Happy New Year!

I would like to wish everyone a very happy and prosperous new year. Let's look forward to a better 2009!


Source: MIFC2008

CPO prices likely to move higher

From the two daily charts below, it appears that CPO prices are poised to move higher. From Chart 1, we can see that CPO prices are consolidating within the Bollinger Bands for the past 2 months. A break above RM1670 could signal an expansion in the Bollinger Bands towards the upside.


Chart 1: CPO's daily chart (overlaid with Bollinger Bands, Parabolic SAR & Stochastics) as at Dec 30, 2008 (source: ifs.marketcenter.com)

From Chart 2, we can see that the CPO prices may have broken to the upside of the symmetrical triangle that enveloped the price movement over the past 2 months. The ADX indicator is supportive of a move to the upside for CPO prices.


Chart 2: CPO's daily chart (overlaid with Parabolic SAR, CCI & ADX) as at Dec 30, 2008 (source: ifs.marketcenter.com)

Finally, the weekly chart (Chart 3) shows that the Parabolic SAR (short for 'stop-and-reversal' indicator) has moved below the price. This positive sign, coupled with the breakout of the symmetrical triangle is supportive of high prices for CPO going forward.


Chart 3: CPO's weekly chart (overlaid with Bollinger Bands & Parabolic SAR) as at Dec 30, 2008 (source: ifs.marketcenter.com)

Based on the above, we should try to accumulate some good plantation stocks, such as IOI, KLK & Asiatic in order to gain from the recovery in CPO prices.

The Dogs of Bursa Malaysia

The Dogs of the Dow is an investment strategy popularized by Michael O’Higgins in 1991 which proposes that an investor annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price. From Wikipedia, we have this:

The proponent of the Dogs of the Dow strategy argue that blue chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company; the stock price, in contrast, fluctuates through the business cycle. This should mean that companies with a high yield, with high dividend relative to price, are near the bottom of their business cycle and are likely to see their stock price increase faster than low yield companies. Under this model, an investor annually reinvesting in high-yield companies should out-perform the overall market. The logic behind this is that a high dividend yield suggests both that the stock is oversold and that management believes in its companies prospects and is willing to back that up by paying out a relatively high dividend. Investors are thereby hoping to benefit from both above average stock price gains as well as a relatively high quarterly dividend. Of course, several assumptions are made in this argument. The first assumption is that the dividend price reflects the company size rather than the company business model. The second is that companies have a natural, repeating cycle in which good performances are predicted by bad ones.

In a post entitled "Dogs will be Dogs" in bespokeinvest, we have the following comment on the poor performance of the Dogs of Dow '08:

All of the '08 dogs have turned out to be dogs once again, with not one gaining this year. General Motors and Citigroup have been the worst performers with declines of 85% and 76%, respectively. The ten lowest yielding stocks (opposite of the dogs) have actually averaged even bigger declines, but that is mainly because of AIG's 97% fall. The middle group of stocks in the Dow have done the best, with an average decline of 28%.

Table 1: Dogs of Dow 2008 & YTD % Change (Source: bespokeinvest)

Notwithstanding the poor track record of the Dogs of Dow '08, I would like to examine this investment strategy for the Malaysian stock market. I have tabulated below the top 30 stocks in Bursa Malaysia that are component members of the FTSE Bursa Malaysia Large 30 Index ('FBM30') & computed the Dividend Yield for each stock in order to determine the Dogs of Bursa Malaysia. The most difficult part is determining the denominator, i.e. the amount of dividend paid out by these stocks. You may use the Dividend Yield given by the financial press, but the dividend amount used may include Special Dividends that are one-off in nature, or some are fairly regular despite being called Special Dividend. Instead, I have collated the data from Bursa Malaysia & arrive at Table 2 below.


Table 2: FBM30 & Dividend Payout (incl. Special Dividend, Capital Repayment, Dividend-in-Specie)

In Table 2, you will see the dividend paid by each stocks for 2 financial years. A few pointers here:
1. If the full data for the dividend payout for FY2008 is available, you will see the dividend data for FY2008 & FY2007; otherwise you will see the data for FY2007 & FY2006.
2. If the company paid out dividend twice a year, I will present it as 2D (then followed by the amount in sen). For companies that paid out dividend once a year, I have denoted this as FFD.
3. If there is a Special Dividend, I will denote it as "Sp". Capital Repayment is denoted as "CR", while Dividend in Specie (such as Treasury Share distribution) is denoted as "DiS". I will include Special Dividend as dividend if there is a repeat of such payout in the earlier year. Capital Repayment is not dividend (of course), but its presence is an indication of the company's intention to achieve a certain level of dividend payout. So, if I see a Special Dividend for FY2008 & not in FY2007, but instead there was a Capital Repayment of similar amount in FY2007, then I would assume that Special Dividend will be a regular feature for that company. I have also valued Dividend in Specie & included it into the amount of dividend paid out, if it is a regular event.
4. The dividend for the most recent financial year (either FY2008 or FY2007) will be used to compute the dividend yield. There is no need to estimate the dividend amount for the current year for this study (and, no attempt has been made).

