Market Outlook as at April 8, 2010

FBM-KLCI tested the upside of the expanding triangle at 1348 yesterday. It corrected quite sharply this morning, dropping to a low of 1334 as at 10.00am. On further weakness, FBM-KLCI may test the support of the 20-day SMA line at 1320. If this support failed, it may test the support of the 50-day SMA line at 1301.


Chart: FBM-KLCI's daily chart as at Apr 8, 2010_10.35am (Source: Quickcharts)

I have commented earlier in the preceding post that some funds managers could be taking profit on stocks which have risen substantially. This profit-taking activity may come & go and if there are sufficient demand for these stocks at lower prices, the selling should not culminate into a reversal of the present bull market. For now, we will have to wait out the on-going correction & try to buy stocks that had dropped back to more attractive prices.

Tanjong had a sharp drop

Tanjong had a sharp drop today- losing 62 sen to close at RM18.34. Its immediate support is the horizontal line RM18.00 & the medium-term uptrend line (in blue) at RM17.80. The second uptrend line (in black) support is at RM17.40.


Chart 1: Tanjong's weekly chart as at Apr 7, 2010_4.45pm (Source: Quickcharts)

From the weekly chart, we can see Tanjong failed in its attempt to surpass the RM19.00 horizontal line. It may get support from the horizontal line at RM18.00, failing which it may get support from the medium-term uptrend line at RM17.40-50.


Chart 2: Tanjong's weekly chart as at Apr 7, 2010 (Source: Quickcharts)

The sudden sharp drop in Tanjong makes me hesitant to call a trading BUY if the stock were to test the support at RM18.00 (or lower support level). The selloff happened in the afternoon (after 3.00pm). To be safe, let's wait & see whether the stock can recruit sufficient support & rebound off the highlighted support level before making our entry.

The drop in Tanjong could be a sign that some funds managers are beginning to take profit on their share portfolio after a long & rewarding rally. This could however be an isolated case, but if more blue chip stocks experienced similar selloff, we may have to re-examine our position.

Note: I have amended the title "Tanjong had a sharp selloff" to "Tanjong had a sharp drop". The word 'selloff' is a bit too strong for this occasion.

Muhibah may have a bullish breakout

Muhibah had been dropping since it touched a high of RM1.67 on June 12, 2009. It has now broken above the downtrend line at RM1.05. It has also broken above the horizontal line resistance at RM1.07-8. Its next resistance is at RM1.20 & thereafter at RM1.25 & RM1.35-40.


Chart: Muhibah's daily chart as at Apr 7, 2010_3.05pm(Source: Quickcharts)

Based on the bullish breakout, Muhibah could be a trading BUY.

A yen for your thoughts

Japaneses Yen ('JPY') has been dropping since December last year. From the chart below, we can see that JPY is now testing its 3 years old uptrend line, with support at 105. Meanwhile a Head-&-Shoulders pattern has formed, with the neckline support at 105. A break below the 105 level is not just a breakdown of uptrend line, but also a breakdown of the most reliable reversal pattern. The latter (if it happens) would mean that JPY would enter into a downtrend.

The drop in JPY could be a reaction to the fear of a Japanese debt crisis. As noted in a recent Financial Times article: "The ratio of Japan’s gross government debt to GDP has breached two hundred per cent. A Godzilla-sized rollover of Y210,000bn – equivalent to the entire public debt of Italy – will take place over the next twelve months. Challenging arithmetic, to say the least".

Pundits' prediction of a looming Japanese debt crisis have already set off brief spasms of selling in Japan's government bonds. In January, Standard & Poor's warned that it might downgrade the country's sovereign debt rating to levels below those of Chile. In February, Moody's also threatened to cut its view on Japan if the country fails to put together a convincing plan for debt reduction.

Can JPY survive the current selloff? We will have to wait & see.


