Trusting Leonardo Bonacci

Applying The Fibonacci Sequence

History & Background 


Leonardo Bonacci (c. 1170 – c. 1250)—known as Fibonacci (Italian: [fiboˈnattʃi]), and Leonardo of Pisa, Leonardo Pisano Bigollo, Leonardo Fibonacci—was an Italian mathematician, considered to be “the most talented Western mathematician of the Middle Ages”. Read more. He is credited with introducing the Fibonacci sequence, which has since been used as part of technical analysis.  Based on Fibonacci sequence, retracement levels can be derived to alert traders or investors of a potential trend reversal, resistance area or support area.

From StockCharts.com: Retracements are based on the prior move. A bounce is expected to retrace a portion of the prior decline, while a correction is expected to retrace a portion of the prior advance. Once a pullback starts, chartists can identify specific Fibonacci retracement levels for monitoring. As the correction approaches these retracements, chartists should become more alert for a potential bullish reversal.

Based on depth, we can consider a 23.6% retracement to be relatively shallow. Such retracements would be appropriate for flags or short pullbacks. Retracements in the 38.2%-50% range would be considered moderate. Even though deeper, the 61.8% retracement can be referred to as the golden retracement. It is, after all, based on the Golden Ratio.

Shallow retracements occur, but catching these requires a closer watch and quicker trigger finger. The examples below use daily charts covering 3-9 months. Focus will be on moderate retracements (38.2-50%) and golden retracements (61.8%). In addition, these examples will show how to combine retracements with other indicators to confirm a reversal.

 Read more

Possible Retracement Levels Of FBMKLCI


Using the Fibonacci retracement method, based on weekly chart of 10-year historical trend of Malaysia’s FBMKLCI index, possible retracement levels (i.e support lines) can be seen at the following level:

  • 23.6% : 1,638.1
  • 38.2% : 1,479.3
  • 50.0% : 1,351.0
  • 61.8%: 1,222.7 (Golden Ratio) – significant retracement level
  • 78.6%: 1,039.9

FBMKLCI_FibOverview_31Aug2016

The FBMKLCI index is currently hovering around its 23.6% retracement level (1,638.1), which is described as a “shallow” retracement / support level. It is observed that the technical indicators & trading volume seem to suggest the support level is relatively stronger when FBMKLCI is trading closer to 1,500 points which is below the 23.6% retracement level. Further, since Sep 2015, we did not see any significant oversold positions or major volume increase that would further substantiate this retracement level to be a strong support level. This leads to the million dollar question: would we see further retracement in the FBMKLCI to the 38.2%, 50.0% or even 61.8% retracement level?

FBMKLCI_FibOverview_31Aug2016 (Zoomed).jpeg

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR INSTRUMENTS MENTIONED ABOVE.

Moderating Growth

Latest quarterly result of Hovid

Latest Quarterly Results

We posted our first article about Malaysian-listed pharmaceutical / consumer product manufacturer company, Hovid Berhad (“Hovid”) in see link . The company has recently reported its financial period ended 30 June 2016 on 30 August 2016.

Latest FY16 unaudited financial result seem to suggest that the growth rate for the Company appears to be moderating. Further, recent volatility in exchange rate has led to higher variability in earnings.

Hovid_Financials.png

Nevertheless, the Company expects its business outlook to be satisfactory:

Hovid_Outlook.png

Defining Relationship Between Hovid and Hovid-W

The share prices of both the Company’s ordinary shares and warrants have declined since reaching their peak in 2015:

Hovid & Warrant_TS

Based on a simple regression analysis between Hovid and Hovid Warrant, the current price of Hovid Warrant appears to be  relatively lower than the predicted value (predicted RM0.227 vs actual RM0.21 per warrant) as per the regression analysis. At Hovid’s current price of RM0.21 per share, the 95%-confidence interval for Hovid Warrant ranges from RM0.195 to RM0.260 per warrant.

Regression relationship:

Forecast price of Hovid Warrant = -0.0767470 + 0.779978 (share price of Hovid)

Hovid Vs WarrantHovid_Regression

Determining Forecast Price Range

Based on a simple desktop analysis, assuming price-to-earning ratio of 17.0x (based on Hovid’s average PER since 1 Jan 2015) and forecast FY17 EPS of between RM0.023 – RM0.024 per share, it is anticipated that Hovid may possibly trade between a range of RM0.39 – RM0.41 per share. Using the regression relationship established above, this will translate into potential forecast price range for Hovid Warrant of between RM0.233 and RM0.245 per warrant.

