Aji- a cheap consumer stock

Background

Ajinomoto (M) Bhd ('Aji') is involved in the manufacture & sale of natural flavour food enhancers. Its main production facilities are located at Jalan Kuchai Lama, Kuala Lumpur.

Past 5-year Financial Performance

The group's turnover has been increasing steadily over the past 5 years. Its net profit prior to FY2006 is fairly stable at around RM10-12 million. In FY2006, its net profit took a sharp fall of 52% to RM6.01 million due to fierce competition as well as higher raw material cost & fuel cost (resulting in a drop in profit margin). In that year, Aji introduced a new product, i.e. Vono (a thick & creamy instant soup) as well as integrating its manufacturing process & other effort to improve production efficiency. The results of these initiatives can be seen in the performance of FY2007 and the current FY2008. Turnover has grown by 11% in FY2007 & FY2008. Net profit for FY2007 jumped by 211% to RM18.67 million from RM6.01 million. For FY2008, the net profit is projected to grow by 21% to RM22.62 million.



Recent Financial Results

Aji's net profit for QE30/9/2007 increased by 18.8% q-o-q or 49.1% y-o-y to RM6.14 million, while turnover at RM52.7 million show a slight drop of 1.4% from the preceding quarter but a grow of 8.4% from the previous year's corresponding quarter.



Current Financial Position

As at 30/9/2007, Aji's financial position is deemed satisfactory. Its current & quick ratio is more than adequate at 5.6 & 4.5 times, respectively. Aji has no borrowings, but instead it has a cash balance of RM61.4 million.

In term of working capital management, we will note that the inventory's turnover period has improved from 52 days as at 30/9/2006 to 46 days as at 30/9/2007 while debtors' turnover has increased from 40 days to 46 days during the same periods.

Valuation

Based on the projected FY2008 EPS of 37.2 sen & yesterday's closing price of RM2.20, Aji is now trading at a PE of 5.9 times. At this multiples, I would consider Aji to be fairly attractive.

Technical Outlook

On the longer term basis, the share price of Aji appears to be moving sideway, with a slight upward bias (see the monthly chart, Chart 1). While the share price is slowly moving up by the upside is blocked by a strong resistance at RM2.30 (see the daily chart, Chart 2).


Chart 1: Aji's monthly chart as at November 15 (courtesy of Quickcharts)



Chart 2: Aji's daily chart as at November 15 (courtesy of Quickcharts)

Conclusion

Based on strong improvement in financial performance & possible technical breakout, Aji is a good BUY for the medium-term.

New CWs listed- GOOGLE-C1, CHMOBIL-C6 & CHMOLY-C1

Today, we have the listing of 3 new CWs, i.e. GOOGLE-C1, CHMOBIL-C6 & CHMOLY-C1 from OSK. They are all Non-collateralised, American-style, Cash-settle Call Warrants. Based on the prices as at 9.50 am, GOOGLE-C1, CHMOBIL-C6 & CHMOLY-C1 are trading at premium in excess of 40%. At such high premium, their upside is likely to be very limited.

Crude Oil price broke its short-term uptrend

Crude Oil prices dropped sharply yesterday, in reaction to the news that International Energy Agency ('IEA') is cutting its forecast for global demand through 2008, by 300,000 barrels per day from its previous estimate.

From the chart below, we can see that the short-term uptrend line (S2) has now been violated at the USD93 level. Unless, there is a quick recovery above USD93, Crude Oil is likely to drift lower. I believe it should find support at the psychological USD90 or the medium-term uptrend line (S3) support of USD85-86.


Chart: Crude Oil chart as at November 13 (courtesy of SuperCharts by Omega Research)

CWs for HK stocks as at November 12

Today, we have the listing of one new CW, i.e. MTR-C1, which is a Non-collateralised European-style Cash-settled Call Warrant and it was issued by CIMB.

The prices of CWs for the stocks listed in Hong Kong Exchange is currently undergoing heavy correction, in line with the on-going correction in Hong Kong & China. The valuation given by the table below should be viewed strictly as a rough guide. One should not buy a CW just because it has a low premium. Before buying any CWs, one must make an assessment of the future performance of the underlying share.

As usual, the new CW is highlighted in blue; the CWs expiring in January are highlighted in dark green; the CWs with premium of less than 4% (highlighted in light green) and those with premium exceeding 10% (highlighted in pink).