Chart: JPY's daily chart as at Apr 6, 2010 (Source: Stockcharts.com)

Yongnam (Y02) could be a trading BUY

Background

Yongnam Holdings Limited is a leading Singapore based multi-discipline engineering and construction services provider with more than 30 years experience. Its Key business areas are: structural steelworks (engineering coordination, detailing, full service fabrication and erection of steel structures), specialist civil engineering and mechanical engineering. Yongnam currently operates in Singapore, Malaysia, Thailand and Hong Kong.

Yongnam (Y02) is listed on the Singapore Stock Exchange.

Recent Financial results

For FYE31/12/2009, Yongnam's net profit increased by 18.1% to S$40.1 million from S$33.9 million, while turnover inched up to S$347 million from S$338 million. See the Table below.


Table: Yongnam's results for FY2009 & FY2008 (Source: Company's website)

Financial Position

Yongnam's financial position is mixed, with adequate liquidity as reflected by current ratio of 1.3 times but relatively high leverage as reflected by total borrowings to shareholders' funds of 0.8 times.

Valuation

Based on its closing price of S$0.285 & FY2009 EPS of 3.24 cent, Yongnam's PER is about 9.3 times.

Technical Outlook

What drew my attention to this stock is its bullish technical breakout yesterday. Yongnam broke above its flag formation (or, medium-term downtrend) yesterday at S$0.285. This formation has been in place after Yongnam made a high of S$0.325 in August last year.


Chart: Yongnam's daily chart as at Apr 6, 2010(Source: SGX)

Conclusion

Based on reason valuation, improving financial performance & bullish technical outlook, Yongnam (Y02) could be a good stock for short-term investment or trading BUY.

LMCement made a new all-time high of RM7.01!

LMCement has surpassed its all-time high of RM6.80 (recorded in 1993) this morning. For most part of 2009 & early 2010, LMCement was trading above the resistance, RR, and traded in the range between RM6.00 & RM6.50 [see Chart 1]. Yesterday, LMCement broke above that trading range to close at RM6.55 [see Chart 2]. These breakouts (of the trading range & the all-time high) means that LMCement is likely to continue with its prior uptrend. However, there were two past occasions where LMCement made a high higher than the most recent high before it faltered, reversed & entered into a bear market. This happened in 1996-97 (denoted as 'a' & 'a1') & again in 2007-08 (denoted as 'b' & 'b1'). If LMCement were to drop below the most recent high of RM6.63 recorded in August 2009 (denoted as 'c'), then the probability is high that the stock could have reversed. That's the negative scenario which may or may not pan out. For now, LMCement could be a trading BUY for those with high risk tolerance.


Chart 1: LMCement's monthly chart as at Apr 1, 2010(Source: Tradesignum)


Chart 2: LMCement's daily chart as at Apr 6, 2010(Source: Quickcharts)

Note: For FYE31/12/2009, LMCement reported a net profit of RM412 million on a turnover of RM2.483 billion. based on its 2009 EPS of 48.5 sen, LMCement is now trading at a PER of 14 times (based on current price of RM6.80). At this multiple, LMCement's upside is fairly limited.

Sunrise may have a bullish breakout

Sunrise has broken above its horizontal resistance at RM2.30. It is likely to continue with its prior uptrend. The immediate resistance is at RM2.60-65.


Chart: Sunrise's daily chart as at Apr 6, 2010_10.00am (Source: Quickcharts)

Based on the bullish breakout, Sunrise could be a good trading BUY.

RHBCap may have a bullish breakout

RHBCap has broken above its Cup-with-handle at RM5.80. As at 9.50am, RHBCap gained about 7 sen to RM5.90.


Chart: RHBCap's daily chart as at Apr 6, 2010_9.25am (Source: Quickcharts)

For those who like a more speculative play, you may consider RHBCap-CB. The main terms are:

Expiry Date: 20/9/2010
Exercise ratio: 5-for-1
Exercise price: RM5.00

At the current price of RM0.225 (& share price at RM5.90), RHBCap-CB is trading at a premium of 3.8%.

Based on the bullish breakout, RHBCap may be a good trading BUY.