Forecast Price.png

It is important to emphasise that the above desktop analysis is strictly for illustration and does not substitute the need for a detailed analysis.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR INSTRUMENTS MENTIONED ABOVE.

Oil & Gas Updates In Charts (Aug 2016)

Quick update of Oil & Gas Sector in Malaysia

Let’s take a quick look at the Oil & Gas sector for the month of August 2016.

Brent vs USD Index

Brent is generally negatively correlated with the movement in the USD Index. Based on a regression analysis, the forecasted value of brent is USD51.14 vs actual of USD49.20, with a 95%-confidence between USD33.47-USD68.81. The USD Index is expected to perform better, in line with potential US rate hike. Read more

BrentVsUSD.png

Regression_BrentVsUSD

Regression_BrentVsUSD (results)

Oil & Gas Companies in Malaysia : Market Capitalisation

Significant drop in market capitalisation across most O&G companies listed on Bursa Malaysia, except for Dialog and Yinson. Malaysia’s biggest O&G company by market cap, i.e SKPetro suffered a significant drop in its market cap.Summary of Mkt Cap of O&G CompaniesTimeSeriesMktCapO&G

Oil & Gas Companies vs FBMKLCI : Market Capitalisation

Market cap of O&G companies listed on Bursa has fallen relatively more than the market cap of KLCI. Based on regression analysis between the market cap of O&G companies and KLCI, the forecasted market cap for O&G companies is expected to be  RM48.9b vs actual RM34.8b, with a 95%-confidence interval between RM31.5b and RM66.4b.

Regression_O&GvsKLCIRegression_O&GvsKLCI (results)

SKPetro vs Oil & Gas Companies (excl. SKPetro) : Market Capitalisation

The regression between market cap of SKPetro and other Oil & Gas companies shows the current market cap of SKPetro is slightly below the forecasted value. No significant divergence between actual and forecast value.

Regression_SKPetrovsO&GRegression_SKPetrovsO&G (results)

Oil & Gas Companies (Market Cap) vs Brent

There appears to be a significant divergence between the forecasted and actual value of current market cap of Oil & Gas companies listed in Malaysia. The actual market cap of these companies is significantly lower than as per the regression analysis.

Regression_O&GvsBrent

Regression_O&GvsBrent (results).png

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR INSTRUMENTS MENTIONED ABOVE.

Inflation & Stock Market

Malaysia July inflation at 1.1% rises at slowest pace in more than a year

KUALA LUMPUR (NewsRise) – Malaysia’s July retail inflation rate decelerated further, rising at its slowest pace in more than a year, as cheaper transport charges helped offset impact from costlier food, official data showed Wednesday.

The consumer price index — Malaysia’s primary gauge for inflation – rose 1.1% in July from a year earlier, the Department of Statistics said in a statement. That compares to June’s 1.6% year-on-year increase and lagged the median 1.2% rise predicted by economists. On a seasonally adjusted basis, the index rose 0.3% from June.

The latest reading marks the fifth straight month of price decline after annual retail inflation printed a seven-year peak of 4.2% in February.

Read more

Inflation & Stock Market Returns

High inflation can be good, as it can stimulate some job growth. But high inflation can also impact corporate profits through higher input costs. This causes corporations to worry about the future and stop hiring, negatively impacting the standard of living of individuals, especially those on fixed incomes. Because there is no one good answer, individual investors must sift through the confusion to make wise decisions on how to invest in periods of inflation. Different groups of stocks seem to perform better during periods of high inflation.

Most studies conclude that expected inflation can either positively or negatively impact stocks, depending on the ability to hedge and the government’s monetary policy. But unexpected inflation did show more conclusive findings, most notably being a strong positive correlation to stock returns during economic contractions, demonstrating that the timing of the economic cycle is particularly important for investors to gauge the impact on stock returns. This correlation is also thought to stem from the fact that unexpected inflation contains new information about future prices. Similarly, greater volatility of stock movements was correlated with higher inflation rates

Read more

Inflation & FBMKLCI

Based upon historical data of Malaysia’s FBMKLCI and inflation rate:

  • Generally, there appears to be positive correlation between inflation rate and FBMKLCI
  • When there is a divergence (e.g rise in FBMKLCI not matched with a rising inflation rate), FBMKLCI tends to reverse
  • With the latest inflation number (July 16) showing a slowing trend, we may potentially see a downward trajectory for the FBMKLCI

Grpah.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR INSTRUMENTS MENTIONED ABOVE.