Based on the earlier table, we can tabulate Table 3 where the stocks are ranked according to their Dividend Yield.


Table 3: Dogs of Bursa Malaysia 2009

While the Dogs of Dow '08 didn't work out well this year, there are periods that this strategy has been fairly successful. Investors may like to know that the Dogs of Bursa Malaysia for 2009 are Digi.com, Maybank, Public Bank, YTLPower, KLKepong, Sime Darby, Berjaya Sport Toto, BAT, Tanjong & Petronas Dagang.

GPacket proposed a private placement

On December 19, GPacket announced that the issue price of the Proposed Private Placement of 66,655,875 shares-- first announced on October 2008-- has now been fixed at RM0.70 per share. Over the next 3 days (December 22-24), GPacket share price rose from RM0.73 to RM1.07.

GPacket's financial performance for the past 8 quarters is presented below (see Table 1). You can see that its turnover has been sliding for the past 8 quarters from RM43 million in 4Q2006 to RM18 million in 3Q2008. At the same time, its bottom-line changed from a net profit of RM15.3 million to a net loss of RM10.3 million.


Table 1: GPacket's 8 quarterly results up to 3Q2008

From Table 2, we can see the last 5 quarters' segmental results of GPacket. Its main money-earner used to be the Software and Applications division & the Communication & Voice Services (formerly, the Discounted Telephony) division. The revenue from the former has fallen off sharply, while the Communication & Voice Services has been able to maintain its revenue, its margin has dropped sharply (from 24.5% in 1Q2007 to a mere 1.6% in 3Q2008). The new Broadband Services and Solutions division, which spearheads GPacket's WIMAX business, is still struggling to get on its feet. Since its commercial launch in 1Q2008, this division has only managed to grow its quarterly sale to RM0.3 million for 3Q2008. With heavy advertising and promotional activities carried out to create awareness of its new WIMAX service, the Broadband Services and Solutions division is expected to continue to incur heavy losses for sometime.


Table 2: GPacket's segmental results from 1Q2007 to 3Q2008

From the chart below, we can see that GPacket has been trending lower since making a high of RM7.80 in March 2007. Despite the sharp price run-up over the past 3 days, GPacket's downtrend line is still intact with resistance at RM1.40.


Chart: GPacket's weekly chart as at December 24, 2008 (source: Quickcharts)

Based on the bearish technical outlook and the poor financial performance, GPacket is still a stock to be avoided.

Plantation stocks- good for a short-term trade?

Earlier, we have examined the close inverse correlation between USD & Commodities in general (represented by CRB) & Crude Oil in particular (represented by WTIC). Now let's look at the inverse correlation between USD & Agribusiness share price. To do so, we shall use the index for an agricultural ETF, Market Vectors Agribusiness (MOO). MOO tracks a global group of 40 company stocks that are in Agribusiness. I have presented a chart of USD vis-a-vis CRB & MOO (see Chart 1 below).

In the earlier post, we have noted that the CRB had failed to spike-up for a few days (i.e. Dec 11-17) when the USD was in a free fall. Notice how the MOO did not suffer the same fate. MOO has actually spiked up in the midst of a USD selldown.


Chart 1: The daily chart of USD vis-a-vis CRB & MOO as at Dec 22, 2008 (source: Stockcharts.com)

Now, we are going to take a quick look at CPO price movement over the past 4 months. CPO has been moving sideway for the past 2 months (since the end of October). We have not examined the correlation between USD & CPO, but offhand I believe that the same inverse correlation does apply.


Chart 2: CPO's daily chart as at Dec 22, 2008 (source: ifs.marketcenter.com)

From Chart 3, we will see the Plantation Index has broken above its medium-term downtrend line in early November & thereafter it was moving sideway (like CPO prices). On December 18, Plantation Index broke above its trading range, albeit on small volume. It was able to hold above the breakout level of 4000 for the next two days. Is this a genuine breakout or a fake rally due to year-end window dressing exercise? We have to wait & see.