I have also highlighted the stock code of CHMERCH-C1 in orange because I have made a mistake in the stock code for the underlying share of this CW. Previously, I have stated that the stock code as 133, whereas the correct code is 144.

CWs for Indices as at November 12

Today, we have the listing of a new CW for Hang Seng Index ('HSI'), known as HSI-C3. This was right after the listing of another CW for HSI (known as HSI-C2), which was listed yesterday. Both are Non-collateralised European-style CWs. HSI-C2 was issued by Deutsche Bank while HSI-C3 was issued by CIMB. These add to the existing 4 CWs for market indices, i.e. KLCI-CA, KLCI-CC, HSCEI-C1 & HSI-C1, which are European-style CWs for the Kuala Lumpur Composite Index (‘KLCI’), the Hang Seng China Enterprises Index (‘HSCEI’) & HSI, respectively.



With their high premium, it is best to avoid HSCEI-C1, HSI-C2 & HSI-C3.

Dry Bulk Freight Rates may have peaked

The spectacular rise in the Dry Bulk Freight Rates has propelled the share price of many Dry Bulk carriers, including those listed on our local bourse (such as Maybulk & Hubline). Looking at Chart 1, we can see that the main barometer of Dry Bulk Freight Rates, i.e. the Baltic Drybulk Index ('BDI') has now shown a slight "hookdown". Has the BDI peaked? Only time will tell.

If the BDI have peaked, the ensuing correction would impact the share prices of Dry Bulk carriers severely. From the table below, we can see that the share prices of Dry Bulk carriers listed in the US has corrected by 3-13% on November 12 alone. A closer study of the individual stocks will reveal that their share price has peaked towards the end of October & most of them are off their peak by about 30%. While the peaking in the share prices of our local drybulk carriers (see Chart 2 & 3 for the performance of Maybulk & Hubline, respectively) coincided with their overseas counterparts, their share price correction has been relatively shallow. Thus, we can expect further weakness ahead for these shares. Avoid Maybulk & Hubline for short-term trading.


Chart 1: Baltic Drybulk Rates chart as at November 12 (courtesy of Investment.tools.com)


Table: Drybulk Carriers' Share Price Performance as at November 12 (courtesy of Capital Link Shipping)


Chart 2: Maybulk's weekly chart as at November 12 (courtesy of Quickcharts)


Chart 3: Hubline's weekly chart as at November 12 (courtesy of Quickcharts)

Latitud- a laggard poised for recovery

Background

Latitude Tree Holdings Bhd ('Latitud') is involved in the manufacturing of wooden furnitures & components. It has production facilities in Kapar & Batang Berjuntai, Selangor as well as Teluk Kalong & Kemaman, Terengganu. In addition, the group has factories in Binh Duong Province, Vietnam and Songkhla Province, Thailand.

Past 5-year Financial Performance

The group's turnover has been increasing steadily over the past 5 years. The main reason for the growth is the group's expansion in Vietnam & then in Thailand. Its net profit track record shows steady growth from FY2003-2006, but this has declined a bit in the current FY2007. Latitud has attributed the drop in the net profit to higher cost of rubber-wood as well as higher freight cost, coating cost & packaging cost (which was brought on by higher oil prices).



Recent Financial Results

Latitud's net profit for QE30/6/2007 decreased by 78.1% y-o-y to RM1.5 million. This was despite a higher turnover, which has increased by 9.4% y-o-y to RM102.6 million. Nevertheless, you will note that Latitud has recovered from a loss of RM0.98 million incurred in the immediately preceding quarter of QE31/3/2007 due to a improved turnover of RM102.6 million, an increase of 9.4% from RM93.8 million recorded in QE31/3/2007.



Current Financial Position

As at 30/6/2007, Latitud's financial position is deemed satisfactory, albeit an increase in gearing ratio was noted. Its liquidity position is healthy as reflected by its current & quick ratio of 1.10 & 0.54 respectively. Gearing ratio has increased to 1.0 times from 0.76 times as at 30/6/2006. The increase in borrowings of RM44 million was used to financed Fixed Assets investment of RM24 million as well as for working capital requirement (due to higher turnover).

In term of working capital management, we will note that the inventory's turnover period has improved from 88 days as at 30/6/2006 to 79 days as at 30/6/2007 while debtors' turnover has declined from 17 days to 16 days during the same periods.

