NCB: Is it the real thing?

From recent reports on Westports Holdings Bhd ("WPRT"), we learn that there are 2 possible positive news for WPRT and also its direct competitors, NCB. The 2 positive developments are:

• The possibility of a third port being developed in Port Klang and this concession may go to WPRT or NCB or a new third party.
• The Port Klang Authority has submitted a proposal to hike port tariffs to the Ministry of Transport. If approved, this could lead to an immediate jump in Westports’ earnings. However, the quantum of the proposed hike has not been disclosed.

The 2nd development will favor both WPRT as well as NCB, while the first development will favor the winning party. In addition, NCB has substantially cleaned up its books with regards to the negative impact from its loss-making subsidiary, Kontena Nasional Bhd. It is also reported to be a target of a buyout by the Syed Mokhtar group. Some of these possible developments may pan out and could lead to a recovery in NCB's share prices.

To be sure, NCB share prices had tumbled down significantly from a high of ~RM4.80 in late 2013 to a recent low of ~RM2.20. This stock is like a RM10 note on the foyer of the Mid-Valley Mall. Thousands of footfalls had stepped on it and yet no one picks it up. Is it the real thing?

At the time of writing this post, NCB was trading at RM2.70. That's a gain of 10% over the past 2 days, on relatively thin volume. Has the next upleg has just started? Is it about to rally? Who knows!! However, on weakness, I think it is a stock worth considering for long-term investment.


Chart: NCB's monthly chart as at April 22, 2015_11.00am (Source: Share Investors)

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, NCB.

Nestle: Another bumper quarter!

Results Update

For QE31/3/2015, Nestle's net profit increased 91% q-o-q or 2% y-o-y to RM187.9 million while revenue rose by 15% q-o-q or unchanged y-o-y at RM1.278 billion. This positive trend is mainly driven by the strong domestic performance linked to the successful Nestlé’s "Lebih Nilai, Lagi Hebat" campaign that was launched at the end of February 2015. The higher net profit was the result of a combination of  higher turnover, favourable input costs, and timing of fixed expenses.


Table: Nestle's last 8 quarterly results


Chart 1: Nestle's revenue, profits & profit margins for last 32 quarterly results


Chart 2: Nestle's dividend & payout ratio for last 32 quarterly results

Valuation

Nestle (closed at RM74.48 yesterday) is now trading at a PE of 31 times (Based on lats 4 quarters' EPS of 237 sen). At this multiple, Nestle is deemed overvalued. Its redeeming point is its attractive dividend yield of 3.2%.

Technical Outlook

Nestle broke above the horizontal resistance at RM69 in January this year. Despite possible near term weakness, the long-term outlook for Nestle looks promising.

 
 Chart 3: Nestle's weekly chart as at Apr 20, 2015 (Source: ShareInvestor.com)


Chart 4: Nestle's monthly chart as at Apr 20, 2015 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance, attractive DY (albeit high PER) & mildly positive technical outlook, Nestle would remain a good stock for long-term investment. Its downside is its high PER which may cap its upside potential.


Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Nestle.

AEONCR: A strong recovery in earning

Result Update

For QE20/2/2015, AEONCR's net profit increased by 15% q-o-q or 16% y-o-y to RM55 million while revenue inched higher by 5% q-o-q or 20% y-o-y to RM226 million. Pre-tax profit improved 14.6% y-o-y due to 27.3%-increase in financing receivables (brought on by 8.5%-growth in financing volume) plus 37.3%-increase in other operating incomes (due to increase in bad debts recovered and AEON Big loyalty programme processing fee). These had more than offset the increase in non-performing loans (NPL) ratio from 2.14% to 2.75% and increase in the ratio of total operating expenses against revenue from 57.1% to 58.3%. as well as higher average funding cost (though no number was given). 


Table: Aeoncr's last 8 quarterly results

From Chart 1 below, we can see that the increased revenue coupled with a rebound in the profit margin had pushed the bottom-line near the high of QE20/5/2014.


Chart 1: Aeoncr's last 31 quarterly results

Valuation

AEONCR (closed at RM14.48 last Friday) is now trading at a PE of 10.2 times (based on last 4 quarters' EPS of 141.5 sen). With PEG ratio at 0.6 time (based on growth rate of 16% last year, AEONCR is still deemed very attractive. 

