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Saturday, 27 June 2020

(Tradeview 2020) - How To Invest (or) Trade In A "Kangaroo Market"


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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 :

Website / Blog : http://www.tradeview.my/
or Email me to sign up as private exclusive subscriber : tradeview101@gmail.com
__________________________________________________________




What Is a Kangaroo Market?


The volatility in the recent markets is beyond what we have experienced before. 1 day it can plunge 1800 points for Dow, another day it can rebound almost 800 points and close at 500+ points. If we take into consideration of the market sell off in March 2020, things are even crazier. We do not have to look that far. FBMKLCI was down to 1210 in middle of March, today it has rebounded back to 1513. Some say this is a V shape rebound, others say W. Whatever letters that start to come out, it would seem no one can truly grasp the market direction with certainty. We managed to pick the bottom and called to buy with conviction when the FBMKLCI hit 1210 level, but now with the market at this level, we called to sell 4 weeks ago. Is this the right call? (Bear with me, I will explain further later on at the bottom)





As you can see from the above, FBMKLCI has rebounded strongly exceeding Indonesia, Singapore, Hong Kong and Shanghai. My subscribers would know I have been moving my funds heavily from Malaysia to Singapore and Hong Kong markets due to the more attractive valuation there compared to Malaysia since the rebound. During March selloff, I would say 80% of my investments in equities are in Malaysia. Since then, especially when I sold on strength upwards, I have been moving the funds to foreign markets. I would say I am now about 55-45 (foreign vs local market exposure). Of course the bulk of my investment in Singapore would be in Riverstone Holdings and other stocks. Why did I take this drastic move? There are 3 very simple reasons :


1. FBMKLCI valuation is toppish / expensive based on trailing PER without even considering future poor results earnings that has yet to be announced next QR. (Some argue it is the gloves that pushed the index up, true but not entirely. Ex : Airport 5014 is almost back to Pre-Covid level, does that even make sense?)



2. STI and Hang Seng are extremely cheap. Just to give you some insights, the banks in both countries are trading close to 0.3 / 0.4x PTBV whilst their real estate companies are trading around 5x PER giving 4-5% Dividend Yield when land itself is the most scare resource for both places.




3. Political risk. Singapore is stable compared to Malaysia. The Government is very smart and decided to call for elections in July to seek fresh mandate. Why now when they could postpone? I believe they want to have a fresh mandate in order to focus on rebuilding the economy and give confidence to foreign investors to capture the capital flow. Hong Kong is undervalued due to the ongoing protest, trade war and new security law, where the market has been whacked down to a recent low. So when we look to invest, we must always consider upside vs downside. 




Coming back to KLCI, many readers and investors still like KLCI because of familiarity, funding and ease of access. Hence, that said, if you want to continue investing in Malaysia, what can you do and how can you do well? 


1. Extend Your Investment Horizon 

I think most investors won't be able to sleep well if one keep tracking the market daily. What if we extend our investment horizon and look further beyond 9-12 months. Would we then be able to have clearer view of the market? After all if you put your funds in FD, most would be locked up for 6-12 months.

Now it is clear that most of the recent QR that came out is atrocious. Ugly in fact. However, did you all know the next one will be worse? The current QR reporting is delayed from May to June. The results being reported covered only January - March 31st. This means the results included last 2 weeks of March where the lockdown begun on 18th March. The next QR that reports will include April & May (full 2 months of lockdown period). 

The worst of the QR isnt here yet. The share price rebounding from March low, failed to take into account of the next QR is going to be very bad. In short, the next QR will be reporting in August / September 2020 will be worse than what you are seeing now. Therefore, it is not possible that the shares can do well in the 3-6 months if it share price has already has rebounded from March low. In order to decide whether to buy, you need to extend your investment horizon to about 12 months before you can expect any form of meaningful recovery in earnings followed by share price.


2. Focus on Selected Stocks / Sectors That Have Shown Resilience During this Selldown

The most straight forward sector that comes to mind is gloves sector. I think by now, everyone walking on the street would have heard about the stellar run. Is there still legs for glove sectors? My simple answer - Yes. Now what else can we look at? 

