Where Do We Stand Now?

Today marks the last day for the month of February of 2017. The reporting season saw a mixed bag of results. The key themes of the reporting season are summarised as follows:

  1. Significant translation losses due to uncertainties associated with the foreign exchange / Ringgit;
  2. Earnings recovery in palm oil sector (due to supply-related issues, rather than demand-driven factors);
  3. Property sector is subdued;
  4. Banking – rising provision and flattish growth;
  5. Declining profitability margins in line with rising inflation (associated with commodity / weakening Ringgit);
  6. Massive impairments in Oil & Gas sector
  7. Mixed results in retail sector due to weakening consumer sentiment
  8. Certain export-driven companies appear to achieve revenue growth but not in terms of profitability margins

Now, where do we stand? Uptrend, range-bound or downtrend……

Technically, we may continue to be stuck in a range-bound channel, with a current downward price bias (expected support at 1,615):

FBMKLCI_28022017.jpeg

Unless there is further deterioration in future earnings, FBMKLCI’s current trailing P/E of 16.75x is relatively not too deviated from the historical mean P/E of 16.657x  (since 2011):

FBMKLCI_normality_Feb17_PER.png

Unless there is further impairment in book value, FBMKLCI’s current trailing P/B of 1.689x is relatively lower than the historical mean P/B of 2.1084x  (since 2011):

FBMKLCI_normality_Feb17_PBR.png

FBMKLCI’s current dividend yield stands at 3.12% which is relatively lower than the historical mean dividend yield of 3.334%.

FBMKLCI_normality_Feb17_Div.png

In a nutshell, the likelihood of FBMKLCI to be “overvalued” at this juncture is relatively low unless there is further deterioration in the earnings and book value of the listed companies.

On a separate note, we are observing a possible diverging trend between FBMKLCI’s PER and PBR since 2015, whereby it is observed that the PBR line continues to decline whilst the PER line has been oscillating. This could be possibly attributable to (i) lower earnings; (ii) lower dividends recorded by the listed companies.

FBMKLCI_normality_Feb17_PBRvsPER.png

What is more concerning is that the current volatility of FBMKLCI appears to be relatively low if compared to its historical trend. Will be there be a “storm” ahead?

HVG_feb_fbmklci 2017.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 MENTIONED IN THE ARTICLES.

Diverging Fate

Latest News

KUALA LUMPUR, Feb 15 — For Japan’s Aeon Co, giving individuals loans to buy cars and motorcycles has been a much better business in Malaysia than selling goods in its supermarkets.

Shares of Kuala Lumpur-based Aeon Credit Service (M) Bhd have gained 45 per cent in the past year, making it the best-performing lender in a gauge of the Southeast Asia nation’s financing companies. Retailer Aeon Co (M) Bhd. has fallen 11 per cent in the period to trade near their lowest level in more than four years. Both are units of Japan’s largest supermarket and mall operator.

A 25 per cent surge in third-quarter net income, positively affected the demand for our shares,” Aeon Credit’s Chief Financial Officer Lee Kit Seong wrote in an e-mailed response to questions. Aeon’s Malaysian supermarket unit declined to comment on its market performance. Shares of Aeon Credit were untraded while Aeon Co. slipped 0.4 per cent as of 9:54am in Kuala Lumpur.

‘High risk, high returns’

Aeon Credit’s share price increase means it’s “now considered a high-risk, high-return stock,” said Ang Kok Heng, chief investment officer at Kuala Lumpur-based Phillip Capital Management Bhd. The firm sold most of its shares in the company into last year’s rally, helping its fund return 15 per cent to beat more than 90 per cent of its peers. “Although Malaysia’s economy has slowed, the company’s performance has been cushioned by its high margins.”

Malaysia’s household debt in Malaysia is at a record, the jobless rate is close to the highest level in more than six years, and consumer sentiment is near the lowest in a year, with some employers and analysts predicting more layoffs. A report due Friday may show the nation’s economy last year grew at the slowest pace since a contraction in 2009.

Aeon Credit’s continuing allure to analysts is seen in its four buy and two hold ratings, while its target price implies a 12-month return of 3.6 per cent. The supermarket business, on the other hand, has six sell recommendations and one hold, with the price target showing expectations of a 3.5 per cent drop.

Any further slowdown in Malaysia’s economic growth may leave Aeon Credit vulnerable to defaults on its loans, said Ang, who helps oversee RM2.5 billion in assets. Still, Ang is willing to wager on the lender continuing to deliver returns.

“A lot of investors are holding the stock cautiously now after the out-performance,” said Phillips’ Ang. “We are still looking to buy when the opportunity arises.” — Bloomberg

– See more at: http://www.themalaymailonline.com/money/article/japan-retail-giant-holds-ace-in-malaysia-and-its-not-shopping#sthash.jif98h7R.dpuf

 

What Is The Extent Of Divergence Between AEON and AEON Credit?

  1. The market cap of both AEON and AEON Credit are generally correlated;
  2. Divergence between the market cap of AEON and AEON Credit started in early 2016;
  3. Based on a simple regression analysis (using market cap of AEON to be the independent variable, market cap of AEON Credit to be the dependent variable), the market cap of AEON Credit appears to exceed its forecasted market cap value (MYR1.22 bil), as well as breaching the upper 95%-confidence interval of the forecast (MYR1,73 bil).

aeonc-vs-aeon

results_aeon_regression

 

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 MENTIONED IN THE ARTICLES.

FBMKLCI vs Brent

Higher level of correlation between FBMKLCI and Brent Crude Oil. FBMKLCI appears to be rising in tandem with a rising Brent.


Question : Would there be further rise in FBMKLCI if Brent continues to rise given the heightened geopolitical risks?

It’s ambitious to think that oil prices could reach $65: IEA http://www.cnbc.com/id/104259621


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 MENTIONED IN THE ARTICLES.