Happy New Year

Wishing everyone a Happy & Prosperous New Year 2010.


(Source: Screenshots)

Dogs will be dogs!

In December last year, I compiled a list called the "Dogs of Bursa Malaysia" for 2009, which include Digi.com, Maybank, Public Bank, YTLPower, KLKepong, Sime Darby, Berjaya Sport Toto, BAT, Tanjong & Petronas Dagang. The "Dogs of Bursa Malaysia" is based on the investment strategy popularized by Michael O’Higgins in 1991 which is called the "Dogs of the Dow". This strategy proposes that an investor annually selects for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price. For more, see my earlier post (here).

Over the past one year, our FBM-KLCI has gained 45% from 876.75 as at 31/12/2008 to 1271.12 as at 30/12/2009. From the table below, we can see that the top 5 "dogs" (Digi.com, Maybank, Public Bank, YTLPower & KLKepong) gained 45% but the 2nd batch of "dogs" (Sime Darby, Berjaya Sport Toto, BAT, Tanjong & Petronas Dagang) managed to etch out a gain of only 31%. On average the Top 30 stocks gained only 40%. If the dividend received is included, their average gain is 46%- just 1% point more than FBM-KLCI.

The top 5 performers amongst the Top 30 stocks are MMC, CIMB, AMMB, Genting & KLK. The poorest performers are MAS, BAT, MISC, Petronas Gas & YTL Corp. The stock with the highest dividend yield is Berjaya Sport Toto at 16.8%.


Table: Dogs of Bursa for 2009

Based on this poor result, I think there is no need to compile a list of "Dogs of Bursa Malaysia" for 2010.

ToyoInk- what's up?

Background

Toyo Ink Group Bhd ('ToyoInk') manufactures printing inks for the printing and packaging industries. Its products include Varnishes, Solvent Ink and Water-Based Ink.

ToyoInk has generated some excitement after it signed a deal with Binh Duong province in southern Vietnam to lease land for building a power plant in 2007. Details of this deal are rather scanty (go here). The proposed power plant is reported to be a 1,200 megawatt (MW) coal fired power plant costing USD1 billion (go here). After more than two years, the deal has not come to fruition (go here).

Recent Financial Results

ToyoInk's performance is unexciting. It suffered net loss of RM3.8 million in QE31/3/2009 due to "higher cost of raw materials coupled with the weak market demand in this quarter caused by the global economic slowdown". It recorded a decent net profit of RM3.9 million in the last quarter, QE30/9/2009.


Table: ToyoInk's 8 quarterly results


Chart 1: ToyoInk's last 18 quarterly results

Valuation

ToyoInk (closed at RM1.90 in the morning session today) is now trading at a PER of 15 times (based on its EPS for FYEMar2008 12.4 sen). At this PER multiple, ToyoInk is fully valued.

Technical Outlook

From the daily chart (Chart 2 below), ToyoInk is now pressing against the channel line at RM1.83-85. In addition, it has also surpassed the overhead long-term downtrend line at RM1.83-85. All these point to a bullish breakout for the stock. Why? Could it be due to a positive development in the Vietnam power plant deal? Only time will tell...


Chart 2: ToyoInk's daily chart as at Dec 31, 2009_11.18am (Source: Quickcharts)


Chart 3: ToyoInk's weekly chart as at Dec 31, 2009_11.14am (Source: Quickcharts)


Chart 4: ToyoInk's monthly chart as at Dec 30, 2009 (Source: Tradesignum)

Conclusion

Based on technical breakout, ToyoInk could be a trading BUY now. However, the fundamentals of the stock is unexciting & if the much-anticipated Vietnam power plant deal does not pan out favorably, the stock could correct sharply.

Integrax signed a transhipment deal with Vale

New Development

Yesterday, Integrax announced that Lekir Bulk Terminal Sdn Bhd ('Lekir'), its 80%-owned subsidiary had entered into a conditional Transhipment Services Agreement with Vale International SA ('Vale'). You may recall that Vale, the world’s second largest diversified metals and mining company, had acquired 165.5ha of land in Manjung, Perak, from property developer KYM Holdings Bhd. In addition, Vale had an option to acquire another 305.95ha in Manjung. Vale has plans to invest RM9bil in an iron ore pelletizing plant on the site.

The Transhipment Services Agreement stipulates that Lekir shall provide transhipment services for iron ore to Vale for a period of ten (10) years. Lekir shall make significant addition of handling equipment & systems as well as to expand its existing marine infrastructure at Lekir Bulk Terminal. The total value of the additional capex is estimated to be about RM200 million. The facilities must be ready within 24 months of the date of the agreement. For more, go here.

Recent Financial results

Integrax is a profitable concern, which incurred a loss in QE31/12/2008. This was attributable to provision for impairment of its investment of RM35.2 million in PGMC (its associate in the Philippines).