Chart 3: Plantation's daily chart as at December 22, 2008 (source: Quickcharts)

From Chart 4 below, we can see that Plantation Index hit its immediate long-term uptrend line support at 3000 & it is now in the midst of a technical rebound.


Chart 4: Plantation's monthly chart as at December 22, 2008 (source: Quickcharts)

While I would like to see a more drawn-out bottoming phase for the Plantation Index & maybe a positive crossover in the monthly MACD before getting aggressive on this sector, I cannot discount the possibility of a strong rebound in the Plantation sector due to its recent sharp selldown. If one choose to take a constructive position in this sector-- with a view for short-term trading-- this could be a good time to do so. Good luck.

Dollar Crisis & Commodities Outlook

Ever since the US Financial Crisis started, many investors have been asking the question why are the US stock markets so much more resilience in this storm as compared to the Asian stock markets during the Asian Financial Crisis of 1998. I think one of the main reason is the absence of a currency crisis; something that is quite unlikely to happen as well as the US dollar remains the reserve currency of the world. However, that day may have finally arrived.

Last Tuesday, the Fed announced that it would "cut interest rates to between zero and 0.25 percent, coupled with a promise to keep them there for an extended period, and the threat to conduct even more unconventional operations in the longer-dated Treasury market risks the biggest bubble of all, this time in U.S. government debt." Thus, the US has now started down the road of Quantity Easing ('QE'), something which the Japanese had tried with limited success in order to revive her economy.

It will be noted that the US QE will be greater in magnitude & wider in scope than the Japanese QE. "In quantity terms, a comparison of the US QE with that in Japan shows that, during just the first four months (16 weeks), the US monetary base has soared by 97.2% compared to a modest 6.7% at this point in the Japan QE cycle. Indeed, even after the first year the Japanese monetary base had risen only 32.5%". The second major difference is that Japan "focused primarily on getting the banking sector to lend again by buying up government bonds to boost reserves, the US is snapping up a variety of assets including commercial paper, MBS, etc." With the wider scope, it is hopeful that the US QE will be more successful than the Japanese QE. This comment was made by a post entitled "That's not quantitative easing..." from ftalphaville.

In an article entitled "The Dollar Crisis Begins", John Hussman has made a few interesting comments:

Think about that for a second. We've got 10-year Treasury bonds yielding only about 2%, and the Federal Reserve is “evaluating the potential benefits” of purchasing them? While that statement may have been intended to encourage a further easing in long-term interest rates (to which mortgage rates are tied), the prospect of suppressed interest rates at every maturity sent the U.S. dollar index into a free-fall. If the Fed ends up buying long-term Treasuries, it will almost certainly be a bad trade, but it may be required in order to absorb the supply from foreign holders set on dumping them.

And for good reason. The panic in the financial markets in recent months has driven Treasury bond prices to speculative extremes. Unfortunately, unlike the stock market, where hopes and dreams about future cash flows can often sustain speculative markets for years, it is very difficult to sustain speculative runs in bond prices. The stream of payments for bonds is fixed and known in advance. For foreign investors holding boatloads of U.S. Treasuries, the recent rally in the U.S. dollar, coupled with astoundingly low yields to maturity, have created a perfect time to get out.

In the next several months, we're likely to observe one of two things. If the dollar holds steady, Treasury bond prices are likely to plunge; if Treasury prices hold steady, the value of the dollar is likely to plunge. Either way, foreign holders of Treasury securities are facing probable losses, and they know it.

As I noted earlier this year, a continued flight to safety in Treasury bonds, coupled with a continued massive current account deficit, “ places the U.S. in the difficult position of having to finance an enormous volume of capital needs from foreigners, particularly for Treasury debt, yet without being able to offer competitive yields or strong prospects for additional capital gains. My impression is that the markets will respond to this difficulty with what MIT economist Rudiger Dornbusch referred to in 1976 as “exchange rate overshooting.” In the present context, that means a dollar crisis. Specifically, if there is a weak prospect that foreign lenders will achieve a total return on U.S. Treasuries competitive with what they can earn in their own country, and every prospect that short-term interest rates in the U.S. will remain depressed or fall even further, the only way to attract capital is to immediately drive the value of the U.S. dollar to such a sharply depressed level that it will be expected to appreciate over time.”

With this background, let's examine the performance of the US dollar ('USD') over the last few week. The December 16 decision to engage in QE by the Fed has resulted in the USD plunging below its medium-term uptrend line. Despite the rebound over the last 2 days, the USD is still below the uptrend line. Over the next few months, I believe that the USD is likely to slide further & probably stabilizing at the strong horizontal support of 71-74.