Technical Outlook

As noted in the previous post, AEONCR's uptrend had ended when its share price broke below the RM12.50 mark. Since then, the stock has rebounded above that mark. AEONCR is still moving within the flag formation, ABCD where the upside is capped at RM17.50. A breakout of the flag formation at RM17.50 would be the signal for the continuation of the prior uptrend. Current technical outlook for AEONCR is neutral.


Chart 2: Aeoncr's monthly chart as at Apr 20, 2015 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance & attractive valuation, AEONCR is still a good stock for long-term investment.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, AEONCR.

VSolar-WA: To hold, to sell or to convert?

Today, we saw Pesona gained 4 sen to RM0.925 while Pesona-WC was unchanged at RM0.50. The discount for the warrant has widened to 24.3%. This matches the discount for VSolar-WA, which closed at RM0.145 while the share closed at RM0.35. The exercise price for VSolar-WA is RM0.12 and the warrant 's expiry is in December 2017.

Let's take a close look at VSolar & its warrant's price movement over the past 1 month. The movement in these share & warrant may hold a clue as to how Pesona & its warrant may perform in the near future.


Chart 1: VSolar's daily chart as at Apr 20, 2015_ (Source: ShareInvestor.com)

 
Chart 2: VSolar-WA's daily chart as at Apr 20, 2015_ (Source: ShareInvestor.com) 

Let's assume that you had 10000 VSolar-WA purchased earlier at lower prices, say RM0.05. When the warrant closed at its highest (closing) price of RM0.18 on April 6, the share (closing) price was at RM0.31. If you have chosen to convert the warrant on that day, you would receive the share today (10 business days later) and you would have a chance to sell at RM0.345. However at the time of exercising the option to convert, you wouldn't know what the share price would be like today. It could stay at RM0.31 or it could be higher or lower than RM0.31. You would be taking a gamble to convert to earn the extra 1 sen (assuming the share price stays at RM0.31 - [warrant price of RM0.18 + exercise price of RM0.12]). It would be logical that if you had wanted to take profit, you would sell the warrants straight away. However, you could have chosen to ride with stock as it goes higher.

Strangely, while the stock continued to go higher after April 6, the warrant began to drift downward. On April 14, the gap had widened to RM0.205- with share price at RM0.36 while warrant price at RM0.155. Still we can see warrant holders who chose to sell instead of converting their warrants to shares. Their logic is that the risk is high and if the share price were to drop, you could end up with a loss. Some of the warrant holders may have decided otherwise and opted to convert and they would be getting their shares soon. This enlarged shares outstanding would put selling pressure on the share prices going forward.

Let's look back at the choice made by warrant holders who sold on April 14. They did it because they were worried that the share prices may drop. But, if the stock is really "good", shouldn't the insiders be buying when the warrants were trading at a discount. You may ask, How do you know that the insiders did not buy when the warrants were and still are trading at a discount. Only the insiders would know whether they are buying or not; who had converted their warrants; & how many warrants had been converted to shares.

By logical deduction, you would know that the insiders did not buy or did not buy aggressively. If there is a mispricing in the market giving rise to an arbitrage situation, you can always expect the insiders to take advantage of the arbitrage situation. You can do so by selling your shares in hand and buying the warrants & converting them to shares (which will be receivable in 10 days time). This action will close the gap which led in the glaring discount in the warrant.

It is also possible that insiders would also be warrant holders in addition to being shareholders. If that's the case, the incentive to convert the warrants would be too juicy to pass by. This would result in an increase in shares supply and downward adjustment in the share price relative to the warrant price. Over times, the discount in the warrant would vanish.

For VSolar & Pesona, this glaring discount in their warrants gives rise to serious concern. In my experience, such anomaly must correct itself quickly. Normally, this would lead to a nasty surprise. Thus I am always very cautious when I see a discount in a warrant.

Note:

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Pesona & Pesona-WC as well as VSolar & VSolar-WA.

WTIC: Tentative Bottom Formed

Looking at the chart of WTIC, I believe that crude oil prices had bottomed and we are in early stage of recovery.


Chart: WTIC's weekly chart as at Apr 16, 2015 (Powered by Stockcharts.com)

If you like to have a road map of where WTIC is going, you can try out Wyckoff Schematic. The current move may go as high as USD65-70 and then we may see a throwback towards USD55. If WTIC can hit a high of USD70, I don't think it would go down to USD55. If the high is USD65, a throwback to USD55 is doable.