Table: Integra's 8 quarterly results

Valuation

Integrax (currently at RM0.88) is now trading at a PER of 7.3 times (based on annualized EPS of 12 sen). For a port operator, this multiple is deemed undemanding.

Technical Outlook

Integrax has just broken above its short-term downtrend line at RM0.83-85. The share price has been rising steadily in a medium-term uptrend line, with support at RM0.75-77.


Chart 2: Integra's daily chart as at Dec 31, 2009_11.10am (Source: Quickcharts)

Conclusion

Based on good financial performance, attractive valuation & bullish technical breakout, Integrax is a good stock for trading & investment purposes.

MSC to ride on tin price recovery

Background

Malaysia Smelting Corp Bhd (‘MSC’) is one of the largest, fully-integrated producers of tin metal in the world. It diversified into gold, coal, nickel and base metal mining activities in early 2008. This was an error & the company has since "focused its efforts on cost rationalization and reduction as well as working on various alternatives to reduce its overall gearing including possible divestments of some of the Group’s non-tin assets".

We are taking a fresh look at MSC since tin prices had recently achieved a bullish technical breakout, which may signal a new upleg for MSC. For my first posting on MSC, go here.

Recent Financial Results

MSC's financial performance has slowly improved after the huge loss suffered in QE31/12/2008. Of the pre-tax loss of RM80.3 million recorded in that quarter, RM57.0 million came form provision for impairment loss & write-off & another RM20.3 million due to loss in exchange in USD borrowings.


Table: MSC's 8 quarterly results


Chart 1: MSC's last 15 quarterly results

Valuation

MSC (closed at RM3.55 yesterday) is now trading at a PER of 8.5 times. This was arrived at by using the annualized EPS for QE30/9/2009 & QE30/6/2009 totaling 21 sen. This PER is expected to decline as MSC's earning improves in line with higher prices of tin.

Outlook for Tin

From Chart 2 below, we can see tin prices had just broken to the upside of its triangle formation last week. From Chart 3 below, we can the close correlation in the movement of MSC's share price & the price of tin. At the end of 2006, both MSC & tin has a technical breakout & rose sharply. The present technical breakout in tin may lead to a breakout in MSC (see Technical Outlook below).


Chart 2: Tin daily price chart as at Dec 29, 2009 (source: London Metal Exchange)


Chart 3: MSC's monthly chart & Tin weekly price chart as at Dec 29, 2009 (source: Tradesignum & London Metal Exchange)

Technical Outlook

From Chart 4 below, we can see that MSC will face stiff resistance at RM3.70. A break above this level could be the start of the upleg for this stock. The next resistance is at RM3.90-4.00 (see Chart 5 below).


Chart 4: MSC's weekly chart as at Dec 29, 2009 (Source: Tradesignum)


Chart 5: MSC's monthly chart as at Dec 29, 2009 (Source: Tradesignum)

Conclusion

Based on the above, MSC could be a good stock for medium & long-term investment. A break above RM3.70 could signal the start of the upleg for MSC.

Market Outlook as at December 29, 2009

FBM-KLCI, which closed at 1272.73 yesterday, has broken above its short-term downtrend line at 1268. This bullish breakout needs to be confirmed by more convincing gains in prices (or, index) & significant rise in volume over the next few days. If these conditions are fulfilled, then my bearish scenario of our market entering into a sharp correction would be deferred. Instead, our market could see a good rally to test the recent high of 1288 recorded on Nov 17. It may even challenge the strong horizontal resistance at 1300. For more, see the daily & intra-day charts below.


Chart 1: FBM-KLCI's daily chart as at Dec 28, 2009 (Source: Tradesignum)


Chart 2: FBM-KLCI's 60-min chart as at Dec 28, 2009 (Source: Quickcharts)

Crude Oil may rise further due to fresh clashes in Tehran

Continued clashes were reported in the Iranian capital, Tehran, following anti-government protests on Sunday in which at least eight people died. This unrest may help to push the price of crude oil higher in the days ahead. Earlier, I have noted that WTIC has turned bearish after it broke the third fan line in early December. With the current rebound, it is possible that WTIC may test the third fan line at USD85. The sharp rise in crude oil prices has benefited Oil & Gas stocks, such as Sapcres & Kencana.


Chart: WTIC's daily chart as at Dec 24, 2009 (Source: Stockcharts.com)

For the latest on the Iranian unrest, go to the Huffingtion Post.

Haio chalked up a mixed q-o-q performance

Results Update

Haio has announced its results for 2Q2010 ended 31/10/2009. Its net profit increased by 85% y-o-y or 9.3% q-o-q to RM20.2 million while turnover increased by 52% y-o-y to RM132 million but declined by 10.9% when compared to the immediate preceding quarter (QE31/7/2009). The decline in the sale on a q-o-q basis could be a warning sign. Nevertheless, its profitability increased due to higher sales of high margin products by both the wholesale & retail divisions.


