Week In Review: 26 Nov 2017

The following hourly chart of FBMKLCI shows that there are some level of support @ 1,716. Last Friday, the index managed to close just above the support line. Any further dip below 1,716 will reinforce a bearish theme for the Malaysian index.

KLCI

The following hourly chart of SAPNRG has shown that the stock has stayed below its key resistance point of $1.38. Immediate positive or negative catalyst will be the outcome of the OPEC meeting to be held on 30 Nov 2017.

SAPNRG_26112017.jpeg

If there is no further commitment for production cut by the OPEC, the Brent may appear to be in an ‘overbought’ (or “overextended) position.

BRENT_NYMEX.WLD.jpeg

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.

Ringgit fairly valued?

KUALA LUMPUR: The ringgit is ”far from reflecting its fair value,” Bank Negara governor said, signalling a desire for the exchange rate to build on its recovery from a sharp selloff last year.

The ringgit is currently trading at its highest in over a year against the dollar, after a torrid 2016 when it ranked as one of Asia’s worst performing currencies.

The ringgit, like some other emerging market currencies, took a hit after Donald Trump won the US presidential race.

Investors feared a rush of capital out of many emerging economies on the view Trump’s policies could prompt a faster pace of US interest rate increases. “The ringgit is now priced more efficiently and increasingly more reflective of Malaysia’s strong fundamentals,” as the influence of external factors have waned, governor Tan Sri Muhammad Ibrahim said in a speech on Friday. A text of the speech was published by the central bank on Monday.

“Nevertheless, questions remain as to why the ringgit is far from reflecting its fair value,” he said. He also announced new measures to boost liquidity in the onshore ringgit market. These include extending the short-selling framework to include Malaysian Government Investment Issue, expand eligible collateral for banks’ liquidity operations, and introduce Bank Negara Interbank Bills (BNIBs) in ringgit and foreign currencies.

Last November, as the ringgit plunged to its weakest in more than 12 years in offshore markets, Bank Negara demanded that banks sign a commitment to cease trading the local currency on the offshore non-deliverable forward market.

Read more at https://www.thestar.com.my/business/business-news/2017/11/20/bank-negara-governor-says-ringgit-is-not-fairly-valued/#Q6I1h28UkaTHtJFe.99

Is Ringgit or MYR fairly valued?

There is a positive correlation between the Malaysian Ringgit and Brent (USD). Since Malaysia is a net oil exporter, positive movements in Brent are envisaged to translate into positive movements in the Ringgit (although this may not be the case at times – as shown below, there appears to be certain divergent zones).

MYR vs Brent.png

The following simple regression analysis highlights a relatively low r-square (i.e the data are not close to the fitted regression line).

Regression Analysis.png

Based on the above regression results (strictly for illustrative purposes only), it appears that there is potentially ‘more upside’ in the Ringgit (since the forecast MYR is higher than the actual value given the current brent crude price).

Actual vs Forecast USDMYR (1 Jan 2015 - 22 Nov 2017).png

The following desktop scenario analysis further highlights the potential undervaluation of the Ringgit. Given the variability of the currency and a low r-square (associated with the regression analysis), it is important to note that the 95% confidence interval is estimated to be between $3.499 and $4.483.

Scenario Analysis.png

It is important to note that the movements in a currency are impacted by numerous macro and specific factors (not limiting to the one single factor, e.g Brent, etc). 

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.

Week In Review: 19 Nov 2017

Quick technical review of the main index and selected counters for week ending 19 Nov 2017. Strictly for illustrative purposes only.

FBMKLCI

  • Downside bias prevails
  • Immediate support at 1,716, whilst immediate resistance at 1,735
  • Oversold in RSI as well as trading below lower Keltner channel

FBMKLCI_19112017

Pantech

  • Potential pullback
  • Downtrend if breaks support at 0.61
  • Immediate resistance at 0.675, next at 0.705

Pantech_19112017.jpeg

Sapura Energy

  • In trading range
  • Immediate support at 1.38
  • Immediate resistance at 1.65, next at 1.75

Senergy_19112017.jpeg

Eupe Corporation

  • Potential pullback (however, not in oversold position yet)
  • May personally consider entry nearer towards 1.05, with potential stop loss @ 0.95 and target exit at 1.30 with reward-to-risk ratio of approx 2.50x

EUPE_19112017.jpeg

Astino

  • More likely to be a possible ‘failure test’ entry
  • Prepare to set strict stop loss at 0.82, with possible target exit at 1.06. Anticipate low reward-to-risk ratio

Astino_19112017.jpeg

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.

You may hate it but….

Ranhill has never been the darling of the Malaysian investing community. It continues to fall below its revised IPO price of RM1.20 and is currently trading at its all time low of RM0.725. I am not here to put up a case for Ranhill but rather to set out the facts as far as they are publicly available.

It has just announced its latest quarterly result, with latest quarterly EPS of 2.84 cent. At trailing 12-month EPS of 8.15 cent, it is currently trading at a commendable estimated earnings yield of 11.24% p.a

What about its prospects?

Unless there is something that has not been disclosed in this announcement, prospects of the Company do not appear to be bleak.

Should investors continue to shy away from this company? Only time will tell…

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.

Betting On Fallen

Latest news – Shares of Sapura Energy tumbled more than 9% in early Thursday trade following report that Tan Sri Mokhzani Mahathir is disposing off his entire stake in oil and gas services company. This is the second time Mokhzani is offloading its stake in an oil and gas firm. In 2015, Mokhzani’s private vehicle, Khasera Baru Sdn Bhd sold off a block of 190.3 million shares in SapuraKencana Petroleum Bhd for close to RM820mil in total.

Industry players said Mokhzani’s exit did not come as a surprise. They added that Mokhzani believed the oil and gas industry was a global issue and prefers to redeploy his resources in other investments. 

Mokhzani through Khasera Baru has a 10.10% stake in Sapura Energy. According to a term sheet, Mokhzani is looking to sell up to RM905.1mil of Sapura Energy shares. The bookbuilding range for the offer represents 605 million Sapura Energy shares was between RM1.42 and RM1.49 a share.

The price range represents an 8% to 12.3% discount to Sapura Energy’s closing price of RM1.62 on Wednesday ahead of the bookbuilding launch. Khasera Baru will not own any Sapura Energy shares after the sale. 
Read more at http://www.thestar.com.my/business/business-news/2017/11/02/sapura-energy-tumbles-9pc-in-early-trade/#zLhAuhfLVUKh4pbF.99

My 2-cent thoughts – I am not surprised that Tan Sri Mokhzani will make an exit due to current political friction. Without zooming into the company fundamentals, is Sapura Energy currently in an oversold position?

Sapura Energy has always been a close proxy to the Brent (USD) (as shown in the graph below – since 1 Jan 2014):

SAPE vs Brent _2 Nov 2017.png

A simple regression analysis shows that there is a strong statistical relationship between SAPE and Brent (USD). The current share price of SAPE of RM1.48 is relatively lower than forecast share price of RM2.35 and is even lower than the 95% confidence interval range of RM1.65 and RM3.04.

Forecast SAPE.png

Scenario Analysis

Based on the regression relationship, the following is a simple sensitivity analysis of the SAPE share price based on Brent (USD):

Sensivity Analysis.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY 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.