses and many good sub-contractors – to put it simply. Now I ask you, did Tony Fernandez have any airlines business experience before he started AIRASIA? Does he know how to fly an airplane? Is AIRASIA a success story today?

You claimed HARVEST is a weak company, again on assumption and without basis. But surely you would agree that to spot multi-baggers we would have to see the potential beyond historical data. And, in this instance, changes happening in HARVEST currently are significant. They have secured new core business - a new direction, a new and meaningful beginning sort of. Not just that. This will turn the company around, profitably for sure.

You also talked about rumours… well, you of all people should know better than to give credence to rumours as far as the stock market is concerned. Let's base our arguments on facts.

If you say HARVEST is grossly over-valued, then what do you make of the report by TA SECURITIES as the Principal Adviser and COVENANT EQUITY as the Independent Adviser on BURSA’s website on 19 & 20 Dec 2011? Was BURSA abetting TA SECURITIES and COVENANT EQUITY in cooking up the report on HARVEST’s new businesses? Somehow you inadvertently seem to be saying so!

Now on to the fundamental side, HARVEST has already been awarded RM199M worth of contracts and another RM609M by April 2012, refer to BURSA’s announcement on 19 Dec 2011. The total contract value over a 30 months period is therefore RM808M. Hence if we take an expected net profit margin of 10%, we get RM80m. On yearly basis, we get RM32M with an EPS of 17.7 cents based on paid up of 180m shares. And taking a PE of 10, it would give HARVEST’s share a fair value of RM1.77. Even at RM2.0, the PE is still in the teens. Not excessive at all!

In concluding, I hope you would give HARVEST another look based on BURSA’s report on 19 & 20 Dec 2011. We are just trying to justify why BURSA should not prolong the designation of HARVEST any further, let justice prevail. You have put up many good articles of stocks in your blog and I hope you will continue to do so.

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My reply:

Hi Coypond, Thank you for your long & thorough comment. Let me start by stating our area of agreement. There are:

1) Raymond Chan has built up successful businesses and one of his companies, SAGAJUTA is a big property investment company. I believe it owned 1Borneo, the biggest shopping complex in Kota Kinabalu.

2) If HARVEST can secure multi-million ringgit contracts, whether from Raymond Chan’s group of companies or third parties, it could be a profitable company. Its net profit would depend on turnover & profit margin.

3) If HARVEST can make good profit, then its current share price may not be overvalued.

You said that I have made assumptions about Raymond Chan that are mostly unfavorable. That’s not quite correct. I merely assumed that Raymond Chan is a smart businessman, who looks after his own interest. If you are such a person, you would not do the following:

1) You would not accept an exchange of something that you owned worth RM1 million for something worth less than RM1 million. Example: You would not swap an asset worth RM1 million in return for 1 million shares of HARVEST unless you think that HARVEST is worth at least RM1.00 apiece.

2) If you owned less than 100% of HARVEST, you would treat it less favorably than your 100%-owned private company. Implication: If you are developing a property, you would not hand the construction job to HARVEST at a hefty profit margin. To do so would mean that you are giving preferential treatment to HARVEST at the expense of your own company. Smart businessmen achieved their success by counting every ringgit & sen.

The above statements or assumptions are fairly straight forward. If you agreed on these, let’s move to the areas which we may disagree. I believe in the following:

1) HARVEST is a weak company. It is a loss-making concern, with accumulated losses of RM19.7 million (here). As at 30/6/2011, HARVEST's shareholders' funds stood at RM30.5 million (or NTA per share of 17.4 sen). Its outstanding shares are 174.3 million units of RM0.25 each plus 70.7 million warrants (known as HARVEST-WA).

2) Despite securing a few sizeable contracts from Raymond Chan’s private companies, I do not believe that HARVEST will make big profit for the following reasons. The reasons are:

The current profit margin for construction work is about 10%. If you are in doubt, check out the account of Binapuri and Fajar.
To carry out big contracts, you need a big team of personnel. HARVEST does not have that. It can rely on SAGAJUTA but that would not free. It can build up its own team but that would have a similar effect on its bottom-line.

All in all, I would be very generous if I were to assume that HARVEST can achieve a profit margin of 5%. In my opinion, it could be even less than that. Why?

I will give you an example. If I were to renovate my house by engaging a contractor, it would cost me RM100k. Now, I decided to help out my unemployed brother-in-law who has no experience in renovation work. I would pay him RM100k and he would in turn engage the same contractor at a cost of RM90k; thus he would pocket RM10k. It looks like a win-win situation for all, except the contractor. Do you think I would get the same level of workmanship from the contractor since he is getting RM10k less for the same work? I believe not. So, the real winner is my brother-in-law and the real loser is me.

Let’s go back to the case of HARVEST & SAGAJUTA. Raymond Chan cannot create profit for HARVEST out of the thin air. It has to come from somewhere. It will most likely come from SAGAJUTA. Do you think Raymond Chan would let HARVEST, a company which he has less than 50% shareholding, makes profit at the expense of his 100%-owned SAGAJUTA? If you accept this analysis, you can ignore the TA’s report.

Finally, I like to elaborate on my statement: “As a seller, Raymond Chan would be silly to accept Harvest shares after the share has been played up”. Again, we have to go back on basic human instinct. Would you allow a stock to be played up (HARVEST rose from RM0.08 to now RM1.00 while its warrant rose from RM0.04 to RM0.80) and then accept these securities as a currency in exchange for something that you owned. Before the rally, HARVEST and the warrant are worth about a total of RM21 million. Today, the shares & warrants are valued by the market for a total of RM230 million. Raymond Chan pumped in contracts into HARVEST and in the process boosted up the value of the securities. Would he now accept these securities in exchange for his assets for which the value remained stagnant? I have higher regards for Raymond Chan than to assume that he would do such a silly thing.

Based on the above, I cannot buy the HARVEST story. It just doesn't make sense.

CPO- short-term weakness could be a buying opportunity

2011-12-30T12:13:00.000+08:00

Last month, I had posted that CPO was testing its intermediate downtrend line at RM3050-3070. In fact, it later broke above that downtrend line and rallied to a high of RM3300. Since then, it had corrected back to RM3000- breaching the earlier downtrend line. The question to ask is whether CPO has broken its intermediate downtrend or not.

I have drawn two possible downtrend line for CPO. The earlier downtrend line is RR and the alternative downtrend kine is R1-R1. If we used downtrend line, RR, we can conclude that CPO has in fact achieved a bullish breakout- albeit the recent pullback that went marginally below the downtrend line. On the other hand, if we assume the downtrend line to be R1-R1, CPO is still in a downtrend. My preferred downtrend line is RR and as such, I believe CPO has broken above its intermediate downtrend. It is likely to go higher after a short correction.

Chart 1: CPO's weekly chart as at dec 29, 2011 (Source: iFS.marketcenter.com)

Looking at the daily chart below, we can see the short-term uptrend line for CPO is at RM3025-3030. After a good run last 2 weeks, I expect CPO to weaken & test the short-term uptrend line support over the next few days.

Chart 2: CPO's daily chart as at dec 29, 2011 (Source: iFS.marketcenter.com)

Based on the positive outlook for CPO for the medium-term, which is however buttressed by an expected weakness over the next few days, I think we can nibble into the plantation stocks in anticipation of a rally in CPO & plantation stocks in 1Q2012.

Gold is likely to correct further

2011-12-30T11:51:00.000+08:00

The improving outlook for risk assets over the past few weeks has resulted in correction in gold, a safe-haven. We can see from Chart 1 below that gold is now testing its intermediate uptrend line at USD1535. Chart 1 is a weekly linear chart, prepared by me using data from Bullionvault.com.

Chart 1: Gold's weekly chart as at Dec 22, 2011 (Compiled using data from Bullionvault.com)

However, if we looked at the daily semi-log chart from Stockcharts, we can see that Gold is now trading below the 200-day SMA line. Gold has broken its uptrend line at USD1600. The semi-log chart is preferred over a linear chart for long-term charting purpose.

Chart 2: Gold's daily chart as at Dec 29, 2011_plotted on log scale (Source: Stockcharts)

Based on the breakdown of the uptrend line on the semi-log chart, I believe that Gold is likely to correct further. Those holding gold may reduce their holding. However, you should consider buying gold again if the price had dropped closer to USD1000-1100. In a world where central bankers are actively engaging in quantitative easing, the value of fiat money is likely to erode further. Gold, with limited supply, would retain value better than fiat money.

KPJ- may have a bullish breakout

2011-12-30T08:55:00.006+08:00

KPJ broke above its recent high of RM4.65 as well as the line connecting the past 7 months' high this morning. Is this a fake breakout, coinciding with the last day of trading for 2011? See Chart 1 below.

Chart 1: KPJ's daily chart as at Dec 30, 2011_10.00am (Source: Quickcharts)

KPJ tested its long-term uptrend line (SS) at RM3.80 in September.

Chart 2: KPJ's daily chart as at Dec 23, 2011 (Source: Quickcharts)

For 9-month ended 30/9/2011, KPJ reported a net profit of RM92 million on a turnover of RM1.385 billion (go here). The annualized EPS for FY2011 would be about 23 sen. Based on current price of RM4.68, KPJ is trading at a PE of 20 times. KPJ could be re-rated in line with the expected listing of Integrated Healthcare Holdings Bhd ('IHH')- Khazanah's controlled healthcare subsidiary- on both Bursa & SGX next year. For more, go here & here.

If KPJ can maintain above the breakout level of RM4.65 over the next few days, we can conclude that this breakout is genuine. In that case, KPJ could be a trading BUY. The potential target is RM5.45 (arrived at by adding the depth of the recent correction of RM0.80 to the breakout level of RM4.65).

Speculators, be smart!

2011-12-29T16:27:00.008+08:00

December 26, 2011

A few weeks ago, our stock market was rocked by the designation of Harvest. This stock shot up from less than RM0.10 in early October to more than RM2.00 in a mere four weeks. Many speculators (or more precisely, punters) were caught off guard & had lost a lot of money on this stock. Last few days, we learned that the play on another stock, Envair had come to abrupt end, when the main person behind the stock announced that he had sold off all his shares. Envair rose from a low of RM0.10 in early October to a high of RM0.485 over the past two months. For those who are keen learn more about Envair, you can go here & here.

Why do punters choose to risk their hard-earned saving on such risky stocks? Let’s examine the story behind Harvest first. This company was supposed to be acquired by Raymond Chan, a Sabah-based property developer and contractor. He was rumored to be keen on injecting his property investments into Harvest? As stated in my post (here), Harvest is a weak company, which cannot possibly pay for any large assets acquisition. Nor, can it borrow to pay for such acquisition. The only way it can settle any acquisition is by issuing new shares to the seller. As a seller, Raymond Chan would be silly to accept Harvest shares after the share has been played up. There were also rumors of other businesses to be injected into Harvest, which we can similarly conclude to be far-fetched. What about construction contracts to be injected in Harvest? Raymond Chan is undertaking a few mega projects and he was rumored to be keen to pump the construction contracts into Harvest. Again, you have to ask yourself whether Harvest can carry out any construction contract. If not, what is Harvest’s role in the whole scheme? Is it merely to book in a contract to make the company & in turn the stock looks rosy? It is very likely that Harvest will act purely as an agent, with the bulk of the work being carried out by Raymond Chan’s private companies. If so, I do not think Harvest’s earning from these contracts would be significant. On that basis, we can conclude that Harvest is grossly overvalued.

The next stock, Envair was supposed to get a contract to supply two million barrels of light crude oil on a monthly basis for the next sixty months to An Hong Shenzhen industrial Co. Ltd. of China (here & here). With crude oil trading at USD100 per barrels, the contract would amount to RM600 million per month over a period of sixty months. The numbers were so humongous that people should immediately be on their guard. Unfortunately, many chose to do otherwise. If only they had asked one simple question: Why the buyer chose to buy so much crude oil through a third party and not directly from the suppliers? What can Envair possibly bring to the table? If it cannot bring anything extra, Envair is nothing but an agent. Having an agent to act on your behalf would increase your cost. If you subscribed to the belief that there is no free lunch in the business world, then you would have concluded that the deal was highly unlikely.

Based on such simple analysis- which can be done with a little bit of critical thinking- you would have avoided Harvest & Envair. Some punters probably did but they still took a bet on these stocks. They did it because they believed that the players or syndicates could push the stocks higher and that other punters would join in at a later stage. To these punters, the thinking was simply “buy high and sell higher”.

Before concluding, let me share a good article with everyone. Barry Ritholtz, the publisher of the popular blog, The Big Picture contributed a good article to John Mauldin’s website, Thoughts from the Frontline recently. It is entitled the “Your Three Investing Opponents”, which I strongly urge everyone to read (here). The three opponents are Mr. Market, Your Rivals and You. To wit:

You are your own third opponent. And, you may be the opponent you understand the least of all three. It is more than time constraints, lack of discipline, and asymmetrical information that challenges you. The biggest disadvantage you have is that melon perched atop your 3^rd opponent’s neck. It is your big ole brain, and unless you do something about it, it is going to lose all of your money for you.

We are coming to the end of a very tumultuous year in investment. Many issues have weighed down the financial market in 2011, such the Euro-zone problem, the continued deleveraging in the U.S. & the slowing growth in China. These problems will continue to impact the performance of our stock market in 2012. The challenging time ahead will truly test your investment skill. You will find that winning in this environment will be harder than ever. And, in this difficult environment, we will be tempted again & again by get-rich-quick plays such as Harvest & Envair. We must resist these temptations at all cost!

(This is my latest article in Merdeka Review. For the Chinese version, go here.)

More Thoughts on Market Manipulation

2011-12-29T12:16:00.002+08:00

There were two comments made in response to my earlier article entitled "Surely You're Joking, Sam!". I want to reply to them in a post.

Reader CoyPond raised many interesting points, which I have summarized below together with my reply (in italic).

Why is Harvest designated longer than the 6-week designation suffered by Iris in 2006? Is the designation a test of will?

Iris was designated from May 11, 2006 to June 21, 2006. Harvest has been designated since November 15. In my opinion, it is not appropriate to set a standard duration for stock designation. If you do that, the manipulator will game the system by factoring the designation period into their play. It would be a real mockery if the manipulator were to use the designation as a “pause” to shake out the weak players, namely the retail players, before another big push.