Chart 1: USD Index's daily chart as at Dec 22, 2008 (source: Stockcharts.com)

In the past, we can see that the price movement of Commodities in general & Crude Oil in particular have a close inverse correlation to the movement of the USD (see Chart 2 below). However, you can see that this inverse correlation seems to be breaking down for a few days when the USD went into a free fall (i.e. from December 11-17), with CRB & WTIC failing to spike-up. There are two possible explanations for this; either the commodities players do not believe the USD can drop any further or the demand destruction in the present economic environment is so severe that commodities players chose to liquidate their position in any rally rather than adding to their position. Only time will tell what would be the outcome of this tussle.


Chart 2: The daily chart of USD vis-a-vis CRB & WTIC as at Dec 22, 2008 (source: Stockcharts.com)

One commodity which has definitely benefited from USD's recent free fall is the gold. Gold has rebounded back above its immediate uptrend line (S2). Its overhead resistance (R) is at USD950-960.


Chart 3: Gold's monthly chart as at November 28, 2008 (source: Supercharts by Omega Research)

We have been looking at the USD crisis & the likely positive impact on Commodities' prices. The anticipated positive effect of a weakened USD on Commodities' prices seems to be waning. We will track this closely & hopefully the inverse correlation return to give a boost to Commodities in general & our CPO in particular.

Market Outlook as at December 22, 2008

The KLCI was up 11.3 to 887.7 as at 10.00 am today. It has broken above the 50-day SMA at 883 & it is poised to test the medium-term downtrend line resistance at 900-910 (see Chart 1 below). How far can this rally go? Is this just a year-end window dressing exercise?


Chart 1: KLCI's daily chart as at December 19, 2008 (source: Tradesignum.com)

From KLCI's monthly chart (Chart 2 below), we can see that the William's %R is poised to cross above its 5-month SMA. In the past 2 occasions when this happened (denoted as 'a' & 'b'), the KLCI has a strong rebound lasting 1-2 month(s). If the same happens again, then it is likely that the KLCI will have more than just a year-end window dressing exercise. The developing rally may even continue & morph into a decent Chinese New Year rally. However, we must note that there is no sign yet of a positive crossover of the monthly MACD to confirm the end of the bear market. The last 2 occasions when the monthly MACD did a positive crossover (denoted as 'A' & 'B'), the market entered into a bullish phase.


Chart 2: KLCI's monthly chart as at December 19, 2008 (source: Quickcharts)

I have also appended below the daily chart of the Shanghai Stock Exchange Composite Index, SSECI (Chart 3). We can see that SSECI has broken above its medium-term downtrend line resistance at 1950-2000 in early December. The SSECI can act as a leading indicator. It peaked in October 2007 whereas the KLCI peaked in January 2008- a good 3 months later. If the SSECI can surpass its medium-term downtrend line, there is a good chance that our KLCI can do the same.


Chart 3: SSEC Index's daily chart as at December 19, 2008 (source: Stockcharts.com)

Based on the above, I believe that one can take some trading position in the market for the next 2-3 weeks. If the present timid price run-up turn into a strong Chinese New Year rally, you will be well reward. This is especially so if the KLCI breaks above the medium-term downtrend line resistance at 900-910.

Haio's topline & bottomline slipped further

Haio has just announced its results for 2Q2009 ended 31/10/2008. Its net profit dropped 20.0% q-o-q to RM10.9 million on the back of a 22.7%-decline in turnover to RM87.3 million. The poorer results was attributable to lower sale from the MLM division due to the Ramadam fasting month in the 2Q2009. However, we can see that the deterioration in Haio's financial performance started in 1Q2009 after the topline & bottomline peaked in 4Q2008. This may reflect the poorer consumer sentiment over the past 2 quarters, due to higher inflation & drop in consumers' income. When compared to the previous corresponding quarter, its net profit for 2Q2009 was still up 19.7% while turnover was up 8.4%.



Haio (closed at RM3.06 yesterday) is now trading at a trailing PE of 4.2 times (based on the past 4 quarters' EPS of 73 sen) or at a Price to Book of 1.5 times (based on NTA per share of RM1.98 as at 31/10/2008). At these multiples, Haio looks very attractive. However, Haio's lower earning is likely to continue to slide in the near future, given the challenging outlook for the Malaysian & global economy.

Haio's share price is still in an uptrend, with support at RM2.90-3.00. This is also a very strong horizontal support level for this stock. A break below this level could sign the beginning of the downtrend for the stock.


