With this set of results, I believe that AEON may be able to stay above the immediate uptrend line, with support at RM3.50.
Chart: AEON's daily chart from Feb 25, 2009 (source: Tradesignum.com)
Thursday, February 26, 2009
AEON's 4Q2008 results was better than expected
Last week, I posted about the drop in the share price of AEON (go here). I was wondering whether the market was anticipating a poorer set of results for 4Q2008 and sold ahead of this results. Since then, the results has been announced (see below). On the whole, it is a fairly good results, given the difficult operating environment. Turnover was slightly higher than the preceding quarter's numbers and so was the net profit figure (up 44%). As compared to 4Q2007, net profit dropped by 4% despite a 11%-increase in turnover.
With this set of results, I believe that AEON may be able to stay above the immediate uptrend line, with support at RM3.50.
Chart: AEON's daily chart from Feb 25, 2009 (source: Tradesignum.com)
With this set of results, I believe that AEON may be able to stay above the immediate uptrend line, with support at RM3.50.
Chart: AEON's daily chart from Feb 25, 2009 (source: Tradesignum.com)
KPJ, a good value stock
Background
KPJ Healthcare Bhd ('KPJ') is the largest private healthcare provider in Malaysia. It has 18 hospitals in Malaysia as well as 6 hospitals overseas (3 in Indonesia, 2 in Saudi Arabia & 1 in Bangladesh). In addition, KPJ also owns 2 nursing colleges- one in Nilai & the other in Nusajaya. The nursing colleges, known as Puteri Nursing College may represent the 2nd core business for KPJ.
Historical Financial Performance
From FY2002 to FY2007, KPJ's pre-tax profit has increased from RM14.9 million to RM74.2 million, while turnover increased from RM416 million to RM1,733 million.
Recent Financial Performance
KPJ's results for 4Q2008 reflects the impact of the current economic slowdown. Its turnover dropped marginally when compared to the 3Q2008, while pre-tax profit & net profit declined by 21% & 28% for the same periods. The drop in the pre-tax profit was due mainly to allowance for impairment of an associate company of RM6.5 million. If this impairment provision is excluded, KPJ's profitability remained unchanged.
If we compared the last 4 quarters ith the preceding 4 quarters, we can see that KPJ's net profit has increased by 5.7% from RM74 million to RM78 million, while turnover increased by 15% from RM1.11 billion to RM1.27 billion. EPS increased from 36 sen to 38 sen.
Valuation
KPJ (closed at RM2.80 at the end of the morning session today) is now trading at a trailing PE of 7.4 times. For a company with a CAGR of about 38%- based on its track record from FY2002 to FY2007- KPJ is trading at an undemanding PEG ratio of only 0.2 times! For more on PEG ratio, go here.
Technical Outlook
From the weekly chart, we can see that KPJ is in a long-term uptrend, with support at RM1.70-80. In the medium-term term, KPJ is trending lower in a downward channel where the support & resistance are presently at RM2.20 & RM3.50, respectively.
Chart: KPJ's weekly chart as at Feb 25, 2009 (source: Quickcharts)
Conclusion
Based on the inelastic demand for healthcare & the attractive valuation, KPJ is a good stock for long-term investment. While the ideal entry is at RM1.70-80, I believe that one should aim for the more attainable RM2.20 level.
KPJ Healthcare Bhd ('KPJ') is the largest private healthcare provider in Malaysia. It has 18 hospitals in Malaysia as well as 6 hospitals overseas (3 in Indonesia, 2 in Saudi Arabia & 1 in Bangladesh). In addition, KPJ also owns 2 nursing colleges- one in Nilai & the other in Nusajaya. The nursing colleges, known as Puteri Nursing College may represent the 2nd core business for KPJ.
Historical Financial Performance
From FY2002 to FY2007, KPJ's pre-tax profit has increased from RM14.9 million to RM74.2 million, while turnover increased from RM416 million to RM1,733 million.
Recent Financial Performance
KPJ's results for 4Q2008 reflects the impact of the current economic slowdown. Its turnover dropped marginally when compared to the 3Q2008, while pre-tax profit & net profit declined by 21% & 28% for the same periods. The drop in the pre-tax profit was due mainly to allowance for impairment of an associate company of RM6.5 million. If this impairment provision is excluded, KPJ's profitability remained unchanged.
If we compared the last 4 quarters ith the preceding 4 quarters, we can see that KPJ's net profit has increased by 5.7% from RM74 million to RM78 million, while turnover increased by 15% from RM1.11 billion to RM1.27 billion. EPS increased from 36 sen to 38 sen.
Valuation
KPJ (closed at RM2.80 at the end of the morning session today) is now trading at a trailing PE of 7.4 times. For a company with a CAGR of about 38%- based on its track record from FY2002 to FY2007- KPJ is trading at an undemanding PEG ratio of only 0.2 times! For more on PEG ratio, go here.
Technical Outlook
From the weekly chart, we can see that KPJ is in a long-term uptrend, with support at RM1.70-80. In the medium-term term, KPJ is trending lower in a downward channel where the support & resistance are presently at RM2.20 & RM3.50, respectively.
Chart: KPJ's weekly chart as at Feb 25, 2009 (source: Quickcharts)
Conclusion
Based on the inelastic demand for healthcare & the attractive valuation, KPJ is a good stock for long-term investment. While the ideal entry is at RM1.70-80, I believe that one should aim for the more attainable RM2.20 level.
Maybulk's net profit dropped
Maybulk has just announced its results for 4Q2008. Its net profit dropped by 98% q-o-q and y-o-y to RM3.2 million, while turnover dropped 36% q-o-q or 28% y-o-y to RM138 million. Maybulk reported an operating loss (excluding gain from the disposal of vessels) of RM20 million as compared to an operating profit (excluding gain from the disposal of vessels) of RM36 million for 3Q2008 or RM126 million for 4Q2007.
Maybulk's average operating results is probably between the small operating loss in 4Q2008 & the huge operating profit of 4Q2007; thus about RM106 million per quarter, or RM424 million per annum. After deducting corporate tax (say, 25%), its net profit is about RM318 million. The other income contributor going forward is the newly-acquired 22.08% stake in PACC Offshore Services Holdings Pte Ltd (POSH) [costing US$221mil (RM802mil)]. Let's assume this give a dividend yield of 5%; thus an income of RM40 million per annum [RM802 million multiplied by 5%]. So, Maybulk's total net profit is about RM358 million, or EPS of 36 sen. This of course looks too optimistic in the current economic environment, but we will stay with this estimate for now.
Shipping business is very cyclical and I think it should command a PE multiple of 6 to 10 times, depending on the economic cycle. If I were to use a PE multiple of 8 times & the average EPS of 36 sen (as per above calculation), then Maybulk's fair value if about RM2.88.
From the charts below, we can see that Maybulk share price is approaching its medium-term downtrend line resistance at RM3.10. The RM3.00 psychological resistance is another hurdle that may block the rise of this stock.
Chart 1: Maybulk's daily chart from Feb 25, 2009 (source: Tradesignum.com)
Chart 2: Maybulk's weekly chart as at Feb 25, 2009 (source: Quickcharts)
Based on the valuation & technical considerations, I believe that it is a good time to take some profit on your Maybulk investment.
Maybulk's average operating results is probably between the small operating loss in 4Q2008 & the huge operating profit of 4Q2007; thus about RM106 million per quarter, or RM424 million per annum. After deducting corporate tax (say, 25%), its net profit is about RM318 million. The other income contributor going forward is the newly-acquired 22.08% stake in PACC Offshore Services Holdings Pte Ltd (POSH) [costing US$221mil (RM802mil)]. Let's assume this give a dividend yield of 5%; thus an income of RM40 million per annum [RM802 million multiplied by 5%]. So, Maybulk's total net profit is about RM358 million, or EPS of 36 sen. This of course looks too optimistic in the current economic environment, but we will stay with this estimate for now.
Shipping business is very cyclical and I think it should command a PE multiple of 6 to 10 times, depending on the economic cycle. If I were to use a PE multiple of 8 times & the average EPS of 36 sen (as per above calculation), then Maybulk's fair value if about RM2.88.
From the charts below, we can see that Maybulk share price is approaching its medium-term downtrend line resistance at RM3.10. The RM3.00 psychological resistance is another hurdle that may block the rise of this stock.
