Commodity - Something About Crude Oil Part 1/2

On Recovery Track ... 
The steep sliding price of crude oil is technically over and market has gone into consolidation for the past 2 months, whereby the WTI crude oil price was fluctuating between $57 and $61.

Based on the plotted chart, crude oil price has steadied itself at $59.6+/-$1.10, if compared to wild swing in Nov-Dec 14 time frame of $69.8+/-$9.3. 

Continuous flat/uptrend of average price and low price fluctuation is a strong signal that market has re-balanced by itself in terms of supply and demand, setting a strong foundation for price recovery in normal circumstances.

Second half of 2015 would be interesting ... 


Opportunities...
As shared by the author earlier oil related ETN/ETF has good exposure to capture the gain of crude oil price, however come with greater risk of price decaying in huge price fluctuation market. As the price fluctuation is now ~$1.1 for the past two months as shown in chart above, the author thinks the risk is manageable.

Big oil companies financial report would be ugly for the next two quarters due to drop in revenue as a result from lower oil price. Workforce reduction, increasing of M&A activities, capital expenses reduction are expected to reduce overall company fix cost. The author would pick BP as it still offer ~6% dividend yield. =D

Foreign investors often picking on the dependency of Malaysia to crude oil export for revenue generation, even though is actually only around 20%. Hopefully this will ease the depreciation of ringgit and dipping of KLCI.
  

Happy Investing ... 

KLCI - JOHOTIN - 7176 - May 2015 Update

REVIEW OF PERFORMANCE & UPDATES...
JOHOTIN released its quarterly report@29-May-2015, revenue rose by 48% if compared to preceding year corresponding quarter, however being hauled back by foreign exchange related loss that driving net profit margin back to 4.4%, vs 8.2% with preceding year corresponding quarter.

source from : www.malaysiastock.biz


A mystery expenses of RM5.156 million (16x higher than last year), recorded as 'Other expenses' was not given explanation by the management.

At the same time loan and borrowings exceeds RM100 million, driven by short term banking facilities (secured). 

Utilization of fund raised from right issue to build a new ware house and factory is ~98%, expect completion in 3rd quarter of 2015.

THE GOOD, THE BAD & THE BOTTOM LINE...

THE GOOD :

• Sustainable revenue and has set a good foundation for future growth
• Completely walked out from disastrous quality issue that led to loss making quarter 2014 Q2.
• Completion of new warehouse and factory would contribute positively to the revenue of the company after 3rd quarter 2015.
• Immune to GST (To be confirmed in next financial report) 

THE BAD :

• Erosion of net profit margin to 4%.
• Fragile to the fluctuation of foreign exchange as reported. 
• Integrity of management is questionable for not providing explanation on the huge RM5.156 million expenses, accounting for 30% of its gross profit.
• Growing debt that exceeding RM 100 million, which is huge for SME standard.

THE BOTTOM LINE :

• In general not a bad quarter at all as JOHOTIN manage to stay in profit but should have done better to hedge the risk of foreign exchange.
• 4% net profit margin is simply not good enough, using PER of small cap from 7 to 12, the fair price should be ranging from RM1.14 to RM1.95 (if margin stays flat for the entire fiscal year). Not much upside from current price of RM1.60.
• Not recommend to add position until improvement in profit margin.
• Malaysia's cautious macro economy outlook is not helping either, even though the author expect recovery in the second half of 2015.     

At your own risk of course ... Happy investing ... =)

KLCI - History Repeats Itself ?

 

The FTSE Bursa Malaysia KLCI Index (Kuala Lumpur Composite) is a major stock market index which tracks the performance of 30 largest companies by full market capitalization listed on the Main Board of the Bursa Malaysia. It is a free-float (minimum of 15%), capitalization-weighted stock market index.


INDEX PERFORMANCE ...

Ignoring insignificant market correction, the KLCI investors experienced 2 bear market and 3 bull market starting from 1998 until 2015. Question arises is 'Has the bull market run out of steam?". I wrote this article out of fun, and there are few interesting observations ...

BULL vs BEAR ...

Summary from table above :

• Bull market becomes longer (539 -> 2408 -> ??days)
• Bear market becomes shorter (448 -> 400 days)
• %change of index is always -65% in transition from Bull to Bear and +199% in contrast

If the history repeats itself, Big bear would be coming to town once %change hits +99% in current aging bull market. 

YEAR 2017 or KLCI HITS 2017 POINTS ...

To hit +199%, KLCI has to hike further by,

  -> 570 * 199% =  1134 points

Gap to +199%,

  -> 1134 - 879.89 = 236 points

Last KLCI Index, 1781 points, then KLCI index before BEAR strikes, 

  -> 1781 + 236 = 2017 points

  

Average index hike/day,

  -> 879.89 / 2218 = 0.40 points per day

To hike 236 points,

  -> 236 / 0.40 = 590 days

  -> 590 / 365 = 1.6 years

Now is March 15, then year before BEAR strikes,

  -> 2015 + 1.6 = End of Year 2016 or 2017

TRIGGER POINT ...

Now lets look at what is the potential trigger points that might lead to the market dip 

• Rapid depreciation of Ringgit vs USD
• US federal of deserve in the mist of raising interest rate as soon as June 2015 due to better than expected economy growth and unemployment.
• Raising interest rate means stronger USD weaker ringgit, companies with huge USD noted debt would encounter tremendous financial pressure and eventually collapse
• Bank Negara can follow suit to increase interest rate, however this will curb economy growth and reduces competitiveness of exports. 

