Applying The PEG Ratio

The Price-to-Earnings to Growth (PEG) ratio is calculated easily and represents the ratio of the P/E to the expected future earnings growth rate of the company. In theory, a PEG ratio of above 1.0x seems to suggest that the stock is overvalued and vice versa. Let’s apply a modified PEG ratio to 4 countries: Malaysia, Singapore, Thailand and Indonesia.

Continue reading “Applying The PEG Ratio”

Downtrend Persists?

Latest News – This cut in production is a first since 2008 and is sentiment positive. Brent oil has rallied by some 10.9% and now trades at the US$51.64 level. Further details will be worked out at the next Opec meet on Nov 30.

Hong Leong Investment Bank Research analyst Lim Sin Kiat believes that this development is not sufficient to improve local oil and gas (O&G) services players’ earnings, as the anticipated oil price improvement is not expected to lift oil producers’ capital expenditure (capex) significantly, at least in the medium term.

“The only company which would be directly impacted by the oil price movement in our coverage would be SapuraKencana Petroleum Bhd. According to our sensitivity analysis, an incremental US$10 per barrel improvement in Brent oil prices would bring about a 42% increase in our current earnings forecast,” he said.

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Where is SapuraKencana (SKPetro) heading?

The announcement of planned production cut by OPEC had led to positive movement in the share price of SKPetro.

Current GP SKPetro.png

Nevertheless, since 2014, SKPetro appears to be in a consistent downward channel, with certain false breaks. Its 200D-moving average appears to be forming strong resistance against any price upward movement.

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For SKPetro to sustain its upward trend, it has to make significant break above its 200D-moving average resistance line. Currently, it has not made significant breaks above the resistance line.

5218.MY (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 RELATED INSTRUMENTS MENTIONED ABOVE.

Monthly Seasonality & Brent

Brent crude oil appears to be relatively weak in the month of May, October, November and December

From the mid-1980s to September 2003, the inflation adjusted price of a barrel of crude oil on NYMEX was generally under $25/barrel. Then, during 2004, the price rose above $40, and then $50. A series of events led the price to exceed $60 by August 11, 2005, leading to a record-speed hike that reached $75 by the middle of 2006. Prices then dropped back to $60/barrel by the early part of 2007 before rising steeply again to $92/barrel by October 2007, and $99.29/barrel for December futures in New York on November 21, 2007.Throughout the first half of 2008, oil regularly reached record high prices. Prices on June 27, 2008, touched $141.71/barrel, for August delivery in the New York Mercantile Exchange, amid Libya‘s threat to cut output, and OPEC‘s president predicted prices may reach $170 by the Northern summer.The highest recorded price per barrel maximum of $147.02 was reached on July 11, 2008. After falling below $100 in the late summer of 2008, prices rose again in late September. On September 22, oil rose over $25 to $130 before settling again to $120.92, marking a record one-day gain of $16.37. Electronic crude oil trading was temporarily halted by NYMEX when the daily price rise limit of $10 was reached, but the limit was reset seconds later and trading resumed. By October 16, prices had fallen again to below $70, and on November 6 oil closed below $60.[10] Then in 2009, prices went slightly higher, although not to the extent of the 2005-2007 crisis, exceeding $100 in 2011 and most of 2012. Since late 2013 the oil price has fallen below the $100 mark, plummeting below the $50 mark one year later.

The 2003 invasion of Iraq marked a significant event for oil markets because Iraq contains a large amount of global oil reserves. The conflict coincided with an increase in global demand for petroleum, but it also reduced Iraq’s current oil production and has been blamed for increasing oil prices. However, oil company CEO Matthew Simmons emphasizes the peaking and decline of oil-exporting in Mexico, Indonesia and the United Kingdom is the reason for the price gouging. According to Simmons, isolated events, such as the Iraq war, affect short-term prices but do not determine a long-term trend. Simmons cites the use of enhanced oil recovery techniques in large fields such as Mexico’s Cantarell, which maintained production for a few years until it eventually declined. Pumping oil out of Iraq may reduce petroleum prices in the short term, but will be unable to perpetually lower the price. From Simmons’ point of view, the invasion of Iraq is associated with the start of long-term increase in oil prices, but it may mitigate the decline in oil production by retaining a partial amount of Iraq’s oil reserves. As a direct consequence, the oil production capacity was diminished to 2 million barrels (320,000 m3) per day. See Link