Table: Haio's 8 quarterly results


Chart 1: Haio's last 19 quarterly results

Valuation

Based on its closing price as at Dec 24 of RM7.97, Haio is now trading at a PE of 10 times (based on last 4 quarters' EPS of 79 sen). With its track record of steady growth, Haio may deserve a higher PE multiple (say, 12 times). As such, it may hit RM9.50-10.00.

Technical Outlook

Haio is now testing its recent high of RM8.05. That will be a strong resistance and a failure to surpass that level could set the stage for a correction in the stock. The 20-week SMA line may provide support for this stock at RM7.35-40 & thereafter the medium-term uptrend line may also provide support at RM6.50.


Chart 2: Haio's weekly chart as at Dec 28, 2009_10.15am (Source: Quickcharts)

Conclusion

Based on its improving financial performance, Haio's share price may continue to rise. However, the drop in the sale may be a warning sign, which we should not ignore. It will also encounter some resistance at the RM8.00 level, which was the recent high for this stock.

Merry X'mas

I would like to wish all readers a Merry Christmas and a Happy New Year!


via, Chakpak.com

Technical Analysis for everyone!!!

I have received many requests from readers who would like to learn more about technical analysis. There are many books to read on this subject. I read John Murphy's Technical Analysis of the Financial Markets many years ago, which is an excellent comprehensive introduction to this subject. Recently, I read Martin Pring's Introduction to Technical Analysis, which is great for a beginner or someone who wants to refresh his memory on the subject.

For those who like to slowly get into this subject, you may like to check out Stockcharts.com's series on this subject which is appropriately called TECHNICAL ANALYSIS 101. These articles will give you the "big picture" behind the charts. Even if you are an "old hand", these articles will help ensure you haven't "strayed too far" from the basics.

In the part 1, you would be introduced to Technical Analysis. To wit:

Technical analysis is the study of price and volume changes over time. Technical analysis usually involves the use of financial charts to help study these changes. Any person who analyzes financial charts can be called a Technical Analyst.

Despite being surrounded with data, charts, raw numbers, mathematical formulas, etc., technical analysts are really studying human behavior - specifically the behavior of crowds with respect to fear and greed. All of the investors that have any kind of interest in a particular stock can be considered to be "the market" for that particular stock and the emotional state of those investors is what determines the price for that stock. If more investors feel the stock will rise, it will! If more feel that the stock will fall, then fall it will. Thus, a stock's price change over time is the most accurate record of the emotional state - the fear and the greed - of the market for that stock and thus, technical analysis is, at its core, a study of crowd behavior.

For the entire series, go here.

Tongher- a safe stock for long-term investment

Results Update

The past 4 quarters has not been good for Tongher. When compared to the preceding 4 quarters, Tongher's turnover has declined by 37% to RM253 million while net profit has plummeted by 99% to RM0.3 million. In term of net profit, Tongher's past 4 quarters was the worst that it recorded in the past 5 years (see Chart 1). The drop in top-line in the last 2 quarters has effectively put the company back to QE30/9/2005 or QE31/3/2006. The drop in turnover was attributed to competitive market.


Table: Tongher's 8 quarterly results


Chart 1: Tongher's last 27 quarterly results

Financial Position

Despite the poor performance in the past one year, Tongher's financial position is still very healthy. As at 30/9/2009, its current ratio is at 6.7 times while Bank Borrowings to Shareholders' Funds stood at 0.1 times. More importantly, its cash balance stood at RM157 million or RM1.24 per share.

Other Development

In August 2009, Tongher had advised that the European Communities ("EC") had initiated an anti-dumping and anti-subsidy proceeding concerning imports of certain stainless steel fasteners and parts thereof originating in India and Malaysia. This proceeding may affect Tongher's financial performance in the next few quarters.

Valuation

Tongher (closed at RM1.69 as at Dec 21) is now trading at a PE of 15.4 times (based on annualized EPS of 11 sen). Price to Book is at 0.8 times (based on NTA per share of RM2.16 as at 30/9/2009). At this multiples, Tongher is deemed fairly valued.

Technical Outlook

Tongher has been dropping after making a high of RM4.50 in 2007. It hit a recent low of just under RM1.50 in October 2008 before rebounding. Since the announcement of the anti-dumping & anti-subsidy proceeding by the EC in August, Tongher's share price has been drifting lower. Presently, it is sitting on its long-term uptrend line support at RM1.65. It has strong horizontal support at RM1.50.


Chart 2:Tongher's weekly chart as at Dec 21, 2009 (Source: Tradesignum)

Conclusion

Despite the recent poor financial performance & the uncertainty regarding the anti-dumping & anti-subsidy proceeding by the EC, Tongher may be a good stock for very long-term investment. Its financial position is very healthy and its downside is limited as it has good support at RM1.50-65.

Market Outlook as at December 22, 2009

Yesterday, FBM-KLCI was knocked down by about 7 points in the last 15 minutes, to 1255.66. This set up the market for a small rebound of 4-5 points this morning, where FBM-KLCI closed at 1259.33 at the end of the morning session. However, the poor close yesterday means that the FBM-KLCI has broken below the 50-day SMA line support of 1261. This, coupled with the daily MACD sitting precariously at the zero line, is a warning that the market could be at the tipping point. See the daily chart, Chart 1 below.