Chart 1: Maybulk's daily chart from Feb 25, 2009 (source: Tradesignum.com)
Chart 2: Maybulk's weekly chart as at Feb 25, 2009 (source: Quickcharts)
Based on the valuation & technical considerations, I believe that it is a good time to take some profit on your Maybulk investment.
Wednesday, February 25, 2009
TienWah's net profit jumped
Tien Wah Press Holdings Berhad ('TienWah') is involved in printing- specializing in cigarette carton, consumer goods packaging and advertising materials. Its manufacturing operations are presently sited at factories located at Petaling Jaya, and Puchong in Malaysia, Vietnam Singapore Industrial park in Ho Chi Minh City and Smithfield, New South Wales Australia.
The operation in Vietnam & Australia were acquired as follows:
1) On 21 December 2007, TienWah acquired a wholly-owned subsidiary, New Toyo Investments Pte Ltd (“NTIV”) from New Toyo International Holdings Ltd ("NTIH"), the ultimate shareholder of TienWah. NTIV is an investment holding company which owns 100 % of Alliance Print Technologies Co.Ltd. (“APT”) in Vietnam; and
2) On the 31st Oct 2008, TienWah (together with NTIH) acquired the entire equity interest in Anzpac Services(Australia) Pty. Ltd. ("Anzpac"), a printing packaging and paper board converting for the Australiasia and overseas market. TienWah controls 51% of the JV that owns Anzpac, while NTIH owns the remaining 49%.
The acquisition of Anzpac has enabled TienWah to secure a contract for [7+3] years from British American Tobacco ('BAT') to supply its printing requirement for the Asia Pacific region. This contract will help TienWah in periods of uncertainty ahead.
TienWah has just announced results its 4Q2008. Net profit jumped 76.6% q-o-q or 82.2% y-o-y to RM6.9 million, while turnover increased by 52.4% q-o-q or 103% y-o-y to RM64.5 million. The improvement in both turnover & net profit is attributable to better performance from all subsidiaries, including the newly-acquired Anzpac.
If TienWah can repeat its 4Q2008, then its full-year earning will amount to 40 sen. Based on its closing price of RM1.45 yesterday, TienWah is now trading at a PE of 3.6 times. That's very attractive.
From the monthly chart below, we can see that TienWah is in a very gradual long-term uptrend line, with support at RM1.15-20.
Chart: TienWah's monthly chart as at Feb 24, 2009 (source: Quickcharts)
Based on the good financial performance & attractive valuation, TienWah is a very good stock for long-term investment.
The operation in Vietnam & Australia were acquired as follows:
1) On 21 December 2007, TienWah acquired a wholly-owned subsidiary, New Toyo Investments Pte Ltd (“NTIV”) from New Toyo International Holdings Ltd ("NTIH"), the ultimate shareholder of TienWah. NTIV is an investment holding company which owns 100 % of Alliance Print Technologies Co.Ltd. (“APT”) in Vietnam; and
2) On the 31st Oct 2008, TienWah (together with NTIH) acquired the entire equity interest in Anzpac Services(Australia) Pty. Ltd. ("Anzpac"), a printing packaging and paper board converting for the Australiasia and overseas market. TienWah controls 51% of the JV that owns Anzpac, while NTIH owns the remaining 49%.
The acquisition of Anzpac has enabled TienWah to secure a contract for [7+3] years from British American Tobacco ('BAT') to supply its printing requirement for the Asia Pacific region. This contract will help TienWah in periods of uncertainty ahead.
TienWah has just announced results its 4Q2008. Net profit jumped 76.6% q-o-q or 82.2% y-o-y to RM6.9 million, while turnover increased by 52.4% q-o-q or 103% y-o-y to RM64.5 million. The improvement in both turnover & net profit is attributable to better performance from all subsidiaries, including the newly-acquired Anzpac.
If TienWah can repeat its 4Q2008, then its full-year earning will amount to 40 sen. Based on its closing price of RM1.45 yesterday, TienWah is now trading at a PE of 3.6 times. That's very attractive.
From the monthly chart below, we can see that TienWah is in a very gradual long-term uptrend line, with support at RM1.15-20.
Chart: TienWah's monthly chart as at Feb 24, 2009 (source: Quickcharts)
Based on the good financial performance & attractive valuation, TienWah is a very good stock for long-term investment.
Tuesday, February 24, 2009
Supermx reported sharp drop in net profit
Supermx announced its results for 4Q2008 ended 31/12/2008 after the close of trading today. Net profit dropped by 90% q-o-q or 89% y-o-y to RM1.5 million, while turnover declined by 16% q-o-q, but up 13% y-o-y to RM204 million.
The sequentially lower turnover was attributable to:
1) Reduced capacity to meet orders for powder gloves as Supermax Group has stopped outsourcing of gloves from APLI Group since November 2008.
2) Reduced average selling prices during the current quarter in tandem with lower latex prices.
Supermx explained the drop in the "current quarter’s profitability in absolute terms was impacted by the full impairment made on its investment in APLI amounting to RM16.7 million resulting in PBT and PAT deteriorating by 62.9% and 90.1% respectively. Without the impairment, the Group would have maintained its strong track record of recording profit growth over each preceding quarter. PBT and PAT would have increased by 42.0% and 17.7% respectively on the back of increased output from 10 new lines and cost savings from greater operating efficiencies and lower latex prices."
Where is disappointing is that the company has stated on January 9, 2009 that "the total impairment (of the Company’s investment in APLI ) amounting to RM16,687,192 had been fully provided" (go here). One would have thought that by this statement, the impairment was provided for in previous accounting periods (or, quarters), but it turned out that it was only provided for in the 4Q2008, which was not announced yet as at January 9, 2009. This misleading statement would not endear Supermx to investors.
I am quite disappointed with Supermx and I would ignore this stock in the future.
The sequentially lower turnover was attributable to:
1) Reduced capacity to meet orders for powder gloves as Supermax Group has stopped outsourcing of gloves from APLI Group since November 2008.
2) Reduced average selling prices during the current quarter in tandem with lower latex prices.
Supermx explained the drop in the "current quarter’s profitability in absolute terms was impacted by the full impairment made on its investment in APLI amounting to RM16.7 million resulting in PBT and PAT deteriorating by 62.9% and 90.1% respectively. Without the impairment, the Group would have maintained its strong track record of recording profit growth over each preceding quarter. PBT and PAT would have increased by 42.0% and 17.7% respectively on the back of increased output from 10 new lines and cost savings from greater operating efficiencies and lower latex prices."
Where is disappointing is that the company has stated on January 9, 2009 that "the total impairment (of the Company’s investment in APLI ) amounting to RM16,687,192 had been fully provided" (go here). One would have thought that by this statement, the impairment was provided for in previous accounting periods (or, quarters), but it turned out that it was only provided for in the 4Q2008, which was not announced yet as at January 9, 2009. This misleading statement would not endear Supermx to investors.
I am quite disappointed with Supermx and I would ignore this stock in the future.
Supermx re-testing its recent low
Supermx has dropped sharply over the past 4 or 5 days, after making a 3-month high of RM1.06 on February 17. As at 4.30 pm today, Supermx was trading at RM0.79. That's lower than the recent low of RM0.80 recorded on December 30, 2008. A quick recovery from this level is crucial, failing which Supermx share price could continue to drift lower.
Chart: Supermx's daily chart as at Feb 23, 2009 (source: Quickcharts)
Sadly, Supermx has proven to us that some time there is a reason why a stock is a laggard. My earlier call on this stock did not work out as anticipated & we may have to clear our position, if there is no rebound from the RM0.80 level by tomorrow. (here).
Chart: Supermx's daily chart as at Feb 23, 2009 (source: Quickcharts)
Sadly, Supermx has proven to us that some time there is a reason why a stock is a laggard. My earlier call on this stock did not work out as anticipated & we may have to clear our position, if there is no rebound from the RM0.80 level by tomorrow. (here).
Orient reported a loss for 4Q2008
Orient has announced its results for 4Q2008 ended 31/12/2008. It reported a net loss of RM1.1million for the 4Q2008 as compared to a net profit of RM119 million for 3Q20008 or RM78 million for 4Q2007. Its turnover dropped 21% q-o-q or 19% y-o-y to RM1.022 billion.
The poor performance for the 4Q2008 is attributable to:
1) sharp drop in operating profit for the Automotive and Investment holdings & Financial Services divisions; and
2) losses incurred by both the Plantation and Hotels & Resorts divisions;
Orient derives 75% of its operating profit from its Automotive & Plantation division for FY2008. With the poor consumer sentiment & sharply lower prices for CPO, Orient is not expected to put strong earning for the coming financial year.
