Monday, September 19, 2011

Sime is going down, while E&O is going up

Sime broke below the psychological-cum-horizontal support of RM8.00 this morning. As at 10.00 am , it was trading at RM7.82. Its next strong horizontal support is at RM7.40-7.50 & thereafter at RM6.50-6.60. Sime broke its long-term uptrend line a few weeks earlier (here).


Chart 1: Sime's weekly chart as at Sept 19, 2011_9.20am (Source: Quickcharts)

What could have triggered the selldown in Sime? There are two possible suspects: the poor market sentiment which afflicted everyone or the recent acquisition of a 30%-stake in E&O which could turn into a MGO due to the structuring of the deal. See my earlier story.

Strangely, E&O shareholders are also worried that Sime may not have to undertake a MGO. Its share price dropped off from a recent high of RM1.78 to a recent low of RM1.46. E&O is now trading at RM1.57.

We do not know how the Sime's partial acquisition of E&O will pan out. Even if Sime managed to get an exemption from making a MGO, the deal is not bad for E&O. In fact, there are a few things that are going in its favor. There are as follows:
1) Sime's deep pocket would enable E&O to develop the next phase of its Tanjung Bungah project at a faster pace;
2) E&O can tap into Sime's huge landbank in order to carry out more JV property projects; and
3) The vendors of the 30%-stake are still holding a sizable chunk of shares in E&O. This would give them a strong incentive to look after the interest of E&O. Of course, one would still be a bit sore that they have benefited from the proposed sale of their personal stakes at a price that's higher market price while the minority shareholders are not privy to the transaction. Then again, that's the privilege of holding a sizable stake which enables one to command a premium in the market.

Based on these 3 reasons, I believe E&O is a good stock to accumulate if the share price were to drop back. From the charts below, I see E&O's immediate support at the intermediate uptrend line support at RM1.48-1.50 and thereafter at the horizontal lines at RM1.45 & RM1.35.



Chart 2: E&O's weekly chart as at Sept 19, 2011_9.20am (Source: Quickcharts)



Chart 3: E&O's daily chart as at Sept 19, 2011_9.30am (Source: Quickcharts)
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3 comments:

  1. YungMonday, September 19, 2011 2:30:00 PM

    Dear Alex,
    Could u pls comment on ho wah genting? should i continue hold or sell it off?

    pls advise.
    Yung

    ReplyDelete
  2. Alex LuMonday, September 19, 2011 4:43:00 PM

    Hi Yung

    HWGB is holding onto the strong horizontal support of RM0.30. This stock traded at a range of RM0.15 & RM0.40 from April 2005 until January 2011- more than 5 years. It may go into hibernation again for many years. There is nothing exciting about this stock. I remember commenting on HWGB in a post on MSC ( here ). To wit:

    "...the sharp rally in Ho Wah Genting ('HWGB') on its purported venture into tin mining. One begins to wonder whether investors are being too optimistic about HWGB's future prospect if an experienced company like MSC can perform so badly in this business."

    HWGB will get into any business which looks good but it failed to make money. Its execution is appalling. I never like this stock, except for a punt.

    ReplyDelete
  3. MrProperty.meTuesday, September 20, 2011 7:43:00 AM

    Good that E&O cash in for its stack. Hope that Sime will roll out something exciting with the new stack to show its investors. Thanks for the post!

    ReplyDelete