Chart 1: FBM-KLCI's daily chart as at Dec 21, 2009 (Source: Tradesignum)

From the weekly chart, we can see that FBM-KLCI has been resting on the 10-week SMA line support of 1264 for the past 3 weeks. Weekly MACD, RSI and Slow Stochastic have deteriorated during this period. The market condition is quite similar to the market in July 2007, before the sharp correction set in.


Chart 2: FBM-KLCI's weekly chart as at Dec 21, 2009 (Source: Tradesignum)

One of the main factors that has been supporting the market is the perception that our market will only correct if other global markets or regional markets have begun to correct. Since other markets are relatively healthy, a correction in this market is not likely. That's only partially correct. I believe that a correction in our market will also coincide with corrections in other markets. How sure are we that other markets are doing well. Look at Shanghai's SSEC Index and Hong Kong's Hang Seng Index below.

From Chart 3, we can see that SSEC Index has corrected back to its medium-term uptrend line in the past few days. If SSEC Index were to violate its uptrend line support at 3050, the Shanghai market could go into a sharp correction.


Chart 3: SSEC's weekly chart as at Dec 21, 2009 (Source: Stockcharts.com)

Similarly, HSI has violated its 20-week SMA line at 21400 last week. This, coupled with the weekly MACD hooking down, means that the Hong Kong may have turned bearish.


Chart 4: HSI's weekly chart as at Dec 21, 2009 (Source: Stockcharts.com)

Based on the above, I would again advise everyone to be very careful in the present market. Reduce your long position in the market to a comfortable level.

GCorp's top-line & bottom-line grew further

Results Update

GCorp announced its results for 3Q2010 ended 31/10/2009. It reported a net profit of RM24.1 million- an increase of 62.2% when compared to the same quarter last year but a slight drop of 1.5% when compared to the immediate preceding quarter. Turnover was up 24.7% q-o-q or 224% y-o-y to RM521 million. GCorp continued to benefit from the development projects and overseas operations, via Low Keng Huat (Singapore) Limited.


Table: GCorp's 8 quarterly results


Chart 1: GCorp's last 11 quarterly results

Valuation

GCorp (closed at RM1.07 as at Dec 17) is now trading at a PE of 6.4 times (based on its last 4 quarters' EPS of 16.6 sen). I have stated previously that GCorp deserves to be valued at a higher PE multiple (say, 10-12 times) as it is a mid-size diversified group with a good growth track record. On second thought, I think GCorp - being mostly involved in property development & construction- should be valued at a PE of about 7-8 times. Based on a PE of 7.5 times, its fair value would be about RM1.25.

Technical Outlook

GCorp has surpassed its medium-term downtrend line at RM1.00 in June 2009. Nevertheless, the share price failed to charge higher. Its immediate resistance is at RM1.15-20 and thereafter at RM1.35-40.


Chart 2: GCorp's weekly chart as at Dec 21, 2009_3.35pm (Source: Quickcharts)

Conclusion

Based on continued strong financial performance & favorable technical outlook, GCorp could be a good stock for long-term investment. Its present upside may be limited if we pegged its fair value at RM1.25.

Topglove reaching for its all-time high

Results Update

Topglove announced its results for 1Q2010 ended 30/11/2009. Its net profit increased by 14.7% q-o-q or 90.9% y-o-y to RM65.2 million while turnover increased by 10.5% q-o-q or 22.3% y-o-y to RM472 million. The company attributed to its strong profit growth to t adapting the challenging business environment through cost-saving measures, improved productivity & product quality, and aggressive marketing strategies to maintain its position as a market leader.


Table: Topglove's 8 quarterly results


Chart 1: Topglove's last 14 quarterly results

Industry Outlook & Concerns

Due to the spread of the H1N1 flu, the demand for rubber glove has surpassed the existing output. To cope with the demand, every player in this industry has been increasing its capacity. More new capacity is currently being planned. There is a danger that the continuous expansion may result in a state of overcapacity. We have seen how this had badly affected the players in the fibreboard & MDF industry in 2008.

Under the current state of imbalance, producers enjoy increased profit margin. Once the state of equilibrium is reached, growth in profit margin will cease. However, a state of overcapacity will result in competition & a decline in profit margin. This is especially so as the increased raw material costs such as rubber latexx will have to absorb by the producers. See Chart 2 below.


Chart 2: Rubber latexx's weekly chart as at Dec 17, 2009 (Source: Malaysian Rubber Exchange)

Valuation

Based on its last 4 quarters' EPS of 68 sen & its closing price of RM9.62 on Dec 17, Topglove is now trading at a PE of 14 times. With its track record of strong growth, one can justify Topglove's relatively high PE multiple. However, one can also argue that the strong growth in top-line & bottom-line in the past one year was due to very favorable conditions (imbalance in demand & supply as well as the onset of the H1N1 flu). If either one of both of these conditions were to change, the financial performance will be affected. As such, I believe the upside for Topglove will be limited going forward.