From the monthly chart below, we can see that Orient is still in a long-term uptrend, with support at RM4.30. This level should support the share price in the event of price weakness ahead.
Chart: Orient's monthly chart as at Feb 23, 2009 (source: Quickcharts)
Based on poorer outlook, I expect Orient share price to drift lower (possibly, to re-test its long-term uptrend line).
The poor performance for the 4Q2008 is attributable to:
1) sharp drop in operating profit for the Automotive and Investment holdings & Financial Services divisions; and
2) losses incurred by both the Plantation and Hotels & Resorts divisions;
Orient derives 75% of its operating profit from its Automotive & Plantation division for FY2008. With the poor consumer sentiment & sharply lower prices for CPO, Orient is not expected to put strong earning for the coming financial year.
From the monthly chart below, we can see that Orient is still in a long-term uptrend, with support at RM4.30. This level should support the share price in the event of price weakness ahead.
Chart: Orient's monthly chart as at Feb 23, 2009 (source: Quickcharts)
Based on poorer outlook, I expect Orient share price to drift lower (possibly, to re-test its long-term uptrend line).
Market Outlook as at February 24, 2009
The KLCI has been hovering around the 890-900 level for the past few days. Compare to the bashing in Wall Street, our KLCI looks like a safe haven. But, don't be deceived. We are at a tipping point, where a further loss of 10 points could change the market psychology from cautiously bearish to outright bearish. If you need a recent example, just look at the KLCI in May 2008.
Chart 1: KLCI's daily chart from Feb 23, 2009 (source: Tradesignum.com)
If the mounting problems in the US financial system were not taxing enough, a new problem has now cropped up. Eastern European countries, weighed down by foreign currency loans, are now imploding and this could drag down Western Europe (go here). With each passing day, the global economy & financial system are getting weaker & weaker. Can we step away from the abyss? Only time will tell...
Chart 2: DJIA's daily chart as at Feb 23, 2009 (source: Stockcharts.com)
Chart 3: S&P500's daily chart as at Feb 23, 2009 (source: Stockcharts.com)
Chart 1: KLCI's daily chart from Feb 23, 2009 (source: Tradesignum.com)
If the mounting problems in the US financial system were not taxing enough, a new problem has now cropped up. Eastern European countries, weighed down by foreign currency loans, are now imploding and this could drag down Western Europe (go here). With each passing day, the global economy & financial system are getting weaker & weaker. Can we step away from the abyss? Only time will tell...
Chart 2: DJIA's daily chart as at Feb 23, 2009 (source: Stockcharts.com)
Chart 3: S&P500's daily chart as at Feb 23, 2009 (source: Stockcharts.com)
EPIC has a bullish breakout
Over the past 3 weeks, EPIC share price has been inching up with increasing volume. In fact, EPIC broke above its medium-term downtrend line resistance at the RM1.20 level.
EPIC is involved in the oil & gas sector. Its main asset is the 60%-stake in Konsortium Pelabuhan Kemaman Sdn Bhd (KPK), which owns the Kemaman Port, a deepwater harbour, that can handle ships weighing 150,000 deadweight tonnes. The Kemaman Port owns 4 terminals, i.e. the East Dockyard and the Liquid Chemical Berth (LCB) Terminal; the Liquified Petroleum Gas Terminal (managed by Petronas); Kemaman Supply Base (managed by Pangkalan Bekalan Kemaman Sdn Bhd); and West Dockyard (managed by Road Builder/IJM). The port can manage up to 14 million tonnes of cargo.
The last 8 quarters' results are tabulated below. We can see that EPIC achieved a net profit of RM32.9 million on a turnover of RM249 million in the 4 latest quarters (up to 30/9/2008). Based on yesterday's closing price of RM1.34; EPS of 19.4 sen (from the last 4 quarters); and NTA per share of RM1.87 (as at 30/9/2008), EPIC is now trading at a PE of 6.9 times or a Price to Book of 0.7 times. At these multiples, EPIC is deemed fairly priced in this current market environment.
It has been rumored that EPIC may be taken private by the Terengganu state government. The latest report from the Edge indicates that this privatization effort may have hit a snag. The Terengganu state government, via Terengganu Inc Sdn Bhd (TISB), has apparently offered to privatize EPIC at a price of RM2.10 per share. TISB owns 40% of EPIC. The hurdle in the privatization came from EPIC's next largest shareholder, i.e. AZRB (which owns a 21.3%-stake in the company). AZRB is asking for a price of RM2.50. If the stalemate is unresolved, the market price of EPIC is likely to drift lower.
Chart: EPIC's weekly chart as at Feb 23, 2009 (source: Quickcharts)
There is a high chance that Terengganu state government will sweeten the offer since it is sitting on a huge cash reserve, arising from receipt of oil royalty from Petronas (go here). The alternative may also play out, i.e. AZRB may be willing to accept a lower price given the current economic environment & redeploy the cash proceed in its construction division (its main core of business). If you like to get into EPIC for this privatization play, I believe the good entry level is at RM1.10-20.
EPIC is involved in the oil & gas sector. Its main asset is the 60%-stake in Konsortium Pelabuhan Kemaman Sdn Bhd (KPK), which owns the Kemaman Port, a deepwater harbour, that can handle ships weighing 150,000 deadweight tonnes. The Kemaman Port owns 4 terminals, i.e. the East Dockyard and the Liquid Chemical Berth (LCB) Terminal; the Liquified Petroleum Gas Terminal (managed by Petronas); Kemaman Supply Base (managed by Pangkalan Bekalan Kemaman Sdn Bhd); and West Dockyard (managed by Road Builder/IJM). The port can manage up to 14 million tonnes of cargo.
The last 8 quarters' results are tabulated below. We can see that EPIC achieved a net profit of RM32.9 million on a turnover of RM249 million in the 4 latest quarters (up to 30/9/2008). Based on yesterday's closing price of RM1.34; EPS of 19.4 sen (from the last 4 quarters); and NTA per share of RM1.87 (as at 30/9/2008), EPIC is now trading at a PE of 6.9 times or a Price to Book of 0.7 times. At these multiples, EPIC is deemed fairly priced in this current market environment.
It has been rumored that EPIC may be taken private by the Terengganu state government. The latest report from the Edge indicates that this privatization effort may have hit a snag. The Terengganu state government, via Terengganu Inc Sdn Bhd (TISB), has apparently offered to privatize EPIC at a price of RM2.10 per share. TISB owns 40% of EPIC. The hurdle in the privatization came from EPIC's next largest shareholder, i.e. AZRB (which owns a 21.3%-stake in the company). AZRB is asking for a price of RM2.50. If the stalemate is unresolved, the market price of EPIC is likely to drift lower.
Chart: EPIC's weekly chart as at Feb 23, 2009 (source: Quickcharts)
There is a high chance that Terengganu state government will sweeten the offer since it is sitting on a huge cash reserve, arising from receipt of oil royalty from Petronas (go here). The alternative may also play out, i.e. AZRB may be willing to accept a lower price given the current economic environment & redeploy the cash proceed in its construction division (its main core of business). If you like to get into EPIC for this privatization play, I believe the good entry level is at RM1.10-20.
Monday, February 23, 2009
Jobst reported sharply lower net profit for 4Q2008
Jobst has just announced its results for 4Q2008 ended 31/12/2008. Its net profit dropped 85.3% q-o-q or 74.5% y-o-y to RM1.7 million while its turnover declined by 19.4% q-o-q or 4.0% y-o-y to RM22.2 million. The poorer results was due to lower sales from JOBSTREET SELECT as well as higher provision for impairment on investment in quoted securities (of RM5.4 million). Going forward, the company expects its performance to be negatively impact by the economic slowdown.
From the weekly chart below, we can see Jobst is barely holding above its long-term uptrend line, where the support is at RM1.27-30. At the close of the morning session today, Jobst is below this uptrend line (albeit on thin trading volume).
Chart: Jobst's weekly chart as at Feb 23, 2009 [12.30 noon] (source: Quickcharts)
Based on the poor financial results & deteriorating technical outlook, we should avoid Jobst for now. If the long-term uptrend line is convincingly broken, Jobst could even be a SELL, despite its promising business model.