HPI's net profit margin eroded

Results Update

HPI has just reported its results for 3Q2010 ended 28/2/2010. Its net profit dropped 49% q-o-q but rose 109% y-o-y to RM3.1 million. Turnover increased by 7% q-o-q or 22% y-o-y to RM94 million (see the table below). The drop in net profit on q-o-q basis was attributable to increased raw material cost. I have appended below the net profit margin and the top-line & bottom-line movement over the past 21 quarters (see Chart 1 & 2 below).


Table: HPI's last 8 quarterly results


Chart 1: HPI's net profit margin for last 21 quarters


Chart 2: HPI's last 21 quarterly results

Valuation

Based on a normalized net profit margin of 4%, HPI's EPS would be about 29 sen. At yesterday's closing price of RM1.68, HPI would be trading at a PER of 5.8 times. At the multiple, HPI is still an attractive stock.

Technical Outlook

HPI has been drifting lower for the past 1 month (see Chart 3). It may test its 50-day SMA line support at RM1.63 or its short-term uptrend line support at RM1.57-58. From the weekly chart (Chart 4), we can see that HPI has very strong horizontal support at RM1.50.


Chart 3: HPI's daily chart as at Apr 5, 2010 (Source: Tradesignum)


Chart 4: HPI's weekly chart as at Apr 5, 2010 (Source: Tradesignum)

Conclusion

Based on inexpensive valuation, HPI is rated either a SLOW ACCUMULATION or a HOLD. However, the decline in net profit margin is a concern which warrant close tracking of this stock.

Scomi poised to test its downtrend line

At the close, Scomi gained 2 sen to end the day at RM0.42 (on volume of 198,026 board lots). This means that Scomi will likely to test its downtrend line resistance at RM0.425-430 tomorrow. A break above the downtrend line may lead to a rally in the share price. The next resistance levels are at RM0.53 & then at RM0.74.


Chart 1: Scomi's daily chart as at Apr 2, 2010 (Source: Tradesignum)


Chart 2: Scomi's weekly chart as at Apr 2, 2010 (Source: Tradesignum)

Let's watch Scomi closely over the next few days & see whether it can achieve a bullish breakout. If an upside breakout occurred, Scomi can be a trading BUY.

LionInd may have a bullish breakout

LionInd broke to the upside of its ascending triangle at RM1.83. The next resistance levels are at RM1.95, RM2.20 & RM2.60.


Chart 1: LionInd's daily chart as at Apr 5, 2010_3.40pm (Source: Quickcharts)


Chart 2: LionInd's weekly chart as at Apr 5, 2010_3.40pm (Source: Quickcharts)

Based on the breakout of the ascending triangle, LionInd could be a trading BUY.

Suncity may have a bullish breakout

Suncity may be commencing on its upleg soon. It has just surpassed its recent high of RM3.50 recorded in August last year. The last time Suncity consolidated sideway for a prolonged period & then broke to the upside was in 2006. From the breakout level of RM1.90 (in November 2006), Suncity rallied to a high of RM5.85 (in October 2007). Can Suncity repeat the same performance with the current breakout? Let's wait & see.


Chart: Suncity's weekly chart as at Apr 5, 2010_11.15am (Source: Quickcharts)

Based on the above technical breakout, Suncity could be a good trading BUY.

Lingui & Eksons joined the timber play band wagon

Another two timber stocks, Lingui & Eksons have broken above their resistance and could well be commencing on their upleg.


Chart 1: Lingui's weekly chart as at Apr 1, 2010_4.46pm (Source: Quickcharts)


Chart 2: Eksons's weekly chart as at Apr 1, 2010_4.45pm (Source: Quickcharts)

Timber products showing signs of recovery

According to the latest ITTO report, logs & timber products prices are inching up marginally in second half of March. This may account for the strong rally seen among timber stocks, such as JTiasa, TaAnn, Lingui & WTK. For the latest ITTO report, go here.


Chart: Malaysian Timber Products Prices (from Jan 2008 to March 2010) [Source: ITTO]

POS flying away

On March 31, two readers (Solomon & Wong) asked for my comments on POS. My reply was as follows:

POS has horizontal resistance at RM2.30, RM2.40 & RM2.50. Since Khazanah is only divesting a 32.2% stake, there will be no GO. I do not think it will go up just because of the divestment unless the new owner is someone who can add value to the company or can change the business model significantly. As it is, POS is kind of like TM- a company awaiting transformation. Can it transform?