Technical Outlook

Topglove is approaching its December 2006 high of RM10.00 soon. This level could pose a strong resistance to the stock.


Chart 3: Topglove's weekly chart as at Dec 21, 2009_3.30pm (Source: Quickcharts)

Conclusion

Despite the strong results, I think that it is time for some profit-taking for Topglove. This is especially so as the stock approaches the strong technical resistance posed by its all-time high of RM10.00.

Taking a break...

I will be taking a few days off, from now to the end of the year. There may be light postings in between. Don't worry, I'll be back!


via Shelby Elizabeth

Scomi-LA & Scomi-WA listed

This morning, Scomi-LA & Scomi-WA started trading. You may recall that Scomi issued RM165.5 million Irredeemable Convertible Secured Loans Stocks ('ICSLS') together with up to 219,8 million free detachable warrants (“warrants”) on the basis of fifteen (15) RM0.10 nominal value of ICSLS together with two (2) free warrants for every ten (10) ordinary shares of RM0.10 each in Scomi held. The ICSLS is called Scomi-LA & the warrant is called Scomi-WA.

Scomi-LA has a tenor of 3 years and bears interest at a rate 4% pa. The tenor of Scomi-WA is also 3 years. Conversion for Scomi-LA: 4000 Scomi-LA exchangeable to 1000 shares. Conversion for Scomi-WA: 1000 Scomi-WA plus RM400 exchangeable to 1000 shares.

As at 10.45am, Scomi share, Scomi-LA & Scomi-WA were trading at RM0.465, RM0.105 & RM0.165 respectively. Based on these prices, we can see that Scomi-LA was trading at a discount of 9.7% while Scomi-WA was trading at a premium of 21.5%. Looking at this static picture, Scomi-LA would be preferred to Scomi-WA. However, some arbitraging is going on whereby a person holding Scomi share may choose to sell the share & buy Scomi-LA. This would put downward pressure in the price Scomi share, while demand for Scomi-LA would put upward pressure on its price. The downward pressure in the price of Scomi share may result in a lower price for the share and this would in turn put downward pressure on Scomi-LA & Scomi-WA. For Scomi-LA, the downward pressure from the declining price of Scomi share would be balanced somewhat by the demand for Scomi-LA (as a result of the arbitraging process). Scomi-WA would not enjoy such countervailing force & may succumb to the downward pressure from the declining price of Scomi share. This is more reason to avoid Scomi-WA.

USD rally & the correction in Gold prices

The recent bullish breakout of the medium-term downtrend line for the USD led to some correction in commodity prices. Traders are moving from a bearish position to a mildly bullish position on USD. While the action on USD may be purely technical, it could also be due to expectation that the FED may turn hawkish as the economic recovery picks up in the US. Some quarters are now expecting the FED to raise interest rate soon, possibly by first half of next year.

I think it is too early to be too bullish on USD. An upside breakout of the medium-term downtrend line need not necessarily translate to an uptrend for USD, over the medium-term. I am more inclined to believe that the last 2 weeks of rally in USD may be similar to the 4-week rally in USD in late-November to mid-December 2007. In that earlier rally, USD moved from a low of 74.5 to test its 20-week SMA line (at 78) before correction set in & a new low of 70.5 recorded in March 2008. Today, USD is again testing its 20-week SMA line & we will have to wait & see whether the outcome will be different from December 2008.


Chart 1: USD's weekly chart as at Dec 14, 2009 (Source: Stockcharts.com)

The strong rebound in USD caused a correction in gold prices in the past 2 weeks. The current correction is also quite similar to the correction in late-November to mid-December 2007 (which was probably due to a rebound in USD). If the current rebound is USD were to frizzle out, then gold prices may continue to rise. From Chart 3 below, we can see that the past 2 uplegs in gold prices resulted in a gain of about USD280-330. If the same were to happen, then gold prices may hit a high of USD1280-1330 before topping out.

(Note: I have used GLD (an ETF)'s price chart as proxy for Gold price.)


Chart 2: Gold's weekly chart as at Dec 14, 2009 (Source: Stockcharts.com)


Chart 3: Gold's chart as at Dec 14, 2009 (source: BullionVault.com)

CPO prices may correct to RM2335-40

After breaking above its medium-term downtrend line at RM2250 in mid-November, CPO rallied to a recent high of RM2525. CPO is now undergoing a minor correction. However, CPO downside is limited with a short-term uptrend line (SS) support seen at RM2335-40.


Chart: CPO's daily chart as at Dec 14, 2009 (Source: ifs.marketcenter.com)

DSCSOL- Were investors not aware of the Bonus Issue?