Valuation

Based on FY2007 EPS of 16 sen & last Friday's closing price of RM1.29, Latitud is now trading at a PE of 8 times. At this multiples, I would consider Latitud to be relatively inexpensive.

Technical Outlook

A long-term view of Latitud's price chart shows that the share price has dropped back to its strong multi-year horizontal support of RM1.20 in October (see Chart 1). A break below RM1.20 could send the share price testing its all-time low of RM1.00, which was recorded during the Asian Financial Crisis 1998 period. While this is not impossible, I think that a drawdown risk of RM0.20 (from the horizontal support of RM1.20) is manageable.

Nevertheless, we can see from Chart 2 below that Latitud's share price has in fact begun to recover in the past 2 weeks. The share price has gone above the stock's 10-, 20-, 30- & 50- SMA level. A good entry would be at RM1.20-25 in the event of any pullback in the share price.


Chart 1: Latitud's monthly chart as at November 7 (courtesy of Quickcharts)



Chart 2: Latitud's daily chart as at November 9 (courtesy of Tradesignum.com)

Conclusion

Based on improving financial performance & possible technical recovery, Latitud is a good BUY for the medium-term.

DJIA broke its medium-term uptrend line

DJIA dropped 34 points to close at 13266 yesterday. The day's low was 13080- a loss of 220 points from yesterday's close of 13300. Yesterday's market action will appear on the chart as an inverted hammer, a potentially bullish sign.

Nevertheless, the worst might still be ahead. The last 2 days' trading shows that DJIA has broken marginally below its medium-term uptrend line support of 13400. A quick recovery is very important, but this did not happen yesterday.

The MACD indicator has gone into the negative territory (denoted as 'Z'). In the past 2 instances when this has happened (denoted as 'X' & 'Y'), the index took a sharp dive before recovering. If the same were to recur, the index could test the 13000 level. The index's horizontal supports are at 13300 (S1), the psychological 13000 and 12800 (S2), while its horizontal resistance levels are at 13700 (R1), the psychological 14000 and 14200 (R2).



Chart: DJIA's daily chart as at November 8 (courtesy of Yahoo Finance)

Ann Joo had a great 3rd quarter

Ann Joo has just announced its results for QE30/9/2007. Its net profit increased by 27.7% q-o-q or 128.5% y-o-y to RM50.2 million while its turnover has increased by 30.6% q-o-q or 30.7% y-o-y to RM490.6 million. The improved results is attributable to robust international billet market has resulted in higher export to the neighbouring countries namely Indonesia and Vietnam at significantly higher international selling prices … offsetting a lower local sale tonnage as most 9MP projects have not taken off ground. Despite the lower local volume, Ann Joo is compensated by higher selling prices as a follow through from the approved price increases since the second quarter of current financial year (i.e. QE30/6/2007).

Based on the past 4 quarters' EPS of 43 sen and today's closing price of RM4.14, Ann Joo is now trading at a PE of 9.6 times.

From the chart below, it seems that Ann Joo share price has just surpassed its recent high of RM4.06/08 today when it closed at RM4.14. On the back of the substantially better results, there is a good chance that the next upleg for Ann Joo share price may have started.
Chart: AnnJoo's daily chart as at November 7 (courtesy of Tradesignum.com)

Shang's net profit jumped in QE30/9/2007

Shangri-La Hotels (Malaysia) Bhd ('Shang') has just announced its results for QE30/9/2007. Its net profit jumped by 239% q-o-q or 212% y-o-y to RM27.8 million while turnover increased by 26.5% q-o-q or 32.8% y-o-y to RM114.1 million.

Shang attributed its improved performance for the current quarter vis-a-vis its previous year's corresponding quarter to "a strong improvement in the operating results of Shangri-La Hotel Kuala Lumpur, and the reopening of Rasa Sayang Resort in late September 2006 following its closure from December 2004 for a major redevelopment & repositioning programme". In addition, its current quarter has improved upon its last quarter's result due mainly to higher occupancy rate of some of its hotels, such as Shangri-La Hotel Kuala Lumpur (from 64% to 79%), Rasa Ria Resort, Sabah (from 73% to 92%) and also the Golden Sands Resort (from 59% to 78%).



Assuming that Shang can maintain this level of earning for a full year, its EPS would jump to 25.2 sen. Based on today's closing price of RM2.33, Shang would be trading at a PE of 9.2 times. That's fairly inexpensive for a strong brand like Shang.

