Yield Differential (Update: August 2017)

In this brief posting, I am going to take a quick look at the yield differential between Earnings Yield of FBMKLCI (i.e the inverse of FBMKLCI’s price-to-earnings ratio) and yield to maturity (YTM) of 5 Year AAA-rated private debt securities (PDS). The lower amount of yield differential (earnings yield minus PDS yield) may potentially indicate a higher risk of equity overvaluation.

Continue reading “Yield Differential (Update: August 2017)”

Making Sense Of Earning Numbers

I am eagerly waiting for the latest quarterly results to be announced by Malaysia-listed Power Root Berhad.

Company Background

Power Root Berhad, through its subsidiaries, engages in the manufacture and distribution of beverage products primarily in Malaysia. It provides ready-to-drink (RTD) coffee, RTD tea, RTD chocolate malt drinks, RTD cereal, and energy drinks. The company markets its products primarily under the Alicafe, Perl Cafe, Oligo, Alitea, and Power Root brand names. It also distributes health and beauty products. Power Root Berhad also exports its products to 18 countries, including Singapore, the United States, the Republic of Taiwan, South Korea, Brunei, the United Arab Emirates, the Republic of China, Bahrain, Qatar, Oman, the Kingdom of Saudi Arabia, Indonesia, Syria, Kuwait, Yemen, Jordan, Egypt, and Lebanon, as well as re-exports its products through overseas distributors/traders to Sudan, Australia, the United Kingdom, and the Philippines. The company was formerly known as Natural Bio Resources Berhad and changed its name to Power Root Berhad in July 2010. Power Root Berhad was incorporated in 2006 and is headquartered in Masai, Malaysia.

Prior Year Results

The following table highlights the growth in EPS appears to have tapered off, with the latest financial year recording a marginal decline in EPS. The 4-year average y-o-y EPS annual growth rate is approximately 5.8% whilst the 3-year average is approximately 3.39%.

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Quick Desktop Valuation

The following table shows the following:

  1. If you assume that the projected annual growth rate in EPS is about 5.84%, then there could be some level of margin of safety (but growing at 5.84% per annum may appear to be ‘tall order’ considering the recent EPS decline in the latest financial year as well as a low single digit EPS growth rate being recorded in FY2016)
  2. Assuming a lower annual EPS growth rate of close to 3.39% per annum may be a fair assessment of current situation for this Company (unless there is a significant positive change in revenue and cost components)
  3. Assuming a discount rate of 10% and terminal growth rate of 2.0%, the market is expecting a lower EPS annual growth rate of 2.97% (which is not too unrealistic at this juncture).
  4. Should the discount rate be higher or lower? Considering 10Y MGS of close to 3.9%, expected return on market is close to 7%-9% and beta of less than 1, I think 10% is about fair
  5. Should the terminal growth rate be higher or lower? 2% is about right, lower than current Malaysia’s GDP rate and 2% is pretty much the GDP rate for most of the developed nations (i.e assuming that Malaysia will eventually become a fully-developed nation in 10 years time).

 

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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.

Fundamental Scoring

I was quite thankful to my close friend, James who is currently working at an investment management firm. Today, he has provided the latest list of securities listed on Bursa Malaysia with relevant key parameters (extracted from Bloomberg) – P/E, P/B, Average 3Y ROE, ROIC, Gearing, Dividend Yield and Operating Margin. Hence, with this data, I decide to rank 932 listed securities via a simple fundamental scoring system.

Continue reading “Fundamental Scoring”

Calmer, But Is It Over Yet?

Volatility has stabilised. Volume & activity have also dropped. Things appear to be ‘calmer’ for Lotte Titan Chemical (recently listed on Bursa Malaysia). We are seeing some sort of support zone at $4.27.

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If you choose to believe that the recent poorer than expected result was due to one-off water disruption,  then the worse may be over.

My Super High Level View On Fair Value

Strictly For Illustrative and Educational Purpose

My personal view – assuming that the incident was a really really one-off impact from the water disruption, plus assuming that this company can achieve a projected annual EPS of RM0.52 (annualised based on 2 quarters) for FY18 and plus this company can trade at a trading P/E of 12 times (vs Petronas Chemicals’s P/E of >15 times), we may be looking at a target price that is higher than its current price of RM4.37.

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One should also be concerned whether there will be further rise in oil price due to geopolitical uncertainty. This may impact on the company’s raw material costs.

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.

A Quick Kill Or Be Killed?

My multi-indicator trading system (based on Keltner & RSI) shows the following screening results as of today. One of the screened companies is SYF Resources Berhad.

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Company Background – SYF Resources Berhad (SYF)

SYF Resources Berhad (SYF) is a Malaysia-based investment holding company. SYF is engaged in the manufacture and export of molded timber, furniture products and timber treatment processing; manufacture and export of furniture and component parts; trading of domestic, commercial and industrial furniture, and property development and management construction. It operates in four business segments namely, rubberwood furniture, which involves manufacture and trading of rubberwood furniture and component parts; general trading, is responsible for the sale of consumer products; property development, is involved on the development of residential and commercial properties and; others, which handles the rental of investment properties and investment holding. In September 23, 2010, the Company announced that it will implement a debt restructuring scheme and had appointed Public Investment Bank Berhad as the main adviser for the implementation of the scheme.

Technical View

SYF appears to be on a downward trajectory. This explains the title of this posting – it is either you will get a quick kill or if things do not go according to your plan, you will be killed if the downward trajectory persists. The multi-indicator trading system picks this stock up due to its possible oversold position. Hence, there may be a slight opportunity to consider a pullback trade. Assuming a profit target at RM0.55 and a stop loss at RM0.45, you are looking at a possible reward-to-risk ratio of 1.0x.

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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.

Do You Believe That The Export Market Will Continue To Grow?

News extract: KUALA LUMPUR — Malaysia’s exports in June expanded 10% year on year to 73.1 billion ringgit ($17 billion), slower than the 32.5% growth logged a month before, on reduced shipments across major products. In the first half of 2017, exports grew 21% to 451 billion ringgit while imports increased 23% to 408 billion ringgit. Nomura Group said the export slowdown is temporary and things should pick up in July as demand remains robust across the region. Malaysia’s export performance fell in line with its peers in the region such as Singapore’s 8% and Thailand’s 12% growth, according to UOB Group. “We continue to expect moderating export growth going into the second half of 2017 amid ebbing momentum in Asia’s manufacturing activity,” wrote UOB’s Julia Goh in a research note. 

My question to you : Do you believe that the export market will continue to grow?

Continue reading “Do You Believe That The Export Market Will Continue To Grow?”

Bracing For August

Today is the last weekend before the start of August, a month that is traditionally known as the most treacherous month for the Malaysian stock market. In my monthly-updated Market Pulse column (see link), it is observed that the month of August has seen some of the greater monthly declines historically.

KLCI – what is next?

As mentioned in earlier posting, if it ever breaches the support zone of around 1,728, I personally feel that we may potentially see further downside bias. If it ever breaks the 1,800 resistance point, the index may be on an upside trajectory.

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How should one deal with August?

There are numerous options that may be considered…

  • Focus on swing trading strategies with appropriate reward-to-risk ratio / risk management strategies
  • Bargain hunting for beaten-down value stocks / mid-large cap stocks (for purpose of long term investing)
  • Increase cash position (in money market funds)
  • Maintain status quo

Tracking Volatility

Short term volatility is greatest at turning points and diminishes as a trend becomes established.

George Soros

 

As shown below, the current volatility of FBMKLCI continues to remain low. If the volatility increases, this may indicate that a potential trend reversal is imminent.

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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.