From the weekly chart below, we can see Jobst is barely holding above its long-term uptrend line, where the support is at RM1.27-30. At the close of the morning session today, Jobst is below this uptrend line (albeit on thin trading volume).
Chart: Jobst's weekly chart as at Feb 23, 2009 [12.30 noon] (source: Quickcharts)
Based on the poor financial results & deteriorating technical outlook, we should avoid Jobst for now. If the long-term uptrend line is convincingly broken, Jobst could even be a SELL, despite its promising business model.
Friday, February 20, 2009
Kian Joo broke above its downtrend line
One of the most promising performer for today (so far) is Kian Joo. The stock was up 10 sen to RM1.32 (at the close of the morning session) on volume of 13509 board lots. The share price has been inching up for the past 3 days on increasing volume. A quick check of the chart shows that Kian Joo has just broken above its medium-term downtrend line resistance at RM1.25 and the neckline of an inverted "head-and-shoulders" formation at the RM1.22 level.
Chart: Kianjoo's weekly chart as at Feb 20, 2009 [12.20 noon] (source: Quickcharts)
KIan Joo is expected to announce its results for 4Q2008 shortly. The market may be anticipating further increase in the net profit, which enjoyed a healthy jump in 3Q2008 due to "higher sale revenue in its can division & higher contribution from its Vietnamese operation" (go here).
Based on the technical breakout, Kian Joo could be a Trading Buy.
Chart: Kianjoo's weekly chart as at Feb 20, 2009 [12.20 noon] (source: Quickcharts)
KIan Joo is expected to announce its results for 4Q2008 shortly. The market may be anticipating further increase in the net profit, which enjoyed a healthy jump in 3Q2008 due to "higher sale revenue in its can division & higher contribution from its Vietnamese operation" (go here).
Based on the technical breakout, Kian Joo could be a Trading Buy.
Thursday, February 19, 2009
F&N broke its immediate uptrend line
Fraser & Neave Holdings Bhd ("F&N") announced yesterday that The Coca-Cola Company ("TCCC") does not intend to renew the Bottler’s Agreements with F&NCC Beverages Sdn Bhd ("F&NCCB") and the Distributor’s Agreement with F&N Coca-Cola (Malaysia) Sdn Bhd ("F&N Coca-Cola") upon expiry on 26 January 2010. This means that effective from 26 January 2010, F&N will cease to bottle & distribute Coca-Cola & Sprite in Malaysia. Both F&NCCB & F&N Coca-Cola are 90%-owned subsidiaries of F&N.
How much will this termination impact F&N? According to the Bursa announcement:
In addition, I have extracted the Soft Drinks division's share of F&N's overall turnover & operating profit for FY2008, FY2007 & FY2006 (see below).
Table 1: F&N's Soft Drinks divisional performance
From the above, we know the following:
1) Soft Drinks division accounted for 48% of F&N's overall operating profit, but only 33% of F&N's overall turnover in FY2008;
2) TCCC products amounted to RM421 million or 35% of the Soft Drinks division’s revenue in FY2008: and
3) The average gross profit margin of the Soft Drinks business is 35% (which may not apply to TCCC products).
Assuming that TCCC products carry an operating profit margin of 15% and their sale amount remained at about RM420 million, then F&N would miss out on an operating profit of RM63 million from this termination. This amount could be higher if the available resources presently allocated to produce TCCC products are not fully redeploy for other purposes; thus resulting in under-recovery of some fixed overhead costs. The later is assumed to be negligible, i.e. I assume F&N managed to redeploy all the resources presently allocated to produce TCCC products.
From Table 2 below, we can see that F&N's net profit for the last 4 quarters amounted to RM167 million. So a drop in operating profit (or, pre-tax profit of RM63 million or net profit after tax of RM47 million) will result in a lower in full-year net profit of RM120 million. This means a lower EPS of about 34 sen (as compared to last 4 quarters' EPS totaling 47 sen). Based on its closing price of RM7.70 at the end of the morning session today, F&N is now trading at a prospective PE of 22 times. Before this problem, F&N share was trading at RM9.00 as investors were prepared to accept a PE multiple of 19 times for this steady consumer stock. If investors insist on a PE multiple of 19 times again, then F&N share price may trade to about RM6.45 based on my above calculation of the new earning for F&N.
Table 2: F&N's 8Qs result
From the two charts below, we can see that F&N has just broken below its immediate uptrend line support of RM8.00 as well as the horizontal support of RM7.85. More horizontal support can be seen at RM7.50 & RM7.00.
Chart 1: F&N's weekly chart as at Feb 19, 2009 [10.45 am] (source: Quickcharts)
Chart 2: F&N's monthly chart as at Feb 19, 2009 [10.45 am] (source: Quickcharts)
Based on the possible bearish technical outlook (resulting from the breakdown of the uptrend line at RM8.00) & possible downgrading of F&N's earning for FY2010, we should avoid F&N for now.
PS. The computation of the financial impact arising from the loss of the distribution of the TCCC products is a rough guide only.
How much will this termination impact F&N? According to the Bursa announcement:
Soft Drinks division is the single largest profit contributor to the F&NHB Group accounting for 48% of the Group’s operating profits. Sales revenue of TCCC products, mainly Coca-Cola and Sprite, amounted to RM 421 million or 35% of the division’s revenue in FY 2007/2008. The remaining RM 765 million or 65% of the division’s revenue were contributed by F&N Group products which included 100Plus, F&N carbonated soft drinks, Seasons and Fruit Tree. Both TCCC range of products and F&N range of products share common bottling operations, distribution channel and logistics supports. The average gross profit margin of the soft drink business is 35%.
In addition, I have extracted the Soft Drinks division's share of F&N's overall turnover & operating profit for FY2008, FY2007 & FY2006 (see below).
Table 1: F&N's Soft Drinks divisional performance
From the above, we know the following:
1) Soft Drinks division accounted for 48% of F&N's overall operating profit, but only 33% of F&N's overall turnover in FY2008;
2) TCCC products amounted to RM421 million or 35% of the Soft Drinks division’s revenue in FY2008: and
3) The average gross profit margin of the Soft Drinks business is 35% (which may not apply to TCCC products).
Assuming that TCCC products carry an operating profit margin of 15% and their sale amount remained at about RM420 million, then F&N would miss out on an operating profit of RM63 million from this termination. This amount could be higher if the available resources presently allocated to produce TCCC products are not fully redeploy for other purposes; thus resulting in under-recovery of some fixed overhead costs. The later is assumed to be negligible, i.e. I assume F&N managed to redeploy all the resources presently allocated to produce TCCC products.
From Table 2 below, we can see that F&N's net profit for the last 4 quarters amounted to RM167 million. So a drop in operating profit (or, pre-tax profit of RM63 million or net profit after tax of RM47 million) will result in a lower in full-year net profit of RM120 million. This means a lower EPS of about 34 sen (as compared to last 4 quarters' EPS totaling 47 sen). Based on its closing price of RM7.70 at the end of the morning session today, F&N is now trading at a prospective PE of 22 times. Before this problem, F&N share was trading at RM9.00 as investors were prepared to accept a PE multiple of 19 times for this steady consumer stock. If investors insist on a PE multiple of 19 times again, then F&N share price may trade to about RM6.45 based on my above calculation of the new earning for F&N.
Table 2: F&N's 8Qs result
From the two charts below, we can see that F&N has just broken below its immediate uptrend line support of RM8.00 as well as the horizontal support of RM7.85. More horizontal support can be seen at RM7.50 & RM7.00.
Chart 1: F&N's weekly chart as at Feb 19, 2009 [10.45 am] (source: Quickcharts)
Chart 2: F&N's monthly chart as at Feb 19, 2009 [10.45 am] (source: Quickcharts)
Based on the possible bearish technical outlook (resulting from the breakdown of the uptrend line at RM8.00) & possible downgrading of F&N's earning for FY2010, we should avoid F&N for now.
PS. The computation of the financial impact arising from the loss of the distribution of the TCCC products is a rough guide only.
Wednesday, February 18, 2009
AEON tested its immediate uptrend line
AEON has just tested its immediate uptrend line support of RM3.50. If this support failed, AEON's next support will be at the horizontal line of RM3.00-10. AEON's long-term uptrend line support is at RM1.80-2.00.