Technically speaking, Shang's share price is still in a medium-term uptrend. It has retreated from its recent high of RM3.00 recorded in June 11. The uptrend line support can be seen at RM2.10, which is also a strong horizontal support.


Chart: Shang's weekly chart as at November 5 (courtesy of Quickcharts)

Based on strong performance, Shang is a BUY for the medium-term. Good entry level would be at the RM2.10-2.20 level, but this may not be possible for now.

Tanjong is testing its medium-term uptrend line

Tanjong plc has just tested its medium-term uptrend line support at RM16.60 and rebounded to close at RM16.80 today. Further test of this uptrend line is possible. If the uptrend line is not violated, this could be a good entry to a solid stock, which is trading at a PE of 12.7 times its trailing 4 quarters' EPS of 133 sen as well as paying a gross dividend of 86 sen (thus, giving a yield of 5.1%).


Chart: Tanjong's weekly chart as at November 2 (courtesy of Quickcharts)

CWs for HK stocks as at November 2, 2007

Today, three new CWs were listed. They are CHMOBIL-C5, HKEX-C5 & ICBC-C4, which are all Non-collateralised European-style Cash-settled Call Warrants. CHMOBIL-C5 & ICBC-C4 were issued by CIMB while HKEX-C5 was issued by Deutsche Bank.

As usual, the new CWs are highlighted in blue. The attractive CWs (with premium of less than 4%) is higlighted in light green while those with premium exceeding 10% are highlighted in pink. I have also highlighted those CWs that will be expiring in January 2008, i.e. in about 3 months' time (in dark green).



With the HSI dropping 1526 points to close at 28942 today, it appears that the HSI is in serious danger of breaching its short-term uptrend- if you were to use the 20-day SMA to plot the uptrend. A quick rebound in HSI is necessary tomorrow, failing which more price correction will follow. This will lead to further correction in the CWs of Hong Kong stocks that are traded on our exchange.


Chart: HSI's daily chart as at November 2 (courtesy of Yahoo Finance)

Unisem's net profit for QE30/9/2007 soared

Unisem announced its results for QE30/9/2007 yesterday. The announcement shows that Unisem's net profit has increased by 13% q-o-q or 73% y-o-y to RM31.1 million while turnover has jumped by 89% q-o-q or 71% y-o-y to RM304.5 million. This quarterly results clearly shows the positive contribution from its recently acquired subsidiary, Advanced Interconnect Technologies Ltd (with the acquisition was completed on July 18).

While the net profit has grown by 13% q-o-q, we must bear in mind that the net profit for QE30/6/2007 was pushed up by reversal of deferred taxation expenses (leading to a positive tax credit of RM5.1 million).



Assuming that Unisem can repeat the same performance, its annual EPS could jump to 26.4 sen. Based on today's closing price of RM1.79, Unisem is now trading at a PE of 6.8 times. This is deemed very undemanding.

Technically speaking, the share price is still in a downtrend. The downtrend would be deemed to be over when the share price has surpassed the RM1.94/95 level.

Chart: Unisem's monthly chart as at November 1 (courtesy of Quickcharts)

Nevertheless, based on attractive valuation, Unisem would be a BUY for long-term investment.

CWs for HK stocks as at October 29, 2007

On Monday (October 22), four new CWs were listed. They are CHCBC-C1, CHMERCH-C1, HKEX-C4 & ZIJIN-C1. These are all Non-collateralised American-style Cash-settled Call Warrants and they were issued by OSK.

The new CWs are highlighted in blue. The cheaper CWs (with premium of less than 4%) are highlighted in green while those with premium exceeding 10% are highlighted in pink. In particular, investors should be very careful with CHMERCH-C1, HKEX-C4 & ZIJIN-C1 as they are trading at premium approaching or exceeding 40%!

Readers should note that there was an adjustment to ANGANG-C1 due to a Rights Issue of 2.2 new shares for every existing 10 shares owned. As the list is getting longer & changes are made from time to time (such as ANGANG-C1), I would advise you all to verify the numbers for your own usage.

CWs for Indices

Today, a new CW over the Hang Seng China Enterprises Index (‘HSCEI’) was listed. It is called HSCEI-C1. This adds to the existing 3 CWs over market indices, i.e. KLCI-CA, KLCI-CC & HSI-C1, which are European-style Cash-settled CWs over the Kuala Lumpur Composite Index (‘KLCI’) & the Hang Seng Index (‘HSI’), respectively. HSCEI is similarly a European-style Cash-settled CW.

