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Wednesday, 17 October 2018

(Tradeview 2018) Value Picks : Looking Forward 2019

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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
_____________________________________________________________________________







It has been a long time since we last had a public write up. The last article was published was in April 2018 before the historic chance in Malaysia political landscape. A regime change was unexpected for many and the economy of the country has taken a dip. Usually, this is very normal as change reflects instability. Whilst it is not purely 100% due to the change in government resulting in weaker economic growth for the country, there is definitely worries from international funds and local fund managers in current climate.

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Global Markets vs Emerging Markets

The global markets have been in a doldrums especially with the trade war between China and US. Whilst it was supposed to be only a temporary issue, it seems it is not quite blown our of proportion. In fact, it seems that China is taking a brunt from this continuous economic policy changes of the US. The entire slump due to clamp down and cooling measure by the Chinese government for the property sector in China which has long overrun its forward earnings is now causing ripple effect through the industry. We foresee the trade war to persist and Chinese government cooling measure is only the beginning. We do not like the situation moving forward whilst we deem it healthy. 

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US Fed Rate Hike

The rate hike by US seems to be hitting emerging markets the worst. By right, most have foreseen US Fed to hike rate and will continue to go on a continuous uptrend path. Even talks for BNM to follow suit. However, emerging markets still was not able to withstand the impact with many currencies declining across the board. MYR is now weak again despite our PM stating how undervalued it is and its fair value being RM3.80 to the greenback. MYR will likely not strengthen in the next 6 months in our humble view due to our national debt and lack of economic stimulus in terms of monetary and fiscal policies.

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Malaysia's 1 Trillion National Debt 

We would like to think the new government came into place and save the country from further turmoil. Uncovering the debt and now working hard to reduce the debt levels is commendable. Of course as citizens, we look forward to a healthier balance sheet for the country. However, there is a saying that "Debt is the source for growth". Meaning if we want economic growth, a healthy level of debt is good. With borrowings which we can repay within reasonable time frame and interest cost, the government can utilise the funds to spur growth through fiscal measures such as catalytic government projects, infrastructure, growth corridors, new sector development and amongst others. Question is, how much can we borrow and at our rate? Will restructuring our current debts especially short term debts be the better way forward? I believe there will be savings from more prudent management under the new government where corruption, leakages can be mitigated however to what extent?Monetary policy would be more difficult under current climate due to US Fed rate hike. If we further consider monetary stimulus, the MYR will devalue further which makes it harder for us to both repay debts and will lead to higher import induced inflation. 

Image result for tun mahathir lim guan engImage result for tun mahathir azmin ali

Competitive Tax Incentive Policies, Economic Policies and New Industries   

In order to help Malaysia move forward, there is a need to focus on the above three as the way forward apart from "cleaning the house" or "throwing the kitchen sink". We advocate 3 ways :

1. Competitive Tax Incentive Policies :

This is necessary to attract FDI and new money into the financial system of Malaysia. An example would be lower corporate income tax for companies in selected sectors which create jobs and bring about knowledge or skill transfer. Singapore and Hong Kong has lower corporate tax than most countries in Asia hence both countries has benefited from many MNC setting up corporations or satellite offices. Dubai has 0% corporate tax and flourished tremendously. Malaysia has been relying on 2 particular method when it comes to tax incentive, 1 is the Investment Tax Allowance model (ITA) another is the Corporate Income Tax Exemption both at 5+5 years. However, whilst effective in the past 20 years it has appeared less attractive in today's competitive world where countries are all competing for the limited top companies to invest in their country. 

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A best example would be Grab which is homegrown in Malaysia but the HQ is located in Singapore. This is a huge outflow for our country. How can one of the most valued new multi-billion valued business chosen our neighbor country instead of Malaysia as its base? For companies like this, the government should provide a unique set of tax incentive policies to cater to its growth trajectory. Imagine, Samsung in which was built and founded in Korea decided to move to Japan to set up its base due to more favourable policies. 

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2. Economic Policies :

We need very specific economic policies to tackle industry specific problems in order to make head way and help our Malaysian companies be more competitive. Example : we need to have a clear policy to attract FDI apart from saying we welcome but no concrete actions. FDI requires support not only from tax incentives policy but also provision of space for business, IP and copyright privileges, healthy workforce supply amongst others. 