Chart: AEON's monthly chart as at Feb 17, 2009 (source: Quickcharts)
The drop in its share price ahead of the release of its 4Q2008 results (expected by this Friday) is not a good sign. Is the market anticipating a poorer set of results for 4Q2008. Investors will remember Parkson Retail Group Ltd's announcement of a lower same store sale ('SSS') growth for its China/HK operation on January 6th this year which sent the share price of the holding company, Parkson Holdings Bhd lower by RM0.70 the next day (go here).
Chart: AEON's monthly chart as at Feb 17, 2009 (source: Quickcharts)
The drop in its share price ahead of the release of its 4Q2008 results (expected by this Friday) is not a good sign. Is the market anticipating a poorer set of results for 4Q2008. Investors will remember Parkson Retail Group Ltd's announcement of a lower same store sale ('SSS') growth for its China/HK operation on January 6th this year which sent the share price of the holding company, Parkson Holdings Bhd lower by RM0.70 the next day (go here).
US financial stocks sold down again
Prompted by fear of nationalization, investors sold down US financial stocks yesterday (go here). The Philadelphia Bank Index ('BKX') broke below the January low of 25.
Chart 1: BKX's daily chart as at Feb 17, 2009 (source: Stockcharts.com)
Renewed fear of more trouble ahead for the financial sector & the economy as a whole, could send the DJIA to test its November 2008 low of 7500. We can only hope that the DJIA will rebound from the 7500 level; thus putting in a successful 'test of the low'. With all the negative newsflow, it is quite doubtful that the outcome would favor investors who take the long position in the market.
Chart 2: KLCI's daily chart as at Feb 17, 2009 (source: Stockcharts.com)
Chart 1: BKX's daily chart as at Feb 17, 2009 (source: Stockcharts.com)
Renewed fear of more trouble ahead for the financial sector & the economy as a whole, could send the DJIA to test its November 2008 low of 7500. We can only hope that the DJIA will rebound from the 7500 level; thus putting in a successful 'test of the low'. With all the negative newsflow, it is quite doubtful that the outcome would favor investors who take the long position in the market.
Chart 2: KLCI's daily chart as at Feb 17, 2009 (source: Stockcharts.com)
Tuesday, February 17, 2009
A look at Selected Property Stocks
While the property sector is at the epicenter of the US sub-prime crisis-- that has morphed into a full-blown financial crisis-- here in Malaysia the property sector has not been that badly affected. While suffering from a sharp fall in demand, the property sector may not be settled with excessive inventory of unsold properties, unlike 1998. Nevertheless, the drop in the share prices had been very sharp and the valuation is pretty attractive.
I have examined 5 of my favorite property stocks (E&O, IGB, KLCCP, Suncity & Sunrise) to see how were their recent financial performance & position; their valuation; and technical outlook.
From Table 1, we can see the following:
1) all 5 companies are still reporting fairly good profit. IGB, KLCCP & Suncity have more exposure to investment properties and are less likely to suffer from slumping sale (unlike E&O and Sunrise).
2) IGB & KLCCP's gearing ratio is fairly low at less than 0.4 time, while E&O's gearing is considered high at 0.9 time.
3) Suncity & Sunrise's current ratio is considered low at 1.2-1.3 times, while IGB, KLCCP & Suncity's current ratio is considered very comfortable at 1.9-2.5 times.
4) E&O and Suncity are currently priced at 0.4 times their respective book value, while IGB, KLCCP & Sunrise are priced at 0.7-0.8 their book value.
5) Suncity & Sunrise have the lowest PE multiple of about 4 times, while E&O, IGB & KLCCP's PE multiple is about 12-16 times.
So, Suncity looks the most attractive with both low Price to Book as well as PE. Sunrise will be one rung behind with low PE but higher Price to Book.
Table 1: Selected Property Stocks' Financial & Valuation highlights
From Table 2, I have tabulated the technical outlook of the 5 stocks. IGB & KLCCP are beginning to show signs of recovery.
Table 2: Selected Property Stocks' Technical Quick Check
I have appended the monthly chart of KLCCP & IGB for your perusal.
Chart 1: IGB's monthly chart as at Feb 16, 2009 (source: Quickcharts)
Chart 2: KLCCP's monthly chart as at Feb 16, 2009 (source: Quickcharts)
Based on the above, you may choose to slowly accumulate some shares of IGB & KLCCP (which promise earlier price recovery) while continue to track Suncity as well as Sunrise (which offers more attractive valuation).
I have examined 5 of my favorite property stocks (E&O, IGB, KLCCP, Suncity & Sunrise) to see how were their recent financial performance & position; their valuation; and technical outlook.
From Table 1, we can see the following:
1) all 5 companies are still reporting fairly good profit. IGB, KLCCP & Suncity have more exposure to investment properties and are less likely to suffer from slumping sale (unlike E&O and Sunrise).
2) IGB & KLCCP's gearing ratio is fairly low at less than 0.4 time, while E&O's gearing is considered high at 0.9 time.
3) Suncity & Sunrise's current ratio is considered low at 1.2-1.3 times, while IGB, KLCCP & Suncity's current ratio is considered very comfortable at 1.9-2.5 times.
4) E&O and Suncity are currently priced at 0.4 times their respective book value, while IGB, KLCCP & Sunrise are priced at 0.7-0.8 their book value.
5) Suncity & Sunrise have the lowest PE multiple of about 4 times, while E&O, IGB & KLCCP's PE multiple is about 12-16 times.
So, Suncity looks the most attractive with both low Price to Book as well as PE. Sunrise will be one rung behind with low PE but higher Price to Book.
Table 1: Selected Property Stocks' Financial & Valuation highlights
From Table 2, I have tabulated the technical outlook of the 5 stocks. IGB & KLCCP are beginning to show signs of recovery.
Table 2: Selected Property Stocks' Technical Quick Check
I have appended the monthly chart of KLCCP & IGB for your perusal.
Chart 1: IGB's monthly chart as at Feb 16, 2009 (source: Quickcharts)
Chart 2: KLCCP's monthly chart as at Feb 16, 2009 (source: Quickcharts)
Based on the above, you may choose to slowly accumulate some shares of IGB & KLCCP (which promise earlier price recovery) while continue to track Suncity as well as Sunrise (which offers more attractive valuation).
Supermx- the laggard among rubber glove manufacturers
Supermax Corporation Bhd ('Supermx'), which is involved in the manufacturing of rubber gloves, should be announcing its results for 4Q2008 ended 31/12/2008 soon (probably in the last week of February). If Harta's results for the same period can be used as a guide, we can expect Supermx's results for the last quarter to be an improvement over the preceding quarter. I have appended below Supermx's last 8 quarterly results up to 30/9/2008, below.
Based on the last 4 quarters' EPS totaling 24 sen & Supermx's share price of RM1.05 as at 10.00 am today, Supermx is now trading at a PE of 4.4 times only. The depressed PE multiple accorded to Supermx will slowly be revised upward after it had decided to terminate its investment in the loss-making rubber-glove manufacturer, APLI (see my earlier post).
As noted before, Supermx has broken above its immediate downtrend line (S1S1), while the medium-term downtrend line (SS) stretching back to July 2007 is still intact. To surpass the SS downtrend line, Supermx's share price has to break above RM1.15.
Chart: Supermx's daily chart from Feb 16, 2009 (source: Tradesignum.com)
Based on attractive valuation & renewed interest in the rubber glove sector, Supermx is a stock worth investing in. I believe this stock is due for re-rating, which could come if its results for 4Q2008 can surprise analysts & investors, alike.
Based on the last 4 quarters' EPS totaling 24 sen & Supermx's share price of RM1.05 as at 10.00 am today, Supermx is now trading at a PE of 4.4 times only. The depressed PE multiple accorded to Supermx will slowly be revised upward after it had decided to terminate its investment in the loss-making rubber-glove manufacturer, APLI (see my earlier post).
As noted before, Supermx has broken above its immediate downtrend line (S1S1), while the medium-term downtrend line (SS) stretching back to July 2007 is still intact. To surpass the SS downtrend line, Supermx's share price has to break above RM1.15.
Chart: Supermx's daily chart from Feb 16, 2009 (source: Tradesignum.com)
Based on attractive valuation & renewed interest in the rubber glove sector, Supermx is a stock worth investing in. I believe this stock is due for re-rating, which could come if its results for 4Q2008 can surprise analysts & investors, alike.
Harta's net profit increased significantly
Hartalega Holdings Bhd ('Harta'), which is involved in the manufacturing of latex & nitrile gloves, has announced its results for 3Q2009 ended 31/12/2008. Its net profit increased by 21.0% q-o-q or 119.5% y-o-y to RM22.2 million while its turnover increased by 6.8% q-o-q or 65.4% y-o-y to RM119 million. The improvement in net profit is attributable to lower cost of raw material & favorable exchange rates.