Chart: Haio's weekly chart as at Dec 18, 2008 (source: Quickcharts)

While you may say that the poorer outlook for Haio has already been factored into the share price, you should continue to watch Haio closely if you have a position in this stock. You should quickly dispose of this stock if the share price broke below the RM2.90-3.00 support. If you do not have any position in Haio, then you should avoid Haio even when the share price reaches the support level, given the poor outlook for consumer stocks for the next few quarters.

CWs making a quiet comeback

It has been a long while since we last looked at CWs. And, it's a good thing too because you don't want to own a leverage product that exaggerate your losses in a bear market. Kenanga Investment Bank Bhd, where I presently attach, will be issuing its first batch of CWs over the shares of Resorts & Public Banks as well as the KLCI. Yesterday, three new CWs (IOICorp-CJ, Genting-CM & CHMOBIL-CD) issued by OSK were quoted and they traded at prices higher than their IPO price.

Is it a good time to look into CWs? The quick & simple answer is probably 'NO', but if one is worried that he will be an idiot for not buying when share prices are so attractive (see Jeremy Grantham's comment) or that he will be missed the Bottom (here), then positioning by way of CWs could be one way around this dilemma. It is an insurance against missing out on the market recovery but, like all insurance policies, it doesn't come cheap. One can expect to pay 10-20% premium for a duration of 8-16 months. If the market does not recovery, the entire premium could be lost. But, if the market recovers strong, then one would reap a handsome reward. CWs give investors "unlimited upside but limited downside".

I have tabulated below the CWs over Malaysian stocks (Table 1); CWs over foreign stocks (Table 2); and CWs over indices (Table 3). Most of these CWs are trading at excessively high premium. Any CW with premium of more than 20% should be avoided. The best way of getting into CWs, at reasonable premium, is to subscribe for them through the issuers or selling agents.


Table 1: CWs over Malaysia stocks as at December 9, 2008


Table 2: CWs over foreign stocks as at December 9, 2008


Table 3: CWs over indices as at December 9, 2008

In conclusion, one may consider buying CWs in order to position oneself in case the market put in a strong recovery (albeit, there is only tentative signs of bottoming at this stage). It is a leverage instrument that carries higher risk as well as higher reward. For new investors, I would strongly advise against buying CWs, without reading more on this instrument.

For more on CWs or Structure Warrants, go to the website of SIDC or SGX or DBS.

TMI may be due for a rebound

When the old TM was split up into today's TM (that houses fixed line and local assets) and TMI (mobile and regional assets), analysts were mostly in favor of TMI because of its exciting growth prospects. On quotation on April 28th, TMI traded at a high of RM8.20 (compared to a high of RM3.70 recorded by the restructured TM). TMI's share price has been trending lower ever since.

The decline in TMI's share price reflects the normal performance of growth stocks in a bear market. Lately, the drop has picked up speed as new concerns have arisen with regards to TMI's ability to refinance its maturing short-term debts of RM10.5 billion (which included a bridging loan of RM4.025 billion owing to TM and another bridging loan of about US$2 billion to finance the acquisition of IDEA in India) as well as the possibility of a cut in its dividend payout in order to conserve cash. TMI's management has since denied the report of a planned cut in its dividend (go here) & Khazanah has recently affirmed its support for the ongoing capital-raising and deleveraging of TMI (go here).

A look at TMI's financial performance shows that its turnover has been increasing steadily over the past 2 quarters, while its net profit has been declining due to higher finance costs; higher losses incurred by Spice in India; and, small forex losses (as compared to forex gain of RM42 million in QE31/3/2008).



TMI (traded at RM3.12 as at 11.00 am today) is now trading at a trailing PE of 8.7 times (based on annualized 2008 EPS of 36 sen) or at a Price to Book of 1.0 times (based on NTA per share of RM3.22 as at 30/9/2008). At these multiples, TMI is quite attractive.

Chartwise, TMI's share price has been trending lower in a downward channel. The share price had overshot the lower boundary of the channel in July, before rebounding. It had also overshot the upper boundary in September, before snapping back. Now, it appears to be pushing into the lower boundary at RM3.00. The stage could be set for another rebound.


Chart: TMI's daily chart as at Dec 4, 2008 (source: Quickcharts)

Based on attractive valuation, TMI could be a good stock for long-term investing. It is a stock that comes with some serious concern about its liquidity position, i.e. its ability to refinance its short-term borrowings. With the backing of Khazanah, I believe that TMI will be able to settle this issue amicably over the next 4-5 months.