By injecting an element of uncertainty in designation period, the exchange is able to hold the manipulators by the throat. The syndicate or pool may not have unlimited resources to keep share price at a certain level. Even if they have the resources to do so, they would not want to fight a losing battle with the exchange. They will eventually sell off & exit the stock. Once the syndicate or pool has done that- which the exchange can verify- then the designation would be lifted. The exchange should only be concerned with the action or position of the syndicate or pool, not the unfortunate position of the minority shareholders or punters who are stuck in the stock.

Why is Bursa maintaining the designation after Harvest has announced its additional business as per the announcement in BURSA's website on 19 & 20 Dec 2011?

I believe the designation of Harvest was triggered by market manipulation. While Harvest may have secured more business during the interim period, this doesn’t change the fact that the exchange’s finding that there was market manipulation in the stock. If we were to lift the designation on account of such announcement, many cases of market manipulation would go unpunished by simply making announcement of new projects or business secured.

Bursa claimed that it does not want a disorderly market and yet the action of designation is causing a disorderly market.

Sometimes when the police tried to stop a bank robbery, innocent bystanders got injured or even killed in the crossfire. Does that mean that we shouldn’t stop bank robbery? In the case of Harvest, how innocent are the retail players caught holding the stock? The exchange had issued UMA queries twice and a Market Alert on this stock. The retail players continued to get into the stock, totally oblivious to the danger involved.

Why Bursa hit on Harvest and did not take any action against Envair (or an older case, Jetson)?

Each case is different. Like many, I am very disappointed with the case of Envair. There appears to be gross misrepresentation made by the Company & the key players. Is there market manipulation? As a layman, you and I may feel that there could have been market manipulation. But, did the exchange detect any market manipulation, where the parties involved had created a false appearance as to the price of; or the market for; and, active trading in, the stock? It is the artificiality of the trade that is prohibited.

If guidelines and procedures are not transparent, it will lead to abuse and corruption obviously.

I agree with you on this point. There are many cases where we feel strongly that there were or could have been market manipulation and yet, the exchange didn’t take action. If the decision taken is not transparent, then there is room for abuse.

However, we must balance the need for transparency and the danger of publishing too much details of how the manipulation was perpetrated. These trade secrets should not be treated like sex education leaflets or pornographic magazines. They are more like manuals on how to build a nuclear bomb. Unless, you are okay with a backyard industry manufacturing nuclear bombs, you would like to safeguard these dirty secrets from the general public. Even more inappropriate is the capability of the surveillance system that the exchange has at its disposal. Like the game of cloak & dagger (of the spy trade), such information must be guarded properly. Does that mean that the public has no way of knowing that the exchange is working proper? No, we can set up a permanent committee comprising prominent people from the industry and senior personnel form the exchange to review cases of market manipulation.

Finally, CheahSweeKuan raised the question of competency of the people in the exchange. I don’t think it is appropriate for me to question the competency or even integrity of the personnel in the exchange. I work on the assumption that they are competent and that they look after the interest of the investors and other participants in the industry.

Integra- may have a bullish breakout

2011-12-29T09:54:00.003+08:00

Integra broke above its medium-term downtrend line (RR) at RM1.23 yesterday. This morning, it broke above its "triangle" at RM1.25 as well as surpassing the horizontal line at RM1.33. Its next resistance levels are the horizontal lines at RM1.43 & then RM1.53. A lot of three...

Based on the multiple breakout achieved, this stock looks good for a trading BUY.

Chart: Integra's daily chart as at Dec 29, 2011_9.45am (Source: Quickcharts)

Oldtown- may have a bullish breakout

2011-12-29T09:33:00.003+08:00

Oldtown was listed on the exchange on July 13. Its IPO price was at RM1.25. For QE30/9/2011, Oldtown reported a net profit of RM8.9 million on turnover of RM73 million. For more, go here. With an outstanding shares of 330 million, Oldtown's annualized EPS is about 11 sen. Based on current price of RM1.18, the stock is trading at a PE of 11 times.

Oldtown broke above its ascending triangle at RM1.15 today. With this upside breakout, Oldtown is expected to continue with the prior uptrend. Its next resistance is at RM1.20.

Based on this technical breakout, Oldtown could be a good trading stock or even a medium-term investment.

Chart: Oldtown's daily chart as at Dec 29, 2011_9.30am (Source: Quickcharts)

MediaC- poised for a decent rally?

2011-12-28T16:30:00.003+08:00

Mediac is testing its downtrend line today. Depending on how the intermediate downtrend line is drawn (either RR or R1-R1), the stock has either broken above the downtrend line at RM1.10 or it is testing that downtrend line at RM1.15. See Chart 1 below.

Chart 1: MediaC's daily chart as at Dec 28, 2011_4.00pm (source: Quickcharts)

From a different angle, we can see that MediaC has already broken above the intermediate downtrend line at RM1.05-1.08. If so, this could potentially lead to a significant rally for the stock. See the weekly chart, plotted on semi-log scale below.

Chart 2: MediaC's weekly chart as at Dec 19, 2011 (source: Tradesignum)

Based on the above technical analysis, I believe that MediaC is poised for a decent rally. If there is follow-through buying tomorrow, MediaC could be a good trading BUY.

Surely You're Joking, Sam!

2011-12-28T10:42:00.000+08:00

In Starbiz today, you will see an article entitled "Is Bursa too strict?", where the President of the Remisiers Association of Malaysia, Sam Ng Soon Lee was lamenting about the stricter measures implemented by Bursa Securities in order to curb irregular or manipulative dealing activities. Some of the market breaches that are forbidden by the exchange are price manipulation, short selling and trades with no change of beneficial ownership.

Sam feels that the stricter implementation of these rules may impact liquidity in the equities market. “We're semi-liquidity providers but many are put-off by the tightened measures over volume activity (which may breach stock exchange rules) and this will impact trading volume,” Ng said. He observed that market regulators must also consider the consequences of interpreting the rules more strictly as this could impact genuine participants whose business would be affected.

I do not agree with Sam. Firstly, I believe the exchange is very careful in making a distinction between genuine activities and irregular or manipulative activities as it has the powerful surveillance system to track all trades done in the market. From a recent seminar conducted by Bursa, we learned that the exchange has a Market Management process to deal with irregular market activities. The steps involved are:

1) Fact Sharing or Finding
2) Surveillance Query
3) Unusual Market Activities ('UMA') Query
4) Market Alert
5) Designation

The first two steps are preliminary steps taken to inform the remisiers and/or dealers concerned that they are under surveillance. They are given an opportunity to explain their action as well as to cease their activities. If these activities are genuine transactions, the exchange would not take any action against the parties concerned. If the exchange is not satisfied with the explanation given, it would take further action, such as issuing UMA Query. In the case of Harvest, the exchange was not satisfied with the reply to two UMA Queries and it had to issue Market Alert & followed with Designation.

Secondly, we should never condone market manipulation. It is self-serving to argue that a stricter regime would result in poorer liquidity in the market, when in actual fact, what you've wanted is bigger volume in order to generate more business for yourself. I am all for making more money, both for myself and my clients. However, we can see lately that some stocks in our market were played up sharply and these are zero-sum plays, where a fortunate few win handsomely while a whole lot of people lose their shirts. A good market cannot be sustained based on trickery.

Finally, if we want to see our Bursa Malaysia becoming a world-class stock market, we must lay down strict rules on transparency & corporate governance. How can such a market live side-by-side with a third-world mentality, lax rules & poor enforcement where market manipulation is a daily affair? We must lay down good laws and rules and enforce them strictly.

Sam Ng is a very dedicated remisier. He has served as the President of the Remisiers Association of Malaysia for a few terms. He had spoken out on a few issues where the interest of investors were trampled. He had also lobbied for rules and regulations to protect the interest of remisiers as well as investors. However, on the above issue, I feel strongly that Sam took the wrong position. His view does not represent the view of many remisiers who are not happy with the prevalent market manipulation involving 2nd and 3rd liner stocks. I believe the exchange is doing the right thing in trying to rein in such activities.

Petgas- has a bullish breakout

2011-12-28T09:11:00.004+08:00

Petgas broke above its 'near' horizontal resistance at RM14.20 yesterday. With this upside breakout, Petgas would continue with its prior uptrend. The target for the next upleg is RM16.00, which is arrived at by adding RM1.80 [the distance between the near horizontal line and the trough of the recent price consolidation] & RM14.20 [the breakout level]. Based on this technical breakout, Petgas could be a good stock for medium-term investment.

Chart: Petgas's daily chart as at Dec 27, 2011_9.10am (Source: Quickcharts)

Note: I have earlier stated the potential target to be RM17.00. It should be RM16.00- the product of RM14.20 & RM1.80.

US stock markets may rally in 2012

2011-12-27T17:50:00.007+08:00

DJIA broke above its near-horizontal (RR) resistance at 12250. Its next resistance is the immediate downtrend line (R1-R1) at 12550. See Chart 1 below.

Chart 1: DJIA's daily chart as at Dec 23, 2011 (Source: Stockcharts)

With the DJIA trading above its 200-day SMA line and the 50-day SMA line fast approaching the 200-day SMA line, the DJIA is looking more & more like September 2010. See Chart 2 below. If the 50-day SMA line were to cut above the 200-day SMA line and the index were to break above the 12550, we could see the continuation of the prior uptrend for DJIA.

Chart 2: DJIA's daily chart for 3 years up to Dec 23, 2011 (Source: Stockcharts)

The strength of DJIA is not reflected in the Nasdaq. Nasdaq need to break above its accelerated downtrend line (RR) at 2630 as well as the intermediate downtrend line (R1-R1) at 2690. See Chart 3 below.

Chart 1: Nasdaq's daily chart as at Dec 23, 2011 (Source: Stockcharts)

Like DJIA, Nasdaq is also looking more & more like September 2010 except for one small little detail- the 200-day SMA line is still pointing downward. See Chart 4 below. If the 50-day SMA line were to cut above the 200-day SMA line and the index were to break above the 2690, we could also see the continuation of the prior uptrend for Nasdaq.

Chart 4: Nasdaq's daily chart for 3 years up to Dec 23, 2011 (Source: Stockcharts)

Based on the above, we must be mentally prepared for a recovery in the US stock markets and possibly the global equity markets for 1st quarter 2012.

Market Outlook as at December 27, 2011

2011-12-27T15:10:00.005+08:00

FBMKLCI broke above the horizontal resistance at 1490 last Friday. The 1490 level also looks like the neckline of an inverted Head-&-Shoulders formation. Despite the bullish signal generated by this upside breakout, the market did not react with enthusiasm as reflected by the subdued volume. One after the breakout, the market continued to trade in a quiet mode, with no follow through.

Chart 1: FBMKLCI's daily chart as at Dec 23, 2011 (Source: Tradesignum)

With the above mildly positive signal, another feather is added to the rooster of positive technical readings for the index. Let's look at the weekly & monthly charts below and list out the positive & negative readings. The positive readings are:

1) 10-week SMA line is swinging upward, while the 40-week SMA line is beginning to flatten out. 10 & 20-month SMA lines are similarly rising again.

2) The index is above the 10 & 40-week SMA lines as well as the 10 & 20-month SMA lines.

3) the weekly technical indicators (MACD, RSI & ADX) are all curving upward. In particular, the weekly MACD has hooked up and this could signal the beginning of a recovery in the market.

4) The weekly ADX seems to place the index currently at the same space as 1Q2009.

The negative readings are:

1) The monthly MACD is still bearish.

2) The other monthly technical indicators (RSI & ADX) are still pointing downward.

Based on the balance of probability, I believe the market could be at the start of a recovery.

Chart 2: FBMKLCI's weekly chart as at Dec 27, 2011_3.00pm (Source: Quickcharts)

Chart 3: FBMKLCI's monthly chart as at Dec 23, 2011_3.00pm (Source: Quickcharts)

Merry Christmas!

2011-12-23T19:00:00.000+08:00

Source: Free Xmas

Here's wishing all my christian readers, a Merry Christmas.

Proton- the village bicycle!

2011-12-23T15:21:00.004+08:00

There is an article in the Edge Financial Daily entitled "Proton sale will involve a general offer". The basis of this report is a written reply from Khazanah MD Tan Sri Azman Mokhtar to the Edge Weekly where he stated that Khazanah is looking at selling its entire 42.7% equity stake in Proton. The sale of this entire stake would result in the buyer making a general offer ('GO') under the takeover code.

I have stated before that the buyer of Khazanah's stake in Proton is unlikely to make a GO for the simple reason that the entire exercise would be too costly. Proton has an outstanding share capital of 549 million ordinary shares. If Proton stake is priced at RM4.50 per share, the buyer would have to pay RM2.47 billion. If the buyer can abstain from making a GO, the deal would only cost RM1.05 billion.

Why is the market concerned about whether the Proton deal would lead to a GO? The reason is some of the punters and medium-term investors are buying into Proton today on assumption that there is a GO and that GO shall be done at a price higher than the current market price of about RM4.50. If there is no GO, then the sale of Proton stake by Khazanah would not benefit the minority shareholders (and the punters and medium-term investors).

The big question is why would Khazanah care whether the buyer of its stake would make a GO or not. It should only be concerned with the following:

1. getting a good price for the share;
2. whether the buyer can help to upgrade Proton; and
3. whether the deal would contribute to the domestic automotive industry.

Any talk about a GO would only serve to push up the price of Proton and thus strengthen Khazanah's bargaining position. Is that the reason why the story in the Edge Financial Daily leads with the title "Proton sale will involve a general offer". Or, is there another reason for this? The same article rightly pointed out that a GO would be too prohibitive for the potential buyers and as such may frustrate the deal. Is Khazanah talking up the price in order to scare off the usual suspects?

Regardless of Khazanah's intention, I can think of a few ways that the new buyer can skip this costly exercise. It can do any one of the following:

1. Buy the entire 42.7%-stake together with another party and declare that both parties are not acting in concert;
2. Buy the entire 42.7%-stake and seek an exemption from making a GO;
3. Buy a stake of less than 33% (Who is going to say Khazanah cannot go back on its word?).