If we annualized the latest quarterly EPS, we can expect Harta's full year EPS to be about 36 sen. Based on this & current price (at RM2.06 as at 9.30 am today), Harta's PE is about 5.7 times. At this low PE, I see further upside to this stock.
Chart: Harta's daily chart from Feb 16, 2009 (source: Tradesignum.com)
If we annualized the latest quarterly EPS, we can expect Harta's full year EPS to be about 36 sen. Based on this & current price (at RM2.06 as at 9.30 am today), Harta's PE is about 5.7 times. At this low PE, I see further upside to this stock.
Chart: Harta's daily chart from Feb 16, 2009 (source: Tradesignum.com)
Friday, February 13, 2009
Airport reached debt settlement with the Government
Just a few weeks ago, things were not so rosy in Malaysia Airports ('Airport'). It was facing the prospect of having to compete with an independent Low Cost Carrier ('LCC') airport (to be developed in Labu by Airasia). Then senses prevailed and the proposed LCC airport was scrapped.
Yesterday, Airport announced that it has reached a debt settlement agreement with the government with regards to the RM1.01 billion debts owing by Airport to the government. The debt is to be settled by way of cash payment of RM508 million and the balance will be offset against the sale of its 100% equity interest in NECC Sdn Bhd by Airport to the Minister of Finance for RM159.63 million as well as Airport's undertaking the funding of certain projects such as the expansion of a low-cost carrier terminal (which is supposed to borne by the government as the assets owner). In addition, the government has agreed to raise the passenger service charges ('PSC') or commonly known as the airport tax to RM65 for international passengers from RM51, currently.
With this announcement, it is no surprise that the share price of Airport shot up today. Looking at the chart below, we can see that the immediate resistance is the horizontal line of RM2.35 and thereafter the medium-term downtrend line of RM2.60.
Chart: Airport's weekly chart as at Feb 12, 2009 (source: Quickcharts)
Yesterday, Airport announced that it has reached a debt settlement agreement with the government with regards to the RM1.01 billion debts owing by Airport to the government. The debt is to be settled by way of cash payment of RM508 million and the balance will be offset against the sale of its 100% equity interest in NECC Sdn Bhd by Airport to the Minister of Finance for RM159.63 million as well as Airport's undertaking the funding of certain projects such as the expansion of a low-cost carrier terminal (which is supposed to borne by the government as the assets owner). In addition, the government has agreed to raise the passenger service charges ('PSC') or commonly known as the airport tax to RM65 for international passengers from RM51, currently.
With this announcement, it is no surprise that the share price of Airport shot up today. Looking at the chart below, we can see that the immediate resistance is the horizontal line of RM2.35 and thereafter the medium-term downtrend line of RM2.60.
Chart: Airport's weekly chart as at Feb 12, 2009 (source: Quickcharts)
Thursday, February 12, 2009
Let's revisit 1998
When I was preparing the post entitled "USD weakness, the next worry" yesterday, I was struck by the similarity between the KLCI today & the KLCI in February 1998. If you look at Chart 1, you will see the KLCI has presently broken above its medium-term downtrend line & a wedge formation or pattern has taken shape. All chartists will tell you that this pattern can turn into either a continuation pattern or a reversal pattern. A continuation pattern would mean that the price has broken out of the pattern in the same direction of the prior trend while a reversal pattern would mean that the price has broken out of the pattern in the opposite direction of the prior trend. In the present wedge pattern, a reversal pattern would be at hand if the index breaks above the 940 level while a continuation pattern would be at hand if the index breaks below the 875 level.
Chart 1: KLCI's daily chart as at Feb 11, 2009 (source: Tradesignum.com)
How is the present situation similar to our market in February 1998? Looking at Chart 2, you can see 2 downtrend lines. The accepted downtrend line is SS (the black line). Assuming you are in February 1998, your downtrend line at that point of time would be SS1 (the blue line). You would have thought that the KLCI was trying to breakout of its medium-term downtrend line. A symmetrical triangle was also present and this pattern could turn out to be a reversal pattern (which would be a bullish reading) or a continuation pattern (which would be a bearish reading). Then, it happened. The KLCI broke below the 700-10 level in early April 1998. A continuation pattern was at hand & the KLCI slid all the way until it hit a low of 261 in early September 1998 (when capital control measures were imposed).
Chart 2: KLCI's daily chart from Jan 1997 to Jan 1999 (source: Tradesignum.com)
If you look at the long-term monthly chart (Chart 3), the similarity between the entire market uptrend from 1988 to 1996 (plus the collapse in 1997-8) is very similar to the market uptrend from 1999 to 2007 (plus the ongoing bear market which started in 2008).
Chart 3: KLCI's monthly chart as at Feb 11, 2009 (source: Quickcharts)
The purpose of this post is to point out that our market recovery is still a work-in-progress. We may have seen a temporary bottom. Another leg down may still be ahead. It is important that we must see how the wedge formation will finally pan out. To be sure, we should wait for the monthly MACD to hook up.
Chart 1: KLCI's daily chart as at Feb 11, 2009 (source: Tradesignum.com)
How is the present situation similar to our market in February 1998? Looking at Chart 2, you can see 2 downtrend lines. The accepted downtrend line is SS (the black line). Assuming you are in February 1998, your downtrend line at that point of time would be SS1 (the blue line). You would have thought that the KLCI was trying to breakout of its medium-term downtrend line. A symmetrical triangle was also present and this pattern could turn out to be a reversal pattern (which would be a bullish reading) or a continuation pattern (which would be a bearish reading). Then, it happened. The KLCI broke below the 700-10 level in early April 1998. A continuation pattern was at hand & the KLCI slid all the way until it hit a low of 261 in early September 1998 (when capital control measures were imposed).
Chart 2: KLCI's daily chart from Jan 1997 to Jan 1999 (source: Tradesignum.com)
If you look at the long-term monthly chart (Chart 3), the similarity between the entire market uptrend from 1988 to 1996 (plus the collapse in 1997-8) is very similar to the market uptrend from 1999 to 2007 (plus the ongoing bear market which started in 2008).
Chart 3: KLCI's monthly chart as at Feb 11, 2009 (source: Quickcharts)
The purpose of this post is to point out that our market recovery is still a work-in-progress. We may have seen a temporary bottom. Another leg down may still be ahead. It is important that we must see how the wedge formation will finally pan out. To be sure, we should wait for the monthly MACD to hook up.
Gold price breakout points to further USD weakness ahead
Gold has broken above its medium-term downtrend line resistance at USD910-15 yesterday. This is the second attempt to break above the downtrend; the first attempt was mounted in the end of January but fizzled out in early February. If this breakout can sustain, then gold price may begin to trend higher. Would an uptrend take place immediately? I believe the probability is fairly good, given the grave concern for a sharp drop in the value of the USD as well as other fiat currencies (or, paper money).
Chart: Gold's chart as at Feb 11, 2009 (source: BullionVault.com)
Chart: Gold's chart as at Feb 11, 2009 (source: BullionVault.com)
Wednesday, February 11, 2009
USD weakness, the next worry
The Obama Administration has rolled out a reworked financial rescue plan yesterday worth USD2.3 trillion to mop up bad bank assets. This is in addition to a USD838 billion stimulus bill, which has just been approved by the Senate. These plans could increase the US National Debts by 30% to USD13.9 trillion from USD10.7 trillion now (go here). Investors are now worried about how the markets will react to such a huge debts overhang and its impact on the USD & bond yield. This led to a sharp drop in the DJIA, which was lost 4.6% to 7888.
The uptrend in the USD index, which coincided with the start of the Global Financial Crisis, is beginning to show signs of weakening. Among the weaknesses noted are the January 2009 'high' is lower than the November 2008 'high' and the 100-day SMA has started to curve downward. A correction looks very likely in the near future and it could commence if the USD index breaks below the 84 mark. See the chart below.
Chart 1: USD's daily chart as at Feb 10, 2009 (source: Stockcharts.com)
Would a collapse in the USD lead to further sharp sell-off in the US equity markets? This is not an easy question to answer. Firstly, the amount of foreign funds investing in the US markets may be relatively smaller than foreign funds investing in emerging markets (where a run on the currency would automatically lead to a sharp fall in the equity market). Secondly, a depreciating USD may not be that unpalatable since most economies would be equally impact by the upcoming global recession. Nevertheless, I believe that the US equity markets would suffer another bout of sell-off if the USD were to collapse.