However, POS broke above its medium-term downtrend line at RM2.30 this morning and flew. It even broke above the horizontal resistance at RM2.65-70. As at 3.00 pm, POS is at RM2.77 (a gain of 37 sen). If you ignored my comment and trade this stock strictly based on technical analysis, you could have made some money. However we cannot run away from the possibility that the buyer may be a Mr Nobody who would be paying a handsome price (say, RM3.00 per share) but there would be no GO. The share price may just drift back from where it has started. Some may say that's the risk you have to run in the stock market.


Chart: POS's weekly chart as at Mar 29, 2010 (Source: Tradesignum)

Random thoughts

It is a mixed trading day, with good gain for many blue chip stocks but listless trading for many 2nd & 3rd liners. FBM-KLCI gained 9.27 points to close at 1329.84. It surpassed the closing high of 1328.22 recorded on March 10 but a bit short of the intra-day high of 1334.34 recorded on March 11. Despite the handsome gain in the main market barometer, the overall market was mixed with gainers edging out losers by only 4 to 3.

For the past few days, there has been very little worth posting on the blog. Even today, there was little to look at. For example, MISC chalked up a gain of 33 sen to close at RM8.43 on volume of 11364 board lots. It made an intra-day high of RM8.50. MISC's latest results for 9-month ended 31/12/2009 was fairly disappointing with net profit dropping from RM1.22 billion to RM486 million while turnover dropped from RM11.78 billion to RM10.47 billion. What could have sparked the strong rally in MISC? Chartwise, MISC seems to be forming a Head-&-Shoulders formation with the neckline support at RM7.30-40 (see Chart 1). I expect fairly strong resistance from the 30-month SMA line at RM8.51-52. Best to watch this stock from the sideline for now.


Chart 1: MISC's monthly chart as at Mar 1, 2010 (Source: Tradesignum)

Another stock that looked promising at first glance was ATIS. From Chart 2, it appears that ATIS may have broken above its long-term downtrend line at RM1.25. The chart of its last 12 quarterly results (Chart 3) shows a sharp rise in net profit & turnover for the past 2 quarters. However, the increase in net profit for these 2 quarters are attributable to one-off events, i.e. negative goodwill arising from the acquisition of Mutiara Goodyear of RM23.5 million (for QE31/12/2009) & exceptional gain on disposal of 16% equity in KVC of RM14.4 million (for QE30/9/2009). If these items are excluded, ATIS's financial performance has in fact deteriorated. As such, the present rally in the share price is somewhat surprising. Better to avoid ATIS.


Chart 2: ATIS's monthly chart as at Mar 1, 2010 (Source: Tradesignum)


Chart 3: ATIS's last 12 quarterly results


Table: ATIS's last 8 quarterly results

If you are wondering whether this post is a waste of our time, I shall leave you now with one promising stock to watch out for. IJM (closed at RM4.94) appears to have broken above its flag formation at RM4.90 today. With this breakout, IJM may continue on its prior uptrend. Its next resistance is its recent high & the psychological level of RM5.00.


Chart 4: IJM's daily chart as at Mar 31, 2010 (Source: Tradesignum)

For those who like a leverage play on IJM's potential upside move, you may consider its recently-issued warrant, IJM-wc. IJM-wc is a 5-year warrant expiring in October 2014 & convertible to share on a 1-for-1 basis at a price of RM4.00. IJM-wc (closed at RM1.17) has a premium of only 4.7%.


Chart 5: IJM-wc's daily chart as at Apr 1, 2010 (Source: Quickcharts)

Happy trading!!!

Analabs- a good long term investment

Background

Analabs Resources Berhad ('Analabs') is an investment holding company, which is involved mainly in the recovery and sale of recycled products primarily in Malaysia and Singapore. In July last year, Analabs acquired 100% equity interest in Coveright Surfaces Malaysia Sdn Bhd ('Coveright Surfaces') for a cash consideration of RM40.0 million. Coveright Surfaces is involved in the manufacturing and sale of resin impregnated papers.

