KLCI - Had The Bad Day Over?

KLCI index closed at 1,532.12 on last Monday. Then it rebounded 4 days consecutively, 80.60 points and closed at 1,612.74 today. It seems like the market had recover and the bad day had over, isn’t it? However, KLCI index only represents 30 top blue chip stocks in Bursa and does not represent the whole stock market. It means that as long as most of the 30 stocks move up, the index will follow too.

	8/24 Mon	8/25 Tues	8/26 Wed	8/27 Thurs
Foreign, RM	-378.8	-337.8	-301.4	-9.0
Retail, RM	-6.5	-15.1	-13.0	-30.1
Local Institution, RM	385.3	352.9	314.4	39.1

Have a look at the above Daily Trading Participants and you will know what am I trying to say. Even though KLCI index rebounded 80.60 points over the past 4 days, but the foreign investors are still pulling out their fund everyday! They had net sold for 4 days continuously and for the first three days, they pulled out RM1.018 billion! Same as retail investors, they had also net sold for 4 days continuously. Local institution is the only one who supporting the stock market! But, how long can they support and how much money can they keep pumping in?

I believe the local institution which supporting the stock market are government linked investment companies, such as Khazanah, PNB, EPF, KWAP, Lembaga Tabung Haji, etc.. It’s one of the methods that the government tried to prevent the stock market from falling further down. They also wanted to boost up the retail investors’ confidence to continue invest in the stock market.  Besides, the National day is just around the corner, so probably the government is trying to turn the situation around temporarily. However, the overall picture shown that either foreign investors or local retails investors is still pulling out from the stock market. The rise of the KLCI doesn’t mean the market had recovered. I strongly believe it was just technical rebound!

Another weird things that strengthen my thought was today PUT warrant price action. There are currently 23 PUT warrants in the stock market. I picked 3 of them to show. Have a look.

 FBMKLCI-HK

 FBMKLCI-HT

FBMKLCI-HW

Did you guys spotted the similarity between them? FYI, KLCI index rose 11.04 points today. However, this three PUT warrants moved at the opposite direction and closed at a higher price compared to yesterday. Each of them started off at a very low price during market opened and then moved up at the last hour of market (开低走高)! Why is it happened at the last hour of market? The only reason I can think of is many investors expect the KLCI to drop on next week! It is not a good sign!

Nobody will know what will happen to the stock market on next week. Tomorrow is Perhimpunan Bersih and the coming Monday is National day. These two important days will have a significant effect to the stock market. As a conclusion, so far foreign investors are still pulling out from Malaysia. Without them, Malaysia stock market will still remain weak. I do not see any sign of recovery yet in the economy even though MYR had slightly strengthened today. Therefore, I still remain pessimistic with the stock market.

Is this the eve before thunder storm? 暴风雨的前夕?  I HOPE IT IS.

Just for sharing.

How to Spot Unfavourable Factors of a Company? (2)

Today, I would like to share with you another example of finding unfavourable factors of a company.

CAM RESOURCES BHD

·         Palm Oil Mil - Processing and sale of crude palm oil, palm kernel and other related products

·         Manufacturing of aluminium, stainless steel, melamine and plastic household products and palm fibre

·         Trading of household products

Price, RM                : 0.245	NTA, RM                : 0.54
PE                           : 6.13	No. of shares           : 177.2m
R0E, %                   : 7.41	Market cap., RM     : 43.4m
D/Y, %                   : 0

I believe before the quarter report of FY15Q1 out, the pretty result of CAMRES was able to attract many investors. To be frank, I am one of them. By just looking at the results, it is normal one will think that CAMRES is growing or CAMRES fundamental is improving.

Firstly, Palm Oil Mill contributed the largest portion of revenue in CAMRES, which is around 60%. Look at the palm oil monthly price chart above. When the palm oil price getting lower and lower, it means that CAMRES net profit margin will be heavily hit. The operating expenses and the volume they sell are the same but the sales value they received is getting much lower. It had a bad effect for CAMRES which we can seen in CAMRES latest quarter report. It mentioned that the sales from palm oil mill had been reduced.