DSC Solutions Berhad ('DSCSOL') is involved in the provision of AIDC solutions, software & engineering services. AIDC stands for Automatic Identification & Data Collection. AIDC allows companies to improve their business processes by changing from a manual to automatic data collection systems. This will enable the production of faster & more accurate reports- aiding management in its decision-making.

For its listing purposes on the ACE Market of our exchange, DSCSOL made a Public Issue of 12.578 million shares at an issue price of RM0.50. After the IPO (but before its listing), it carried out a Bonus Issue of 1-for-1. This effectively reduced its IPO price from RM0.50 to RM0.25. The stock was listed on Dec 9.

From the 15-minute chart below, we can see that the share price jumped on the first day of listing and thereafter it steadily sold down. I hope the reason for the bullish action on the first day of trading was not due to investors' misreading the Prospectus or that they were not aware of the Bonus Issue. If so, it could lead to a mispricing of the stock. The making of a Bonus Issue after the IPO closure & before the listing of the stock on the exchange is a practice that should be discouraged.


Chart: DSCSOL's 15-min chart as at Dec 15, 2009_9.24am (Source: Quickcharts)

To sell or not to sell

Recently, I called up my customers to recommend that they reduce their position in the market, in line with my view that the market is rather frothy & that a correction- when it finally comes- would be very sharp. While not expecting everyone to agree with my view, I was pleasantly happy that most of them see my point. However, what's surprising is that the majority of my customers who agree with me, do not want to reduce their position. Here is some of the illogical reasons given for not selling:

1) The market must go up one more time before a sharp correction can happen;
2) The interest rate offered by banks for various deposits is so low that it's better to stay in the stock market;
3) I do not believe in partial selling. When I sell, I will sell everything.

I must admit that selling in a bull market, like buying in a bear market, is a very difficult thing to do. I come across a post entitled "Books that will help gain sanity in insane market" by Vitaliy N. Katsenelson's ContrarianEdge where the first book on the list was "Its When You Sell That Counts", by Donald Cassidy. I have reproduced the relevant section of his post in entirety here because I find it is very well written & truly captured my thoughts on the same subject.

Selling is usually as popular as candy the day after Halloween. During secular bull markets selling is frowned upon as buy and hold turns into investing religion. And since sell violates the “hold” covenant of that religion, the investor who buys and sells is labeled as a nonbeliever, or even worse, a trader (if you say “trader” fast enough it sounds like “traitor”).

In secular bull markets, on average, sell decisions are not as rewarding as hold decisions, as market valuations are expanding and even second-rate dogs (stocks) start looking like pedigreed cocker spaniels. Every investor is now a “long-term” investor and sell becomes a four-letter word. But being a long-term investor is not about the longevity of your hold decisions, but rather is an attitude. Holding a stock because you bought it is a fallacy; you should only hold a stock if future risk-adjusted return warrants it.

Warren Buffett has been mistakenly promoted (though, I’d argue, demoted) into deity status in this buy-and-hold temple. Let’s correct this mistake. Warren Buffett became a buy-and-hold investor when his portfolio and positions got big enough, pushing $60 billion, so that selling became a difficult undertaking. In his early career, before “Oracle of Omaha” was his moniker, he was a buy-and-sell investor. Being on the boards of some of his biggest holdings (like Coke and Washington Post) made selling even more difficult.

One doesn’t need the benefit of hindsight to know that at 55 times earnings Coke was tremendously overvalued in 1999. Coke, like the majority of Buffett’s top public holdings (Washington Post, Procter & Gamble, Johnson & Johnson, and many others), did not go anywhere for a decade. I dare you to take a look at his top public holdings and tell me whether he would have done a lot better if he had sold them when they became fully valued (or slightly overvalued). In most cases, that would have been a decade ago.

Emotions assault us from different directions when we face a sell decision: If it is a losing investment, we want to wait to break even. This is the wrong attitude. Our purchase price and sell decision should not be related (the only exception I can think of is tax selling). Or when it comes to selling a winner, we want to sell only at the top. Again this is the wrong attitude: the top is only apparent in hindsight, when it is usually too late.

We should sell the stock when it reaches our price or valuation target, determined at the time of purchase. We (our emotions and false goals to be exact) are our biggest enemy when it comes to investing, and especially selling. Cassidy’s wonderful book has been written to fix this. Its objective is to recalibrate your mind and free you from the imprisonment of past decisions, to break you free from the buy-and-hold state of mind and turn you into a buy-and-sell investor.

Check out the entire post by Vitaly. It may give you some ideas for what books to buy as gifts for this Christmas season.