1. Ahealth, YSPSAH, (Pharmaceutical), 
2. Hexza, Duopharma, (Medical / Chemical Supply), 
3. RHB & Public Bank (Banking), 
4. Allianz (Insurance), 
5. Pentamaster, Genetec, (Tech / E&E) 
6. MFCB (power plant & resources)
7. OCK, Digi, (telecommunications) 
8. RCE Capital (Finance)
9. DKSH (Consumer Essentials)
10. Big 4 + Riverstone Holdings (Gloves)
11. Sunway, Oriental Holdings (Selected Conglomerates)

These are just some ideas to let you have a picture. 

3. Avoid Being Trapped in Stocks With Poor Fundamentals Especially NOW

This is easier said that done. I noticed many are chasing stocks on news / tips / rumours these days. Any penny stock with poor track record and past failures announced an MOU, Agreement, LOI on any business remotely related to Covid-19 has moved the share price up, some to ridiculous levels. If I were to write down list of stocks to avoid, I think many "diehard fans" or "syndicates" of these stocks would come for my head. I shall not name it explicitly here but I can guide my fellow readers how to distinguish. Avoid the stock if :

1. It is an announcement of non-legally binding MOU / LOI with no specific investment quantum or detailed plans of execution (quantity production, estimated returns, project income etc)

2. Poor track records (strings of years of losses) or management has poor reputation (A leopard cannot change its spots)

3. Sudden announcement of all kinds of JV, New Business Ventures etc. (It is hard enough to run existing business in a bad economy, suddenly starting a new venture with no past track record / capability / synergistic advantage is suicide)

4. Award of new Government Contract out of the blue (Please note the Government is not stable and whatever award can be revoked or cancelled)

5. Stocks which any Tom, Dick & Harry , Auntie, Uncle , Pak Cik or Mak Cik recommend you to buy. (These are signs of speculative mania)


It is never easy navigating the market in such torrid times especially when there is lack of certainty, stability and continuity be it local or foreign backdrop. I foresee the risk will get better in time and in the longer term horizon but what matters will always be the fundamental of the stocks you are buying. Do not let your hard earned money be trapped in a lousy lost making penny stock that will take years to recover  (or worst, delisted). 
_______________________________________________________________

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Website / Blog : http://www.tradeview.my/
Facebook : https://www.facebook.com/tradeview101/or 
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Food for thought: 

10 Best Rumor Quotes images | Quotes, Me quotes, Wise words



Saturday, 20 June 2020

(Tradeview 2020) - In Conclusion, Is the Glove Sector a "Tulip Mania" or Is Further Upside Justified?






























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 :

Website / Blog : http://www.tradeview.my/
or Email me to sign up as private exclusive subscriber : tradeview101@gmail.com

________________________________________________________



Following up with our earlier article "Commentaries on The Recent Glove Sector Selldown Since Top Glove Results Announcement", this time around we are studying the sector during the previous H1N1 pandemic and will try to draw some key-takeaways that could be useful for gauging the current Covid-19 situation. To ease our analysis, we only consider the earnings trend and share price performance of Top Glove, Supermax & Hartalega.

According to Wikipedia, H1N1 lasted for about 19 months, from Jan 2009 to Aug-10 while vaccine for the influenza was approved by the FDA in September 2009. During this period, we saw quarterly earnings of glove companies rising by c.2-4x to its peak and they took 5 quarters to do so (reported sometime in March-May 2010). More amazingly their share prices soared 4-10x (doubled that of profit growth), peaking in July 7 2010 (despite FDA approving the H1N1 vaccine in September 2009); hence, this goes to show that share prices are strongly correlated with quarterly profit trend.












































































As for Covid, this began in December 2019 and is still ongoing; no vaccine has been found and approved yet. That said, we have only witness 1 quarter of glove sector earnings performance and it was already mind blowing: 

(i) Top Glove tripled; 
(ii) Supermax doubled whilst; 
(iii) Hartalega unfortunately fell 5%. 

Based on our findings, consensus is looking at explosive earnings growth of 2-5x (at peak levels) while the most bullish analyst in town is estimating 3-9x increase. However, share prices only jumped 2-5x unlike during H1N1 where it doubled that of earnings growth; this clearly suggest that glove stocks potentially still have legs to run further. Moreover, valuations look attractive:

1. Top Glove is trading at 18x P/E vs 5-year average of 22x. When we take the EPS of the most bullish analyst, P/E is only 11x.