To all the punters & medium-term investors who are buying or who have bought into Proton, ask yourself these questions:

1. Is Khanazah really serious about selling of its Proton stake?
2. Will the buyer make a GO?

My answers to these questions are Definitely Maybe and Possibly Not. In that order...

TSM- took a big hit!

2011-12-23T10:10:00.000+08:00

Results Update

TSM has just announced its results for QE31/10/2011. It reported a net loss of RM21.1 million on a turnover of RM96.0 million. The loss was attributed to loss incurred on the discontinued operation of a recently-acquired die-cast & precision manufacturing business, Kenseisha.

Table: TSM's last 8 quarterly results

Chart 1: TSM's last 30 quarterly results

The discontinued die-cast & precision operation has been a drag on TSM, affecting its overall results. With its discontinuation, TSM will focus on its core business of manufacturing wire harness (see Chart 2 below). Over the past 4 quarters, this segment contributed a pre-tax profit of RM35 million.

Chart 1: TSM's last 7 quarterly performance for the Wire Harness segment

Valuation

Assuming an effective tax rate of 25%, the company's net profit would be about RM26.3 million. This translates to a full-year EPS of 21 sen (based on current outstanding shares of 127.39 million units). Based on its closing price of RM1.12 yesterday, TSM is now trading at a PE of 5.6 times. This is fairly reasonable. However, I do not believe the stock will rise significantly in the near future as many investors are disenchanted with the stock due to the disastrous investment in Kenseisha.

Technical Outlook

TSM is in an intermediate downtrend. You may use the 100-day SMA line as the downtrend line, with resistance at RM1.20. Its immediate support levels are the horizontal line at RM1.10 as well as at RM1.00.

Chart 3: TSM's daily chart as at Dec 22, 2011 (Source: Tradesignum)

Conclusion

Little do we know that the recent investment in Kenseisha could turn out so badly for TSM. Our call to take profit on TSM in June was quite timely (here) It may be too early to jump back into this stock. However, if it drop to the RM1.00 level, you can consider accumulating a bit.

Perisai- may have a bullish breakout

2011-12-23T09:28:00.001+08:00

Perisai is another stock which has broken above its intermediate downtrend line at RM0.69-0.70 this morning. Its next resistance is at RM0.75 & then at RM0.80. As such, Perisai could be a trading BUY.

Chart: Perisai's daily chart as at Dec 23, 2011_9.20am (Source: Quickcharts)

You have to exercise careful discretion in your trading as the market will enter into a lull next week due to the short trading period. Due to smaller participation in the market during the festive season, you can expect higher volatility.

UEMLand- may have a bullish breakout

2011-12-23T09:17:00.002+08:00

UEMLand broke above the intermediate downtrend line at RM2.40 this morning. With this breakout, UEMLand could be a trading BUY. Immediate resistance at RM2.60 & then at RM2.80-2.90.

You have to exercise careful discretion in your trading as the market will enter into a lull next week due to the short trading period. Due to smaller participation in the market during the festive season, you can expect higher volatility.

Chart: UEMLand's daily chart as at Dec 23, 2011_9.20am (Source: Quickcharts)

JTiasa- time to take profit

2011-12-22T15:10:00.006+08:00

Results Update

JTiasa has just announced its results for QE31/10/2011. Its net profit dropped 26% q-o-q to RM41 million on the back of a 8%-decline in turnover to RM240 million. Compared to the corresponding quarter last year, its net profit increased by 37% while turnover was higher by 25%. The q-o-q decline in the bottom-line was attributable to lower prices for logs, plywood and FFB.

Table: JTiasa's last 8 quarterly results

From the Chart below, we can see that JTiasa's performance is now driven equally by the timber products segment and the oil palm segment.

Chart 1: JTiasa's last 10 quarters' segmental results

Valuation

JTiasa (closed at RM6.99 yesterday) is now trading at a PE of 9.7 times (based on last 4 quarters' EPS of 71.71 sen). At this PE multiple, I believe JTiasa is fully valued.

Technical Outlook

Since the call to BUY JTiasa in March 2010, the stock has risen steadily. If I were to draw a trading band over the price movement for the past 18 years, the stock appears to be trading at the upper reach of the band. Can it break beyond that level?

Chart 2: JTiasa's monthly chart as at Dec 1, 2011 (Source: Tradesignum)

Conclusion

Based on full valuation & strong resistance from the trading band, I believe it is a time to take profit on our investment in JTiasa.

DKSH & Harison compared

2011-12-22T13:52:00.008+08:00

Technical Outlook examined

Over the past 4 weeks, DKSH has been dropping very sharply after it hit a high of RM2.37 on November 21. The stock broke its accelerated uptrend line (S1-S1) at RM1.75 on December 12 as well as the strong horizontal support at RM1.50 on December 19. Its immediate support is the horizontal line at RM1.30-1.35. Below that, its next support is the intermediate term uptrend line (SS) at RM1.05.

Chart 1: DKSH's weekly chart as at Dec 19, 2011 (Source: Tradesignum)

Let's compare DKSH with a similar trading house, Harison. Harison is holding above its horizontal line at RM3.40. During the recent selldown, Harison tested its long-term uptrend line (SS) support at RM2.80. Can Harison hold onto the current horizontal support of RM3.40?

Chart 2: Harison's weekly chart as at Dec 19, 2011 (Source: Tradesignum)

Financial Performance Indicators & Ratio compared

Which is a better stock? I have tabulated the financial performance indicators & ratio for your easy reference. For the 9-month ended 30/9/2011, DKSH's net profit improved substantially while Harison's bottom-line remained unchanged. As a results, DKSH's ROCE improved from 11.6% to 19.3% while Harison's ROCE slid from 12.5% to 11.9%. However, it must be noted that DKSH is highly geared, with debts to equity of 0.9 time & total liabilities to equity of 4.4 times. Harison appears conservative with debts to equity of 0.2 time & total liabilities to equity of 0.8 time.

Table: DKSH & Harison's financial performance indicators & ratio compared

Valuation

In term of valuation, Harison (closed at RM3.46 yesterday) is now trading at a PE of 6.9 times (based on the 9-month results which yield an annualized EPS of 49.84 sen). DKSH (closed at RM1.39 yesterday) is now trading at a PE of 5.0 times (based on the 9-month results which yield an annualized EPS of 27.99 sen).

Conclusion

While DKSH trades at a lower PE multiple, I am not confident that it can maintain its recent strong results. DKSH has a long history of lackadaisical performance while Harison is noted for its steady growth. Despite the lower PE multiple and recent strong growth in its bottom-line, I am wary of DKSH. I still prefer Harison as it is a financially stronger while DKSH shows signs of over-trading - which may not be a healthy practice in the challenging times ahead.

AEONCr- bottom-line continued to grow at a fast pace

2011-12-21T08:37:00.008+08:00

Results Update

AEONCr has announced its results for 3-month ended 20/11/2011. Its net profit increased by 7.7% Q-O-Q or 57.4% y-o-y to RM25.3 million while its turnover increased by 8% q-o-q or 60% y-o-y to RM90.0 million. The better results was attributed to "growth in receivables & increased financing transaction volume".

Table: AEONCr's last 8 quarters' results

Chart 1: AEONCr's last 18 quarters' results

Valuation

AEONCr (closed at RM6.57 yesterday) is now trading at a PE of 9 times (based on last 4 quarters' EPS of 72.75 sen). Based on a CAGR of 23% over the past 3 years, AEONCr's PEG ratio comes to only 0.39 time. However, we must note that the CAGR was exaggerated somewhat by the jump in the growth rate in the past 4 quarters. If we were to discount this jump in growth, AEONCr's CAGR is still quite decent at 12-15% per annum. The adjusted PEG ratio would still below 1 time. Thus, the current valuation for AEONCr is deemed undemanding.

Technical Outlook

The stock broke above the RM4.00 level in April & hit a high of RM5.00. It consolidated for a while before surging higher in November. Yesterday, it closed at the high of RM6.57. We can see some bearish signals from the indicators- MACD hooking downward & bearish divergence in the RSI.

Chart 2: AEONCr's daily chart as at Dec 20, 2011 (Source: Quickcharts)

Chart 3: AEONCr's weekly chart as at Dec 20, 2011 (Source: Quickcharts)

Conclusion

Based on good financial performance & undemanding valuation, AEONCr is a good stock for long-term investment. However, the bearish signal in some of the technical indicators could be a small red flag for medium-term investors. If so, you can consider taking some profit for this stock and re-enter it after the expected price consolidation.

Give the Game Changer a chance

2011-12-20T17:36:00.004+08:00

December 15, 2011

Two weeks ago, I posted a piece in my blog where I posited that the European nations are about to move aggressively to solve their sovereign debt problem (here). I thought we had finally seen a game-changing moment in the Euro zone debt crisis. I took some risk in calling the Game Changer. As you may know, Game Changers are hard to come by. They are easier to identify after the event or crisis. This is understandable because when you are in the midst of a crisis - one with far-reaching consequences (think the next depression or the collapse of the global financial system) - you tend not to see the wood from the trees.

When the U.S. Fed announced in March 2009 that it would pump more than USD1 trillion into the U.S. economy, I thought that was a game-changing move (here). The U.S. sub-prime crisis in 2008 was extremely difficult, as it gave rise to many serious questions (such as the question of moral hazard) which constrained the response from the U.S. government. The timid response was always behind the curve; either inadequate or a bit too late. Once the difficult questions were brushed aside, the U.S. government moved aggressively to save its financial system. That was quite similar to the implementation of capital control by Malaysia in 1999, which put a floor on the then-collapsing economy during the Asian Financial Crisis.

The Euro zone sovereign debt crisis is much more complicated than our Asian Financial Crisis of 1998 or the US Financial Crisis of 2008. There have been many rounds of meeting & many plans announced which failed to contain the problem. Then in early December, Germany & France agreed on a "stability pact", whereby they would lay down strict fiscal rules to prevent overspending and over-indebtedness. The "stability pact" would include changes aimed at increasing fiscal coordination across the Euro zone and the enforcement of rules on deficit & debts levels. Once this new “fiscal compact” has been put in place, the ECB is expected to intervene by buying bonds of troubled euro zone states or cut interest rates. To me, this is the blue print for a comprehensive action plan in solving the problem.

Last weekend, 17 European leaders met to hammer out the finer details of the fiscal compact. After much jawboning, they agreed to the balanced budget amendment which inter alia allows the European Commission to oversee national budgets and impose penalties if a country's debt grows too much. This entails a revision to the Treaty of Rome. U.K. did not agree to the new accord and it may have to leave the European Union (‘EU’).

The market did not rejoice with the outcome for two reasons: firstly, there will be no EU Treasury, no shared debt issuance, no centralized tax collection and most importantly no fiscal transfer to depressed countries. The absence of any agreement in these areas is probably due to the German’s opposition to the idea of fiscal union or even a smaller idea of debt mutualization. Without fiscal transfer as compensation input, the balanced budget rule would call for painful austerity program for some countries and this would lead to slower growth or deeper recession & higher unemployment.

The second disappointment came when ECB President Mario Draghi hinted that ECB might not buy government bonds. Many attribute this backtracking to the Germans’ reluctant for extensive central bank intervention. With this discouraging comment from Draghi, ECB is also not expected to aggressively lower interest rate. Without an accommodative monetary policy from ECB, the affected countries would feel the full blunt of a fiscal policy that complies with the balanced budget rule.

Table: European nations' Debt & Debt to GDP for 2010 (Source: CIA World Factbook)

The Euro zone debt crisis can be very confusing. My direct take on the problem in Europe is as follows:

Greece is too heavily indebted and requires a debt restructuring. Its lenders (mostly, German & French banks) would have to take a hair cut. This would lead to huge losses among European banks. ECB has however indicated that it is prepared to top up the equity of the affected European banks.
Spain is not in the same boat as Greece as its debts as a percentage of GDP is much lower. It is feeling the contagion effect which caused her bond yield to skyrocket. ECB should step in and buy Spain bonds in order to lower the yield to a more comfortable level. Italy is somewhere in between Spain & Greece in term of sovereign debt to GDP. ECB should also buy Italian bonds to cap the yield.
The Euro is too strong for some weaker countries in the Euro zone. ECB should consider devaluing Euro by 10-20%. This would bring growth to the whole Euro zone, especially the weaker countries (such as Greece) which need it more.

Based on the above, I believe that a solution to the Euro zone debt problem is possible. For the Game Changer to work, Germany needs to make more sacrifice.

(This is my latest article in Merdeka Review. For the Chinese version, go here.)

Guanchg- uptrend may be over

2011-12-20T16:09:00.004+08:00

Technical Update

Guanchg is again testing the horizontal line RM2.00 today. The last time we saw a test of this level was at the end of September & early October. The stock subsequently rebounded back to RM2.50. This time, the outcome of the test of the RM2.00 horizontal support may be different. The reason for this is the outlook for both cocoa & USD-RM has changed.

Chart 1: Guanchg's daily chart as at Dec 19, 2011 (Source: Tradesignum)

The main reason for Guanchg's out-performance in the past few quarters is that the company made the right bets in the market. As far as the trading in cocoa bean & cocoa products, it could take the form of the followings:

1) going long on cocoa bean or entered into long-term forward contract for supply of cocoa bean; and/or
2) selling processed cocoa solid & butter at prevailing market rates

In addition, Guanchg also took position in the forex market. Both strategies on the buying & selling of cocoa bean & cocoa product as well as currencies have worked very well for Guanchg for the past few quarters. After a long downtrend, USD-RM has finally reversed (here). Cocoa price may have peaked (see Chart 2 & 3 below). Whether this is a cyclical top or a secular top for cocoa, we cannot be sure. Even a cyclical top could have a negative impact on the financial performance for Guanchg. There would be a need to write-down the higher cost inventory or to make provision for some forward supply contracts. All in all, I expect the next one or two quarter(s) to be very challenging for the company.

Chart 2: Cocoa's weekly chart as at Dec 16, 2011 (Source: Mongabay)

Chart 3: Cocoa's monthly chart as at Dec 1, 2011 (Source: Mongabay)

Conclusion

In my last results update, I rated Guanchg is rated a HOLD based on continued good financial performance (albeit a break in sequential rise due to unfavorable forex movement) & attractive valuation. Based on the reversal in USD-RM and the top in cocoa, I think it is time to reduce or sell Guanchg.