Diagram: Wyckoff Schematic (Source: Stockcharts.com)

If you accept that crude oil prices have bottomed, then this is a good time to buy some good O&G stocks. And, it would also mean that our Ringgit should be recovering together with the stock market.

Pesona & Pesona-WA: What's up? (UPDATED)

One of the basic tenets of Dow Theory states that the market averages or indices must confirm each other. That tenet or principle came about when Charles H. Dow wrote about the divergence between the Industrial Average & the Transport Average. In America, where its industrial output must be shipped from the production centers to the population centers for consumption (or to the ports for export), improved business outlook for industrial sector will lead to similar improvement in the transport sector. Thus, the economy is doing well if both the Industrial Average & the Transport Average are moving higher. Obviously, if both averages are moving lower, the economy would be slowing down.

What if the Industrial Average is moving higher while the Transport Average is moving lower? This simply means that there is divergence and that the rise in the Industrial Average does not presage improvement in the economy. In fact, when we see divergence in indices or securities that should move in congruent, we should be very concerned.

This morning, we saw Pesona gaining 7 sen to RM0.88 on a volume of 41.6 million. Strangely, Pesona-WC - a fairly new warrant with an exercise price of RM0.25 -  only rose by 0.5 sen to RM0.505 on a volume of 29.3 million. Thus, Pesona-WC - with 1746 days to expiry - is now trading at a discount of 14%.  Why?

If we apply the aforementioned tenet -and I don't see why we can't - we should be concerned. 

UPDATE: This is not a call to try your luck with the warrant, though I think the warrant may make a quick run for it. Whenever you see something like this, the best thing to do is to AVOID getting into the stock and/or warrant. If you have the stock, you should try to SELL INTO STRENGTH.

 
  Chart 1: Pesona daily chart as at Apr 17, 2015_12.30pm (Source: ShareInvestor.com)

 
 Chart 2: Pesona-WC daily chart as at Apr 17, 2015_12.30pm (Source: ShareInvestor.com)

Note:

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Pesona & Pesona-WC.

Cenbond: Continuing with its Uptrend!

Cenbond broke above its intermediate downtrend line, RR at RM1.35 last Friday. See Chat 1.

 
 Chart 1: Cenbond's weekly chart as at Apr 15, 2015_9.30am (Source: ShareInvestor.com)

It is good to note that Cenbond is in a long-term uptrend line, SS, with support at RM1.20. See Chart 2.

 
 Chart 2: Cenbond's monthly chart as at Apr 15, 2015_9.30am (Source: ShareInvestor.com)

Based on technical consideration, Cenbond could be a good trading BUY.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Cenbond.

SKPetro: Bullish breakout noted

SKPetro broke to the upside of its trading range (RM2.25-2.45) today. At the time of writing, it is at RM2.52.


Chart 1: SKPetro's daily chart as at Apr 15, 2015_9.30am (Source: ShareInvestor.com)

With this breakout, the stock may revisit the recent high of RM3.00.


Chart 2: SKPetro's weekly chart as at Apr 15, 2015_9.30am (Source: ShareInvestor.com)

Just a quick look at WTIC will reveal that crude oil will soon test the resistance of USD55. An upside breakout of this level could signal the end of the downtrend for crude oil.


Chart 3: WTIC's daily chart as at Apr 14, 2015 (Source: Stockcharts.com)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, SKPetro.

MYEG: Time to step aside

Sometimes we can bite off more than we can chew. That's the story of MYEG, a company that obtained a license to handle the renewal of working permits for foreign workers. The government has now agreed to the award of more license instead of giving MYEG the monopoly in this business. For more, go here.

Given the sharp rise in MYEG share price - from RM0.50 in May 2013 to about RM3.00 recently - this negative news can end its uptrend. I see the immediate support levels at RM2.40 or RM2.20. If these two support levels fail, then it could go down to RM1.55.

Despite the much lower price as compared to last week, I think it is advisable to reduce position in this stock. Something are not meant to be....


Chart 1: MYEG's weekly chart as at April 10, 2015 (Source: ShareInvestor)


Chart 2: MYEG's monthly chart as at April 10, 2015 (Source: ShareInvestor)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, MYEG.