Uchitec's top-line & bottom-line slid further

Uchitec has recently announced its results for 3Q2008 ended 30/9/2008. Its net profit dropped 22.3% q-o-q or 32.0% y-o-y to RM12.7 million, while its turnover dropped 20.4% q-o-q or 31.8% y-o-y to RM26.7 million. The reason for the drop in turnover & net profit was attributed to one of its "customer's logistics plan restructuring, which stems from energy-saving directive issued by Switzerland w.e.f. January 2010". This explanation was first given when it announced its financial results for 1Q2008 ended 31/3/2008.



Uchitec (closed at RM0.94 yesterday) is now trading at a PE of 5.5 times (based on last 4 quarters' EPS of 17 sen) or at a Price to Book of 1.9 times (based on NTA per share of RM0.49 as at 30/9/2008). At these multiples, Uchitec is attractively priced.

Uchitec is now holding at its horizontal line & psychological support of RM1.00. If this support failed, then Uchitec will slide to the RM0.50-60 horizontal support level. I believe the present support at RM0.90-1.00 should hold for now.


Chart: Uchitec's monthly chart as at Dec 1, 2008 (source: Quickcharts)

Despite the poorer financial performance, Uchitec is a stock worth tracking. Its valuation is quite attractive. The technical picture is not deteriorating since it found some support at the RM0.90-1.00 level. In the current environment, you can afford to wait for the financial performance to improve or the technical outlook to turn positive. Nevertheless, a slow accumulation of this stock at this stage may not be a bad idea.

Airasia reported a net loss of RM466 million

Airasia has announced its results for 3Q2008 ended 30/9/2008. It reported a net loss of RM466 million on a turnover of RM658 million. The poorer results are attributed to the following:

1. lower operating margin of 15.8% as compared to 36.2% for 3Q2007;
2. Higher Financial costs, which in turn is due to Forex loss of RM212.5 million (3Q2007: Forex gain of RM26.5 million) and higher interest expenses of RM85.8 million (3Q2007: RM40.5 million); and
3. Exceptional items totaling RM215 million, which is due to the cost of unwinding fuel derivative contracts and the likely non-recovery of margin deposit held by Lehman Brothers.

The lower operating margin is probably due to competitive pressure and the need to attract customers in the present difficult economic environment. It is noted that Airasia's Load Factor has slipped by 3.9 ppt from 79.3% in 3Q2007 to 75.4% in 3Q2008.



Airasia has broken above its medium-term downtrend line in July. A tentative short-term uptrend line can be drawn, with support at RM1.00. As at 4.00 pm today, Airasia is trading at about RM0.99.


Chart: Airasia's weekly chart as at Nov 28, 2008 (source: Quickcharts)

Based on poor financial performance & precarious technical outlook, I think one should avoid Airasia for now.

Asiafle's top-line & bottom-line declined

Asiafle has announced its results for 2Q2009, where its net profit dropped by 70.0% q-o-q or 34.8% y-o-y to RM6.5 million. Its turnover of RM72.5 million was higher than previous year's turnover of RM44.1 million, but lower than the preceding quarter's turnover of RM84.8 million. The poorer results was attributable to weaker sales & lower margin.



Asiafle's share price is still in a long-term uptrend, with support at RM3.80-90.


Chart: Asiafle's monthly chart as at Nov 28, 2008 (source: Quickcharts)

Based on poorer results, one should avoid Asiafle for now. Those who are technically inclined may try to trade this stock when it hit the long-term line support, but this should strictly be a trading BUY. If the uptrend line is violated, one should quickly dispose off any long position.

Sime's net profit slid further

Sime has just announced its results for 1Q2009 ended 30/9/2008. Its net profit increased by 44.2% y-o-y to RM867 million on the back of a 6.4%-increase in turnover to RM8.705 billion.



Compared to the preceding quarter, Sime's net profit dropped 15.1% while turnover slid 4.6%. The decline is due to sharply lower contribution from the Property division as well as poorer performance from its Plantation & Energy divisions & lower share of results from Associates & JVs, which had more than offset the improved performance of the Industrial & Motors divisions.

Plantation Division, which account for 70% of Sime's operating profit, will come under close scrutiny. For 1Q2009, Sime secured a lower average crude palm oil price of RM2,962 per tonne compared to preceding quarter of RM3,285 per tonne. How would Sime perform in the next quarter, given that CPO prices are trading at RM1600 per tonne presently? The operating margin of Sime's Plantation division is about 28% (i.e. operating profit of RM968.2 million over turnover of RM3.491 billion for 1Q2009). Since the present CPO prices are 54% lower than Sime's CPO average prices for 1Q2009, this means that Sime could make a loss in its Plantation division for 2Q2009. This maybe a simplistic calculation but I think a more detailed projection will not be too far from this.