Kianjoo may conitnue with its prior uptrend

2011-12-19T16:39:00.002+08:00

Kianjoo broke above its intermediate term downtrend line in November. It did not go up as it was capped by the horizontal line RM1.94-1.95. Today, it broke above this horizontal resistance on relatively thin volume. If this stock can recruit more buying support, the breakout could lead to a continuation of its prior uptrend. As such, Kianjoo could be a trading BUY.

Chart: Kianjoo's daily chart as at Dec 19, 2011_ 4.40pm (Source: Quickcharts)

Amedia may have a bullish breakout

2011-12-19T14:24:00.000+08:00

Asia Media Group Berhad ('Amedia') is Malaysia’s leading, digital out-of-home Transit TV company. It offers high-quality infotainment and targeted advertising through the use of digital electronic displays installed in various outdoor premises. For 9-month ended 30/9/2011, it reported a net profit of RM11.7 million on a turnover of RM27.9 million. Based on paid-up capital of RM22.8 million (comprising 228 million ordinary shares of RM0.10 each), Amedia's full-year EPS is about 6.86 sen. At the close of the morning session, Amedia was trading at RM0.32. This translates to a PE of 4.6 times. Its financial position is fairly healthy as it has very little borrowings & sitting cash of RM13.6 million as at 30/9/2011.

Amedia may have a bullish breakout at RM0.305 last Wednesday. Based on the bullish breakout, the stock could be a good trading BUY.

Chart: Amedia's daily chart as at Dec 16, 2011 (Source: Tradesignum)

Topglov- turning up very slowly

2011-12-16T17:39:00.005+08:00

Results Update

Topglov has just announced its results for QE30/11/2011. Its net profit increased 20.5% q-o-q to RM31.4 million on the back of a 2.4%-increase in turnover to RM555 million. As compared to the corresponding quarter (QE30/11/2010), its net profit dropped 12.8% while turnover was up 12.9%. The improvement in bottom-line on q-o-q basis was attributed to 9.2% drop in latex prices as well as the strengthening of the USD.

Table: Topglov's last 8 quarterly results

Chart 1: Topglov's last 22 quarterly results

Valuation

Topglov (closed at RM4.44 today) is now trading at a PE of 25 times (based on last 4 quarters' EPS of 17.55 sen). At this PE multiple, Topglov is deemed overvalued. A few research houses have rated this stock as a SELL.

Technical outlook

Topglov is still in a long-term uptrend line, with support at RM4.00-4.20. Its intermediate downtrend line resistance is at RM4.80-4.90.

Chart 2: Topglov's monthly chart as at Dec 1, 2011 (Source: Tradesignum)

Conclusion

Based on the turnaround in its financial performance & the positive technical outlook, Topglov is rated a HOLD. However, it would be a while before this stock can charge up as it is overvalued presently.

Dialog has a bullish breakout

2011-12-16T10:32:00.003+08:00

Dialog broke above its triangle, ABC at RM2.45 this morning. It also broke above the downtrend line, RR at RM2.55. With these double breakout, Dialog is likely to continue with its prior uptrend. Immediate resistance is at the horizontal line RM2.60 & then at RM2.75.

Based on technical breakout, Dialog could be a good trading BUY.

Chart: Dialog's daily chart as at Dec 15, 2011 (Source: Tradesignum)

Market Outlook as at December 15, 2011 (updated)

2011-12-15T09:35:00.006+08:00

The financial markets are still shaken by the development in Euro zone. This time, it is the poor outcome of last weekend summit of European leaders. They made very little progress on the issue of stability pact as well as achieving no breakthrough of any kind- no shared debt issuance, no fiscal transfers, no move to an EU Treasury, no banking license for the ESM rescue fund, and no change in the mandate for ECB. This is pretty much due to the German's position with regards to balanced budget as well as its opposition to debt mutualization and extensive central bank intervention. The game-changer that I wrote about two weeks ago, now looks like a wishful dream.

Since the start of the week, financial markets have weakened substantially. The migration from safe assets to risk assets is now reversing. In our local bourse, we saw our FBMKLCI breaking below the uptrend line as well as the 20 & 40-day SMA lines this morning. I have used these 2 SMA lines to gauge the state of the bear rally from end September until today. The end of this rally would coincide with the index breaking both SMA lines as well as the uptrend line that stretches back to end September. As at 9.30am this morning, FBMKLCI dropped 11 points to 1452. This means that the market has again turned bearish. As such, we should avoid taking large position for now.

Chart: FBMKLCI's daily chart as at Dec 15, 2011_9.30am (Source: Quickcharts)

Note: FBMKLCI managed to recover above the uptrend line as well as hanging onto the 20 & 40-day SMA lines. As such, the above market outlook is revised back to neutral.

BIMB- getting ready to rock?

2011-12-14T10:20:00.005+08:00

BIMB had a big swing yesterday. It rose from a low of RM1.70 & touched a high of RM1.89. It dropped back to close at RM1.73! This morning, it is swinging up again & it has tested the RM1.89 level again. Something is cooking in BIMB.

The daily chart shows that the good support for the stock is at RM1.70, which is the intermediate term uptrend line as well as the 5% downward displaced 200-day SMA line. BIMB is trying to break above its short-term downtrend line (which may be represented 20 or 50-day SMA lines). If it succeeds in doing so, it would test the medium-term downtrend line (RR) next at RM2.00. A breakout above the RM2.00 level could signal the continuation of BIMB's prior uptrend. The first target would be its recent high at RM2.50 and thereafter its strong horizontal resistance at RM2.70.

The safer approach to get into this play is to buy as near to the RM1.70 mark as possible. Add to that position if the stock can break above the RM2.00 mark.

Chart 1: BIMB's daily chart as at Dec 14, 2011_10.30am (Source: Quickcharts)

Chart 2: BIMB's monthly chart as at Dec 13, 2011 (Source: Quickcharts)

KEURO- waiting for the starting

2011-12-14T10:14:00.003+08:00

KEURO is testing the upside resistance of the ascending triangle at RM1.13. If it can break above that level, KEURO's prior uptrend will continue. Let's track this closely as an upside breakout could lead to a good trading BUY.

Chart: KEURO's daily chart as at Dec 14, 2011_10.10am (Source: Quickcharts)

BJToto- a good income stock

2011-12-13T15:50:00.005+08:00

Results Update

BJToto has just announced its results for QE31/10/2011 where its net profit improved by 15% q-o-q or 62% y-o-y to RM106 million while its turnover was only 2% higher both q-o-q & y-o-y to RM862 million.

Table: BJToto's last 8 quarterly results

Chart 1: BJToto's last 29 quarterly results

Valuation

BJToto (closed at RM4.19 at the end of the morning session) is now trading at a PE of 13.5 times (based on the last 4 quarters' EPS of 31.17 sen). BJToto could potentially trade up to a PE of 15 times; thus giving an upside of 10%. Its dividend yield is fairly attractive at 6.0% pa.

Technical Outlook

BJToto is in an uptrend line, with support at RM4.10. Its share price is trapped within a triangle with support at RM3.95-4.00 & resistance at RM4.55-4.60.

Chart 2: BJToto's monthly chart as at Dec 1, 2011 (source: Tradesignum)

Conclusion

Based on continued good financail performance, attractive valuation & mildly positive technical outlook, BJToto remained a good stock for long-term investment, especially for those seeking steady income. It certainly beats putting money in a Fixed Deposit account.

MISC- darkest before dawn?

2011-12-13T14:44:00.005+08:00

Corporate Development Update (Belated)

In early December, MISC announced that it shall exit the liner business (here). To wit:

MISC’s liner business suffered a total financial loss of US$789 million (RM2.5 billion) over the past three financial years which had impacted the overall performance of the company.

The group expects to incur further losses in the current financial year ending Dec 31, 2011 as the expected one-off costs from exiting the liner business are estimated to be approximately US$400 million.

Note: This write-off has yet to be booked in. If this is taken into the books in December, it will affect the bottom-line for QE31/12/2011 & FY2011.

Results Update (Belated)

For QE30/9/2011, MISC's net profit increased by 16.4% q-o-q but dropped by 61.8% y-o-y to RM141 million. This was on the back of a lower turnover of RM2.617 billion- a drop of 13% q-o-q & 15% y-o-y.

Table: MISC's last 8 quarterly results

Chart 1: MISC's last 22 quarterly results

Technical Outlook

If you look at the monthly chart below (Chart 2) & the chart for MISC's last 22 quarters' performance, you can see clearly that the peak in the turnover & profit in FY2008 was followed by the peaking of the share price for MISC.

Chart 2; MISC's monthly chart as at Dec 1, 2011 (Source: Tradesignum)

The rounding top was completed when MISC broke below the horizontal support of RM7.00 (based on the above semi-log monthly chart from Tradesignum) or RM6.50 (based on the linear weakly chart from Quickcharts, Chart 3 below). MISC is now testing its horizontal support at RM5.50. If this support is also violated, the stock may continue to slide all the way to the next strong horizontal support at RM4.00 (see Chart 2).

Chart 3: MISC's weekly chart as at Dec 13, 2011_11.00am (Source: Tradesignum)

How much more would the share price retreat in view of the huge loss to be booked in for QE31/12/2011? We could see a turning point for this stock over the next few weeks (hopefully, not months) after MISC has finally completed its disposal of all the vessels in the liner business. This by itself is not an easy task given the weakness in international trade as well as the trend towards newer & bigger vessels. Nevertheless, we can take comfort in the fact that a stock would normally turn the corner after the company made the difficult decision to exit or dispose off a loss-making business. The question is how low would the share price go before it begin to recover. Would it be RM5.50 or RM4.00?

Conclusion

Based on past precedents, MISC should be poised to turn the corner after it exit the loss-making liner business. As such, the next few weeks or months would be a good time to buy into this stock, which holds good potential due to the strong demand for the transportation of LNG.

MNRB- cheap & cheaper?

2011-12-13T13:35:00.004+08:00

Results Update

MNRB reported a net loss of RM5.9 million for QE30/9/2011 recently. The loss was mainly attributed to the recent Thailand flood. This cut short the 6 quarters of good results.

Table: MNRB's last 10 quarterly results

Chart 1: MNRB's last 19 quarterly results

Valuation

MNRB is pretty hard to valued as its bottom-line fluctuates substantially. The randomness in its bottom-line has certainly put off many investors. We must fall back on Price to Book as a measure of how cheap this stock is trading now. Its current Price to Book is at 0.51 time (based on yesterday close of RM2.47 & its NTA of RM4.86 per share as at 30/9/2011). At that multiple, MNRB is deemed undemanding.

Technical Outlook

With the poorer financial performance, MNRB's share price took a dive. Yesterday, MNRB broke below its "horizontal" support at RM2.35 when it hit an intra-day low of RM2.33. However, it managed to close above the support at RM2.47. This morning, MNRB inched higher to close the morning session at RM2.51 on small volume of 1159 board lots. Will there be another test of the "horizontal line"? Probably. If this support failed to hold up the stock, MNRB may test its next "horizontal line" at RM2.00.

Chart 2: MNRB's weekly chart as at Dec 13, 2011_11.00am (Source: Quickcharts)

Chart 3: MNRB's monthly chart as at Dec 1, 2011 (Source: Tradesignum)

Conclusion

Despite trading at a very low Price to Book, MNRB has hardly attracted investors' interest due to its uncertain financial performance. Its technical outlook is equally uncertain. While it may find support at the "horizontal line" RM2.35, the safer & stronger "horizontal" support is at RM2.00. That may be a better entry level to this fair-weather stock.

Carlsbg may rally like GAB

2011-12-12T13:46:00.006+08:00

Carlsbg broke above its all-time high of RM8.10 last Friday. With this breakout, Carlsbg may continue its present uptrend.

Chart 1: Carlsbg's monthly chart as at Dec 1, 2011 (Source: Tradesignum)

You may compare Carlsbg's current price breakout to GAB's breakout in November when it surpassed its all-time high of RM10.40. GAB continued to rise steadily, albeit on thin volume.

Chart 2: GAB's monthly chart as at Dec 1, 2011 (Source: Tradesignum)

GAB & Carlsbg's Financial Performance

Since Carlsbg's acquisition of its Singapore sister company in October 2009, its financial performance has caught up substantially with GAB. Based on the results for QE30/9/2011, the last 4 quarters' turnover of Carlsbg is nearly equal to that of GAB (RM1.48 billion for Carlsbg vs. RM1.57 billion for GAB). However, in term of net profit, Carlsbg still lagged behind GAB (at RM159 million vs. GAB's RM198 billion).

Chart 3: Carlsbg's last 24 quarterly results

Chart 4: GAB's last 24 quarterly results

Valuation

Based on the closing price of RM8.14 at the end of the morning session, Carlsbg is now trading at a PE of 15.7 times (based on last 4 quarters' EPS of 52 sen). GAB is now trading at a PE of 18.8 times (based on the close of RM12.42 & last 4 quarters' EPS of 66 sen). If Carlsbg were to command a similar PE as GAB, then the stock may rise to RM9.78- a potential upside of 20%.

Conclusion

Based on bullish technical breakout & possible catching-up of PE multiple, Carlsbg could be a good trading BUY.

Proton- Arranged Marriage is back in fashion

2011-12-12T08:47:00.005+08:00

First, we have Proton's clarification on December 6 that "after making due enquiry with the Board of Directors and major shareholders, the Company is not aware of any reason for the unusual market activity in the shares of the Company recently, and further, that there is no material corporate development not previously disclosed". For more, go here. Then we have seen DRBHicom's announcement on December 8 that "the Company is not aware of the source and the basis of the article... appearing in page 1 of Starbiz section, The Star newspaper dated 8 December 2011". It was reported that DRBHicom is bidding "for control over Proton... to include the presence of Volkswagen AG at a later stage". For more on the announcement, go here. For more on the Start article, go here.

