Thursday, February 25, 2010

Litrak & PLUS- time to take profit

The last few days, I was tracking the share price of Litrak very closely, with a view for calling a trading BUY on the stock. On closer study & much reflection, I became somewhat concerned. I began to compare the long-term chart of Litrak with PLUS (see Chart 2 & 3 below) as well as comparing these two stocks with the movement of our interest rate (see Chart 1 below). From these studies, we can make the following observations:
1) From April 2007 to August 2008, the rate of 10-year Government Bond increased from 3% to 5% (see the gray line on the top chart of Chart 1). At the same time, the price of Litrak & PLUS peaked & dropped (see the middle & bottom charts on Chart 1).
2) From September 2008 to December 2008, the rate of 10-year Government Bond dropped from 5% to 3%. This coincided with a strong recovery in the price of Litrak & PLUS which persisted until today.

Since the indications are interest rate is expected to normalize (read: move higher) in 2010, there is a good chance that Litrak & PLUS may decline in the months ahead (see BNM Governor, Zeti's comment here). With this insight and guided by the charts, I think this is a good time to take profit on Litrak & PLUS.


Chart 1: Malaysian interest rates & monthly charts of PLUS & Litrak from 2007 to Feb 2010 (Source: The Edge)


Chart 2: PLUS's monthly chart as at Feb 24, 2010 (Source: Tradesignum)


Chart 3: Litrak's monthly chart as at Feb 24, 2010 (Source: Tradesignum)
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2 comments:

  1. investorFriday, February 26, 2010 11:17:00 AM

    Hi alex,

    Just wanna ask you about scomi. Scomi has been getting a lot of big project and they are also in the mid of bidding brazil railways project, however scomi this quarter result still in -ve.

    What could have contribute to the -ve result ? Is scomi still a good buy given the "bright" future ?

    thank you

    ReplyDelete
  2. Alex LuMonday, March 01, 2010 5:02:00 PM

    Hi Investor,

    I have not looked at Scomi's results. Offhand, I will say that one should not be too surprised that historical results does not jell with rosy prospects as propounded by the company's management. The past cannot be undone by the future. The other thing to always bear in mind is that not all these prospective jobs will materialize.

    Having said that, you may have read about the huge losses incurred by the likes of Ranhill & Nam Fatt in their overseas projects. I am quite concern about the risk management of the smaller construction or engineering companies listed on our exchange. Growing at a all-cost is foolhardy.

    Nevertheless, I believe that Scomi has something to offer in term of their technical know how in the the field of Light Rail Transportation. If they can do it right, they should be able to make adequate return in their overseas ventures.

    ReplyDelete