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Sunday, 26 March 2017

(Tradeview 2017) - Your Risk Appetite Vs My Risk Appetite (on Notion VTec, Dnex and D&O)

Image result for My Risk Appetite Vs Your Risk Appetite


Dear fellow readers, 

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :


Telegram channel : https://telegram.me/tradeview101

Website / Blog : http://www.tradeview.my/

Facebook : https://www.facebook.com/tradeview101/

or Email me to sign up as private exclusive subscriber : tradeview101@gmail.com

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Readers who have read my articles know that I am quite conservative and careful in my selection of stocks. I will not recklessly call a buy on any shares without due deliberation and in-depth analysis or research. Additionally, I will avoid listening to share tips without substantial basis to justify just for the sake of investing or satisfying my readers.




My father have always reminded me when I first started investing, "The market is always there. If you missed the opportunity today, there is many other opportunities in the market. Do not rush into it just because everyone around you is doing so." This simple but poignant advise has always stuck with me all these years. I will admit, it is not easy sticking to this investment philosophy especially if people around you, colleagues, kopitiam customers, uber / grab drivers, pasar aunties and uncles are all sharing with you how much money they made from DataPrep, Dnex, Efficient, IWCity and many others. 


In fact, "sitting still doing nothing" is one of the hardest thing to do in investment. Even up till this day, I still have problem achieving this. A good example would be Visdynamics and MPI. I remembered we  first called Visdynamics at 22 sens end 2016 and cashed out fully at around 45 sens when I felt the share price is beyond its true fair value. For MPI, we called at RM8.03 in early 2017 and cashed out fully at around 10.30+. Look at the price today for both counters. Spectacular. Sitting still requires huge amount of discipline. But it has a lot do with RISK APPETITE which brings me to the crux of my article. 

Everyone has their own risk appetite. It may be low, medium, high and so on. However it differs from one individual is different from another. In short, it is subjective. Let me share with you through the illustration of a few stocks :

1. Notion VTec

Few months back when it was still around 45 sens, I received information from several parties that Notion will be in the play and TP was RM1. Quickly, we researched and decided against the investment. We felt Notion was too expensive and even if indeed the rebound play thesis came true, I rather put my money with Dufu, LCTH or Visdynamics for that matter instead of Notion. Why? My risk appetite did not allow myself to invest in Notion. Logic and sense prevented me from doing so. Clearly, my risk appetite prevented me from making a windfall. Today, Notion is RM1.26 and overvalued. Did I regret missing out? A bit. However, my funds was securely diverted to other companies which made me good return as well. 

2. Dnex

Dnex was one of the favourite penny stock for the past few months. Some banks also initiated coverage on it. The share price moved from 20+ sens to 40 sens today. We first noticed Dnex when it was 26 sens. Oil and gas was rebounding, Vehicle Entry Permit contract, new contract by government etc, the investment thesis looks sound. All seems to be on track. Again, after due research and consideration, we decided to pass on Dnex. We believe Dnex is a case of over optimism as earnings just started to show only plus largely derive from associate contribution which has a fixed timeframe. Mostly, stocks like this always starts out strong then dwindle as time passes on. Hence, to us, the investment thesis while attractive and tempting, my risk appetite did not allow us to proceed with it. 

3. D&O

This was another stock that jump ridiculously due to market rumours on the takeover offer. Like most people, we do not have any inside information. Everything is based on hearsay. The thing with investment is requiring a person to take calculated risk. If an investment relies solely on hearsay or rumour, it is very dangerous. However, different people has different risk appetite. Some people like to buy on rumours sell on fact. However, we do not like to rely on hearsay or rumour. We act on the basis on fundamental valuation of the stock coupled with future prospect. This is largely because my risk appetite will not allow us to consider this counter as well. 