From the above, we can conclude that Khazanah, being the major shareholder of Proton, may not be looking to sell off its 42%-stake in Proton, contrary to the various reports that it was soliciting buyers for this block. Similarly, DRBHicom, despite various reports, is not looking to buy over Khazanah's block in Proton.

Today, we have a report in the Starbiz section of the Star newspaper that DRBHicom is indeed buying over the Proton stake from Khazanah (here). The source of this information is none other than our former Prime Minister, Dr. M. As I said before, Dr. M still regards Proton, his brain child, as something which he has absolute control over. Why is he trying to broker the sale of Proton stake from Khazanah to DRBHicom. My gut feeling tells me that Dr. M must have gotten wind that Khazanah is planning to deal with or dispose off the Proton stake in a manner which he doesn't like, such as selling off the stake to a foreign party. What do you do if something like that happens? You undermine this delicate negotiation by getting a local party, preferably a Bumi-controlled company to take over Proton. Is this a good move for Proton in the long run? Is it in the best interest of Proton shareholders or the nation?

If DRBHicom is buying over the Proton stake from Khazanah, the deal would most likely include DRBHicom getting an exemption from making a GO for the rest of Proton shares. This has always been Syed Mokhtar's tactic of gaining control at the minimum cost. This can be done by structuring the transaction as an acquisition of a stake of less than 33% in Proton, similar to the Sime's E&O acquisition. The share price of Proton would likely to stay around the RM4.00 until the deal is consummated. If a deal doesn't materialize, Proton share price may even drop back below the RM4.00 mark.

Proton is now caught in a battle between Khazanah's strategic investment move & one man's dream- Dr. M's. His ambition of building a good, decent car for Malaysians & a strong automotive sector that can power Malaysia's industrialization program have long been reduced to a nostalgic dream. It is time for Dr. M to accept the reality that Proton will not succeed in its present form, regardless of who is in the driving seat. It is time to do right for Malaysians & Proton by allowing Khanazah to find the best solution to Proton's many problems.

While Proton may look like a trading BUY (with the huge volume traded & the bullish technical indicators), I would advise the less-nimble traders to give it a miss.

ToyoInk- rehashing an old story

2011-12-08T09:05:00.004+08:00

A typical conversation in a kopitiam somewhere in PJ.

A: Aiyah... Our share price never goes up one ah.

B: How to go up?! The last time I checked, we're still in the same old bloody boring business of making ink!

A: But, we got a fierce power project in Vietnam. People don't care meh?

B: How many times do I have to tell you, that one may not take off.

A: Aiyah... Nobody knows!

B: They know and they don't care.

A: Maybe we tell those smart-alek analysts again. Who else... These guys need to write a new report everyday!

B: I don't think they will be interested. It is a dead end!

A: Never mind. Some people may buy the story & the share would zoom up lor. The newspapers people call it "Wealth Creation". Ha, ha, ha... More for me, less for others. Ha, ha, ha...

B: How to tell them about the Vietnam power project again? It is an old story. We need a new angle?

A: Just tell them we are starting R&D.

B: R&D? We don't know anything about power generation!

A: Some people don't know one. They're not smart enough. Even if they know, they think others would be dumb enough to buy the story. The newspapers people call it "the Greater Fool Theory". I like that! Ha, ha, ha...

B: Okay. Tomorrow I will call some analysts. If that doesn't work, I'll call a few newspapers. I'll tell them we are going to do R&D on power generation. I doubt they will take the bite.

A: Aiyah... You worried too much ah. When Tenaga read it, they will get scared! Ha, ha, ha...

The next day, this story- Toyo Ink to start R&D on Vietnam power plant - appears in the newspaper.

Chart: ToyoInk's weekly chart as at Dec 8, 2011_9.15am (Source: Quickcharts)

Technically speaking, ToyoInk has a strong resistance at RM1.95-2.00. If it can break above this resistance, it may revisit its all-time high of RM2.42 recorded in January 2010. And, IF it can break above that price, it may really, really fly. It's called the blue sky scenario. But, don't bet on it! I doubt ToyoInk can surpass the RM2.00 for now.

Have a nice day! And, stop reading nexttrade for a while. I don't have a story to write everyday. Go to the nearest kopitiam and have a cuppa java! You may learn a thing or two about people & life.

Airport- under a dark cloud

2011-12-07T14:18:00.005+08:00

Lately, Malaysia Airport Holdings Bhd ('Airport') has been in the news for not the best of reasons. It is in a horrible spat with Airasia over the hike in airport tax which has since escalated to the construction of the new LCCT, known as KLIA2. Airasia has a litany of complain which ranges from the overall cost of construction to the size of the new LCCT, and from the late completion to the necessity of having aerobridges.

Malaysians who follow this saga are equally divided on this rather emotional issue. Most Malaysians are very proud of Airasia because it is one of the rare Malaysian brand that is internationally recognized. It is a great success story that is in the same league as Virgin Atlantic. We cheer Tony Fernandes for his Airasia success & his other endeavors, such as his purchase of a EPL football team & his involvement in Formula 1. However, I have to say that I am a bit troubled by his aggressive attack on Airport. While a confrontational approach is 'refreshing', I feel that a calmer approach could have been more effective. Being a media-savvy businessman, Tony's behavior is hard to comprehend. How I wish the Tenaga's Chairman would come out fighting against the IPPs like Tony. But, then I am digressing...

Technically speaking, Airport appears to have made a top. From the weekly chart (Chart 1) below, we can see the bearish divergence between the MACD & RSI indicators on the one hand and the price chart on the other hand, over the past two years. Finally, Airport succumbed to selling pressure in late September & the stock broke the 200-day SMA line & hit a low of RM4.50. From there, the stock staged a strong recovery to go above its 200-day SMA line in late October. However, Airport came under selling pressure again in November, courtesy of all the negative publicity surrounding the KLIA2 project.

Chart 1: Airport's weekly chart as at Dec 5, 2011 (Source: Tradesignum)

From the monthly chart (Chart 2), we can see that the sharp drop in Airport's share price in September & October has caused the MACD indicator to hook down. The monthly RSI has dropped to the 50 mark before rebounding. ADX has similarly hooked down (with -DMI nearly cutting above the +DMI). All in all, the technical outlook for Airport has turned bearish. I would not be surprised to see Airport retesting its recent low of RM4.50 again in the next few months. Based on this, I think it is appropriate to take some profit on this stock.

Chart 2: Airport's monthly chart as at Dec 1, 2011 (Source: Tradesignum)

Note: As at 4.25pm, Airport was trading at RM5.80- a loss of RM0.24.

Proton- trading halted for an hour

2011-12-06T11:25:00.005+08:00

When the authority goes strictly by the book, we can get a very silly outcome. Proton's one-hour trading halt for an insignificant announcement today clearly illustrates this point. The company reply to Bursa's query:

We refer to Bursa Malaysia's telephone query on Monday, 5 December 2011 on unusual market activity in relation to PROTON's shares and the Article entitled "Khazanah to invite bids for PROTON" appearing on page 10 of the Edge (week of 5 December 2011 - 11 December 2011).

The Board of Directors of PROTON wishes to clarify that after making due enquiry with the Board of Directors and major shareholders, the Company is not aware of any reason for the unusual market activity in the shares of the Company recently, and further, that there is no material corporate development not previously disclosed. The focus of Management is to improve the performance of the Company and business is as usual.

Was that really helpful? It is a sad commentary that most investors would have exclaimed "Well, Duh??!!!" But, Proton is not any Tom, Dick or Harry? It is our national car company! It is a GLC and one of the biggest investments of Khazanah. The kind of reply given by Proton is no better than what we got from Harvest. The investing public has already been informed through the news media over the weekend that Khazanah, the major shareholder is planning to divest its interest in Proton. Surely, Proton could have given a better reply. If it is beyond its scope to comment on Khazanah's plan, it should ask Khazanah to issue a statement on the matter. The attitude of the Board & management of Proton is absolutely disappointing. This is one more reason why we should sell off this investment & close the chapter on this company that has been a drag on our industrialization program & a burden for all car-owning Malaysians for too long.

Chart: Proton's 5-min chart as at Dec 6, 2011_11.30am (Source: Quickcharts)

Despite the strong rumor that's out there, you may want to be a bit cautious on Proton. Technically speaking, I would not rule out the possibility of Proton closing the gap at RM3.61 yesterday. What could cause such a sharp drop? The answer: Dr. M. As long as he is still around, the sale of Proton- his brainchild- is never a sure-thing. He would fight tooth & nail to cause Khazanah to hold onto this company. However, the rumor that DRBHicom is one of the interested parties may change the whole picture. Is there anything that Syed Mokhtar doesn't want to buy?

Orient may have seen a bullish reversal

2011-12-06T09:33:00.003+08:00

Orient, another stock involved in the auto sector, saw a sharp rally on thin volume this morning. Orient has seen some accumulation over the past 3 weeks with the price traded between RM4.30 & RM4.50. This morning, Orient broke above the horizontal resistance at RM4.50 & hit a high of RM4.79. As at 10.30am, the stock is trading at RM4.68 & volume traded was relatively thin at 3888 board lots.

Chart 1: Orient's 120-min chart as at Dec 6, 2011_9.40am (Source: Quickcharts)

The weekly chart shows that Orient is still in a downtrend. However, the sharp rally had caused a drastic change in the indicators reading. This could be a prelude to a reversal in the share price.

Chart 2: Orient's weekly chart as at Dec 6, 2011_9.40am (Source: Quickcharts)

I am not very clear on how Orient is now involved in the auto trade. I believe it is a dealer for Hyundai & Honda cars. It may have a share in a JV to assemble Honda cars in Malaysia. The current rally may be due to the spilling effect of the rally in Proton share price. Alternatively, the market may be anticipating the additional business which may flow to Orient due to the recent flood in Thailand.

Based on the above, I believe the safer way to play the possible reversal in Orient is to buy the stock slowly & as close to the current breakout level of RM4.50 as possible.

Winning Election with the ‘Right’ People!

2011-12-05T20:40:00.008+08:00

December 2, 2011

As a Sabahan, nothing distressed me more than the fact that sometime in late 1990s, a whole lot of foreigners were given Sabah citizenship with the intention of changing the electoral map of the state.

The Wild, Wild East

I first heard about this rumor from my father during the 1999 state election. I didn’t quite believe it because such an exercise would be too cumbersome, involving too many people to be carried out undetected. Before this, we, Sabahans have seen a few serious political transgressions, ranging from the 1986 riot after Parti Berjaya was booted out to the mass defections of elected representatives from Parti Bersatu Sabah to BN after the 1994 election. The most humiliating incident involved Pairin Kitingan’s waiting outside the Palace to be swore in as Chief Minister (with portable toilet in toll). To rig an election by giving out citizenship is just too serious an offense to be contemplated but I could be wrong.

Indonesians Can Vote

On the eve of the 1999 state election, my cousin told my father that he shouldn’t bother to vote because her husband’s estate workers- mostly from Indonesia- were being ferried by buses to polling centers. The husband told my cousin that someone would give ICs to these Indonesian workers and then they would walk into the polling center to vote.

Unusual Population Jump

I began to suspect that there may be some truth to this rumor after I read that the population in Sabah had increased substantially more than Sarawak & Peninsular Malaysia over the past 20-30 years. One report (here) published by a political party in Sabah, SAPP states that the discrepancies in the population increase from 1970 to 2000 between Sabah, Sarawak and Malaysia as a whole as follows:

· Malaysia (10,439,430 to 22,202,614 or up by 113 percent)

· Sarawak (976,269 to 2,012,616 or up by 106 percent)

· Sabah (636,431 to 2,449,389 or up by 285 percent)

This is also collaborated by another article published by DAP which states that the population in Sabah had increased from 929,299 people in 1980 to 2,468,246 in year 2000- a staggering increase of up to 1.5 million or 166% in 20 years (here).

RCI to Investigate

Today, we read in the newspaper that the Parliamentary Select Committee for Electoral Reform has recommended the setting of a Royal Commission of Inquiry (‘RCI’) to investigate claims that foreigners have been registered as voters, especially in Sabah. As a Sabahan, I salute the committee members who voted in favor of this resolution.

Select Your Voters

In politics, we may have our differences but we must work through our differences. Once every four or five years, we approach the people with our respective plan or manifesto to seek the mandate to govern the country. That’s how a democracy works because the power to rule rests with the people. The people in turn bestow that power to the winner of a free & fair election.

It is the depth of cynicism that our democracy may turn into a two-way process: Not only can the people choose the Government; the Government can also choose the people. It is more than a cynical act. It is an extremely wrongful & illegal act that may endanger the security of our country. And, that’s why the perpetrators will fight to stop the setting up of a RCI to investigate this matter. For the sake of a stronger Malaysia, we must pursue this investigation- not just to ascertain the truth behind this story or to punish the wrongdoers (who we can forgive but not forget), but to send a clear message that we are a nation of rules & laws. And, that our democracy- despite all its flaws & shortcomings- is worth defending because it is the best form of government there is. And, that no individual or group- no matter how powerful or exalted- can hold himself or themselves above the people or the law.

(This is my latest article in Merdeka Review. For the Chinese version, go here)

Solution to the Euro zone sovereign debts problem in sight

2011-12-02T17:06:00.000+08:00

Yesterday, I have revised my market outlook from a bearish stance to a bullish trading stance due to the action taken by Fed and the central banks of Canada, Switzerland, Japan, and the UK to boost liquidity to the credit market. This is achieved through the lowering of the pricing on existing temporary US dollar liquidity swap arrangements, and to establish temporary bilateral liquidity swap arrangements. There is a good article in Clusterstock entitled "Understanding the Impication of the Fed Swap Lines". Another angle is given by Fed President Bullard in an interview with Bloomberg (here).

By itself, the action of these central banks would not solve the problem of sovereign debts in Europe. However, there are some signs that the core European nations- Germany & France- may have finally come to a consensus on how to tackle the problem.