2. Supermax is trading at 24x P/E vs 5-year average of 14x. At glance appear demanding but if we use the EPS of the most bullish analyst, P/E drops to 16x while for the broker that estimated RM1b profit, P/E is seen to drop to only 9x.


3. Hartalega is trading at 46x P/E vs 5-year average of 32x. Again, it would fall to 28x if we use the EPS of the most bullish analyst.


Thus, we believe the recent selldown presents a good opportunity to consider accumulating; this is in spite of the concerns of windfall tax and massive capacity expansion of peers in China. 

1. Historical Valuation and Future Earnings

Firstly, we feel consensus is a little too conservative (2-5x) and should play catch up to the earnings projection of the most bullish analyst (3-9x); this is because the impact of Covid-19 is far more profound than H1N1 but consensus is forecasting only similar earnings growth profile (2-4x). Hence, assuming the windfall tax is to shave some 20% of profit projected by the most bullish analyst, P/E for Top Glove, Supermax & Hartalega is estimated to rise to 14x, 11x & 35x, respectively; when compared against historical average, valuation of Top Glove & Supermax still appear to be inexpensive.

2. The Rising Might of China

As for the massive capacity expansion by Chinese peers, it will take more than the course of 2 years. Building an automated technology driven manufacturing facility is not the same as building a makeshift hospitals in 10 days. Certifications, compliance with FDA, global audit / scrutiny / need for transparency are all prerequisite to become a global supplier of gloves. Additionally, our local glove players will also have similar plans and should be able to defend their market shares. Besides, a prolonged trade war with the US may not bode so well for Chinese players. Europe, US, Australia (G7) have taken a very protective stance against the rise of China resulting in distrust, tariff wars and propaganda attacks. Therefore, all in all, we are not overly disturbed with what they are attempting to achieve.

3.  Change in Behavioral Pattern / New Normal

We think after the Covid-19 episode, the awareness of good hygiene has increased and will further support the demand for gloves. Moreover, the % of glove cost to total healthcare expenditure is relatively insignificant. Thus, glove prices may hold better than what most people think after Covid-19. 


After considering all of the above, it is too premature to call it game over for the glove sector. Currently, there are only a handful of industries that can depict strong visible earnings growth. Furthermore, there are fears of a 2nd wave of Covid-19. Overall, consensus has a TP of RM20.28 (most bullish analyst: RM25) for Top Glove, RM8.22 (most bullish analyst: RM11) for Supermax & RM11.58 (most bullish analyst: RM17.50) for Hartalega. For us, we would not bet against these Malaysian industrialist who managed to put Malaysia on a global limelight. Of course this is our humble view, now it is your move.




































___________________________________________________________
Telegram channel : https://telegram.me/tradeview101
Website / Blog : http://www.tradeview.my/
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Email me to sign up as private exclusive subscriber : tradeview101@gmail.com

Food for thought: 

80 Best Quotes On Stock Market Investment And Financial Management

Friday, 19 June 2020

(Tradeview 2020) - Commentaries on The Recent Glove Sector Selldown Since Top Glove Results Announcement



Bitcoin: A Tulip Mania of 21st Century - The Startup - Medium

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 :

Website / Blog : http://www.tradeview.my/
or Email me to sign up as private exclusive subscriber : tradeview101@gmail.com

__________________________________________________________



CIMB Securities 2015-08-05: Riverstone Holdings Ltd - 2Q15 Results ...


Dear all, apart from Riverstone Holdings Ltd. which I was the earliest to discover and highlight the stock, I have yet to write an article on the glove sector due to a proliferation of articles / reports by research analysts , authors and promoters which made me feel writing another article is redundant. However, given the selldown in glove sector in recent days since Top Glove reported extraordinary results, I would like to share my humble view with all. (A detailed article would follow later on)

When I first called Riverstone Holdings in 2019, I remembered it was only 90 sens SGD, today it closed $2.31 SGD (high of $2.49). I have not sold a single share since then. Why did I choose this company? Some may ask, if I was so good, why did I fail to notice other gloves stocks like the big 4 and only focused on Riverstone? Bear with me and let me share a true story. 