I have appended below the chart of the Malaysian Ringgit vis-a-vis the USD and the performance of the KLCI during the Asian Financial Crisis 1997-98. Only after the Malaysian Ringgit has stabilized [due to the imposition of capital control measures in September 1998] then the KLCI begun to recover. Noticed the short unsustainable rebound in the USDMYR in the 1Q1998, which coincided with the rebound in the KLCI during that period.
Chart 2: USDMYR chart from Mar 1997 to Sep 1999 (source: Malaysian Treasury)
Chart 3: KLCI's daily chart from Jan 1997 to Jan 1999 (source: Tradesignum.com)
In conclusion, we need to track the USD closely. A sharp correction in the USD could be the catalyst for the next sell-off for the US equity markets. The latter could easily lead to a sell-off in our local market.
The uptrend in the USD index, which coincided with the start of the Global Financial Crisis, is beginning to show signs of weakening. Among the weaknesses noted are the January 2009 'high' is lower than the November 2008 'high' and the 100-day SMA has started to curve downward. A correction looks very likely in the near future and it could commence if the USD index breaks below the 84 mark. See the chart below.
Chart 1: USD's daily chart as at Feb 10, 2009 (source: Stockcharts.com)
Would a collapse in the USD lead to further sharp sell-off in the US equity markets? This is not an easy question to answer. Firstly, the amount of foreign funds investing in the US markets may be relatively smaller than foreign funds investing in emerging markets (where a run on the currency would automatically lead to a sharp fall in the equity market). Secondly, a depreciating USD may not be that unpalatable since most economies would be equally impact by the upcoming global recession. Nevertheless, I believe that the US equity markets would suffer another bout of sell-off if the USD were to collapse.
I have appended below the chart of the Malaysian Ringgit vis-a-vis the USD and the performance of the KLCI during the Asian Financial Crisis 1997-98. Only after the Malaysian Ringgit has stabilized [due to the imposition of capital control measures in September 1998] then the KLCI begun to recover. Noticed the short unsustainable rebound in the USDMYR in the 1Q1998, which coincided with the rebound in the KLCI during that period.
Chart 2: USDMYR chart from Mar 1997 to Sep 1999 (source: Malaysian Treasury)
Chart 3: KLCI's daily chart from Jan 1997 to Jan 1999 (source: Tradesignum.com)
In conclusion, we need to track the USD closely. A sharp correction in the USD could be the catalyst for the next sell-off for the US equity markets. The latter could easily lead to a sell-off in our local market.
Tuesday, February 10, 2009
Equity markets holding up very well
Over the last few weeks, there were numerous reports that the economy of many countries would be in a severe & prolonged recession, with recovery expected only in 2010-11. More gloomy prognoses were reported and they were no longer issued by the usual doomsayers, such as Roubini, Marc Faber, etc. Even the dreaded word "depression" is being used frequently enough- by Merrill Lynch; by Gordon Brown (probably, a slip of the tongue); by an Australian professor; and even by the IMF chief. What is a bit surprising is that the equity markets seems to be ignoring all these negative reports.
We shall look at the performance of 2 important markets. Firstly, the US markets. The S&P500 appears to have established a new short-term uptrend line, with support at 820. Relief rally may happen but I expect the upside be capped at 950.
Chart 1: S&P500's daily chart as at Feb 9, 2009 (source: Stockcharts.com)
What is more interesting is the performance of the Shanghai's SSECI, which has put in a surprising strong move after the Chinese New Year holidays. The SSECI has convincingly surpassed its December 2008 high of 2100 yesterday. A mini-golden cross may occur soon, with the 50-day SMA look set to cross above the 100-day SMA. As such, the near-term outlook for SSECI is fairly bullish.
Chart 2: SSEC's daily chart as at Feb 9, 2009 (source: Stockcharts.com)
The performance of the equity markets vis-a-vis the negative news flow can be read as a bullish divergence. It may point to a mild recovery in the equity markets in the weeks ahead.
We shall look at the performance of 2 important markets. Firstly, the US markets. The S&P500 appears to have established a new short-term uptrend line, with support at 820. Relief rally may happen but I expect the upside be capped at 950.
Chart 1: S&P500's daily chart as at Feb 9, 2009 (source: Stockcharts.com)
What is more interesting is the performance of the Shanghai's SSECI, which has put in a surprising strong move after the Chinese New Year holidays. The SSECI has convincingly surpassed its December 2008 high of 2100 yesterday. A mini-golden cross may occur soon, with the 50-day SMA look set to cross above the 100-day SMA. As such, the near-term outlook for SSECI is fairly bullish.
Chart 2: SSEC's daily chart as at Feb 9, 2009 (source: Stockcharts.com)
The performance of the equity markets vis-a-vis the negative news flow can be read as a bullish divergence. It may point to a mild recovery in the equity markets in the weeks ahead.
Wednesday, February 04, 2009
Death of the Remisiers? Not yet
On the first day of the Chinese New Year (January 26), many remisiers (yours truly included) were rudely reminded that their days of "comfortable" living are numbered. In an article entitled "Competition hots up for online share trading", the Star newspaper has highlighted that zero (or, near zero) brokerage has finally arrived and the service of remisier may not be required. This story followed another equally depressing article from the Star, entitled "Remisiers turn to part-time jobs" which appeared during the Christmas holidays last year (on December 28).
I just like to share my thoughts on this matter. The first thing I like to say is that remisiers' income, like that of the stockbroking firms and stock exchange company (i.e. Bursa Malaysia), fluctuates & moves in tandem with the sentiment in the stock market. In the present bear market, when investors and traders are not more willing to take on more risk, the trading volume and remisiers' income would naturally decline. It is very normal and nothing to fret about.
Zero brokerage is a totally different thing. However, it must be noted that zero brokerage schemes offered so far are for a limited period. CIMB's Clicks Trader's promotion is valid from Jan 9 to March 8 only. The report did not mention about Kenanga's 2EC account, which is a negotiable trading account. As currently practiced in 2 branches in Petaling Jaya (up to February 17), Kenanga's 2EC account offers zero brokerage rate for the buy-side contract, but attracts normal brokerage rate for the sell-side contract. This effectively offers the clients a 50% discount to the normal brokerage rate. Certain terms & conditions apply, such as cash upfront, etc.
Zero brokerage rate is not sustainable. One of the first online broker to offer zero brokerage rate in US is Zecco and it is finding it very hard to make money. Clusterstock has this story about how Zecco is changing its current practices in order to survive (go here). A copy of the letter it sent to clients, informing them that it would no longer be so generous (emphasis are mine) is given below:
To quote Mark Twain who said "Rumors of my death have been greatly exaggerated!", I would assure one & all that remisiers will still be around. To be relevant, we remisiers must strive to improve our service to our customers.
I just like to share my thoughts on this matter. The first thing I like to say is that remisiers' income, like that of the stockbroking firms and stock exchange company (i.e. Bursa Malaysia), fluctuates & moves in tandem with the sentiment in the stock market. In the present bear market, when investors and traders are not more willing to take on more risk, the trading volume and remisiers' income would naturally decline. It is very normal and nothing to fret about.
Zero brokerage is a totally different thing. However, it must be noted that zero brokerage schemes offered so far are for a limited period. CIMB's Clicks Trader's promotion is valid from Jan 9 to March 8 only. The report did not mention about Kenanga's 2EC account, which is a negotiable trading account. As currently practiced in 2 branches in Petaling Jaya (up to February 17), Kenanga's 2EC account offers zero brokerage rate for the buy-side contract, but attracts normal brokerage rate for the sell-side contract. This effectively offers the clients a 50% discount to the normal brokerage rate. Certain terms & conditions apply, such as cash upfront, etc.
Zero brokerage rate is not sustainable. One of the first online broker to offer zero brokerage rate in US is Zecco and it is finding it very hard to make money. Clusterstock has this story about how Zecco is changing its current practices in order to survive (go here). A copy of the letter it sent to clients, informing them that it would no longer be so generous (emphasis are mine) is given below:
Dear Zecco Trading client,
I’m writing to tell you that as of March 1st, 2009, we’re increasing the minimum level of assets needed to earn 10 free trades per month to $25,000. We’re also adding a new way to get free trades: customers who make at least 25 total trades per month will also qualify for 10 free stock trades per month.