As the name implied, HSCEI is made up of Mainland Chinese companies that are listed on the Hong Kong Exchange. Thus, it should not be a surprise to note that this index has risen substantially lately. In fact, a comparison between HSCEI and HSI shows that the former has outperformed the latter by a significant margin. For example, from the low recorded on August 17, HSCEI has risen by 97% to close at 20194.14, while the HSI has gained 62% to close at 31586.90. For closer tracking of these 2 induces, go to here & here.



The price of HSCEI-C1 as shown on the above table is the IPO price. As at 12.00 noon, this CW was trading at RM0.40, giving a gain of RM0.125. Based on the HSCEI of 20241 as at the same time, the HSCEI-C1 was trading at a premium of 14.4%. That is a pretty pricey premium to pay for any CW.

Market Outlook as at October 26

The KLCI gained 49.17 points to close at 1398.35 last week. With that impressive run, the KLCI has finally surpassed its recent high of 1392.18 recorded on July 24. At 12.00 noon today, the KLCI was at 1404, showing a gain of 6 points on traded volume of 1 billion units. If the KLCI can hold onto its breakout level of 1392 (preferably, 1400), the KLCI's medium-term outlook would turn very bullish. For those who had sold off ahead of the 20th anniversary of the Black October but have yet to rebuild your position in the market to the desire level, you are well advised to do so quickly. This could be the time that you need to "lose your cash".


Chart: KLCI's weekly chart as at October 26 (courtesy of Quickcharts)

No update for the whole of next week

There will be no update for next week as I will be away for a holiday. With Dow dropping 367 points yesterday, this is one break that I am not looking forward to. If it is any consolation, I will say that the market has been anticipating this correction (why not? it's annual affair... now into its 20th anniversary) and, as such, one can also anticipate that those, who have shorted the market or who have reduced their position earlier, will be getting ready to add back their position or cover their shorts soon. I expect the Dow to find support at 13,200 and 13,000 level (see Chart 1).


Chart 1: DJIA's daily chart as at October 19 (courtesy of Yahoo Finance)

Yesterday, Digi.com and Topglove filed in their latest quarterly results. Both have reported very strong net profit that is pretty much within expectation. Digi.com has a 3rd net profit of RM273 million on the back of a turnover of RM1.11 billion. What surprised many was its huge interim dividend of RM1.00 per share. I expect the stock to test its all-time of RM25 shortly (see Chart 2 below).


Chart 2: Digi's daily chart as at Oct 19 (courtesy of Tradesignum.com)

Topglove has similarly reported a good net profit of RM26.8 million on a turnover of RM308 million for its 4th quarter. From Chart 3 below, we can see that the stock is trading very near its long-term uptrend line. Topglove could be a good BUY at RM5.80-6.00 level.


Chart 3: Topglove's daily chart as at Oct 19 (courtesy of Tradesignum.com)

Next week's trading will be very tricky. My biggest fear is that the Shanghai & Hong Kong stock markets may decide to take a break. After Wall Street and Bombay's recent sharp fall, that's the last thing we need. Scary thought but hopefully it is just that.

TGuan- another laggard worths a BUY

Background

Thong Guan Industries bhd ('TGuan') is involved in manufacturing of plastic & paper products; plastic packaging products; and tea, coffee & other related consumer products. Its main production facilities are located in Sungai Petani, Kedah. The group has invested in China (with plants located in Jiangsu). The group is currently one of the biggest producer of stretch films in Asia Pacific.

Past 5-year Financial Performance

The group's turnover has been increasing steadily over the past 5 years. While its net profit track record has been good, it has declined a bit in the past 2 years. This year's net profit is expected to be weak as well. The group has attributed the poorer net profit to higher input cost, higher freight cost, higher interest cost, unfavorable forex movement & losses from its subsidiary in China.



Recent Financial Results

TGuan's net profit for QE30/6/2007 decreased by 25.4% q-o-q or 63.3% to RM2.5 million. This is despite a turnover, which has increased by 9.6% q-o-q or 11.8% y-o-y to RM126.6 million.