Borrowing, RM	16,686,562	35,910,616	48,524,840	55,292,351
Free cash flow, RM	6,825,757	5,656,759	9,418,505	7,725,416
Net cash, RM	(9,860,805)	(30,253,857)	(39,106,335)	(47,566,935)

Secondly, CAMRES borrowing is increasing from year to year while its cash doesn’t seem to increase. Its net debt is already up to RM47m! FYI, market capitalization for CAMRES is only RM43.4m, which is lower than its net debt! That’s mean theoretically even though the company disposed all its shares and sold it, it still not enough to pay off its debt!

If the economy crisis really coming one day, a company with huge of debt and little cash flow will be the first to hit! The company might not be able to turn the situation. It will be a disaster.

Thirdly, CAMRES don’t even have any business description on its website. As investors, we can’t get to know more about the company and its business. Even the last update in its annual report section was on Oct 2010, which is almost 5 years ago. The company seems like do not bother to update their investors. It had reduced my interest on this company. FYI, almost every listed company website is up to date and packed with company information. 

Lastly, one of the executive directors of CAMRES, Mr. Hia had disposed 2m shares, which are equivalents to 1.3% on June 2015. Normally, company director will acquire more shares since they knew the company operation well. But, when they disposed, it is a sign that a company director had lost its confidence to the company. Since we can’t access too much company information, it’s better to keep away from such company.

As a conclusion, everyone had their own method of analysis and screening. I hope this will help most of the investors to choose more wisely in the future. Feel free to comment if you disagree with me or have any opinion.

Just for sharing.

Are The Next Economy Crisis Coming? (Must Read)

United State (“US”) is the largest economy country in the world. Subsequently USD is the major international currency which used around the world widely. Since commodities around the world are priced in the USD, a strong currency in the United States is great for all commodity consumers around the world. A strong dollar makes commodities less expensive to import and hence lead to decrease in gold and also commodity raw material price such as steel, copper, zinc and aluminum. Commodity price is always inversely proportional to USD. It is same as crude oil price. One year ago, the crude oil price was still at the level of USD100/barrel but now it had dropped to USD38/barrel. Palm oil is also at the same category as crude oil; its price had also hit a new low. Being the only crude oil exporter in Southeast Asia, a big portion of Malaysia revenue is depending on crude oil.  When the crude oil price dropped, subsequently Malaysia income will be hit heavily! In other words, Malaysia is selling the same volume of crude oil out to other countries but it received much lesser money compared to last year. That’s the reason why Malaysia budget 2015 had been revised beginning of this year.

Malaysia main source of income is depending on export. Our country export is larger than import. So, after the export value minus import value, the remaining is what we called as surplus. Imagine you are doing export business in Malaysia, once you received USD from customers, what will you do? MYR is our principal currency and our daily expense including salary is also mainly in MYR. So, normally people will exchange with Bank Negara Malaysia (“BNM”) to convert back to MYR. The USD will be used as a fund by BNM and this is what we called as foreign currency reserve. When tourists visit to Malaysia, the USD currency they exchange will also contribute to the foreign currency reserve, same goes to foreign investment.

Back to the story, when the surplus is getting lower, automatically BNM reserve will be reduce. Money that doesn't have to be reserved at a bank is money that can be used to make new loans. Money that can be loaned out is money that can filter through the economy. So, when BNM reduce, MYR money supply will also reduce subsequently. It will affect bank borrowing since bank has left little money for lending. There are two signals that shown that bank money supply had decreased.

1) Did you receive any SMS from any banks that promote their fixed deposit rate? Normally, this only happens after BNM hikes the interest rate. However, in current situation, the bank is willing to increase its own interest rate to attract people to put their money in their bank.

2) There are some friends or relatives mentioned that their car loan / mortgage loan had been rejected. The bank had tightened their loan policy.

From these two points, we know that the bank no longer has enough money supply. Let’s think further, when most of the loans had been rejected, the sold out rate of property project will be highly reduce. It will affect the company corporate earnings. When the company doesn’t have enough funds on hand, their new project will be on hold or delay. The construction and industrial products such as cement, sand etc will be affected as well. This is a chain reaction that linked the whole economy!