Luck was on my side when I was representing a client (US buyer of medical gloves) during their visit to Malaysia scouting for suppliers. They wanted Top Glove even before visiting other glove makers thinking Topglove is number 1. However they later on realised in terms of quality, Tier 1 nitrile medical gloves were Hartalega, (lesser known) Riverstone, (non-listed) YTY Group. Through this business dealing, I had the chance to visit Riverstone manufacturing facility, meet with the management team. I knew I had to invest after my visit because I was impressed with their facility and most importantly the management team / founder philosophy. This was before Covid-19 pandemic. 

Shortly after that, I started studying the sector and found :

1. Hartalega - would always command a premium over the rest (founder Mr Kuan - is an industry titan / pioneer) with strong balance sheet and state of the art facility / technology. 

2. Top Glove is the ever expanding, aggressive, high profile number 2 chasing Hartalega market leader (market cap) position. What made me hesitant was the huge debts taken to expand - perpetual sukuk. I never liked overly aggressive business philosophy. However, today Topglove is reaping the full benefit due to their aggressive growth model. 

3. Kossan was the number 3, steady, expanding with good margin glove player who was not as aggressive as Topglove but reliable and willing to work hard to fulfil their OEM client needs whilst carving their own niche is technical gloves. 

4. Supermax was the OBM player who had fluctuating performance, and margin that was lower with a less healthy balance sheet. Today, Supermax OBM model is paying off benefiting from full ASP increase. 




When Covid-19 was still known as Novel Coronavirus in end Jan and before a full blown pandemic, during a round of golf, a seasoned investor whom I was having a game with told me to buy Supermax. The price was RM1.70 then. I refused as my biggest reservation was the past political issues of the founder. Clearly, I was wrong.

Subsequently, when Riverstone results was out, I knew that this sector is due for rerating. Then the glove stocks started the run and I was desperately looking for the next glove stock still a laggard as Big 3 were shooting through the roof. Luckily, I found Sri Trang Agro (Thailand and Singapore dual listed) both were still significantly undervalued. I took a huge position. My subscribers did too and today, all are sitting on good profits from Riverstone and Sri Trang. We are still holding till today.

Sri Trang Group Everest Logo (1) | Rowing from Home to Home

I wanted to be patient to wait for results earnings before I make a call which is my style.I couldn’t believe how crazy the sector rerated as retailers, research analysts and promoters were pushing Big 4 and other lesser known / loss making glove players. To me it has become like a “Tuilp Mania”. But I was wrong when Top Glove released the results last week. It was off the charts. They were right. 


Now fast forward to today, the entire sector appears to be facing sell off due to a variety of reasons. I won’t address it here one by one but will deal with it in a later article. I will only say this - the gloves sector retracement / selloff is a godsend opportunity to those who missed the ride. Whoever entered earlier and is taking profit now, congratulations, you or the fund did well hence taking profit off the table is good discipline. 

BUT, this is a good opportunity to collect Topglove, Supermax, Kossan and Hartalega (in order of position) because fundamentally, this will be a record run never seen in our history and it is a culmination of 30-40 years since the industry was built by the pioneers back when there were over 300 players competing. What you see today are the reward being reaped after years of innovation, persistence, competition by these manufacturers who built their business on solid foundation that even China manufacturers with their skilled copycat / technology innovation cannot compete. Malaysia glove sector is an industry that controls 65% of world market share not by sheer luck or opportunistic play. It is years of organic growth backed by natural resources, technology innovation, R&D which has won the trust, certification and global reputation for the country. 

This is my view and I hope it will clear some of the confusion / anxiety / worry faced by my fellow investors. Rather than throw your money into syndicated promoted goreng stocks with poor fundamentals, have a little faith in our Malaysian industrialist who have toiled and sweat more than 30 years to play a big role in fighting covid-19 global pandemic and protecting frontliners with their products. Their valuation is more than justified and I believe this is one of the best opportunities in the market right now.


Margma | Malaysian Rubber Glove Manufacturers Association
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Telegram channel : https://telegram.me/tradeview101
Website / Blog : http://www.tradeview.my/
Facebook : https://www.facebook.com/tradeview101/or 
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Food for thought: 

lemmings