Current Financial Position

As at 30/6/2007, TGuan's financial position is deemed satisfactory. Its liquidity position is healthy as reflected by its current & quick ratio of 1.51 & 0.45 respectively. Gearing ratio is low at 0.35 times. In term of working capital management, one will note that the inventory's turnover period has increased slightly from 72 days as at 31/12/2006 to 80 days as at 31/6/2007 while debtors' turnover has declined from 67 days to 64 days during the same periods.

Valuation

Based on TGuan's closing price of RM1.15 as at yesterday, the stock is now trading at a trailing PE of 7.67 times (using its past 4 quarters' EPS of 14.6 sen) or 0.67 times its book value (using its NTA per share of RM1.72 as at 30/6/2007).

Technical Outlook

TGuan has been drifting lower since making a high of RM2.55 in June 2005. At this stage, the stock is in a medium-term downtrend, that is very much intact. Nevertheless, the stock is also in a long-term uptrend where the support is at RM1.10. A strong horizontal support at RM1.00 is also noted.

As the medium-term downtrend is still intact, this stock's upside will be capped. For an upleg to begin, the share price must break above RM1.40.



Chart 1: TGuan's monthly chart as at October 16 (courtesy of Quickcharts)

Conclusion

TGuan is now trading at attractive multiples of 7.67 times its trailing earning or 0.67 times its book value. In addition, the stock is very near its long-term uptrend line support of RM1.10 (with its strong horizontal support of RM1.00 as a back-up, if need be). While the stock's downside is fairly limited with these supports in place, it must be noted that the medium-term downtrend is still intact, thus capping the upside of any price rally.

WTHorse- a laggard that worths accumulating

Background

White Horse Bhd ('WTHorse') is involved in the manufacture & distribution of ceramic & homogeneous tiles. Its plants are located in Pasir Gudang Industrial Estate & Tanjung Langsat Industrial Complex; both situated in Pasir Gudang, Johore.

Past 5-year Financial Performance

From the table below, we can see that turnover has been flattish in the past 2 years despite the completion of the 3rd & 4th production line in the Tanjung Langsat Industrial Complex in the third quarter of 2006. These 2 new lines were originally projected to increase the group's output by 25%, but one can clearly see that the additional capacity has not boosted its turnover. This is probably due to a slowdown in the construction & property sectors in 2006.



Recent Financial Results

For QE30/6/2007, WTHorse's net profit increased by 33.4% q-o-q to RM10.5 million while turnover increased by 16.6% to RM104.6 million. When compared to the corresponding quarter last year, net profit declined by 9.9% on a the back of a 2.6% drop in turnover.



Current Financial Position

As at 30/6/2007, WTHorse's financial position is deemed satisfactory. Its liquidity position is healthy as reflected by its current & quick ratio of 1.36 & 0.60 respectively. Gearing ratio is low at 0.44 times its Shareholders' Funds. In term of working capital management, one will note that the inventory's turnover period has increased from 159 days as at 31/12/2006 to 172 days as at 31/6/2007 while debtors' turnover has declined from 98 days to 88 days during the same periods.

Valuation

Based on WTHorse's closing price of RM1.26 as at yesterday, the stock is now trading at a trailing PE of 6.33 times (using its past 4 quarters' EPS of 19.9 sen) or 0.6 times its book value (using its NTA per share of RM2.06 as at 30/6/2007). At these multiples, the stock is deemed inexpensive.

Technical Outlook

The stock made a high of RM2.65 in January 2005 (see Chart 1). Since then, the share price has been drifting lower. The stock has finally broken above that downtrend in either February or April this year (depending on how the downtrend line was drawn).


Chart 1: WTHorse's monthly chart as at October 16 (courtesy of Quickcharts)

After making a high of RM1.71 in May, the share begun to drift lower again. In the past week or so, the stock has tested the horizontal support at RM1.15 & rebounded (see Chart 2). In the rebound, the stock has broken above its short-term downtrend line at the RM1.22/23 level. WTHorse is now a fairly safe buy, though the uptrend has yet to commence.


Chart 2: WTHorse's daily chart as at October 16 (courtesy of Quickcharts)

Conclusion

Based on the improvement in the construction & property sector, I believe that WTHorse's financial performance will get better. WTHorse is now trading at undemanding multiples of 6.33 times its trailing earning or 0.6 times its book value. Technically speaking, the stock is also trading near its strong horizontal support of RM1.15, which means that the stock is a fairly safe BUY.