The main income of bank depends on collecting interests from loan. When they no longer had enough money supply to lend out, their revenue earnings will drop. AMBANK is a very good example which hit by the economy.When our economy becomes less attractive and money supply drops, investors no longer interest to our country. In addition with the negative issues in politics, they had loss their confidence. Hence, foreign currency is pulling out very fast from Malaysia and lead to depreciation of MYR! FYI, our BNM International reserves was still at USD130+ billion on Jan 2014, but now it only left USD96.7 billion. Government no longer able to support our currency and hence they allow MYR to free falling. That’s the reason why USDMYR only took 2 weeks time to drop from 3.80 to 4.25. The worse case is Malaysia government and finance minister don’t have any method or idea to stop this. They don't even know what to do!

People tend to argue that weakening of MYR will attract foreign investors come to Malaysia again. Imagine if you are a foreign investor, will you still invest in Malaysia at this moment? In fact, they will wait for our currency to depreciate to a stable level before coming in. Our currency now is like a falling dagger, it drops without stop. Today, foreign fund had pulled out another MYR338m out from Malaysia stock market. It is a good example.

As a conclusion, as long as Malaysia internal problem couldn’t be solve, the bad cycle of economic will still continue going on. FYI, Malaysia stocks market had gone through 6 bull markets and 5 bear markets, either big or small one, since 1998. There were four times which caused by SARS, US Technology Bubble, US Subprime Crisis and Euro Sovereign Debt Crisis. In this 4 times, Malaysia economy was not hit but our stock market was indirectly affected. The biggest direct hit on Malaysia economy is during Asian Financial Crisis on 1998 and that was the most serious crisis in Malaysia stock market history! Please stop believing on those analysts or newspaper that mentioned Malaysia stock market will go up to the level of 1,800/1,900 by end of this year. Either we are heading towards World economic collapse or not, the stocks market no longer optimistic. So my dear friends, the journey will be tough and unpredictable. This will hit on all of us, regardless you are rich or poor. Of course, a crisis might be an opportunity too. All the very best to all of you

Just for sharing

Market Review (21st Aug 2015)

The global stock market closed with a blood bath on last Friday (21^st Aug 2015)! Dow Jones index lost 531 points, or 3.13%, its biggest single-day decline since year 2011.

On Friday morning, the China government reported that its manufacturing activity hit a 6-year low in July 2015. In addition with devaluation of YUAN on last week, I believe most people are in extra worried about China slowdown. They started to in sell position which leads to a huge drop in global stock market!

Being the second largest economy country in the world, slowing down economy in China has a huge impact to the whole world especially US. I believe the purpose of China government devalued its currency is to increase the odds of Fed rate hike in September 2015. US had been hinting there will be hike of Fed rate since earlier by this year. However, even until now it’s still an open question on whether they would move or not.

With so many uncertainties in the world economic, the global market is likely to continue drop.

Back to Malaysia, our market continued its falling trend on last week and dropped to 1,574.61. Even the bull in Nikkei had started to change its direction! Investors need to beware that the global market is no longer that optimistic!

 

Being the weakest currency in Southeast Asia, Malaysia Ringgit continued to drop on last week. USDMYR had come to 4.18 and SGDMYR had come to 2.98.  I still remember last year during May, the time I went to Phuket, the exchange rate for MYR to Baht was still 9.80 but now it is only 8.54, a drop of 13%! Malaysia government defended that Malaysia fundamental is still strong and stable. USDMYR should be at around 3.20. Yeah, in fact fundamentally Malaysia is still consider good, but the negative issues of 1MDB and politics had chase most of the foreign investors away. They had totally lost confidence to our country. In addition, Malaysia foreign currency reserve no longer able to support MYR. Hence, it leads to a free fall on August! The chart tells everything. I am seriously sad for my own country.

 

 

 

The crude oil price closed on USD40.45/barrel on last Friday. It is very likely to breach below USD40 by this coming week! Gold price had shown some reversal but the world commodity metal such as copper, aluminum, nickel and zinc continued to drop to a new low.

 

 

 

With all the signals above, global market will still remain bad. Does it mean another economic crisis is coming? I will say very likely. Of course, it is just my opinion based on the current world condition. Expect the unexpected. In fact, I believe US itself is a bubble.

Just for sharing.

Why A Good Company Doesn't Means Its Share Price Will Move Up?