Century: A bullish breakout

Technical Breakout

Century broke above its intermediate downtrend line, RR at RM0.77 yesterday. It may revisit its March 2014 high of RM0.87. If it can surpass that high, it could potentially test the psychological RM1.00 mark.


Chart 1: Century's weekly chart as at April 10, 2015_3.00pm (Source: ShareInvestor)


Chart 2: Century's monthly chart as at April 10, 2015_3.00pm (Source: ShareInvestor)

Recent Results

The latest quarterly results (QE31/12/2014) shows a jump in Century's net profit, albeit a lower revenue. Its NP rose by 232% q-o-q or 70% y-o-y to RM17 million while revenue was down 5% q-o-q or 11% y-o-y to RM66 million. The improvement in its bottom-line was attributed to gain on disposal of property, plant and equipment of RM48.2 million and gain on revaluation of investment property of RM2.5 million. If the gain on the disposal of PPE is excluded, the company would report a net loss of about RM31 million. That's something to think about!!


Table: Century's last 8 quarters' results


Chart 3: Century's last 35 quarters' results

Valuation

Century (closed at RM0.81 at the end of the morning session) is now trading at a PB of 1.1x. If we exclude the one-off gain from disposal of PPE, Century would be a loss-making company. Thus, there is no PER to look at.

Conclusion

Based on the above, Century is not a fundamentally exciting stock to look at. The only reason for this post is the technical breakout. That breakout would make Century a Trading BUY.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Century.

Technology stocks: We're Back!

 For more than 10 years, no one thought it was possible for Nasdaq to revisit its high recorded in the heady days of the dotcom bubble in 2000. Don't look now but we are BACK!!!!!

 
Chart 1: Nasdaq's monthly chart as at Mar 9, 2015 (Sourced: Yahoo Finance)

Nasdaq has benefited more from the rally in Wall Street than S&P or DJIA. If we plot the ratio of Nasdaq to SPX or Nasdaq to DJIA, we can see that these 2 ratios have been  rising. This indicates that Nasdaq is rising at a faster pace than either SPX or DJIA. The other thing that you may notice is  that the ratios are now pressing against the upper line of the upward channel of the 2 ratios. A breakout of that channel would lead to an outperformance of Nasdaq vis-a-vis SPX or DJIA. This could happen with Nasdaq either rising faster or dropping slower than SPX & DJIA. However, with Nasdaq approaching the all-time high, I believe that it is more likely that we will see a correction in Nasdaq which would lead to a pullback of the ratios within the channel.


Chart 2: Nasdaq, Nasdaq/SPX & Nasdaq/DJIA's weekly chart as at Mar 9, 2015 (Source: Stockcharts.com)

During the dotcom bubble v.1 in 2000, Nasdaq was trading at PER of 25X. In the current rally - which some referred to as the dotcom bubble v.2 - Nasdaq 100 has a PER of 23X. This is higher than either SPX's PER of 20X or DJIA's PER of 16X. See the table below.


Table: PERs & DYs of major US Indices as at Apr 2, 2015 (Source: WSJBlog )

The outperformance in Nasdaq inspiered a rally in our technology sector since 2013. The rally could be justified by higher earnings from semiconductor producers as well as selected elctronics parts & components manufacturers. Lurch behind them are countless small ICT players whose earnings had either rebounded or grew in line with the economics growth of the past few years. Lately, they have all benefited from the weaker Ringgit via-a-via the US Dollar.

The big question facing investors is not whether to buy or not to buy, but what to buy?


Chart 3: FBMACE's monthly chart as at Mar 9, 2015 (Sourced: ShareInvestor.com)


Chart 4: Technology's monthly chart as at Mar 9, 2015 (Sourced: ShareInvestor.com)

Market Outlook as at April 10, 2015

FBMKLCI broke above its downtrend line in the middle of March (see Chart 1). FBM70 lagged behind and only managed to break above its downtrend line in end March (see Chart 2).

 
Chart 1: FBMKLCI's daily chart as at Apr 9, 2015 (Powered by ShareInvestor.com)

 
Chart 2: FBM70's daily chart as at Apr 9, 2015 (Powered by ShareInvestor.com)

The better performance of FBMKLCI due to strong performance by the banking stocks. The Finance index recovered well after breaking above its downtrend line in January.