Crude Oil is definitely not going lower

Sometime, one can learn very quickly that one has made a wrong call. Such was my call that crude oil was about to trend lower a few days ago (go here). With the new high of USD86 per barrel just recorded yesterday, I expect the uptrend for crude oil to continue. This should be bullish for Oil & Gas stocks (such as Kencana, Sapcres etc) but likely to be negative on the overall equity market.


Chart: Crude Oil's daily chart as at October 12 (courtesy of Supercharts by Omega Research)

Tenaga is still standing

The latest news on Tenaga is that it has proposed to the Government that "(power) generators be allowed to raise tariffs to pass on higher natural gas costs caused by the gradual removal of subsidies (on natural gas)". This piece of "news" has caused the share price of Tenaga to tumble down to its recent lows of around RM9.30.

Technical analysts will be watching Tenaga closely to see whether the RM9.30 level can sustain. Here, we must bear in mind that a stock that refuses to go down after a barrage of bad news is signaling that it is in fact bottoming out & maybe poised to recover. If a recovery were to happen, Tenaga would have done a reversal known as a Triple Bottom. Thus, Tenaga could be a good Trading Buy at the RM9.30 level, with a STOP at RM8.90. Short-term target is RM10.00.


Chart : Tenaga's daily chart as at October 11 (courtesy of Quickcharts)

Airasia's uptrend may continue

After recording a high of RM2.15 on May 7, Airasia share price has been drifting lower. Yesterday, it broke above that short-term downtrend line at RM1.98. This breakout was accompanied by a pick-up in volume. With this breakout, the near term outlook for Airasia has turned bullish.


Chart : Airasia's daily chart as at October 11 (courtesy of Quickcharts)

Crude Oil is likely to trend lower

Crude Oil has broken its immediate uptrend line on September 25, but it staged a recovery to record a new high of USD83.70 on September 28. Thereafter, crude oil broke through the uptrend line again on October 1. Subsequent rebound did not bring the price above the uptrend line. In fact, the peak of this rebound was lower than the September 28 peak. Yesterday, crude oil recorded a lower 'low' than that chalked on October 2. The lower peak & the lower trough would satisfy the beginning of a short-term downtrend for crude oil (see Chart 1).


Chart 1: Crude Oil's October futures daily chart as at October 8 (courtesy of Barcharts.com)

The weekly chart (Chart 2) shows that crude oil should have good horizontal support at USD78, which is not very far off. A break of this level would likely follow by a test of the medium-term uptrend support at USD73.


Chart 2: Crude Oil's October futures weekly chart as at October 8 (courtesy of Barcharts.com)

The bearish outlook for crude oil may dampen the sentiment for Oil & Gas stocks, but I believe that the outlook would be generally positive for equity & bond if crude oil prices were to retreat further,thus lowering concern of inflation induced by high crude oil prices.

Basket CWs- ZA-OSKSB, ZB-CIMB & ZC-CIMB

Today, we have the listing of two new basket CWs, i.e. ZB-CIMB & ZC-CIMB. This is in addition to the present basket CW, ZA-OSKSB. The main difference between the existing ZA-OSKSB and the newer basket CWs are:

1. ZA-OSKSB is a zero-strike CW, where the exercise price is a nominal sum of RM0.01;
2. ZA-OSKSB is a Bermudian style CW, where it is exercisable quarterly as compared to the newer basket CWs which are European style CWs (where they are exercisable only on maturity); and
3. ZA-OSKSB tries to track the top 20 stocks listed on the KLSE while the newer basket CWs allows sectoral exposure to the stock exchange companies in Malaysia, Singapore & Hong Kong (in the case of ZB-CIMB) or exposure to Oil & Gas stocks in Malaysia & China (in the case of ZC-CIMB).
   

The valuation table below gives the premium of the three basket CWs. The underlying value of ZB-CIMB & ZC-CIMB are shown in the two tables below the main table, while the value of the underlying stocks for ZA-OSKSB is extracted from OSK188.com (go here). The premium of ZB-CIMB & ZC-CIMB is computed using their IPO prices. We can see that the premium assigned to ZB-CIMB & ZC-CIMB is quite high.

Market Outlook as at October 8

The market began to correct as early as 9.15 am after the KLCI gained 10.39 points to record a high of 1382.78. At 3.30 pm, the KLCI hit a low of 1364.18, losing 8.21 points compared to Friday's close. Is this rally over?