4. Jack Ma, Alibaba Effect + Loss Making Penny Stocks

Due to our conservative position, we issued a gentle cautionary reminder to all readers on telegram and facebook when many were thinking to jump on the bandwagon of rallying penny stocks with the "Jack Ma, Alibaba Theme" promoted by operators from last week. Many of these counters were loss making. True enough, the next day after our warning (Friday), many of these shares plunge and many retailers were trapped already. The reason we issued a cautionary reminder was because we have seen it over and over again how operators tried to manipulate share price to trick unsuspecting retailers. Additionally, we understood the risk involved. While we can provide the gentle reminder, due to different risk appetite, not everyone will listen. Some have higher risk tolerance and willing to ride along. The excerpt of the gentle reminder on 23rd March (Thursday) when these stocks were being pushed as below. 






Conclusion 

Everyone has their own risk appetite. Some higher than others. Some lower than others. So the question we should all ask ourselves before every investment decision is "whether am I willing to take this risk to put my hard earn money in this counter". If the answer is yes, go ahead and invest. If the answer is no, avoid. If the answer is neither, take a step back to reconsider your position otherwise, just sit still. That way, at least your investments will give you the peace of mind when you go to bed every night.


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Food for thought: 





Saturday, 18 March 2017

(Tradeview 2017) - The Love-Hate Relationship of Stocks & Dividend (On Visdynamics, EG, YeeLee, Digi & Poh Huat)

Image result for stocks and dividend

Dear fellow investors / readers

Today, I would like to share with all on the above topic :  "Love-Hate Relationship of Stocks & Dividend". 

Once again, these writings are just my humble sharing (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :


Telegram channel : https://telegram.me/tradeview101 

or Email me to sign up as private exclusive subscriber tradeview101@gmail.com



Facebook : https://www.facebook.com/tradeview101/


Website / blog : www.tradeview.my

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Dividends. Who wouldn't like to invest in a company that gives good Dividend + good earnings growth (Capital Gain)? Ideally, all listed companies should be that way, then all investors in the stock market will make good returns. Sadly, majority of the listed companies in KLCI do not deliver good earnings growth + good dividend annually. 

Therefore, when we invest, it is imperative for us to look for such counters in the whole share market. However, there is strong inverse relationship between growth companies vs dividend yielding companies. 




I call this the "Love-Hate Relationship of Stocks & Dividend". Why is that so? Let me explain : 

1. Growth stock 

When a company is growing, it has limited funds to spare. Cash is precious and utilised specifically to expand and grow the business. Rewarding shareholder is the last thing on the mind of a growing company. 

Vs

2. Blue Chip 

When a company is established and stable with strong recurring income and healthy balance sheet, the company has the ability to use their cash hoard to declare dividends to reward shareholders. Even after rewarding shareholders with dividend, they still have plenty of cash to further grow the business. 

Image result for dividend stock vs growth stock


In layman terms, it is like deciding whether to buy a Landed Property vs High Rise PropertyIgnore the supply and demand, assuming it is a constant, Landed Property provides good capital gain but low rental yield Vs High Rise Property provides slower capital gain but high rental yield. 


Image result for landed property vs high rise property



It all comes down to an individual's investment decision. It a matter of choice, preference and strategy. A balance portfolio would include all types of stocks, a conservative portfolio is skewed towards dividend stocks etc. This is a topic for another day. 

To help all see it in better light, let me explain with 5 stocks namely Visdynamics, EG Industries, YeeLee, DIGI & Poh Huat  


1. Visdynamics (Turnaround Play) :

We were among the first to discover this hidden gem when it was only 22 sens. Today it is 66 sens. You can refer to both our articles on Vis here

http://www.tradeview.my/2016/09/value-pick-no15-visdynamics-holdings.html

http://www.tradeview.my/2016/12/tradeview-2016-best-value-pick-of-year.html



Many would have enjoyed a windfall if they invested when we called it back in Nov 2016. What caught my attention with Vis was a continued trend of gradual improvement. There were setbacks initially but the management manage to deliver the promise to shareholders. However, this company was loss making in the earlier years before turning around. Hence, Vis did not declare dividend at all for the past 5 financial years. How can a company with erratic earnings and losses declare dividend? Those investors who only invest in dividend yielding counters would miss a counter like Vis. If one is able to look beyond Dividend Yield, they may notice the improvement and turnaround in place for Visdynamics. The company required the cash to improve the business. Sometimes, Dividend Yield cannot be the one and only benchmark in assessing the company's investment worthiness. 
 