TChong's earlier profit-taking call cancelled

TChong is now trading at RM2.85 as at 10.00 am. This means that the stock has just surpassed the high of RM2.70 recorded on Nov 18. More importantly, it has also surpassed the rising 'horizontal' line connecting the peak or 'high' for this stock since 1993. There are two announcements which could have spurred the sharp rise in the share price:

1) TCIE (Labuan) Pty Ltd, a wholly-owned subsidiary of TCMH, has on 10 December 2009 received a Certificate of Investment dated 7 December 2009 (“Investment Certificate”) from Danang Industrial and Export Processing Zones Authority, Vietnam to establish a wholly-owned subsidiary named TCIE Vietnam Pte Ltd (“TCIE Vietnam”) to undertake the following businesses (“Investment Project”):

(i) Manufacturing and assembly of buses, trucks and passenger cars.
(ii) Sale of buses, trucks and passenger cars produced and/or assembled by TCIE Vietnam.
(iii) Provision of after-sales services for the maintenance and repair of TCIE Vietnam’s products.
(iv) Sale of spare parts for the maintenance and repair of the TCIE Vietnam’s products.

The total investment capital for the Investment Project is USD15.0 million of which USD6.0 million will be capital contribution (charter capital) from TCIE (Labuan) Pty Ltd. The charter capital of USD6.0 million shall be contributed within 24 months from the date of the issuance of the Investment Certificate.

2) Company has incorporated a new subsidiary, TC Utama Sdn Bhd (“TC Utama”) which will have an authorized capital of RM100,000 and an issued and paid-up capital of RM2. Its principal activity will be property holding. Is TC Utama the vehicle set up to undertake the development of its Segambut land?

I think the market is presently reacting to the unexpected Vietnam venture. The Vietnamese market is a huge untapped market which would hold great potential for TChong.

With the bullish upside breakout, TChong share price could potentially go as high as RM5.00-6.00. This target is arrived at by adding the trading range (A) to the breakout point (RM2.80). If we based on a logarithmic chart, the target price could be about RM6.00 (such as the one below). If we used a linear chart, the target price is about RM4.60.

In 1997-98, TChong had a bearish downside breakout where the share price dropped to a low of RM0.42. Using the logarithmic scale, the distance traveled from the point of breakout of RM1.00 (A1) is equivalent to the trading range (A2).


Chart: TChong's weekly chart as at Dec 11, 2009 (Source: Tradesignum)

Based on the above observation, I would withdraw my earlier call to take profit on TChong (go here).

Note: The above chart is plotted on logarithmic scale, while the chart in earlier post was plotted on arithmetic (or, linear) scale.

A Tale of Three Stocks

Three stocks suffered from different problems, emanating from Dubai. The three stocks are LCL, UEMLand & Etitech.

1. LCL

LCL is principally involved in interior fit-out industries, with significant exposure to the Middle East (especially, Dubai). Based on its results for 9-month ended 30/9/2009, LCL incurred a net loss of RM58.6 million on a sale of RM243.7 million. As at 30/9/2009, its current ratio stood at 1.24 times but its gearing ratio stood at an alarming 4.7 times. Its Shareholders' Funds stood at RM82.2 million. This amount may be wiped out if it has to provide for possible losses on some of its debts totaling RM375 million (amount owing by employers based in Dubai is unknown). Some reports indicates that bankers may have to take haircuts of 40-50% for loans granted to Nakheel group (go here). How much would LCL lose?

From the daily chart (Chart 1), we can see LCL has broken below its March low of RM0.32 this morning. The cause of the today selldown is LCL's announcement yesterday of a Default in Payments of Credit Facilities totaling RM72 million by the its subsidiary, LCL Furniture Sdn Bhd- 96% of which is owing to Affin Bank Bhd. To be on the safe side, it is advisable to avoid LCL.


Chart 1: LCL's daily chart as at Dec 11, 2009_12.30pm (Source: Quickcharts)

2. UEMLand

UEMLand is principally involved in property development & investment. Its flagship development is Nusajaya, with an enormous strategic land bank of 4500 acres in Iskandar Malaysia. How is UEMLand affected by Dubai?

One of Dubai’s largest private developers, Damac Properties has committed to purchase a 43.5-acre land in Nusajaya from UEM Land for RM397 million for development purposes in June last year (go here). In April, there were some reports that Damac did not pay a local service vendor for work done. While the Damac investment may look dicey at this moment, the Nusajaya development would not suffer any losses. If there is any losses, it will be psychological as investors would begin to doubt the viability of Nusajaya as they will equate it to The Palm Jumeirah of Dubai. I believe such comparison is misplaced & the negative perception will blow over.

Based on its results for 9-month ended 30/9/2009, UEMLand recorded a net profit of RM10.7 million on a sale of RM198.0 million. As at 30/9/2009, its current ratio stood at 2.74 times but its gearing ratio stood at 0.34 times. As such, its financial position is deemed satisfactory. Based on annualized EPS of 0.6 sen & NTA per share of RM0.59, UEMLand (closed at RM1.49 yesterday) is deemed overvalued as it trades at a PE of 248 times or at Price to Book of 2.5 times.

From Chart 2, we can see that UEMLand has broken to the downside of a symmetrical triangle as well as the strong horizontal line of RM1.50. Its next support is at RM1.40 or RM1.30. While the stock's near-term outlook may be bearish, I think its downside will be limited.