From the chart below, we can see that the current upleg has been very steep, not unlike other markets around the region. With the steady rise in the volume traded in the past 2 weeks, the market appears to be in a hurry to test its recent high of 1392. Thus, a correction should not be unexpected & it could well bring the KLCI down to its short-term uptrend line support of 1350; or, its 10-day SMA support of 1347; or, even the support given by the gap-up on October 2 (at 1353-1359). So, as long as the 1350 level is not violated convincingly, I believe that this is merely a short-term correction from which the KLCI can then stage a strong re-bound.

Based on this, I believe that the current correction is an opportunity to accumulate stocks.


Chart : KLCI's daily chart as at October 8 (courtesy of Quickcharts)

Sarawak may have a bullish breakout

Sarawak Energy Bhd ('Sarawak') is involved in the generation & transmission of electricity in the state of Sarawak. The stock has been 'bottoming' for 4 years & it finally broke above the strong horizontal resistance of RM1.45 in December 2006. Since then, it has been consolidating in the pattern of a wedge (albeit, a bearish wedge). A break above RM1.46/47 could signal the beginning of its next upleg move. Watch out for this breakout.


Chart 1: Sarawak's monthly chart as at October 4 (courtesy of Quickcharts)



Chart : Sarawak's weekly chart as at October 4 (courtesy of Quickcharts)

TA may be poised for a bullish breakout

TA has been consolidating since recording its recent high of RM2.29 on February 21. Yesterday, the stock gained 5 sen to close at RM1.65. A break above RM1.65 would mean that TA has broken to the upside of the overhead medium-term downtrend line (see Chart 1 below).

Chart 1: TA's daily chart as at October 4 (courtesy of Quickcharts)

An indication of the likelihood of a breakout in TA share price may be seemed from the chart of TA-WB (see below). That chart shows that TA-WB has broken to the upside of the overhead medium-term downtrend line at RM0.69-70.


Chart 2: TA's daily chart as at October 4 (courtesy of Quickcharts)

If TA can achieve a breakout with significant volume, the stock & the warrant would be a good trading BUY.

TChong may have a bullish breakout at RM1.50

In the month of August, the Total Industrial Volume (for the Automotive Industry) increased 5.9% m-o-m or 0.8% y-o-y to 47,585 units sold. This is the third month of monthly uptick, but the year-to-date sale volume is still down 7% when compared to the same period last year.

Most research houses are still neutral on the auto sector because of depressed profit margin due to under-recovery of overhead (because of low sale volume) and high advertising & promotional expenses to attract sale. I believe that some investors have begun to position themselves in this sector. One stock that may have benefited from this is TChong. In fact, TChong may have just broken above its medium-term downtrend line at RM1.50 yesterday. If this breakout can sustain, TChong may test its strong resistance levels, such RM1.80 & RM2.15.


Chart 1: TChong's weekly chart as at October 2 (courtesy of Quickcharts)


Chart 2: TChong's monthly chart as at October 2 (courtesy of Quickcharts)

Tenaga may find support at RM8.00-9.00

Tenaga broke below its uptrend line support (of RM11.00) in July. This was despite numerous research reports which valued Tenaga at RM14.00-15.00. The value given to Tenaga was due to anticipated strong growth in electricity demand going forward.

Now, we know what has spooked the Tenaga shareholders, which brought on a strong selldown in the stock. It is the same issue that has bedeviled this stock for the past few years, i.e. the revision in the subsidized price of natural gas from Petronas Gas.

OSK has a report entitled "Painful if No Remedy" dated September 24, which projected that an increase in the price of natural gas of 10-60% could reduce Tenaga's earning by 5-34%, if the electricity tariff remained unchanged. Based on this projected earnings, Tenaga's target price could be lowered to RM10.00-13.80. Nevertheless, OSK has maintained its existing BUY call on the stock with an unchanged target price of RM14.55 because no concrete figures have been unveiled. Kenanga has similarly maintained its BUY call on the stock (go here).

Looking at the chart below, we can see that Tenaga can find strong support at RM8.00-9.20. Given the strong selldown, I believe that the rumor could have been substantially factored into the price of Tenaga. As such, Tenaga at the present price level could well be a good BUY, either for a trade or for the long-term hold.


Chart : Tenaga's weekly chart as at October 1 (courtesy of Quickcharts)