Additionally, as of March 1st, 2009, you’ll be able to earn $75 for each friend referred to Zecco Trading through our Zecco Friends program. You can use that cash to offset trade commissions or make new investments.
Why was this necessary now? Anyone who’s read a newspaper lately knows that the US and world economies have been hit hard over the past 4 months. As a result, some of the largest corporations in the world have had to cut costs and adjust to new business realities. With reduced retail trading volumes and lower interest rates, we at Zecco Trading simply could no longer provide free trades to as many people as we would like.
To quote Mark Twain who said "Rumors of my death have been greatly exaggerated!", I would assure one & all that remisiers will still be around. To be relevant, we remisiers must strive to improve our service to our customers.
PBBank may have peaked?
Today, there is an interesting article in the Edge entitled "PBBank may have peaked". This story raised a few interesting questions, which I have listed below:
1. Has PBBank peaked or made a top?
2. Is it a cyclical or secular top?
3. What is its technical outlook for the short-term, medium-term & long-term?
The article pointed out that Citigroup & a Singapore-based research house, Cazenove have both downgraded PBBank to either a "sell" or an "underperform", while Maybank maintained a "buy" for this stock. The reasons given for the downgrade is that PBBank was struggling to maintain its strong double-digit growth, based on the recently released results for FY2008. In addition, PBBank has lowered its cash dividend for FY2008 to preserve capital as the country would likely to slide into recession in the first quarter this year.
Chart 1: PBBank's monthly chart as at Feb 3, 2009 (source: Quickcharts)
From the monthly chart above, we can see that the monthly MACD had hooked down on 6 occasions (denoted as A-F) over the past 18 years. On 4 such occasions (A, C, D & E), the share price had only dropped marginally after the monthly MACD hook-down was sighted. On all these occasions, we can see that the 5-month & 10-month SMA did not even cross below the 20-month SMA. This probably reaffirmed the reputation of PBBank as a good long-term investment stock. There were 2 occasions where the share price had dropped sharply after the monthly MACD hook-down was sighted. These were in 1997-98 (during the Asian Financial Crisis) & now (because of the Global Financial Crisis); where the monthly MACD dropped deep into the negative territory & the 5-month & 10-month SMA crossed below the 20-month SMA.
Now, let's address the 3 questions raised earlier. Using the monthly MACD, we would have called a cyclical top in February 2008, leading to a partial or complete sell-off of our position in PBBank. If you have done that [say, at the opening price in March 2008 (at RM10.30)], you would be happy for a while as the share price dropped further to a low of RM9.35. Then, lo & behold, PBBank made a dramatic recovery, which saw its share price regained all the lost ground over the next 3 months & even made a new all-time high of RM12.00 in May 2008. Thereafter the share price tumbled down & on hindsight we know that the May 2008 high of RM12.00 was the top for PBBank in this cycle. See the daily chart below (from Tradesignum, which has finally been updated!).
Chart 2: PBBank's daily chart as at Feb 3, 2009 (source: Tradesignum.com)
I would classify PBBank's May 2008 high as a cyclical top, at this point in time. It could be a secular top, if the share price dropped below the long-term uptrend line, SS (see Chart 1 above). At this point in time, PBBank's share price is comfortably above the long-term uptrend line, SS as well as the accelerated uptrend line, S1S1.
Looking at Chart 2 above, we can see that PBBank's share price has broken above its medium-term downtrend line. A short-term uptrend line can be seen, with support at RM8.40. Based on this, I believe that the short-term & medium-term technical outlook for PBBank is sideway. A bottoming phase could set in at the price range of RM8.50 to RM9.00. However, if PBBank were to drop below the short-term uptrend line as well as the medium-term downtrend line, then it may test the accelerated uptrend line, S1S1 (presently at RM8.00). If this also failed, then it may test the long-term uptrend line, SS (presently, at RM6.30-50). I would rate the latter as a good entry to this stock.
Note: Assuming you had ignored the monthly MACD hook-down in February 2008 & were still holding onto PBBank in May 2008, when should you sell. You should sell when PBBank slid back below RM11.80, after making the all-time high of RM12.00. That's according to the 2B Rule, which states that "...(in) an uptrend, if a higher high is made but fails to carry through, and then prices drop below the previous high, then the trend is apt to reverse."
1. Has PBBank peaked or made a top?
2. Is it a cyclical or secular top?
3. What is its technical outlook for the short-term, medium-term & long-term?
The article pointed out that Citigroup & a Singapore-based research house, Cazenove have both downgraded PBBank to either a "sell" or an "underperform", while Maybank maintained a "buy" for this stock. The reasons given for the downgrade is that PBBank was struggling to maintain its strong double-digit growth, based on the recently released results for FY2008. In addition, PBBank has lowered its cash dividend for FY2008 to preserve capital as the country would likely to slide into recession in the first quarter this year.
Chart 1: PBBank's monthly chart as at Feb 3, 2009 (source: Quickcharts)
From the monthly chart above, we can see that the monthly MACD had hooked down on 6 occasions (denoted as A-F) over the past 18 years. On 4 such occasions (A, C, D & E), the share price had only dropped marginally after the monthly MACD hook-down was sighted. On all these occasions, we can see that the 5-month & 10-month SMA did not even cross below the 20-month SMA. This probably reaffirmed the reputation of PBBank as a good long-term investment stock. There were 2 occasions where the share price had dropped sharply after the monthly MACD hook-down was sighted. These were in 1997-98 (during the Asian Financial Crisis) & now (because of the Global Financial Crisis); where the monthly MACD dropped deep into the negative territory & the 5-month & 10-month SMA crossed below the 20-month SMA.
Now, let's address the 3 questions raised earlier. Using the monthly MACD, we would have called a cyclical top in February 2008, leading to a partial or complete sell-off of our position in PBBank. If you have done that [say, at the opening price in March 2008 (at RM10.30)], you would be happy for a while as the share price dropped further to a low of RM9.35. Then, lo & behold, PBBank made a dramatic recovery, which saw its share price regained all the lost ground over the next 3 months & even made a new all-time high of RM12.00 in May 2008. Thereafter the share price tumbled down & on hindsight we know that the May 2008 high of RM12.00 was the top for PBBank in this cycle. See the daily chart below (from Tradesignum, which has finally been updated!).
Chart 2: PBBank's daily chart as at Feb 3, 2009 (source: Tradesignum.com)
I would classify PBBank's May 2008 high as a cyclical top, at this point in time. It could be a secular top, if the share price dropped below the long-term uptrend line, SS (see Chart 1 above). At this point in time, PBBank's share price is comfortably above the long-term uptrend line, SS as well as the accelerated uptrend line, S1S1.
Looking at Chart 2 above, we can see that PBBank's share price has broken above its medium-term downtrend line. A short-term uptrend line can be seen, with support at RM8.40. Based on this, I believe that the short-term & medium-term technical outlook for PBBank is sideway. A bottoming phase could set in at the price range of RM8.50 to RM9.00. However, if PBBank were to drop below the short-term uptrend line as well as the medium-term downtrend line, then it may test the accelerated uptrend line, S1S1 (presently at RM8.00). If this also failed, then it may test the long-term uptrend line, SS (presently, at RM6.30-50). I would rate the latter as a good entry to this stock.
Note: Assuming you had ignored the monthly MACD hook-down in February 2008 & were still holding onto PBBank in May 2008, when should you sell. You should sell when PBBank slid back below RM11.80, after making the all-time high of RM12.00. That's according to the 2B Rule, which states that "...(in) an uptrend, if a higher high is made but fails to carry through, and then prices drop below the previous high, then the trend is apt to reverse."
Tuesday, February 03, 2009
KLCI to test its short-term uptrend
The KLCI looks set to test its short-term uptrend line support at 870-73. A break below the uptrend line could lead to a pick-up in the present downside correction, with immediate support at 850. Thereafter, we can expect support at 835 (the December low) or possibly at 801 (the low recorded on October 28). The ongoing correction reflects continuous negative news flow on the economic front as well as current domestic political development. Under these circumstances, it is advisable to stay on the sideline until a clearer picture has emerged.
Chart: KLCI's daily chart as at Jan 30, 2009 (source: Quickcharts)
Chart: KLCI's daily chart as at Jan 30, 2009 (source: Quickcharts)
Subscribe to:
Posts (Atom)