Chart 2: UEMLand's daily chart as at Dec 11, 2009_12.30pm (Source: Quickcharts)

3. Etitech

Etitech is principally involved in the research and development of intelligent battery management systems for rechargeable energy storage solutions using polymer lithium-ion based energy cells for various electronic applications that require light-weight, high-powered rechargeable energy solutions in the telecommunications, healthcare, power utilities, aero models and robotics industries.

Based on its FYE 31/8/2009, Etitech recorded a net profit of RM20.1 million on a sale of RM83.1 million. As at 31/8/2009, its current ratio stood at 6.6 times but its gearing ratio stood at 0.10 times only. As such, its financial position is deemed satisfactory. Based on EPS of 3.0 sen for FYE 31/8/2009 & NTA per share of RM0.40, Etitech (at RM0.46 now) is trading at a PE of 15.6 times or at Price to Book of 1.2 times. As such, Etitech is trading near its fair value.

Etitech's share price has been sliding due to the steady selling carried out by one of its major shareholders, Emirates Investment & Development ('Emirates') which had a 15%-stake in the company. Based on the last filing in Bursa (dated November 11), Emirates' stake has been reduced to 11.21%.

From 60-minute chart (Chart 3), we can see that Etitech broke its recent low of RM0.46 this morning & made a new low of RM0.455. The stock needs to stay at or above the RM0.46 level, failing which we can expect further downside.


Chart 3: Etitech's 60-min chart as at Dec 11, 2009_12.30pm (Source: Quickcharts)

In conclusion, we must avoid LCL due to its financial distress and extremely bearish technical outlook. While UEMLand & Etitech are not in the same leaky boat as LCL, I do not see any urgent need to jump into these stocks now.

USD index broke above its medium-term downtrend line

USD index has finally broken above its downtrend line last week. From Chart 1 below, we can see that USD index is in a bearish price channel (see the parallel pink lines, ABCD). Within this primary bearish price channel, a secondary bearish price channel can be also be drawn (see the parallel green lines, WXYZ). With the USD index having broken above the primary bearish price channel, we can conclude that a floor has been set for USD for now. Going forward, USD index is likely to go higher.


Chart 1: USD's daily chart as at Dec 8, 2009 (Source: Stockcharts.com)

I have appended below the daily chart of USD-RM (or, the exchange rate of USD1 to RM). This chart (Chart 2) shows the steady decline in USD-RM, which fits nicely into a price channel. USD-RM could rebound to the downtrend line at 3.45-46 (coinciding with the 100-day SMA line).


Chart 2: USD-RM's daily chart as at Dec 8, 2009 (Source: Yahoo Finance)

The near-term outlook for the USD has turned neutral & may even turned mildly bullish in the weeks ahead. A strong rally in USD could trigger USD "carry trade" unwinding- something similar to the Yen "carry trade" unwinding which happened in 2005 & 2007 (go here & here). While the USD "carry trade" unwinding is still a low probability event at this stage, we need to monitor this development closely.

TChong- time for some profit-taking

Looking at the weekly chart for TChong from 1993, we can draw a line connecting the cyclical high. This slightly rising line act as a resistance capping the rise of this stock. The market is still fairly excited about TChong's proposed development of its land in Segambut. I think that this piece of "news" been fully factored into the share price. As such, I believe that TChong has reached a level that some profit-taking may be a good idea.


Chart: TChong's weekly chart as at Dec 7, 2009 (Source: Tradesignum)

Crude Oil may have turned bearish

Crude Oil may have turned bearish. If you plot a Trend Fan (or, 3-fan line) onto WTIC daily chart (see below), you will see that WTIC has broken the third fan line. This means that the market for Crude Oil has turned bearish. An brief explanation on the usage of Trend Fan as given by Gecko Software is given below:

As a trend moves up in scale, a chartist will draw a line across price bar lows or, when a market is moving down, across the price bar highs.

As the market continues to make its retracement, we can draw another trend line across the next level of support or resistance. The line is support if the market is moving up and resistance if it is moving down.

The last move of the trend was resistance for the first trend line, and is now support for the second trend line. The third trend line shows that the market has made a solid retracement down past this third fan line.

When the market crosses the third fan line, it is considered to be confirmation of market retracement. A market that was once considered bullish is now bearish, or if bearish, would now be considered bullish. When the markets price bars cross above or below the third trend fan line, this is your signal and confirmation that the market has shifted from bullish to bearish, or bearish to bullish.

For more on Trend Fan, go here.


Chart: WTIC's daily chart as at Dec 7, 2009 (Source: Stockcharts.com)

WTIC will try to hold onto the USD70 horizontal support. The USD65-75 area is heavily congested area & could provide good support for WTIC in the near-term. However, the inability of WTIC to make any significant gain on the back of the rout in USD, is a clear sign that the demand for crude oil is fairly weak. A sharp correction in WTIC could well trigger a correction for Oil & Gas stocks.