Germany and France would embark on some "stability pact", wherein they would agree to strict fiscal rules, preventing overspending and over-indebtedness.The "stability pact" would include an overhaul the EU Treaty with proposed changes that aimed at increasing fiscal coordination across the Euro zone and enforcing rules on deficit & debts levels. Once this new fiscal compact is in place, the ECB is expected to intervene by buying bonds of troubled euro zone states or cut interest rates. I personally feel that this plan may have a good chance of stabilizing the European sovereign debts crisis. This could be a game changer, if approved & adopted by all the Euro zones states. For more reading, check out the following articles:

ECB opens door to action, Sarkozy seeks new treaty (here)
Suddenly, Europe's Gameplan For Saving Itself Is Becoming Very Clear (here)
ROSENBERG & SRI-KUMAR: A Eurozone Endgame Could Spur A 2000-Point Rally In The Dow (here)

Proton- may continue its rally

2011-12-02T14:30:00.002+08:00

Proton, which rallied on November 15 & 16, has been consolidating for the past two weeks. The consolidation took the form of triangle. Today it has broken to the upside of the triangle at RM3.30. It closed the morning session at RM3.39.

Chart 1: Proton's 20-min chart as at Dec 2, 2011_12.20pm (Source: Quickcharts)

With the above breakout, Proton may continue to rise. Its immediate resistance is at the horizontal line at RM3.50 & thereafter the long-term downtrend line at RM3.90.

Chart 2: Proton's weekly chart as at Dec 2, 2011_12.20pm (Source: Quickcharts)

Again, I have to reiterate that I have no idea what could be the catalyst for the current play on Proton. It could be that Proton may have secured some assembling contracts from car makers or assemblers who are affected by the recent flood in Thailand.

Note: As at 2.35pm, Proton was trading at RM3.47.

Lonbisc- broke above its intermediate downtrend line

2011-12-02T13:20:00.000+08:00

Lonbisc broke above its intermediate downtrend line (R3-R3) at RM0.84-0.85 yesterday. This upside breakout may lead to a decent rally to test the horizontal resistance at RM0.96 & thereafter at RM1.16. The indicators are fairly supportive of an upside rally in the share price.

Chart 1: Lonbisc's weekly chart as at Dec 2, 2011_10.30am (Source: Quickcharts)

From Chart 2 below, we can see that Lonbisc is still in an irregular downward channel, with resistance at RM1.20. Until it has broken above that level, Lonbisc is still in a downtrend. As such, this post is a short-term trading BUY call.

Chart 2: Lonbisc's monthly chart as at Dec 2, 2011_10.30am (Source: Quickcharts)

FYI, Lonbisc reported a lower net profit of RM4.0 million for 1Q2012 ended 30/9/2011. That is 7.6% below the net profit for QE30/9/2010. Its turnover increased by 10% from RM58 million to RM64 million. No reason was given for the diverging performance of the top-line & bottom-line for the company.

Finally, Lonbisc has also just announced that it is making a private placement of 10.253 million shares at RM1.00 each or 22% above the average price on the price-fixing date of Dec 1 (here). While some punters may think that the stock may be pushed up a bit to pacify the placees/buyers of these new shares, I am quite curious to know who would want to buy Lonbisc at a premium of 22%. Is there something in Lonbisc that we should look into. The last post I put up for Lonbisc was far from flattery (here).

MYEG- may have a bullish breakout

2011-12-02T10:12:00.002+08:00

For 1Q2012 ended 30/9/2011, MYEG's net profit increased from RM2.8 million to RM5.4 million due to higher revenue, driven by growth from the online renewal of auto insurance, road tax transactions and its related services. Its revenue grew 18.2% to RM14.2 million from RM12 million previously due to the deployment of more e-service kiosks and the introduction of new cloud computing-based services. The number of kiosks has increased from 345 in the previous financial year to 495 as at end-June 2011.

MYEG has also announced on Nov 30 that it has a new substantial institutional shareholder. Mawer Investment Management Ltd of Canada had acquired 32.345 million shares in the company, which represents an interest of 5.39% in the company.

This morning, MYEG broke above its intermediate downtrend line (RR) at RM0.63. Its immediate resistance is at RM0.65 & then at RM0.68. Based on this technical breakout, MYEG could be a good trading BUY.

Chart: MYEG's daily chart as at Dec 2, 2011_10.30am (Source: Quickhcharts)

Market Outlook as at Nov 30, 2011

2011-12-01T08:25:00.005+08:00

Our market should rally today after the global coordinated intervention by The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada, and the Swiss National Bank to lower the cost of swapping dollars. Specifically, they are cutting the U.S. dollar liquidity swap rate by 50 basis points. This is an effort to boost liquidity in the European bank funding markets. The announcement, which came before the markets opened, caused futures to roar higher. For more, go here.

This amazing intervention came less than 24 hours after S&P reviewed the rating for 37 of the largest global financial institutions and downgraded 7 of the 8 largest US banks (here & here).

There is a saying in Wall Street: "Do not fight the Fed!" This action on the part of the Fed and other central banks will create a surge in liquidity which would push up the price of all assets. I expect our stock market to response accordingly. We could see a good recovery rally for the next few weeks- possibly all the way to the Chinese New Year. My earlier bearish stance is now revised to bullish trading stance.

Chart 1: DAX's daily chart as at Nov 30, 2011 (Source: Stockcharts)

Chart 2: CAC's daily chart as at Nov 30, 2011 (Source: Stockcharts)

Chart 3: DJIA's daily chart as at Nov 30, 2011 (Source: Stockcharts)

Faber- losing its plot

2011-11-30T17:33:00.005+08:00

Results Update

For QE30/9/2011, Faber reported a net loss of RM26 million on a turnover of RM309 million. Its turnover increased by 66% q-o-q or 34% y-o-y due to the recognition of revenue of RM107.7 million from IFM non-concession projects in UAE. This revenue "was on the works order issued prior to the expiry of contract (as announced by Faber on January 12, 2011) where works & documentation for invoicing were fully completed post expiry of the contracts". I am quite perplexed by the extremely tortured English used here (see Item 22 of Page 14 of the Notes to the Accounts) to explain something which should be quite obvious, that's to say that, works order must be issued prior to the expiry of any contract and some works & documentation for invoicing can be completed after the contract has expired. So, what's the point to this statement?

The best is yet to come- the reason for the net loss. The loss arose because "recognition of cost amounting to RM44.5 million for works completed for the projects in UAE where the corresponding revenue was not recognized as it cannot be measured reliably." This gives rise to two questions; firstly, how do you get into a contract where the revenue cannot be measured reliably, and secondly, how do you get paid for such work?

In addition, Faber has provided for an impairment loss of RM12.9 million from its dealing with the principal, WRM where the loss is arrived at by comparing "the carrying amount and the present value of the estimated future cashflow discounted at the financial assets original effective interest rates." This contract was not renewed on its expiry date on January 12, 2011 (see below). Did Faber make this provision because it might not be paid? WRM or Western Region Municipality is one of the municipals in UAE. This goes to show that any business dealings in Middle Eastern countries must be treated with caution.

Table 1: Faber's last 8 quarterly results

Chart 2: Faber's last 19 quarterly results

Not again!

Sometime back I have posted a piece on Faber entitled "Faber- now you see it, now you don't" which dealt with Faber's less-than straightforward dealing with the investing public. To wit:

Faber has just announced its results for QE28/2/2010 and it is a HUGE DISAPPOINTMENT! Even though, the results was an improvement over the results of the previous corresponding quarter, it was substantially lower than the immediate preceding quarter, with net profit lower by 66% to RM14.4 million & turnover lower by 39%.

Now, we learned that the big jump in the immediate preceding quarter, QE30/11/2009 was attributable to the higher revenue from Integrated Facilities Management ('IFM') Concession which was mainly due to one-off revenue received from hospital for the claim for linen loss. In addition, it has completed a IFM maintenance contract secured earlier (see Table 2 for Note 20). In the absence of these two factors, Faber's top-line & bottom-line dropped in QE28/2/2010. None of these exceptional items were explained in the Notes accompanying the results for QE30/11/2009 (see Table 3 for Note 21). In fact, if one were to read Note 22 for QE30/11/2009, you would get a very bullish impression of the future prospect of Faber because the note insinuated the improvement was sustainable due to higher revenue from the new business in UAE & higher bed occupancy plus additional new facilities in government's hospital (see Table 3 for Note 22).

Incomplete disclosure of this nature reflects badly on the professionalism of Faber's management.

Look like the same unprofessional practice still persists in Faber.

Concession Agreement ('CA') between Faber Medi-Serve Sdn Bhd ('FMS') & Ministry of Health ('MOH')

FMS's concession to provide Hospital Support Service ('HSS') to some government hospitals under MOH had expired on Oct 28, 2011 but was extended by six months. We do not know whether FMS will get a new CA. Incidentally Faber was recently reprimanded by Bursa for failure to announce "the non-renewal of contracts awarded to the company’s subsidiary, Faber Limited Liability Company, by the Department of Municipal Affairs, Western Region Municipality, Emirate of Abu Dhabi ("WRM") as set out in the company’s announcement on 12 January 2011". For more, go here.

Valuation

I would not attempt to value this stock as too many things are up in the air.

Technical Outlook

From the chart below, Faber is still in an uptrend. It may find support at the uptrend line at RM1.10. I think this uptrend line would severely tested if Faber cannot secure a renewal of the CA for providing HSS to MOH. The decision for that should be forthcoming by April 28, 2012.

Chart 2: Faber's weekly chart as at Nov 29, 2011 (Source: Tradesignum)

Conclusion

Based on the uncertainty surrounding the continuation of its CA with the MOH & its chaotic operation in the Middle East, I think Faber is a stock to be avoided for now. If you still like to get into this stock, you may try to do so at the uptrend line support at around RM1.10. A safe bet is to wait for a favorable outcome by the MOH to renew the CA (as mentioned earlier).

MSM- may have a bullish breakout

2011-11-30T17:07:00.002+08:00

Bearing in mind that we have just witnessed a window dressing session today, there are a number of stocks which have broken above their downtrend line. These include MBMR, Sapcres and MSM. Of these, I think MSM looks promising as it has broken above the downtrend line at RM4.92. The three indicators- MACD, RSI & ADX- are quite supportive of a rally for the stock. Let's track this stock closely for the next few days to see whether this technical breakout can lead to a rally for the stock.

Chart: MSM's daily chart as at Nov 30, 2011_4.40pm 9Source: Quickcharts)

Incidentally, MSM has just announced its results for QE30/9/2011. For 9-month period ended 30/9/2011, MSM reported a net profit of RM187 million on a turnover of RM1.69 billion. The 9-mth EPS of 26.6 sen would translate to a full-year EPS of 35.5 sen. As such, MSM (closed at RM5.00 today) is now trading at a PE of 14 times. For a consumer stable, MSM is deemed reasonably priced.

Market Outlook as at November 30, 2011

2011-11-30T16:44:00.002+08:00

There are some signs of window dressing activities in the market today. This strong buying has pushed the index above the 40-day SMA line, which I have earlier expected to cap the rise of our market under the scenario of a completed bear rally. If the rebound can surpass the downtrend line (RR) at 1475, we may have to re-examine our market outlook.

Chart: FBMKLCI's daily chart as at Nov 30, 2011 (Source: Quickcharts)

Sumatec- buying a Kazakh PSC!

2011-11-30T09:08:00.007+08:00

Sumatec has risen from a low of RM0.05 in August to a recent high of RM0.335 on N0vember 25. The news has finally been announced that Sumatec will acquire CaspiOilGas LLP, an Oil & Gas company with a Production Sharing Contract ('PSC") in Kazakhstan. CaspianOilGas LLP is an indirect subsidiary of Markmore energy Sdn Bhd, a company that is 99.99%-owned by Halim Saad, the former Chairman of Renong.

There are a few things that we need to know about this Kazakh PSC & Sumatec. The PSC was first awarded by the Kazakh government in Aug 26, 2000. The "proved plus probable" hydrocarbon reserves was estimated by SRK Consulting (Australasia) Pty Ltd, a mining consultant to be about 122.3 million barrels of oil equivalent. The source of these two news snippets is BTimes (here).

I am not impressed with CaspiOilGas LLP for two reasons. Firstly, it is a very old PSC, which must have been passed through many hands. Secondly, the "proved PLUS PROBABLE" reserves leave a lot of room for doubt. You can contrast CaspiOilGas LLP with another company which is working on a number of oil fields in Northern Iraq, Gulf Keystone Petroleum('GKP'). GKP is listed on FTSE. Check out this link at FT Alphaville (here). You may be interested to know that Malaysia's richest tycoon, Robert Kuok has recently invested only 3.19% in GKP despite numerous reports that GKP has substantial proven oil reserves (here). The reason is simply this: PSC is a very risky business. For Sumatec to buy into a company with a PSC that's of highly uncertain potential is an extremely risky venture.

Sumatec is a very weak company. The proposed acquisition of CaspiOilGas LLP is the company's 2nd restructuring since its listing in 1999. The company was first listed as Malaysian General Investment Corporation Bhd ("MGIC') in 1999. MGIC ran into trouble & was restructured in 2003, with its listing assumed by Sumatec. Now, it is Sumatec's turn to be restructured. As at 30/6/2011. Sumatec has Assets totaling RM746 million, which are financed by Equity of RM111 million & Liabilities totaling RM635 million. Of these Liabilities, Borrowings totaled RM544 million. Of the Assets owned, Property, Plant & Equipment totaled RM645 million.

I am always very suspicious of any company that has undergone a restructuring scheme. The reason is simple. The existing or old shareholders would not accept a fair amount of losses. The existing or old creditors would always hold out for more. The new shareholder would strangely agree to this less-than-satisfactory hair cut on the part of the existing shareholders & creditors in order to get control of a listed vehicle. We can speculate about the Whys until the cows come home but it is undeniable that restructured companies are inherently weak as some of their assets cannot be fully realized. How does the new shareholder protect himself? By overvaluing the business or assets that he intends to inject into the sick company. The only thing that you can be absolutely sure of in the accounts of a restructured company is its liabilities, which should be stated in full.

If Sumatec has gone through one round of cosmetics grossing-up when it morphed from MGIC to the current Sumatec, imagine how it would look after it underwent another round of 'surgery'. The new Sumatec would look more horrifying than Jocelyn Wildenstein. Some details of the new proposed restructuring scheme or regularization plan were given in the report by the Star. To wit:

The company said it was currently finalising the regularisation plan and would announce the details upon finalising the terms of the proposed PSC.
It said as part of the agreement, the company proposed to reduce shares at par value by 50% to 17.5 sen per share from 35 sen. This would also reduce existing issued and paid-up share capital to RM37.51mil from RM75.02mil.