Recent Financial Results

Analabs has just announced its results for 2Q2010 ended 31/1/2010. Its net profit increased by 48% q-o-q or 152% y-o-y to RM5.6 million while turnover increased by 40% q-o-q or 214% y-o-y to RM38 million. The huge jump in turnover & profitability is attributable to the great acquisition of Coveright Surfaces, which in 2 quarters contributed operating profit of RM8.5 million & turnover of RM44.6 million. For full year, we can expect Coveright Surfaces to generate an operating profit of RM17 million or after-tax profit of RM12.75 million (based on tax rate of 25%).


Table: Analabs's last 8 quarterly results


Chart 1: Analabs's last 10 quarterly results

Valuation

Analabs (closed at RM1.39 in the morning session) is now trading at a PER of 4.4 times (based on annualized EPS of 31.9 sen which is derived from the 1st two quarters' results). At this multiple, Analabs is deemed fairly attractive.

Technical Outlook

From Chart 2 below, we can see that Analabs is in an uptrend line with support at RM1.10. Today, Analabs surged past its overhead resistance at RM1.28. The next resistance is at RM1.60.


Chart 2: Analabs' daily chart as at March 30, 2010_3.10pm (Source: Tradesignum)

From Chart 3 below, we can see that Analabs has broken above the 'horizontal' line resistance (RR) at RM1.30. Its next resistance is at RM1.60


Chart 3: Analabs' weekly chart as at March 30, 2010_3.10pm (Source: Tradesignum)

Conclusion

Based on better financial results ahead & attractive valuation, Analabs coudl be a good stock for long-term investment.

USD- another factor in the equation

The USD weakened sharply against the RM today- dropping 1.13% to 3.268. In the process, the USD-RM broke below the support of the expanding triangle at 3.28. It may have some support at the horizontal line 3.27, See Chart 1 below.


Chart 1: USD-RM's daily chart as at March 29, 2010 (Source: Yahoo Finance)

The strengthening of RM could be negative for exporters who price their products in USD, while benefiting importers who will pay less for the same products imported. This may account for the drop in the share price of rubber glove makers as well as a sharp rise in the share price of automotive stocks.

From Chart 2 below, we can see that the correction in our FBM-KLCI in June-July last year & January-February this year coincided with a counter-trend move in the USD-RM. In view of this, we need to watch out for a possible sharp rebound in the USD-RM, which may trigger a correction in our market. After all, we have noted in earlier posts that the underlying trend for USD is up, with the exception of some Asian currencies (such as our RM).


Chart 2: USD-RM & FBM-KLCI's daily chart as at March 29, 2010 (Source: Yahoo Finance & Quickcharts)

Proton may be a good trading BUY

Proton has just surpassed the horizontal resistance & its recent high of RM4.60-62 (see Chart 1). This is also the medium-term downtrend line (see Chart 2). With this breakout, Proton may test its next resistance at RM5.00 & thereafter at RM6.00.


Chart 1: Proton's daily chart as at Mar 29, 2010_12.30pm (Source: Quickcharts)


Chart 2: Proton's weekly chart as at Mar 29, 2010_12.30pm (Source: Quickcharts)

Based on the technical reading, I believe Proton could be a good trading BUY.

WTK may be commencing on its uptrend

WTK, a timber stock, may have broken above its flag formation at RM1.26 on good volume this morning. See Chart 1 below.


Chart 1: WTK's daily chart as at Mar 29, 2010_9.10am (Source: Quickcharts)

We can see from Chart 2 below that WTK broke above its downtrend line in early 2009 but that breakout was followed by sideway trading between RM1.00 & RM1.26 for the past 9 months. The current breakout could signal the uptrend for this stock.


Chart 2: WTK's weekly chart as at Mar 29, 2010_9.15am (Source: Quickcharts)

Based on this bullish technical breakout, WTK could be a good trading BUY or for long-term investment.