Hello October

G’day everyone. This shall be my very first posting for the month of October. Many have considered October as ‘month that is filled with bad omens’ since this very month has witnessed numerous historical crashes in stock markets.

Nevertheless, I’m keen to look at one particular long-established company, Hap Seng Plantations Holdings (the Company  is engaged in cultivation of oil palm and processing of fresh fruit bunches carried out in Malaysia).

It appears to be trading in range bound, with its recent marginal uptrend in its 20D EMA. Whether the stock’s momentum will continue, it is dependent on whether it can break the next key resistance point at RM2.73

Hapl_TA.png

There have been pockets of major activities in its trading volume, which may be potentially attributable to recent accumulation in the shares of the Company by Lembaga Tabung Haji:

HAPL_Insiders.png

As shown below, Hap Seng Plantations tends to be ‘less reactive’ to the movements of the CPO. As such, we would expect a generally muted correlation between the Company and CPO.

Hapl vs CPO (multiple graph.png

Strictly For Educational / Illustrative Purposes Only

Based on a simple regression analysis (with R-square at 0.38) between the share price of Hap Seng Plantations and CPO, the current share price (RM2.67) of Hap Seng Plantations appears to be fairly valued if compared to its forecasted value of RM2.61 (with a 95%-confidence band of RM2.14 – RM3.07)

HapL_Oct17.png

We also run a regression analysis between P/E ratio of Hap Seng Plantations and CPO. Although the statistical relationship appears weak, the current P/E of Hap Seng Plantations of 14.17x is not unreasonable if compared to the forecasted P/E of 15.68x (with a 95%-confidence band of 8.3x-23.1x).

HAPL_PER vs forecast.png

As shown in the frequency distribution of the Company’s P/E, the current P/E ratio of the Company appears to be not unreasonable as it is below the mean PE (since 31 Dec 2008).

HAPL_normalitytestPER.png

The above analysis is a simple high-level desktop analysis. One should conduct further research and background study of the Company.

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.

It Is All About The Edge

Little Rocketman has certainly created much anxiety in the financial markets. Further, the planned reversal of QE is envisaged to have greater impacts on emerging markets. Foreign funds have continued (?) to sell their positions on the Malaysia’s stock exchange. The FBMKLCI has suffered a 6-day consecutive decline. Are we in an oversold position?

IntroKLCI.png

If Rocketman decides to launch a missile, there could be more downside risks. Assuming that I would like to take a punt by taking a long position (i.e the KLCI is currently oversold), I may want to consider the following structured warrant:

Warrant Terms.png

Finding My Edge For A Long Position

To re-iterate again and again, I do not have the crystal ball to foresee what is going to happen in the next few days. More importantly, one should understand the trading edge before executing a position. So, what is the edge for this bet?

1.  Support, Support, Support

If you see the following hourly chart, there could be some possible zonal support around 1,761 ( a clear rebound). The next point of defense will be at 1,756.

FBMKLCI.png

2.  Implied Volatility < Actual Volatility

At current warrant price of RM0.05, the implied volatility of the underlying could be in the low range of 3% – 4%. Relatively lower than the actual volatility.

Implied Vol.png

Actual volatility has spiked up to 9.40% , as of today:

KLCI_VOLS.png

3. Seasonality may matter

With FBMKLCI-C3F, I have more than 180 days prior to the expiry of the warrant in March 2018. Based on the following seasonality table:

  • Possible profit taking opportunity in the months of October, December and March which appear to be historically positive (m-o-m basis)
  • Be cautious (with a possibility of taking stop-loss) in historically weak months of November and January

October Seasonality.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.

Malaysian Banking Sector (Sep 17)

One of the key finance principles: “A company that earns a return on equity in excess of its cost of equity capital has added value.” 

Read more: Cost Of Equity http://www.investopedia.com/walkthrough/corporate-finance/5/cost-capital/cost-equity.aspx#ixzz4sWnwaXVp

Thank my friend, James again for his effort in extracting the following info – a quick snapshot of the Malaysian banking sector:

Banks2.png

The following chart shows the significant relationship between price-to-book of banks and the difference between its return on equity and cost of equity:

Banks1.png

In a nutshell, if ROE is higher than COE, it is generally expected that the bank will trade at a higher price to book.

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 Very Long Rectangle

The rectangle chart pattern goes by many names. A rectangle pattern is simply a trendless price channel created when price action reaches two identical, or nearly identical, highs and lows. This is also called a congestion zone, consolidation area or trading range. Ideally, the highs and lows alternate, though this is not necessary. The matching highs form a resistance level and the lows a support level. Price action oscillates between these limits until it finally breaks out either high or low.

Read more: How are rectangle patterns interpreted by analysts and traders?

rectangle1.gif

Duration: Rectangles can extend for a few weeks or many months. If the pattern is less than 3 weeks, it is usually considered a flag, also a continuation pattern. Ideally, rectangles will develop over a 3-month period. Generally, the longer the pattern, the more significant the breakout. A 3-month pattern might be expected to fulfill its breakout projection. However, a 6-month pattern might be expected to exceed its breakout target. Reference

In a nutshell, it is rather unusual for a rectangle pattern to last more than six (6) months. This happens to be the case for Kian Joo Can Factory Bhd, whereby its rectangle pattern has lasted since mid 2013 till present. One should wonder what is going on with this company?

KJCB_Sep 17.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.

A Story About KLCI

Since starting this blog back in Feb 2016, I feel that I have gained some exposure to multi facets of the capital markets. I am still trying to understand the capital markets that exist in my home market, Malaysia. Everyday appears to be rather new from my perspective. If, hypothetically, someone (i.e a stranger) asks me how would I describe the current state of Malaysia’s FBMKLCI, it will be an interesting question but surely, a difficult one to answer. Let me attempt at answering this question in this posting.

Continue reading “A Story About KLCI”

I Was Wrong

I posted an earlier tweet last week (read this), whereby I was quoting CB Industrial Product (CBIP) as a ‘directionless‘ stock (even with solid fundamentals). I believe that the tweet is erroneous (perhaps from a longer time frame perspective).

Continue reading “I Was Wrong”

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.

5284.MY.png

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.

Valuation.png

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.