• Deflation & Deterioration Global Economy Condition
• Deflation is looming in Euro Zone and economy slowing down in China, QE might not be the solution.

Anything else ??? However, Bear market is not entirely bad as it creates good opportunity for value investor as well as wealth reshuffling. Lets keep our fingers crossed for now. =D

KLCI - MITRA - 9571 - Feb 2015 Update

UPDATES...
MITRA continues to demonstrate robust revenue growth as reported in latest quarterly report @ 24-Feb-2015, on track to become one of few bright stars in KLCI in coming quarters. In this post I will conduct a comparison between my prediction vs actual financial performance, new contract secured and new price target ...


STOCK PERFORMANCE ...
The last price is RM1.61, up 70% from RM0.95 since Dec 2014 update, and a whopping 170% from RM0.59 since my first post about MITRA ...

PERFORMANCE COMPARISON...
MITRA recorded net profit of RM53 million and eps of RM0.136 based on latest financial report. If compared to my prediction from previous post, the error is merely ~4% whereby my prediction for net profit is RM56 million, with eps of RM0.14. Bravo !!!
 

NEW CONTRACT & UPDATE...

MITRA secured another contract worth RM229.9 million in Jan 2015, great addition to its already huge order log.

Using small cap PER of 7, the price target for MITRA is going to be RM2.90 ended financial year 2015. With current PER of 12, RM5.00 is within reach. =D

Lastly, at your own risk of course ... Happy investing ... =) 

Money Management For Traders

Strategies Is Not Everything ...
Almost anyone can make few good trades with handsome return, however there are very few can consistently grow equity year over year. 

Trading is extremely stressful yet exciting, an effective Money Management would help to protect your capital when the market is all against you. 

Capital is the bread and butter for a trader, without that there is no way to make money in the market 


Stay In The Game ...
Money Management is a technique employed at making money, inclusive of capital budgeting, trading performance review, mental readiness and emotional control.

Apart from trading strategies and knowledge, Money Management is equally important for a trader to stay in the game as long as possible.

The methods to stay in the game are :

1. LIMIT SIZE ON EACH TRADE(5% RULE)
• Always trade with 5% of your total capital, that would translate into more than 20 trades.
• Amount for each trade has to be adjusted accordingly to your latest capital. 
2. PROFIT TAKING / STOP LOSS
• Establish a support and resistance line based on technical analysis.
• Take profit @ resistance and stop loss @ support
3. STOP ON LOSING STREAKS (15% RULE)
• There is always a low point for a trader, regardless of their level of skills.
• As soon as your capital dip by 15% after few unsuccessful trades, STOP TRADING.  
• Take a rest for few days -> perform postmortem for unsuccessful trades -> come back strongly    
4. RIDING ON WINNING STREAKS
• Don't stop when you start to build up momentum 
• Always stick to the 5% rule no matter what.

The beauty of 5% rule is it will automatically reduce your trade size during losing streaks and vice versa, you will make bigger trade when you are doing well and smaller trade when you are not. 

Key Takeaway ...

Money Management will keep you from making profits on a whole bunch of smaller trades and then giving it all back on one bad trade.

Happy Trading ... =)

KLCI - JOHOTIN - 7167

BACKGROUND...
JOHOTIN (7167) is a KLCI counter in my 2014 portfolio, which fell short of my expectation due to a severe quality issue in 2014 Q2, whereby 40% of annual net profit (RM 8.0M) was paid as one-off compensation to affected customers. Stock price gap down immediate after Q2 result was released to public. 

FUNDAMENTAL ANALYSIS...
JOHOTIN, with existing stock price at RM 1.35 is a Johor based company primarily focus in tin can manufacturing (30%) and dairy products (70%). 



SUMMARY :

• Revenue generated from tin canning business (30%) and dairy product (70%).
• Low NOSH @ 93 million units
• Net profit margin of 9% vs industry average of 3% indicating the company is leader in cost control and diversification of business.
• High current ratio (Net Asset/Liability) of 3x indicating strong balance sheet with enough liquidity.
• High cash/short term loan ratio of ~2x indicating cash rich and low debt.
• Growing demand of dairy product however tin canning business remains stagnant
• New factory operation expected in end of the year and will adds 25% capacity for dairy products, resulting dip of cash flow in 2013.

TECHNICAL ANALYSIS...
Bearish trend as a result of negative sentiment after released of Q2 result.

PROSPECT ANALYSIS...

SUMMARY :

• Tin business is stagnant and stable.
• Dairy product segment expects to grow 66% as reported in financial report for 2014 March quarter.
• New factory expect to add 25% capacity for dairy products end of 2014.
• RM8.0 million is one-off payment to affected customers, should observe full revenue recovery in 2014 Q4.
• Consumer products - operating cost can be easily transferred to end users.
• Dividend yield is around 4%, comparable or better than FD. 
• Target market (80%) is oversea, renders minimal impact from GST as exporter would be able to get full tax rebate.

BOTTOM LINE :

• Excluding the one-off payment, JOHOTIN stock price would have been better if management had paid attention in product quality control.
• Long term prospect remains bright, using small cap PER@7, 2015 might be a breakthrough year for Johotin.

INVESTING STRATEGIES ...

• JOHOTIN is not attractive at the moment, 2015 Q1 financial report (End of May 2015) should give us more insides.
• Lets wait until May next year.   

At your own risk of course ... Happy investing ... =)