2. EG Industries (Growth Stock) :

This company was a favourite back in 2015 when many prominent investors entered the counter and promoted it heavily. The share price moved from 80 sens to RM1.20 in less than few months. Since then it has been consolidating for the past 1 year. When we picked EG as our 2nd Value Pick in 2017, some of my readers were quite surprised as they saw some funds selling EG. Also, it wasn't declaring dividend despite delivering good results. Many were critical as this company went through several rounds of fund raising though rights issue, private placement and then now pending another rights + bonus issue. When I called EG, it was 86 sens, today it is around 90 sens. The company released their recent results which was really good. The actual FV based on the past 2 quarter results would easily be RM1.15. However, their fund raising again cause the market to sell off the counter from a high of 98 sens back to 90 sens last month. Our view on EG is simple, if you choose to invest in this company, it is definitely not because of the Dividend Yield. The company has been raising cash several rounds with investors to expand the business. The results they delivered was good which shows the expansion is working. If you choose to invest in EG, you are making a decision to grow with the business. The business needs to grow before it can reward shareholders. Hence, dividend is last thing on their mind. 


3. YeeLee (Maturing Growth Stock) :


A slow and steady consumer counter which has quietly delivered consistent growth and profit for the past 5 years. It is not glamorous, nothing to shout about, but it delivers. We like companies like that. Your silent unsung hero. Fundamentally, YeeLee is strong. Balance sheet is strong. Business solid. Additionally, it is growing every year topline and bottomline. This year it even broke the RM1 billion revenue mark. We called YeeLee as our 2nd last Value Pick in 2016 at RM2.30, it hit our TP of RM2.68 nearing the release of the quarter results. However, Dividend Yield investors may not like YeeLee as the DY is very low. In another words, the management is not rewarding shareholders enough. To us, we are happy to invest in YeeLee even though the DY is low. This is because YeeLee is a maturing growth stock and the management is using the companies funds to grow the business continuously but at the same time, declared a minimal dividend as a token sum for investors who stayed on with them. This to us, is acceptable corporate decision.

4. DIGI (Blue Chip) :

One of the most well run company in KLCI, it has been consistently paying good dividend to shareholders for the past 10 years. Even last year, when most Telcos were suffering, DIGI manage to maintain 4% Dividend Yield for investors on top of capital gain for those who entered around RM4.40 with us in mid of 2016. Today it is RM5.10. The company has a 100% dividend payout policy from their profits and shareholders who like dividend yielding counters absolutely love DIGI. This is also among the many reasons why DIGI is considered a Blue Chip company. DIGI is considered a mature, stable business with strong recurring income. Whatever growth there is to the company, it would be minimal. In order to attract investors to invest in the company, it gives good dividend yield. Additionally, it is because DIGI can do it due to their steady and strong balance sheet.   

5. Poh Huat (Growth + Good Dividend Stock) :


The furniture sector has been very hot for the past few years. This is largely due to their export nature in the business as well as the beneficiary from weak MYR. The annual growth of local Malaysia furniture companies has also been extraordinary due to increasing labour cost in China, resulting in shift to Malaysia. The reputation of good quality furniture from Malaysia internationally also helped the sector. As a result, a company like Poh Huat have been defying slow economy to grow YoY and QoQ while giving good Dividend Yield to investors to the counter. Many other notable investors have done a write up on Poh Huat. We were quite late to the game as we only invested when it was at RM1.73. Today it is RM1.96. We believe the company will continue growing with the primary market being US whose housing market has been resilient and income derive in USD. Poh Huat is one of the few companies in KLCI like LiiHen which is showing good growth and still giving good DY.  