To raise capital, a new share-placement exercise “by way of placement to new third party investors to be agreed by Markmore Energy and the company” was being proposed as well as a proposed renounceable rights issue of shares at par to entitled shareholders.

The share-placement exercise would raise gross proceeds of RM15mil while the proposed renounceable rights issue would raise gross proceeds of up to RM445mil and would take place following the completion of the capital-reduction and placement exercises.

For more, go here.

I have appended below the semi-log chart for Sumatec. The stock is in a downtrend. If you draw an irregular downward channel connecting the peaks & the troughs, then the stock had recently tested the 'upper channel' at RM0.33. Based on the chart, I see very little upside but plenty of downside to this stock. For those fortunate enough to hitch a ride on this horse recently, I think it is high time that you take a walk.

Chart: Sumatec's weekly chart as at Nov 29, 2011 (Source: Tradesignum)

Market Outlook as at November 29, 2011

2011-11-29T12:03:00.007+08:00

Over the past few days, there have been a lot of reports & rumors of what may or should happen in Europe. It ranges from extremely negative to mildly positive; from the insightful to the incredulous. The European sovereign debts crisis is turning out to the parable of the blind men & the elephant.

If we fall back on charts, there is a good reason to be less pessimistic about the ongoing European debt crisis. The main stock market barometer of the two countries that are in the heart of the crisis- Germany & France- are actually showing some strength. You would agree that the crisis today is likely to be more critical than two months ago and yet you can see that the DAX & CAC are both trading at a higher level than end of September. This may explain why these markets rose sharply yesterday on rumor that IMF is arranging a bailout for Italy totaling EURO 600 billion. The market rally did not fizzle out even when this rumor was subsequently denied by IMF (here). Nevertheless, we should note that the long-term charts for both markets are still bearish and they can easily take a turn for the worst if the debt crisis blew up. For long-term charts of DAX & CAC, go here & here.

Chart 1: DAX's weekly chart as at Nov 28, 2011 (Source: Stockcharts)

Chart 2: CAC's weekly chart as at Nov 28, 2011 (Source: Stockcharts)

Since our market was closed for Monday, we should do some catching-up today. As noted in previous post, the resistance for our FBMKLCI is the 40-day SMA line which is presently at 1453. This resistance was tested this morning. We will have to wait & see whether the index can break above it. If that were to happen, it would be mildly positive for the market. Failure to do so, would mean that the market is likely to continue to slide.

Chart 3: FBMKLCI's daily chart as at Nov 29, 2011_12.15pm (Source: Quickcharts)

Coastal- top-line & bottom-line dropped on lower sales of vessels

2011-11-25T16:04:00.011+08:00

Results Update

For QE30/9/2011, Coastal's net profit dropped by 21% q-o-q or 32% y-o-y to RM37 million while its turnover dropped by 53% q-o-q or 43% y-o-y to RM110 million. The drop in the bottom-line & top-line was due to lower number of vessels delivered of 5 units compared to 8 units in 2Q2011 or 7 units in 3Q2010.

Table 1: Coastal's last 8 quarterly results

Chart 1: Coastal's last 28 quarterly results (including profit margin)

Financial position

Coastal's financial position is always weighed down by concern about its high inventory level, which is a product of its rolling vessels building programme. In this programme, the company builds standard vessels for its inventory in addition to building vessels to customers' specification. This resulted in the carrying of higher inventory level. I have reduced the Balance Sheets for 30/9/2011 & 31/12/2010 to a simplified version below:

Table 2: Coastal's Simplified Balance Sheets as at 30/9/2011 & 31/12/2010

If we assumed that all finished vessels ordered are delivered once completed, then the Finished Goods (vessels) in the Inventory are the standard vessels awaiting for sale. If we assumed that Advance Payment from Buyers is equivalent to the value of work-in-progress ('WIP') done on vessels ordered by buyers, then the balance of the WIP is for standard vessels under construction. Based on these assumptions, we can make the following conclusions:
1) the bulk of the WIP is for vessels constructed to buyers' orders.; and
2) 52-58% of equity is tied down in standard vessels (both WIP & Finished Goods).

With the low leverage and high cash & bank balances, Coastal's financial position is considered very sound. The only risk is the risk of obsolescence of the Finished Goods & that is capped at 58% of equity.

Valuation

Coastal (closed at RM1.85 today) is now trading at a PE of 4.6 times (based on last 4 quarters' EPS of 40.37 sen). At this PE multiple, Coastal is deemed very attractive.

Technical Outlook

Coastal is in an uptrend line with support at RM1.70-1.80. Thereafter, it may find support at the horizontal line RM1.60.

Chart 2; Coastal's weekly chart as at Nov 21, 2011 (Source: Tradesignum)

Conclusion

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

Market Outlook going into the Year-End

2011-11-24T16:30:00.000+08:00

November 22, 2011

In September, I had posted about the market making a cyclical top (here). The SELL signal that followed is still intact despite a healthy rally in the market for the past 6 weeks. See Chart 1 below.

Chart 1: FBMKLCI's monthly chart as at November 1, 2011 (Source: Quickcharts)

In another post in September, I wrote about how a typical bear market or bull market unfold (here). I postulated that we could be at the initial stage of a bear market decline. At the end of that initial decline, we could see a bear rally. A bear rally is a counter-trend rally within a bear market. That rally kicked in early October. See Chart 2 below.

Chart 2: FBMKLCI's weekly chart as at November 1, 2011 (Source: Quickcharts)

In my blog, I have warned about a possible completion of this bear rally (here). I had compared it with the bear rally in 2008 (from April to May 2008). In the 2008 bear rally, we saw the end of the rally on May 24, 2008 when the following events happened:

the index broke below 20 & 40-day Simple Moving Average (‘SMA’) lines; and
the indicators turned negative (such as MACD hooked down, RSI went below its 30-day SMA line & the –DMI cut above the +DMI in the ADX indicator).

See Chart 3 below.

Chart 3: FBMKLCI's daily chart from February to July 2008 (Source: Quickcharts)

On November 18, the FBMKLCI broke below its 20 & 40-day SMA lines and the same list of indicators have turned negative. This means that it is very likely that the bear rally for the past few weeks has ended and the bear market downtrend may continue. See Chart 4 below.

Chart 4: FBMKLCI's daily chart as at November 22, 2011 (Source: Quickcharts)

If you look at Chart 3 closely, you will see that the end of the bear rally in 2008 was followed by a gradual decline. That’s to be expected as the many players were still fairly bullish even after the turn or change-over. Even today, I expect some players will still harbor bullish outlook & they would buy in the market as the lower prices were presented. This group of bullish players would provide the fuel that keeps the slow-burning flame going. In this way, we can expect the market to go down gradually, with occasional rebound that would be capped by the downward sloping 20-day SMA line.

The index would likely to slide & test its immediate support of the horizontal line at 1425-1430 & thereafter the psychological 1400 level. This bearish outlook will only be revised if the index can somehow recover above its recent high at 1493.

Based on the above, the outlook for the market is bearish. You should avoid taking large long position in the market for the next few weeks (or even next few months). If you have large long position in the market currently, you should reduce them accordingly.

(This is my latest article in Merdeka Review. For the Chinese version, go here).

Rumor of the death of 2nd & 3rd liners was exaggerated?

2011-11-24T10:32:00.004+08:00

The overall market has not been kind to investors over the past few days. One would expect the sharp rally in the 2nd & 3rd liners to have totally bombed out but that's not the case. Surprising, FBMFLG is still above its short-term uptrend while FBMACE, which broke the short-term uptrend line earlier, has managed to recover above that line today. FBMSCAP- the best of the whole lot- is actually the weakest one. It broke its short-term uptrend line, with no recovery in sight yet.

If FBMFLG & FBMACE can surpass their immediate downtrend line (in red), they may continue their prior short-term uptrend. These 2nd & 3rd liners could well be the only game in town!

Chart 1: FBMFLG's 75-min chart as at Nov 24, 11_9.10am (Source: Quickcharts)

Chart 2: FBMACE's 75-min chart as at Nov 24, 11_9.10am (Source: Quickcharts)

Chart 3: FBMSCAP's 75-min chart as at Nov 24, 11_9.10am (Source: Quickcharts)

Latest Chinese PMI number indicates contraction

2011-11-24T09:16:00.002+08:00

The preliminary HSBC China PMI for November was released one or two days ago. It shows a drop from 51 in July to 48 November. Generally, a PMI number above 50 indicates growth while below 50 indicates contraction.

Chart: Chinese PMI (Source: CNN Money)

This negative report adds to the long list of market concerns. If this preliminary report is correct, the probability of a soft-landing for the Chinese economic is beginning to look less likely. Some optimists feel that the prospect of a grim outlook would prompt the Chinese government to ease off its current tightening policy. We will have to wait & see whether that will be the case & if so, whethre that would save the Chinese economy from a hard-landing. The prospect of a hard-landing in China, a recession in US and a collapse of the Euro would make for a perfect storm in the financial market.

Harison- uncertainty ahead

2011-11-23T12:33:00.004+08:00

Results Update

Harison's net profit dropped 4.5% q-o-q & 0.8% y-o-y to RM8.3 million while its turnover dropped 4.5% q-o-q but rose 4.4% y-o-y to RM308 million for QE30/9/2011. The decline in turnover on a q-o-q basis was attributed to the termination of the distribution arrangement between F&N and Harison. This arose because Harison is now distributuing for Coca-Cola, which has in turn terminated the bottling arrangement with F&N. This has resulted in a break in its turnover growth for the past 11 quarters. However, prior to this, we can see that Harison's bottom-line & profit margin have been sliding for the past 3 quarters. The decline in profit margin coupled with a break in the turnover growth could be a sign of consolidation for this company.

Table 1: Harison's last 8 quarterly results

Chart 1: Harison's last 22 quarterly results (including profit margin)

An interesting piece of information was extracted from the past two quarters' Notes to the Accounts which enabled me to prepare the quarterly segmental results below. The huge pre-tax profit from the Others segment is interesting as no details was given. Equally interesting & mysterious is the huge amount of Eliminations. What could these two items be? Are they related to the termination of the F&N agency?

Table 2: Harison's segmental results for 3Q2011 & 3Q2010.

Valuation

Harison (closed at RM3.44 today) is now trading at a current PE of 6.3 times (based on last 4 quarters' EPS of 54.57 sen). At this multiple, Harison is deemed attractive.

Technical Outlook

If we use the 10-month SMA line as the uptrend line for Harison, we can see that the stock has broken that line. This means that the stock is likely to move sideway for a while. It may even enter into a downtrend, depending on its financial performance going forward.

Chart 2: harison's monthly chart as at Nov 1, 2011 (Source: Tradesignum)

Conclusion

Based on the uncertainty regarding the financial performance & the slightly negative technical outlook, I would rate Harison as a SELL INTO STRENGTH or REDUCE.

Airasia- bottom-line weighed down by finance charges

2011-11-23T08:17:00.005+08:00

Results Update

Airasia's net profit increased by 46% q-o-q but declined by 53% y-o-y to RM152 million while its turnover was unchanged q-o-q but increased by 10% to RM1.076 billion. The increase in net profit q-o-q was attributable to deferred tax credit of RM46.6 million which arose from a reduction of deferred tax liabilities of RM26.6 million & the recognition of deferred tax assets of RM20.0 million.

Table 1: Airasia's last 8 quarterly results

For the detailed breakdown of the Profit & Loss account, see Table 2 below. It is noted that Airaisa's Operating Profit actually increased by 17% q-o-q & 2% y-o-y to RM251 million. This is despite a drop in the seat load factor by 1% point from 78% to 77%. Nevertheless, Airasia's pre-tax profit dropped 25% q-o-q & 65% y-o-y to RM108 million due to an increase in finance costs of 170% q-o-q or 18% y-o-y to RM265 million.

Table 2: Airasia's detailed P&L for q-o-q & y-o-y comparison

Chart 2: Airasia's last 22 quarterly results (incl. profit margin & moving average lines)

Valuation

Airasia (closed at RM3.45 as at 9.30am) is now trading at a PE of 12.8 times (based on the last 4 quarters' EPS of 27 sen). Given the challenging operating environment- with high fuel costs & slacking demand, I believe Aiasia is full valued.

Technical Outlook

In the past few posts, I've commended that Airasia's technical outlook has turned bullish as it had broken above the expanding triangle (see the two diverging red line). Now, I have drawn a best fit line (in blue) that may capture the price movement in the stock over the past 4 years. That move was initially gradual (in 2008 & 2009) but it accelerated in 2010. Now, there is clear signs that it has lost a lot of momentum. I believe the stock will pull back to RM3.00-3.20 to test the support of the blue 'best-fit' line and if that support fails, it may drop to test the upside of the expanding triangle at RM2.40-2.50.

Chart 3: Airasia's weekly chart as at Nov 21, 2011 (Source: Tradesignum)

Conclusion

Based on challenging operating environment, poorer financial performance, full valuation & weakness in technical outlook, Airasia is rated as a SELL INTO STRENTH or REDUCE.

Success- yet to live up to its name

2011-11-23T08:09:00.000+08:00

Results Update

Success's net profit remained unchanged q-o-q at RM6.7 million while its turnover inched up 3.5% to RM63.9 million. When compared to the corresponding quarter last year, its net profit increased by 27% on the back of 22%-increase in turnover. The company reported that the y-o-y improvement in bottom-line & top-line was due to overall increase in sales for all segments in general and and the process equipment segment in particular. For more on the business segments, go to an earlier post.

Table: Success's last 8 quarterly results

Chart 1: Success's last 18 quarterly results (with profit margin)

Valuation

Success (closed at RM0.865 yesterday) is now trading at a trailing PE of 3.8 times (based on last 4 quarters' EPS of 22.62 sen). At this PE multiple, Success is deemed attractive.

Technical Outlook

Success is now resting on its long-term uptrend line at RM0.85.

Chart 2: Success's weekly chart as at Nov 21, 2011 (Source: Tradesignum)

Conclusion

Based on steady financial performance, attractive valuation & good technical outlook, Success is a good stock for long-term investment.