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Monthly end price of brent crude (since 1988) is shown in the following table (except for Oct 2016 – the price is as of 17 Oct 16):

Monthly Crude_Table.png

Month-on-month percentage change in brent crude oil is shown below:

Monthly Crude_Table_Analysis.png

From the above table, the analysis shows the following key findings:

  • The month of May, October, November and December show (i) either or both average and median m-o-m change to be negative as well as probability of positive movement of less than or equal to 50 percent
  • February, March and April seem to suggest relatively stronger monthly positive movements, with average m-o-m movement as high as positive 3.8 percent and a probability of positive movement in excess of 60 percent

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 RELATED INSTRUMENTS MENTIONED ABOVE.

Talk Is Really Cheap

Lacking of implementation details

OPEC’s 14 oil producing nations agreed  to modestly cut their collective oil output later this year in an effort to bolster sagging prices, according to a cartel official. The decision sent global oil prices soaring by more than 5 percent. See Link

Since then, we have seen concerns / contradicting developments relating to the planned deal:

Igor Sechin, Russia’s most influential oil executive and the head of state-controlled energy giant Rosneft, said his company will not cap oil production as part of a possible agreement with OPEC. See Link

Libya, Iran and Nigeria have said they aim to pump additional volumes that could total 700,000 barrels of oil a day over August levels. See Link

Details over who will bear the brunt of the cuts are due to be set by end-November but there is already growing wariness among market-watchers about how the deal can be implemented. See Link

Low probability of a deal cutSee Link

Technically, strong resistance is expected for Brent Crude to cross above the $53.0 mark

Brent Oct 2016.png

In spite of a rebound in the brent crude oil price, we continue to see on-going trimming of selected equity holdings in oil and gas counters by Malaysia’s pension fund, EPF in the month of October 2016:

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How far can Brent go up? It will ultimately depend on the viability of shale producers (average cost at USD62):

Until there are further concrete plans relating to the production cut, oversupply of crude will continue to persist.

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 RELATED INSTRUMENTS MENTIONED ABOVE.

Stable Dividend Yield?

In search of yield in Singapore

Singapore Post Limited (SGX: S08), commonly abbreviated as SingPost, is an associate company of Singapore Telecommunications Limited and Singapore’s designated Public Postal Licensee which provides domestic and international postal services.

It also provides logistics services in the domestic market and global delivery services. SingPost also offers products and services including postal, agency and financial services through its post offices, Self-service Automated Machines (SAMs) and vPOST, its internet portal. Its headquarters is located in Geylang, Singapore.

Today, Singapore has 62 post offices, 299 Self-service Automated Machines (SAMs) and SAMPLUS, around 40 postal agencies and more than 800 licensed stamp vendors. There are also 8,907[2] posting boxes are installed at various locations throughout the island. See Link

Historically, SingPost offers a decent yield at 4.61% (currently), with a historical average dividend yield of 3.87% (since Sep 2014). There may even be a potential capital upside if there is a mean reversion in the dividend yield.

SGPost_DivYield_Oct 2016.png

As shown below, SingPost demonstrates stable annual financial performance, with DPS of SGD0.07 per share for the latest financial year ending 31 March 2016.

SGPost_Historical Financials_Oct 2016.png

Should there be a mean reversion in dividend yield from 4.61% to 3.87%, there may be potential upside from its current price of SGD1.52 to a trading price range of between SGD1.61 and SGD1.89. At current yield or higher required yield of 5.28% (i.e highest yield since Sep 2014), we may potentially see a trading price range of between SGD1.18 and SGD1.59.

SGPost_ForecastPriceRange_Oct 2016.png

The above analysis is a brief high-level desktop analysis and this does not substitute the need for a detailed fundamental analysis of the Company. The working / computation shown above is strictly for illustrative purposes.

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 RELATED INSTRUMENTS MENTIONED ABOVE.