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”

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.

Long Term Investing

I am always fixated with swing trading because I do not have patience with most things in life. Whenever there is a 15% unrealised gain in a position, I will be very tempted to monetise the gain. I believe that I am in the category of “sell winners too fast, hold on to the losers”. To some extent, I truly believe that we live in a world that is filled with ‘black swans’. Hence, the bird in the hand theory matters. Swing trading provides wealth creation opportunities in the shortest possible time frame. On a serious note, one should seriously consider long term investing in order to balance out a portfolio that is filled by a combination of short-medium and long term trading / investment positions. It is usually the case that multi-baggers come from long term investing. To qualify for long term investing, one should truly look beyond an investment horizon of more than 2-3 years.

Continue reading “Long Term Investing”

Equity Rating Scorecard

My view on trading or investing is that it should always be discretionary to large extent. Trading or investing involves significant amount of judgement call. There should not always be one standardised single way of looking at a particular trade or investing idea.

Trading or investing should always be considered from a multi-aspect angle and shall be as dynamic as possible. In this posting, I am trying to develop an equity rating scorecard. The purpose of this scorecard is not to remove the discretion from trading or investing but to nicely link up factors of fundamental, technical, risk management and other critical factors.

It is about placing weightage on what matters when comes to investing or trading. In this scorecard, there is more weightage being anchored towards fundamentals, of which I believe that it is the fundamentals that will drive the long term value of a security. The proposed weightage is as follows: 60% on fundamentals, 30% on technical & risk management and 10% on other critical factors (e.g insider transations, analysts’ target price).

What does the final scoring mean?

This is entirely up to us and it is purely arbitrary. Strictly for illustration, I rank my scoring as follows (seriously, it is purely arbitrary):

4.5 – 5.0                Higher probability to be positive return

4.0 – 4.49              Expected to be positive return

3.5-3.99                Manageable Risk + Possibly Directionless / Breakeven

2.5-3.49                Higher probability of not positive return

<2.5                       Possibly high risk

 

Strictly for illustration – WTK Holdings

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Strictly for illustration – Comfort Gloves (from an earlier posting: see this )

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The effectiveness of the scorecard has not been assessed based on historical financial & market data. Nevertheless, it may be a good starting point in harmonising both Fundamental and Technical analysis. This Equity Rating Scorecard is a dynamic piece of document and shall be continuously refined over time.

Continue reading “Equity Rating Scorecard”