Chart 3: Finance's daily chart as at Apr 9, 2015 (Powered by ShareInvestor.com)

Another sector that has done very well is the technology sector. This can be seen in the sharp rally for Technology index (consisting of technology companies listed in the Main Market) and FBMACE (consisting of all the companies in the ACE market). The rally in the technology stocks is consistent with a similar rally in Nasdaq which is approaching the high recorded in February 2000. I may look into that story later.


Chart 4: Technology's daily chart as at Apr 9, 2015 (Powered by ShareInvestor.com)


Chart 5: FBMACE's daily chart as at Apr 9, 2015 (Powered by ShareInvestor.com)

In conclusion, our market is looking positive in the near term. It has shaken off concern about the impact of lowered crude oil prices and the on-again, off-again interest rate hike in the US and is now climbing up a wall of worries. I believe that there is still opportunity for market to go higher while at the same time, we have to be cautious and keep some cash on the sideline.

TROP: Poised to a decent rally?

Trop may have broken above its intermediate downtrend (using the 100-day SMA as proxy). The last time it had a similar breakout in Mar 2014, the stock had a decent rally from RM1.35 to RM1.65.


Chart 1: TROP's daily chart as at Apr 10, 2015_9.15am (Source: ShareInvestor.com)

Trop's monthly chart shows that the stock is now testing a strong downtrend line, R2-R2 at RM1.10. It has a strong support from its gradual long-term uptrend line, SS at RM1.00.


Chart 2: TROP's monthly chart as at Apr 10, 2015_9.15am (Source: ShareInvestor.com)

Based only on technical consideration, Trop could be a potential trading BUY. For long-term investment, we need to look into its fundamental. Nonetheless, I believe the RM1.00 should be a strong support and possibly a good entry level to this stock.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, TROP.

Hang Seng heading towards 30000

Hong Kong Hang Seng Index (HSI) rose 708 points today! Why not?! HSI broke above its psychological resistance at 25000. It could test the 30000 mark very soon. The potential target for this rally could be 32000-35000.



Chart: HSI's monthly chart as at April 9, 2015 (Source: Yahoo Finance)

Note:

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Hang Seng Index.

GDEX: Continuation of prior uptrend

GDEX has broken above the line connecting the peaks for the past 10-11 months (A-B). This breakout at RM1.70 could send the stock to RM2.00-2.10.

Based on technical consideration, GDEX could be a trading BUY.


Chart: GDEX's daily chart as at Apr 8, 2015_3.00pm (Source: ShareInvestor.com)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, GDEX.

BJToto & MediaC: Good income stocks

Background

Recently I read a book on stock screening entitled The Standard & Poor's Guide on Selecting Stock (here). Later I used the Screener function of ShareInvestor.com to select some income stocks for my customers. The main criteria is high DY for the past 3 years and the secondary criteria is PER of 15 times (slightly lower than market PER now) and Net Debt to Equity of 0.5 times (to avoid stocks with high borrowings). The list I have gotten is appended below:


Diagram 1: Screener Results for Stocks with High Dividend Yield (Source: ShareInvestor.com)

The list includes 4 REITs and 2 companies. As I am not interested in REITs, that leaves me with BJToto and MediaC.

Fianncial Performance & Dividend Record: BJToto & MediaC

I have appended below the quarterly P&L, profit margin and Dividend for BJToto and MediaC below:


Diagram 2: BJToto's last 42 quarterly P&L & Dividend Record


Diagram 3: MediaC's last 28 quarterly P&L & Dividend Record

Research Reports: BJToto & MediaC

Then I referred to Kenanga's research reports on these 2 companies. I appended below the Summary of Earnings tables for both companies.


Table 1: BJToto's Summary Earnings (Source: Kenanga Research)


Table 2: MediaC's Summary Earnings (Source: Kenanga Research)

A quick look at the Summary of Earnings tables will reveal that EPS for MediaC is projected to decline from 9.3 sen for FY2014A to 8.8 sen for FY2016E. With that, its DY will drop from 6.7% to 6.1%. On the other hand, BJToto's EPS is expected to rise 28 sen for FY2015E to 30 sen for FY2017E. DY would rise from 7.5% to 8.1%. However, it will be noted that MediaC has lower PER & P/BV than BJToto. Kenanga placed a Fair Value of RM0.71 for MediaC (currently at RM0.68) and a Fair Value of RM4.25 for BJToto (currently at RM3.30). Based on the foregoing, I would prefer BJToto to MediaC.