As at 3.15 pm today, Sime's share price dropped by 75 sen to RM5.05. From the monthly chart below, we can see that Sime's next strong support is at RM4.90-5.00. If this support is broken, then Sime may test the next horizontal lines at RM4.20 & RM3.30.


Chart: Sime's monthly chart as at Nov 28, 2008 (source: Quickcharts)

Based on serious concern about the performance of Sime's plantation division, I think one should avoid Sime for the next one or two quarter(s).

CPO set to rebound

CPO may have put in a short-term bottom based on two observations- firstly, the Parabolic SAR (short for 'stop-and-reversal' indicator) has moved below the price, and secondly, the 20-day SMA (the middle line within the Bollinger Bands) has finally flattened out & poised to move upward (see Chart 1 below).


Chart 1: CPO's daily chart as at November 27, 2008 (source: ifs.marketcenter.com)

In the past few months, CPO price movement correlates very well with Crude Oil price movement as well as the movement in CRB Index. From Chart 2 & 3 below, we can see that both Crude Oil & CRB have also staged some recovery.


Chart 2: CRB Index's daily chart as at November 27, 2008 (source: Stockcharts.com)


Chart 3: WTIC's daily chart as at November 27, 2008 (source: Stockcharts.com)

On the other hand, CPO price movement has an inverse correlation to the movement in the USD Index. From Chart 4 below, we can see that the USD index has broken below its short-term uptrend line (SS2) support at 87.5 & it may soon test its medium-term uptrend line (SS) support at 80.5-81.0 level. What could be spooking the USD? Answer: The bill for rescuing the US financial system has just surpassed USD8 Trillion! (go here).


Chart 4: USD Index's daily chart as at November 27, 2008 (source: Stockcharts.com)

Further weakness in the USD could spur a strong rebound in many commodities, including our CPO. This in turn would be positive for plantation stocks. The CPO prices could rally much higher if the USD were to break below its medium-term uptrend line. However, one would not want to see the latter scenario happening because it could only mean that the USD has been debased to such an extent that investors began to turn away from this safe haven. It could also signal the end of the present US-dominated global financial system and without a clear successor in place (read: Bretton Wood 2) the world could be a very dangerous place indeed.

Genting incurred a net loss of RM40 million for 3Q2008

Genting has just announced its results for 3Q2008 ended 30/9/2008, where it reported a net loss of RM40 million as compared to a net profit of RM291 million recorded in 1Q2008 or RM275 million achieved in 3Q2007. Turnover increased by 9.7% q-o-q or 6.5% y-o-y to RM2.37 billion.

The poorer results was attributable to lower profit from core divisions [such as Power division (due to higher cost of coal); Plantation division (due to lower prices for FFB); and Leisure & Hospitality division (due to poorer results from both Genting Highlands Resort & UK casino operations)] as well as impairment loss of RM396.3 million (which includes goodwill write-off of RM236.0 million by Genting International arising from its acquisition of Genting Stanley, UK and an impairment loss of RM55.2 million from the Group investment in power plants in China).



From the monthly chart (Chart 1), we can see that Genting has tested its long-term uptrend line support at RM3.60 in October. Presently, Genting's share price is in a medium-term downtrend with resistance at RM5.70-80 (see the weekly chart, Chart 2). With the poor results just announced, there is a possibility that the share price will drop back to re-test the 'low' of RM3.58-60 again.


Chart 1: Genting's monthly chart as at Nov 27, 2008 (source: Quickcharts)


Chart 2: Genting's weekly chart as at Nov 27, 2008 (source: Quickcharts)

I believe that Genting could be a good stock for long-term investing. A good entry level could be between RM3.60-80.

WTK's top-line & bottom-line improved further

WTK has announced its results for 3Q2008 ended 30/9/2008, where its net profit increased by 35.7% q-o-q or 94.5% y-o-y to RM25.9 million while its turnover increased by 7.9% q-o-q or 46.2% y-o-y to RM244 million. The increased turnover & profit was attributable to continued improvement in timber prices.



WTK (closed at RM1.05 yesterday) is now trading at a PE of 8.1 times (based on last 4 quarters' EPS totaling 13 sen) or a Price to Book of 0.43 times (based on NTA per share of RM2.47 as at 30/9/2008). At these multiples, WTK may not appear cheap. If the recovery in timber prices can sustain, WTK's earning can improve further.

As noted in another post, WTK's share price has broken below the all-time 'low' of RM1.28-30 in the middle of last month. Since then, the share price has been hovering between RM1.00-1.12.