Malaysia stock market is divided into Main Market and Ace Market, which made up of more than 900 listed companies. It is a big number, how are we going to select from so many listed companies?

Personally, investing in stock market is just like shopping in supermarket. A supermarket is divided into few categories, such as food & beverages, clothes attire, electrical equipment, luxury item and so on. For example, if you want to buy alcoholic beers, there will be few brands for you to pick, such as Carlsberg, Tiger and Heineken. Each of them has different taste and quality. Of course, the price will be different too. It is all depends on your need and budget. You think that Tiger beer is better in term of taste and quality compared with other beers but it costs up to RM10 for a can. Will you still continue to buy?

The theory is the same in stock market. People tend to choose good fundamental and quality stocks with cheap price. For example, you expect property sector and construction sector will be slow down, so you prefer export-oriented stocks from industrial products sector. In this sector, you may choose companies such as FLB, Wellcall and etc.

Choose a good company is not hard, but choose a good company with its share price moving up is not easy. In this article, I would like to share about why a good company doesn’t mean its price will move up.

As an example, I will use Classic Scenic and Marco for illustration.

Classic Scenic – Sales and manufacturing of wooden picture frame

Marco – Distribution of electronic products

Marco – Distribution of electronic products

	Classic Scenic	Marco
Price, RM	1.19	0.15
NTA, RM	0.80	0.15
P/E	14.62	7.29
ROE, %	10.18	13.67
D/Y	6.72	1.38

Have a look at their financial result.

CLASSIC SCENIC			NET PROFIT RM’000
	Year/ Quarter	2011	2012	2013	2014	2015
31/3	1	3,036	2,688	2,469	2,305	2,713
30/6	2	2,002	3,813	2,448	3,201	2,491
30/9	3	2,049	3,963	1,861	2,053
31/12	4	2,220	2,808	2,356	2,557
	Total	9,307	13,272	9,134	10,116	5,204

MARCO			NET PROFIT RM'000
	Year/ Quarter	2011	2012	2013	2014	2015
31/03	1	2,989	2,814	3,485	3,958	5,177
30/06	2	3,489	4,528	3,824	3,384	5,062
30/09	3	3,607	2,902	4,961	5,978
31/12	4	3,910	4,181	2,512	4,724
	Total	13,995	14,425	14,782	18,044	10,239

These two companies had same similarities. They are rich in cash and making good stable profit every year. Fundamentally they are good, isn’t it? However, their price seems like not doing well. The price range for Classic Scenic over the three years is RM1.05 to RM1.38 (30%), while Marco is in the range of RM0.14 to RM0.25.

Well, the element that this two companies lack of is EXPANSION. Without expansion or acquisition, they will always remain at the same place while other good companies keep improving. By looking at their cash, obviously they do not make use of their cash wisely.

CLASSIC SCENIC	2011	2012	2013	2014
Net borrowing, RM	-	-	-	-
Free cash flow, RM	19,127,459	21,723,975	16,205,843	16,523,884

MARCO	2011	2012	2013	2014
Net borrowing, RM	7,494,001	4,106,108	6,037,017	1,132,207
Free cash flow, RM	39,001,210	41,037,848	41,703,573	41,502,475
Net cash, RM	31,507,209	36,931,740	35,666,556	40,370,268

Marco doesn’t have dividend policy and it only gave out 0.2 cent on FY14. Dividend yield is only 1.38%! The company unwilling to pay out a little bit more for its shareholder even though they had RM40m cash on hand. They rather keep the cash from not doing anything.

Classic Scenic had a dividend policy of 50% and it gave out 8 cent on the previous financial year. Its current dividend yield is 6.72% which is pretty attractive. Besides that, 92% of its revenue is from oversea countries. Classic Scenic is one of the beneficiaries of weakening of MYR.

As a conclusion, a company without expansion is not attractive to invest even though the company is making good profit constantly every quarter and cash rich. In order to compete with other good companies, this type of company needs to have at least one or two advantages/strength as catalyst to move its share price. Classic Scenic has two but Marco doesn’t has any, that’s the reason why Classic Scenic price movement is moving up but at a very slow pace while Marco always remains the same.

Just for sharing.