Conclusion :-

Dividend is an integral part of investing in the market. While not everyone like dividend stocks as part of their portfolio, one cannot deny the beauty of having to collect dividend annually.

We hear many stories of those who bought Public Bank 20-30 years ago living off purely on the dividend distributed by Public Bank every year. This is a success story of dividend investing. We also hear many who made more money through capital gain of the shares instead of dividend yield, like for the past few years, those who invested in export driven stock at the bottom then selling at the peak.

Regardless what kind of investment choice, choose the investment strategy that one is most comfortable with, For us, we are very happy to invest in strong fundamental stocks with good dividend yield / growth prospect.
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Please note that I respect all investment styles and in no way saying one method of investing is better than another. I know that everyone has their own preferred method and that is what makes the market interesting. Diversity. 

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Food for thought: 

Image result for dividend quote

Saturday, 11 March 2017

(Tradeview 2017) - EcoWorld International IPO Investor Roadshow (10th March)



Dear fellow readers, 

As some of you all may know, my background is a professional in the Corporate M&A and Real Estate industry. Recently, we were invited to take part in the EcoWorld International IPO Investor Roadshow as a prospective investor.  

The event was once again held in Mandarin Oriental, Kuala Lumpur on 10th March. EcoWorld International CEO, Dato Teow Leong Seng, EcoWorld Bhd CEO Datuk Chang Kim Wah, and staff were in attendance along side bankers, lawyers and notable investors. I would like to take this opportunity to share some key takeaways for all.

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :


Telegram channel : https://telegram.me/tradeview101

Website / Blog : http://www.tradeview.my/

Facebook : https://www.facebook.com/tradeview101/

or Email me to sign up as private exclusive subscriber : tradeview101@gmail.com

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1. EcoWorld International ("EWI") is property developer with primary investments and development projects in London, UK and Sydney, Australia.  


2. Currently, there are 3 key projects in London namely City Island, Wardian, Embassy Garden and 1 key project in Sydney namely West Village, Parramatta.





2. Below is a video of Dato' Teow explaining the 4 key projects.




4. The 4 key projects has a combined GDV of RM12.96 Billion.




5. Profit recognition for EWI will likely kick in FY2018 when most of the project's Phase 1 achieve completion.



6. Retail offering is priced at RM1.20. Of the total shares capital,  only 17% is allocated for the retail investor. Institutional investor will have 18.7%, EcoWorld Bhd and GuocoLand will each have 27%. EPF and PNB has also agreed to come onboard as cornerstone investor for the institution portion. 




6. Despite various headwinds such as Brexit, Trump's surprise Presidential win, EWI continued to maintain the strong performance. As at 31 January 2017,  EWI achieved a cumulative sales of RM6.5 Billion. This is truly impressive. 





7. Contrary to hearsays and rumours in the market, majority of EWI's sales in UK and Australia are the locals. China and HK leads close second followed by Malaysians. This well-balanced portfolio of buyers is actually sustainable.

8. GuocoLand's tie-up with EWI will potentially unlock the value of Guoco's many old hotels which are due for redevelopment. Initially, we were worried that EWI and Guoco were in it together merely to share the risk instead of true synergistic opportunities. Following Dato' Teow's explanation, we were satisfied that both parties are in line to work towards growing EWI together.


Our Opinion : 

EcoWorld International is the continuation of the remarkable turnaround tale of Tan Sri Liew Kee Sin and his team of loyal soldiers since their departure from SP Setia (following the move by PNB). If EcoWorld Bhd's reverse takeover of Focal Aims was Chapter 1, EcoWorld International is definitely the second coming. 

We believe in the prospect of EcoWorld International for the following reason :

1. We have visited 2 out of 3 of EWI London's project and seen it for ourselves that the projects' response was overwhelming.