Tougher Times Ahead

As we expect tougher times ahead, companies that may have less optimum financials may face potential challenges. We intend to scan for these companies based on the following criteria via CIMB iTrade filter tool:

  • Selected exchange: Malaysia & Singapore
  • Current ratio <0.85x
  • Total Debt / Total Equity >125%
  • EPS<=0.0 (i.e breakeven or loss-making)
  • Past revenue growth rate <=0% (negative or no growth)

The summary of results is shown as below (as of 24 Aug 2016: 4 companies from Malaysia, 11 companies from Singapore):

List.png

Boustead Heavy / Boustead Holdings (MY)

We do not foresee any potential issue for this conglomerate as it has the backing of a strong institutional fund ( i.e LTAT) as its major shareholder. Further, it is on the path of de-leveraging process (Read More).

NPC Resources (MY)

NPC RESOURCES BERHAD is principally an investment holding company while its subsidiaries are involved in investment holding, provision of management services, operation of oil palm plantations and palm oil mills, trading of fresh fruit bunches (“FFB”), provision of transportation services, property letting and operation of hotel. The Company was listed on the Main Board of the Kuala Lumpur Stock Exchange on 7 May 2002. NPC has been raising proceeds from the divestment of its land assets for development of its planting capital expenditure. It is important for NPC to manage its gearing and working capital requirements whilst waiting for the maturity of its plantation assets.

NPC_sale.png

Perdana Petroleum

The fall in crude oil has taken a toll on many O&G companies, especially with the offshore support vessel (OSV) sector. Perdana Petroleum Bhd. engages in the provision of offshore marine support services for the upstream oil and gas industry in the domestic and regional markets. It owns and operates vessels to support offshore activities from exploration, development, facilities installation, hook-up and commissioning, production, operation, and maintenance. The company was founded on December 28, 1995 and is headquartered in Kuala Lumpur, Malaysia. Analysts are waiting for further streamlining and restructuring of this company after it has been taken over by another Malaysian-listed company, Dayang Enterprise (Read more). Nevertheless, it has recorded a substantial loss for Q2, FY2016:

PerdanaPetro.png

Kencana Agri

Kencana Agri Limited (“Kencana” or the “Group”) is a fast-growing producer of Crude Palm Oil (“CPO”) and Crude Palm Kernel Oil (“CPKO”) in Indonesia, with oil palm plantations strategically located in the Sumatera, Kalimantan and Sulawesi regions. Again, for palm oil companies, it is important to manage working capital requirements whilst waiting for maturity of its plantation assets.

Kencana.png

Linc Energy

Singapore-listed oil and gas company Linc Energy Ltd owes creditors A$289.4 million ($210.28 million) and should be wound up, according to its administrators.The company entered into voluntary administration a month ago, suffering from debt woes amid a slump in energy prices. Administrators PPB Advisory released a report on Friday recommending the company be liquidated.

Read more

Novo Group

Novo Group is a global steel trading, distribution, processing and manufacturing company that provides comprehensive services throughout the steel value chain. There has been a change in shareholding, paving way for a new business direction for the company:

NOVO.png

EMS Energy

EMS Energy posted a net loss of S$2.9 million for the first six months ended June 30, 2016. This was a reversal from a net profit of S$1.2 million a year ago.The engineering firm, which serves the marine, oil and gas industries, said the revenue decline was due to lower revenue from its “engineering, procurement and construction management – marine and offshore & trading” segment, which contributed S$9.9 million, compared to S$38.9 million in the previous year. the group plans to streamline its core operations, which include amongst other, cutting costs and manpower and building up its businesses to ensure steady stream of recurring income to weather the storm