Technical Outlook: BJToto & MediaC

We will now look at the chart of BJToto. I always have problem looking at BJToto's chart because I feel that the price data has not been adjusted accordingly.

This stock did a Rights Issue of ICULs in 2002 on the basis of RM27 of nominal value of ICULs for every 20 BJToto shares held. At the same time, it proposed a Special Dividend of 170% (comprising of 45% tax exempt & 125% less tax of 28). The amount of this Special Dividend receivable was RM1.35 for every BJToto share owned (or RM1350 per 1000 shares owned). That's exactly the same as the subscription amount of RM1350 nominal value of ICULs for every 1000 shares owned.

The conversion price of the ICULs is RM1.20 and shall be by way of surrendering 1 ICUL plus cash payment of RM0.20. So effectively, it is a Bonus Issue of 1-for-1 (except for the negligible 20 sen cash payment for conversion of ICULs to share). Chart 1 is the unadjusted chart from ShareInvestor.com while chart 2 is the adjusted chart, with adjustment made by myself.


Chart 1: BJToto's unadjusted monthly chart as at April 7, 2015 (Source: ShareInvestor.com)

From Chart 2, we can see that BJToto broke its uptrend line, SS in late 2008. Since then, it had seesawed within a triangle, ABC. It broke to the downside of that triangle in 2013 and is now resting at the immediate support of RM3.30. If this support fails, it should find support at the horizontal line of RM3.00.


Chart 2: BJToto's adjusted monthly chart as at April 7, 2015 (Source: ShareInvestor.com)

MediaC has also broken its long-term uptrend line, SS at RM1.10 in 2013. It has recently tested its horizontal support at RM0.65.


Chart 3: MediaC's monthly chart as at April 7, 2015 (Source: ShareInvestor.com)

Based on technical consideration, I believe both BJToto & MediaC's downside to be fairly limited.

Conclusion

Based on the above, I believe both BJToto & MediaC would give steady income while we wait for a recovery in their share prices. As an income stock, BJToto holds a slight edge over MediaC as its dividend payment is quarterly as compared to half-yearly for MediaC. In addition, BJtoto's DY is higher & is expected to inch up while MediaC's dividend may dip due to lower bottom-line.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, BJToto & MediaC.

Parkson: Early Termination Can Be Painful!

Parkson's plan for turnaround involved its Chinese operation streamlining its large branch network. That plan maybe more problematic than first anticipated. It has just been reported that one of the branches that was closed, would have to pay compensation to the landlord for early termination. That was decided by China International Economic & Trade Arbitration Commission with the amount of damages awarded of RMB140 million (or, RM83.82 million) against Parkson's Chinese unit, PRDC (a subsidiary of Parkson Retail Group Ltd which is in turn a subsidiary of Parkson).

The Edge Daily reported:

According to an attached statement by PRGL, the approximate 140 million yuan payable to the landlord represents about 57% of the audited net profit of the group for the financial year ended December 2014 (FY14). PRGL also said based on a preliminary review of its unaudited consolidated management accounts for the two months ended Feb 28, 2015, it does not expect its operating results for the first quarter of 2015 to be able to cover the impact from the arbitral award.

Hence, PRGL expects the profit of the group for the three months ended March 2015 will decline “significantly” compared with the corresponding period in 2014.

(The asme news is also carried in The Sun Daily.)

If the main operating unit of Parkson (PRGL) were to report a loss, the psychological impact on Parkson stock price would be fairly significant. I would not be surprised if Parkson were to break the RM2.00 again. Its next support could be at RM1.70 but its really strong support is at RM1.25.

For now, it would be best to adopt a wait-&-see approach on Parkson. Even if it can stabilized or rebounded from its support level, we cannot be sure how the management would carry out its turnaround plan given the additional cost to be factored into the calculation.


Chart 1: Parkson's weekly chart as at Mar 31, 2015 (Source: Share Investor)


Chart 2: Parkson's monthly chart as at Mar 31, 2015 (Source: Share Investor)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Parkson.