2. GuocoLand belongs to Tan Sri Quek Leng Chan who is known for his sharp investment and corporate moves. He would not take up such a big stake if there is no substantial upside to this company.

3. EWI still has many of Tan Sri Liew's loyal and competent staff with him. The board of directors are highly respected professionals in their own field such as former CEO of EPF Tan Sri Azlan Zainol, prominent banker former MD of AmBank Cheah Tek Kuang amongst others. 

4. EWI interest among the own company's staff, bankers, lawyers and public retail investors are extremely high. Such excitement in a major IPO has not been seen in a long time.

5. We are 100% certain EWI shares will be heavily oversubscribed many times over. 

6. Tan Sri Liew is on a trajectory towards building an international company. He has moved on from being just the biggest Malaysian property developer. A man who is out to retrieve a lost child is fearless. We have yet to have the privilege to meet Tan Sri Liew himself. However, we may witness one of the best corporate tycoon of Malaysia in our time reaching the pinnacle of his career. A rags to riches story, who wouldn't like to support it?




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Food for thought: 




Wednesday, 8 March 2017

(Tradeview 2017) - What Makes The Price Of A Stock Go Up?

Bernie Klinder
Bernie Klinder, MBA, Entrepreneur, and active investor for +15 years
When you buy shares in a firm, you own a percentage of that company. Or in accounting terms: (assets - liabilities = shareholder equity). The stock price however is based (theoretically) on the previous number, plus the discounted cash flow of future earnings.
I'll spare you the math on discounted cash flows and other value calculations, but most institutional professionals invest based on a common set of formulas that determine where the stock price should be in the future given some basic assumptions of growth, future earnings, economic outlook, etc. So if a company is worth $100 million today and they are expected to increase sales and profit margin, the value of the firm will increase, as well as it's share price. (Typically that outlook is 3–5 years, it's hard to predict longer term). So if the future value is estimated to be near $120 million, then the stock price would rise about 20%.
That is, if all investors were rational.
Most retail investors are not rational, and tend to overvalue a firm. A recent example would be Nintendo, and the rush of inexperienced investors “betting” that the Pokemon Go craze would make the company a fortune. Astute investors read the fine print and knew that Nintendo was only going to see about 30% of the profits. So the stock quickly became overbought by retail investors, and shorted by the pros. The typical cycle looks like this:
Like any market, if there are more buyers than sellers, the price goes up (regardless if the real value of the firm has changed or not.) If the current stock price is $50 and no one is willing to sell their shares for $50, then they may bid higher. Conversely, if someone wants to sell their shares and no one is buying, they will have to either lower their price or hold the shares until prices recover. Any time there are more sellers than buyers, the price will fall.
Professional investors make their money by calculating the real value of a stock (this is not an exact science) and buying it below that value, and selling it when it hits a threshold above that value. In the short term, stock prices are based on often irrational expectations. Sooner or later, they return to their actual value.
Another example is Tesla - its market cap (share price x number of shares) is over $30 billion. (In comparison, Ford and GM are each worth about $50 billion) Today's stock price is around $230 per share, but Tesla’s actual book value is around $7.25 a share, or about $1 billion. The difference between those two numbers is the expectation of future earnings (that Tesla will be the next big thing). However, the + $200 a share difference (multiplied by 148 million shares) means that they need to sell a lot of cars. The professionals think that the stock is way overvalued, and as a result over half the shares of Tesla are currently being sold short (betting the price will fall dramatically.)
Dividends are typical paid by large, stable, mature companies that generate lots of cash. Growing companies reinvest their cash into the business in order to keep growing. Instead of offering a dividend with a yield of 2–4%, your “earnings” will be based on the gains in share price as the firm increases in value. It's easier for 1 billion dollar company to become a 2 billion dollar company, than for a 100 billion dollar company to double in size. So the behemoths reinvest a smaller overall percentage back into the business, and distribute the rest to shareholders.
Hope this was helpful.
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