Read more

Cedar Strategic

This property investment company has a history of corporate governance issues. On 9 April 2015, the Company announced that it has requested for mandatory trading suspension over the Company’s shares from the Singapore Exchange Securities Trading Limited (“SGX-ST”). On 14 April 2015, the Company announced that it will be engaging an independent auditor to conduct a special audit to, inter alia, review and/or ascertain (as the case may be) the accounts and transactions of the Group, and whether there are any irregularities in the accounts and transactions of the Group for the financial years ended 31 December 2013 and 2014. On 3 July 2015, the new Board (being all new directors unrelated to the previous Board, the “Board”) announced that the Company has appointed Baker Tilly Consultancy (Singapore) Pte Ltd as its independent auditor (“Special Auditor”) to carry out an independent review of the disbursements of the Company and its subsidiaries, namely Trechance Holdings Limited and Futura Asset Holdings Pte Ltd (“Futura”), for the financial years ended 31 December 2013 and 2014.

Read more

KS Energy

THE auditors of KS Energy have raised concerns over the ability of the firm to continue as a “going concern”. The energy services provider had incurred a net loss of S$260.4 million in the 2015 financial year, noted KPMG.

Read more

Renewable Energy

S-Chip company. Suspension due to lack of funds.

Read more

Attilan Group

Formerly known as Asiasons Capital.

Read more

CNA Group

Currently, under judicial management.

Read more

Mencast Holdings

Mencast Holdings: The maintenance, repair and overhaul solutions provider for the global offshore, marine and oil & gas sectors on Aug 19 entered into banking facility agreements with UOB to redeem its outstanding bonds. These include a secured loan of up to S$50 million and secured facilities of up to S$24.9 million comprising term loan facility, trade facility and money-market credit facility.

The funds from these banking facilities will be used for the redemption of the outstanding bonds of S$50 million issued by the group and due on Sept 12, the refinancing of certain existing loan facilities, general trade purposes and general working capital purposes.

Read more

Mary Chia

The company is closing its outlet in Tampines, which was the last directly-run branch of the company. The company had failed to pay about $570,000 in rent and compensation charges to landlord Tinifia Investment dating back to February 2009 for its Orchard Road outlet. 

Read more

In summary, detailed fundamental analysis is required to ascertain the financial health of the companies.

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR INSTRUMENTS MENTIONED ABOVE.

Challenging Prospects

Malaysian-listed poultry stock, Teo Seng Capital Berhad recently reported its latest quarterly results:

Summary.png

The latest quarter result appears to show a marginal improvement on a year-on-year basis. Nevertheless, Management have warned the remaining financial period to be challenging:

Challenging.png

Technically, the chart seems to point toward a bearish mode for this counter. Support is anticipated at RM1.058.

7252.MY.jpeg

Fundamentally, high-level brief desktop analysis supports an indicative equity valuation range of between RM1.00 and RM1.54 per share. 

ValTSCap.png

In summary, there could be potential trading opportunity if its share price hovers around RM1.05.

DISCLAIMER: ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR INSTRUMENTS MENTIONED ABOVE.

Any More Downside?

Malaysian-listed Oriental Food Industries Sdn Bhd (“Oriental Food) was established and incorporated in 1978. From our modest beginnings, the company has made its mark in the food manufacturing industry today holding the leading position in the snack food and confectionery industry in Malaysia. Generally it’s products can be divided into four (4) broad categories, which are snack food, wafer, potato snacks and bakery products. The company actually has obtained several certifications in line with it’s quest for optimum quality control procedures, namely MS ISO 9001:2008 and HACCP. The company has also certified by the Malacca State Islamic Department as a manufacturer of ‘Halal’ products.

The Company was recently highlighted in the following Edge Weekly article, as one of the counters that suffered panic selling:

TheEdgeNews.png

Given its “beaten down” position, is there any further downside risk to this counter?

Technically, its share price has breached below that of its 200D-MA support line, signaling potential downside risk. Nevertheless, support is anticipated at around RM1.47.

7107.MY.jpeg

Fundamentally, based on a simple desktop analysis, the Company’s current share price (RM1.80) appears to be trading at a premium to its forecasted equity  value of RM1.40 per share.

Valuation Analysis.png

In a nutshell, one may consider this counter for potential trading opportunity if its share price hovers around RM1.40 per share.

DISCLAIMER: ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR INSTRUMENTS MENTIONED ABOVE.