Chart 1: WTK's monthly chart as at Nov 27, 2008 (source: Quickcharts)


Chart 2: WTK's daily chart as at Nov 27, 2008 (source: Quickcharts)

Based on steady improvement in its financial performance, I believe WTK is a good stock for long-term investing.

Proton etched out a small net profit for 2Q2009

Proton announced its results for 2Q2009 ended 30/9/2008, where its net profit dropped 16% q-o-q to RM43.8 million on the back of a 7.6%-increase in its turnover to RM1.84 billion. Compared the previous corresponding quarter, Proton's net profit is up eleven folds while turnover is up 41%. Despite the improved performance, Proton's profitability is very tentative. Its revenue for 2Q2009 is the same as its operating expenses of RM1.84 billion, while for the 1H2009, revenue totaling RM3.55 billion exceeds operating expenses by RM12 million. The fact that Proton has managed to report net profit of RM43.8 million for 2Q2009 [& RM95.8 million for 1H2009] was due to Other Operating Income of RM53.3 million [& RM97.4 million for 1H2009] and Share of Results from Associates & JVs of RM8.0 million [& RM12.8 million for 1H2009].



As noted in my previous post (here), Proton made a new all-time low of RM1.60 on November 24. The share price has however recovered somewhat over the past three days and the feared selldown did not materialize.


Chart: Proton's daily chart as at Nov 27, 2008 (source: Quickcharts)

Based on the poor technical outlook & unconvincing financial performance, I think it is best to avoid Proton, given the availability of many attractive stocks to choose from.

Note: Proton has finally renewed the contract of Proton’s managing director, Dato’ Haji Syed Zainal Abidin Syed Mohamed Tahir.

Resorts dropping with big volume

As at 3.45 pm, Resorts dropped 23 sen to RM2.42, with volume hitting 59 million units! What could have prompted such a big selldown?

Firstly, Resorts announced its results for 3Q2008 ended 30/9/2008, where its net profit dropped 11.4% q-o-q or 49.0% y-o-y to RM340.6 million while turnover was down 1.3% q-o-q but up 9.8% y-o-y to RM1.225 billion. The sharp drop in net profit vis-a-vis the previous corresponding quarter was due to an exceptional gain of RM337 million recorded last year from the disposal of investment in Star Cruises. If this exceptional gain were excluded, Resorts' net profit would have increased by 3.0% when compared to the previous corresponding quarter.



Secondly, Resorts has also announced a sizable acquisition yesterday. It has acquired 100%-stake in Bromet Limited (“Bromet”) and Digital Tree (USA), Inc. (“DT Inc”) for a total cash consideration of USD69.0 million (approximately RM249.8 million).

Resorts made this acquisition in order to have a stake in Walker Digital Gaming LLC (“WDG”), a 10%-owned investee company, and Digital Tree LLC (“Digital Tree”), a wholly-owned subsidiary, both within the Acquiree Groups. The business of WDG (from whom Digital Tree solely derives its revenue) is in the development, protection and commercialisation of gaming-related Patents.

In addition, the vendor [KH Digital Limited (“KHD”)] has granted a call option to Resorts for a cash consideration of USD1.00 to acquire, within a period of 18 months from the date of the Call Option Agreement, the entire issued and paid-up share capital of Karridale Limited (“Karridale”) at an exercise price of USD27.0 million (approximately RM97.8 million). The main asset of Karridale is its 100% equity interest in Faargy Limited (“Faargy”), which owns the 10% non-voting equity interest in Walker Digital Lottery LLC (“WDL”). WDL is principally involved in the development, protection and commercialisation of Patents attributable to the lottery industry.

In short, Resorts has acquired 10%-stake in WDG, which is into the development, protection and commercialisation of gaming-related Patents, for USD69 million & has an option to acquire a 10%-stake in WDL, which is into the development, protection and commercialisation of Patents attributable to the lottery industry for US27 million. Without looking at the numbers, it is hard to form an opinion on whether the acquisition was done at a good price and to add to the value of the company. However, the business of the acquiree companies seems like a good fit for Resorts & it is likely that Resorts made this acquisition at a good price, since it is a buyers' market now. In the present market, a company with deep pocket, such as Resorts, will be able to pick up good bargain (see this article from the Edge newsletter). I would be neutral on the acquisition given the lack of information about WDG & WDL.

Chartwise, Resorts has broken above its downtrend line. It has good horizontal support at RM2.40-42.


Chart: Resorts' daily chart as at Nov 26, 2008 (source: Tradesignum.com)

Based on positive technical outlook, I think Resorts could be a trading BUY at the present level of RM2.42.