WTHorse- bottom-line dropped on lower sales & profit margin

2011-11-21T14:47:00.005+08:00

Results Update

For QE30/6/2011, WTHorse's net profit dropped by 16% q-o-q or 39% y-o-y to RM11.9 million while turnover declined by 6% both q-o-q & y-o-y to RM131 million. The lower net profit was attributed to lower sales (which is due to festive season) as well as lower profit margin.

Table: WTHorse's last 8 quarterly results

Chart 1: WTHorse's last 25 quarterly results (including profit margin)

Valuation

WTHorse (closed at RM1.72 yesterday) is now trading at a PE of 7.6 times (based on last 3 quarters' average EPS of 5.65 sen). At this PE multiple, WTHorse is very near its full value of RM1.80 (based on PE of 8 times).

Technical Outlook

WTHorse broke its long-term uptrend line at RM1.85 in August. Its immediate support is at the horizontal line at RM1.70.

Chart 2: WTHorse's weekly chart as at Nov 18, 2011_plotted on log scale (Source: Tradesignum)

Conclusion

Based on weaker financial performance, limited upside in share price & bearish technical outlook, the rating for WTHorse remain SELL or REDUCE.

MEGB- keeps sliding away

2011-11-21T11:59:00.006+08:00

Results Update

MEGB's net profit dropped by 52% q-o-q or 79% y-o-y to RM5.5 million while its turnover dropped by 7% q-o-q or 24% y-o-y to RM61 million. The drop in top-line is due to more stringent entry requirement while bottom-line suffered due to lower turnover as well as higher staff cost & depreciation charges.

Table: MEGB's last 10 quarterly results

Chart 1: MEGB's last 10 quarterly results (with profit margin)

Valuation

MRGB (closed at RM1.15 as at end of morning session) is now trading at a trailing PE of 14.4 times (based on average quarterly EPS of 2 sen from the past 2 quarters). With the contraction in the top-line 7 bottom-line, MEGB should trade at lower PE multiple than 14.4 times. I would not be surprised if it trades at a PE multiple of 10-12 times in the near future.

Technical outlook

MEGB has broken below its short-term uptrend line at RM1.30 (coinciding with the 20-day SMA line). It may continue its prior downtrend & revisit its recent low at RM1.08.

Chart 2: MEGB's daily chart as at Nov 18, 2011 (Source: Tradesignum)

Conclusion

Based on poor financial performance & technical outlook, MEGB is rated as a SELL.

Allianz's profit dipped slightly

2011-11-21T11:21:00.004+08:00

Results Update

Allianz's net profit dropped by 25% q-o-q or 21% y-o-y to RM27.5 million while turnover increased by 2% q-o-q or 13% y-o-y to RM687 million. Top-line increased due to higher gross premium earned from the general insurance business while bottom-line decline due mainly to an out-of-court settlement of a legal suit.

Table: Allianz's last 8 quarterly results

Chart 1: Allianz's last 23 quarterly results

Valuation

In the last 4 quarters, Allianz reported gross EPS of 91 sen or diluted EPS of 40 sen. Based on its closing price of RM4.55 on last Friday, Allianz is now trading at a diluted PE of 11.4 times. For a company with such a strong growth track record, it could command a higher PE of 13-15 tines.

Technical Outlook

Allianz is now resting on its long-term uptrend line (SS) at RM4.50. This coincides with the horizontal line at RM4.50.

Chart 3: Allianz's weekly chart as at Nov 18, 2011 (Source: Tradesignum)

Conclusion

Based on good financial performance, undemanding valuation & still-positive technical outlook, I would rate Allianz as a good stock for long-term investment.

Market Outlook as at November 21, 2011

2011-11-21T09:33:00.004+08:00

I have posted a few days earlier that our market is on the verge of completing the bear rally (here). In that post, I compare the rally which started in October this year to another rally in 2008. The triggers for the completion of the bear rally are:

1) FBMKLCI dropping below its 20 & 40-day SMA lines at 1462 & 1456; and
2) Indicators, such as MACD, RSI and ADX, turning negative.

We can see from the chart below that these two triggers or conditions have been met. FBMKLCI is at 1442 as at 9.30am.

In line with this, I believe the bear rally is over & the bear market downtrend is likely to resume. You are advised to avoid taking long position in the market.

Chart: FBMKLCI's daily chart as at Nov 21, 2011_9.30am (Source: Quickcharts)

US 30-year Treasury Bond yield revisiting its 2008 low

2011-11-19T18:16:00.006+08:00

There are plenty of negative reports on the European sovereign debt problem. If you want to read about them, just go to Clusterstock or Pragmatic Capitalism. I just want to point out the the rally for some safe haven assets, especially the US 30-year Treasury Bond could be signaling that the financial market is expecting a blow-up in Europe any time now. The last time, TYX (or 30-year Treasury Bond yield) dropped to such a low level was during the US Sub-prime Crisis. Investors are now worry about return of capital, not return on capital!

Be careful out there!

Chart: TYX's weekly chart as at Nov 18, 2011 (Source: Yahoo Finance)

Kossan's profit margin starting to recover

2011-11-18T16:34:00.005+08:00

Results Update

Kossan's net profit increased by 13% q-o-q to RM23.6 million on the back of a marginal 1%-increase in turnover to RM279 million. When compared to the corresponding quarter last year, Kossan's net profit dropped 17% on the back of a marginal 1%-increase in turnover.

Table: Kossan's last 8 quarterly results

Kossan's bottom-line has finally begun to inch up in QE30/9/2011 due to improvement in profit margin.

Chart 1: Kossan's last 21 quarterly results

Chart 2: Kossan's profit margin for last 21 quarterly results

Valuation

Kossan (closed at RM3.07 yesterday) is now trading at a trailing PE of 10 times (based on last 4 quarters' EPS of 30.3 sen). At that PE multiple, Kossan is deemed fairly priced, with 5-10% upside.

Technical Outlook

Kossan may have broken above its downtrend line at RM2.90-3.00. Its immediate resisatnce is at RM3.30.

Chart 3: Kossan's weekly chart as at Nov 18, 2011_11.30am (Source: Quickcharts)

Conclusion

Based on improving financial performance & cautiously positive technical outlook, Kossan could be a good stock for medium-term investment. However, its upside potential may be limited to 5-10% based on the current valuation.

Iris may show the way?

2011-11-18T11:14:00.005+08:00

A few clients inquired what would happen to Harvest going forward. To be sure, no one knows. Let's look at what happened to the last stock that was designated- Iris in 2006.

Iris had a strong run-up from RM0.14 in early January 2006 to a high of RM1.38 on May 11, 2006 (Thursday). At the end of that trading day, Iris- which closed at RM1.36- was suspended & designated. Trading recommenced on May 16 (Tuesday) with a drop to a low of RM0.65 before it closed at RM1.00. Iris tested the low of RM0.65 again on May 22. This means that Iris retraced 59% of its gain of RM1.24 (from a low of RM0.14 to a high of RM1.38). When the designation was lifted on June 22 (Thursday), Iris rallied to revisit its recent high. In fact, it surpassed the earlier high by 1 sen (to make a new high of RM1.39). On hindsight, we now know that Iris had made a double top on the re-test of the high.

Chart 1: Iris's daily chart from Dec 1, 2005 to Sep 30, 2006, Overlaid with Fibonacci Retracement (Source: Quickcharts)

On the way down, Iris found support at the 50-day SMA line at RM1.10 on July 14. From here, it staged a small rebound which fizzled out after two days. The drop continued & it broke its uptrend line at RM0.85-0.87 on July 20. By September 8, Iris had declined nearly back to where it started. It closed at RM0.16 that day.

Chart 2: Iris's daily chart from Dec 1, 2005 to Sep 30, 2006 (Source: Quickcharts)

On reading this post, the optimists would say "Let's take a punt on Harvest". In fact, the stock did a decent rebound to close at RM1.20 at the end of the morning session. The warrant has also risen to close at RM0.955. The pessimists would however see the danger in trading this stock as it may drop back to where it started from- RM0.08!

The thing that may set Harvest apart from Iris is timing. Iris's sharp drop & equally sharp rebound coincided with the start of the 2006-2007 bull run. Harvest's current rally happened after the 2009-2011 bull run. Would the current speculative play among the 2nd & 3rd liner stocks help the sentiment for Harvest now? Or, would the designation of Harvest jeopardize the speculative play among the 2nd & 3rd liner stocks? Only time will tell.

Amway announces a bumper dividend (amended)

2011-11-17T09:33:00.006+08:00

Results Update

Amway's net profit increased by 36% q-o-q or 20% y-o-y to RM26 million while turnover increased by 25% q-o-q or 10% y-o-y to RM212 million. The higher net profit was due to higher sales, which in turn was attributed to higher distributor productivity driven by sales & marketing program implemented previously.

Table: Amway's last 8 quarterly results

There are a few things to note:
1) The 3rd Quarter is seasonally the best quarter for Amway (see Chart 1).
2) Amway's profit margin has been sliding for the past 3 years, due probably to competition from other MLM operators (see Chart 2).
3) Amway which sources some of its products from the US muat have benefited from the favorable trend for USD-MYR cross rate. As USD-MYR has now reversed, Amway's imported products would have to be adjusted higher. How would this impact Amway?

Chart 1: Amway's last 17 quarterly results

Chart 2: Amway's profit for the last 17 quarterly results

Bumper Dividend announced as expected in my previous post.

Chart 3: Amway's dividend payout for the last 17 quarterly results

Valuation

Amway (traded at RM9.21 as at 10.00am) is trading at a trailing PE of 18 times (based on last 4 quarters' EPS of 51 sen). At this PE multiple, Amway is deemed expensive. However, Amway has a good dividend payout which gives a yield of 7.2% (earlier incorrectly stated as 10.7%).

(Note: Hat tip to reader, Chong Kong Hui for highlighting the error in the computation of the Dividend Yield.)

Technical Outlook

Amway broke above its medium-term downtrend line at RM9.00 yesterday. Its next resistance is at RM9.20. Thereafter it may re-test its recent high at RM9.65-9.66.

Chart 4: Amway's daily chart as at Nov 17, 2011_9.30am (Source: Quickcharts)

Conclusion

Based on good financial performance & high dividend yield, Amway is a good stock for long-term investment, especially for income purpose. However, the stock's upside potential is limited as it is now trading at a trailing PE of 18 times. As such, I would rate Amway a 'Sell into strength' as it approach the RM9.50-9.60 mark.

TAGB has a bullish breakout

2011-11-17T09:09:00.003+08:00

Before we start, let's note that the FBMKLCI is now down about 6 points to 1471 (as at 9.30am). We would be entering the danger zone (or the change-over zone as per yesterday's post on Market Outlook) if the FBMKLCI were to go below 1458-1465 levels.

One stock which I have been tracking for the past few days is TAGB. The stock has broken above its downtrend line at RM0.31. It has surpassed the immediate horizontal resistance at RM0.32. This stock is about to commence on its upleg. Its next resistance is at RM0.35 & then at RM0.38.

Chart 1: TAGB's daily chart as at Nov 17, 2011_9.20am (Source: Quickcharts)

You may notice that its parent company, TA is now testing its downtrend line at RM0.62. Unlike TAGB, TA did not see an increased volume over the past few weeks. I believe the play is at TAGB.

Chart 2: TA's daily chart as at Nov 17, 2011_9.20am (Source: Quickcharts)

Based on the above, I believe TAGB could be a good trading BUY. However, I shall again caution that the market could be at a tipping point. You should exercise careful discretion & do not trade too aggressively.

Further thoughts about the Market Outlook

2011-11-16T14:30:00.004+08:00

I have often compared the current market rebound to the rally in March to May 2008. There is a danger in such comparison because market seldom repeats itself exactly. Non-technical analysts would always fault technical analysts as people who would scout the charts for patterns. One writer went as far as comparing technical analysts' study of chart patterns to children playing the game of looking for pictogram in the cloud.

In my opinion, the current market should be very similar to the market in 2008 because investors are going through the same emotion as they confront the unknown- the impact of a possible collapse of a giant economy or a giant economic block. That emotion & the action taken in the pressure-cooker environment would prompt us to act in the same manner- sell when we're in fear (as the market keeps dropping); buy when we're driven by greed (as the market zooms higher); and finally sitting tight & hope for the best (when the market bounces like a yo-yo). When you look at the two charts below, you would see almost the exact pattern of price movement.

In May 20-26, 2008, the FBMKLCI broke below the 20 & 40-day SMA line. The MACD hooked down; RSI cut below the 30-day SMA ; and the -DMI cut above the +DMI. Today, the FBMKLCI is trading above the 20 & 40-day SMA line (at 1458-1465). The RSI hasn't cut below the 30-day SMA nor has the -DMI cut above the +DMI. The only thing negative is the MACD has hooked down.

Chart 1: FBMKLCI's daily chart as at Nov 16, 2011_11.30am (Source: Quickcharts)

Chart 2: FBMKLCI's daily chart from Feb 2 to Jun 30, 2008 (Source: Quickcharts)

While we should continue to track the FBMKLCI index closely to determine the direction of the market going forward, we should take some early precaution given what we had experienced in 2008 & the on-going never-ending problem in Europe. We should take some profit or reduce our position in the market.

Armada is sailing away

2011-11-16T09:53:00.003+08:00

One of the big movers this morning is Bumi Armada Bhd ('Armada'), a company controlled by Ananda Krishnan. It is the largest owner & operator of offshore support vessels in Malaysia. For more, go here.

Armada broke above its downtrend line at RM3.45 on October 6. An short-term uptrend line has also formed. If we draw a line connecting the recent high, we have an irregular upward channel. The current upswing may send this stock to test the upper channel at RM4.20-4.25. However, the stock may weak back to re-test its uptrend line at RM3.70-3.75- which would be a good entry point.

I am more comfortable to nibble into this stock on pullback towards the uptrend line.

Chart 1: Armada's daily chart as at Nov 16, 2011_9.40am (Source: Quickcharts)

Chart 2: Armada's 60-min chart as at Nov 16, 2011_9.40am (Source: Quickcharts)