What I am going write now is how we missed out on a stock, even though we had been following it for a while. Sometimes, there are valid reasons to be cautious with certain stocks but other times, you just couldn't get yourself to pull the trigger (or call a BUY). Of course, with the benefit of hindsight, you would ask yourself, why didn't I just take a small position. Why, in deed?! This type of thinking would be up there with clients' instruction to get me the best price!! When impossible instruction like that came from a newbie, you can just laugh it off. When it came from seasoned players, it makes you wonder whether they knew what they were doing. I'm digressing. Now, let's go to the story.
1) Inari
Inari is the leading Electronic Manufacturing Services provider in the semiconductors industry for Radio Frequency, Opto-electronics and Fiber-optics technologies. We have production facilities across three countries, namely Malaysia, Philippines and China.
The Group has a customer which is also a substantial shareholder of the Company that contributed approximately RM164.5 million or 94.8% to the Group’s total revenue for the nine months ended 31 March 2013. From the outset, I was very concerned with this over-dependent on a single customer.
However, Inari is a very profitable company. See Table 1 & Chart 1 below.
Table 1: Inari's last 11 quarterly results
Chart 1: Inari's last 11 quarterly results
In April 2013, it broke above its horizontal resistance at RM0.35. That should have been a good level to get in for a trading BUY.
Chart 2: Inari's daily chart as at October 4, 2013_11.00am (Source: Quickcharts)
In addition, it was trading at a PE of 5 times in April (based on 4 quarters' EPS to QE31/12/2012 of 8 sen). At that PE multiple, Inari was reasonably priced.
In the end, I gave it a miss because of the single customer concern.
2) Dsonic
This company is involved in the provision of ICT solutions including the smart card personalisation (such as secure ID or chip-based credit / debit / bank cards), customisation of software and hardware solutions, project management, consultancy, R&D and technical consultancy services.
It was listed in September 2012. Its financial performance was very good and it was growing rapidly. See Table 2 & Chart 3 below.
Table 2: Dsonic's last 5 quarterly results
Chart 3: Dsonic's last 5 quarterly results
In early May 2013, it broke above the horizontal resistance at RM1.33 (Prior to the Bonus Issue of 1-for-2, the unadjusted breakout level would be RM2.00).
Chart 2: Dsonic's daily chart as at October 4, 2013_11.00am (Source: Quickcharts)
Its PE at the point of breakout was about 3 times (based on last 4 quarters' EPS to 31/3/2013 of 42 sen).
With every box checked - it's profitable, it's attractively valued & it has a bullish breakout- I should have called a BUY but, I didn't. Why?! I am not sure. It could be because I felt it was "too easy". On hindsight, it is a very poor excuse.
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As I sit in front of the terminal scanning the stocks- with nothing exciting to write about- I regretted not calling a BUY on these 2 stocks. However, I have to check myself constantly to avoid simply calling a BUY on a stock because there is expectation. I am channeling my 'energy' into writing about stocks that we should be careful about or simply avoid. Until I have something worthwhile, I will be here, silently twiddling my fingers
NOTE: THIS IS NOT A CALL TO BUY EITHER INARI OR DSONIC. SINCE BOTH STOCKS HAVE RISEN SUBSTANTIALLY, I BELIEVE THAT THE RISK TO REWARD PROPOSITION IS NO LONGER IN YOUR FAVOR.
Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Inari & Dsonic.
Dear Alex,
ReplyDeleteYou have touched on DSonic topic finally. I think many people think the same. But stock market is endless possibilities. There is more to come even though its price has risen substantially.
Wish to hear your comments on Malton. According to RHB paper, if consider 0.5x RNAV, the share should be priced at 1.80. This is very cheap at current price!
ReplyDeleteWhy so cheap? I was wondering. Perhaps, it's because lack of papers on it? Or, because there is no immediate project launching for near term earnings?
Hope to hear from you. Thanks and always appreciate your research and writing in this blog.
oops, sorry, previous post forgot to link my question with this post. The RHB paper on Malton, there is a NR rating instead of a Buy rating. This is sort of similar case as what you wrote on Inari and Dsonic. :)
ReplyDeletehi alex-i am amused to read yourviews on Inari and Dsonic.Hear me out.i went in to inari in march @ 31 and sold out @ 45 in May as i was worried about the usual US sentiment of : sell in May go away !!gave myself a real kick!Dsonic- sold off @ 2.30 X bonus.Another KICK !goes to show U can never know. I kick myself so many many times !! That is share market !
ReplyDeleteHi Alex:
ReplyDeleteI would like to seek your advice on PMcorp where many bloggers had recommended to buy by giving reasons that this very one is another Dutch Lady or Apollo in the making . So far , you have yet to write anything about this one ! If you have the time , please check whether it is worthwhile to invest . Thanks in advance
No worries. There are KHIND, ASTINO, YOCB and VS. These are highly probable future inari and DSonic... :)
ReplyDeleteHi Steve,
ReplyDeleteI am not sure why Malton is not commanding a higher value than what the RHB analyst think the stock is worth. The report has highlighted an interesting stock with good potential for price appreciation. I like its upcoming projects in Batu Kawan, Pengerang and the Bandar Pusat Damansara redevelopment.
Hi leslieroycarter
ReplyDeletePMcorp has 'cleaned' its books over the past few years. In 2007, it de-consolidated its Australian operation which resulted in a drop in revenue from RM237 million to RM145 million. In 2009, it rationalised its product portfolio by discontinuing products with low margins or slow offtake which resulted in another drop in revenue from RM125 million to RM73 million.
In the process, it turnaround from a pre-tax loss of RM7 million in 2006 to a pre-tax profit of RM8 million in 2012. In 2012, its EPS was 1.1 sen which gives the stock a PE of around 20 times. Besides being fully valued (or overvalued), a stock with that kind of earning will probably be of little interest to fund manager.
So it needs to increase its top-line and that may translate into a jump in its bottom-line & EPS. Before it can be a DLady, it must aspire to be a Yeelee.