Malaysia is a blessed country with oil and gas, agriculture, manufacturing and service sector. If we intend to elevate to become service oriented nation, our banking industry needs to be reformed specifically (private banking or wealth management). In the past there was a wave of privatisation exercise by the government of private companies making efficient private companies into GLCs which ballooned in debt and incompetency due to poor management or governance. 

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We can consider divesting companies which are oversize and cumbersome into smaller efficient listed entities whilst unlocking its value. Consolidation was one of the ways in the past to make corporate Malaysia dynamic but the involvement of political appointees instead of sound corporate professional has shown its ugly side today. Divestment may be one route we can consider to unlock values. Another is to ensure healthy competition amongst SME which are growing into large companies. These segment is the foundation of Malaysia's economy. If SME do well, the country will as the trickle down and ripple effect is greater than a single conglomerate which ultimately benefits the majority shareholder or institutional funds or family offices. 

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3. New Industries :


We have been talking about new industries for a long time however which industry has Malaysia truly put itself on the map? We are known for oil & gas, furniture, gloves, durian, amongst others. Creative industry requires lots of help from government especially when at its infancy. We are severely lacking behind in terms of technology and innovation no matter how much we champion having Cyberjaya and MSC in the early days of 1997s. IT in itself has already taken a new turn but we are not doing enough. Even adoption of e-payment gateways we are still slower compared to other Southeast Asia countries. I think from this aspect we have a lot to improve and a sound ecosystem is the best way to help creative industries not only in terms of maybe more lenient loan applications, VC funding backed by Government (each dollar private sector puts in, government related institutions puts a certain % to match). Private sector should drive the business and government to facilitate and support.

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All in all, the time is now. Malaysia hit a reset button. I think it is time we all reset.  



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Food for thought: 

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Thursday, 19 April 2018

(Tradeview 2018) Buy on Weakness, Sell on Strength (Hengyuan, PetronM, KSSC, MediaC, VS, Uchitect)
















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
_____________________________________________________________________________














US and China trade war took centre stage for the past 3 weeks creating huge market volatility across the global markets. US market alone corrected close to 15% from its high. SP500 drop 11% from a high of 2872 to 2581 and Dow dropped 12% from 26,616 to 23,533. There is a saying that the modern warfare of today is the war of economy, no longer arms. If so, tariffs would be the main weaponry. On top of that, Malaysia's Parliament has dissolved and the country will be facing the GE14 on 9th May. This may appear to be main theme for the next 1 month for KLCI and of course some of the concerns include Syria airstrike by the alliance consisting of US, UK and France. This led to the rally in safe havens and the oil price as well nearing almost 70 USD per barrel. 













Many asked Tradeview how come we are not recommending as many buys as we did in the past? Are we taking a prudent stance hence the reduction in recommendation? Actually we did reduce but we have been calling a number of stocks especially in our private group. We do this very carefully and based on our specific FA metrics. Most importantly, we time our buys, meaning we only choose to buy if the market is weak and sell when the market is strong. Some stocks we buy and hold until the true value gets realised. Usually this are mid to long term stocks. However, there are those where the opportunity to buy is so good and we get such a good price, then it moves within a short span of time as it rebounded strongly. Today, we would like to share with all the very basic concept of buying on weakness and selling on strength. 




Usually, most people understand but few have the ability and foresight to practice such investment method. Even long time fundamentalist or FA investors, they find it hard to do. After all, who can time the bottom? Who can time the market so perfectly? It is extremely difficult to find the bottom what more time it to precision. Hence, we usually advocate this rule too our readers, if the stock price fall below our Tradeview FA metric and the levels is attractive enough with the right margin of safety, then you can consider. However, always wait for the price to stabilise before making the call. We will show some of the examples of the calls we have made recently during the buy low sell high period.

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1. Hengyuan 

Our initial valuation for Hengyuan was around RM10. When it went to a high of RM17 last year, many asked us repeatedly why we didnt call Hengyuan and arent we bullish with the prospect. We are conservative and prudent. Since we missed and the valuation was too high, we said can wait for opportunity to collect on weakness. We called at any price below RM6.50 for Hengyuan on 4th and 5th April as per the above chat group message. The rest is history. Hengyuan rebounded shortly after that when the trade war concern subsided a little and went up to as high as RM9.50. This is close to 40% return in less than 2 weeks. 

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2. PetronM

Similarly for PetronM, our initial valuation for will be RM9 and we called on 4th and 5th March for any price below RM7.50 was good to buy. This is our prudent estimation without taking into account of the full year growth. PetronM reboounded to RM9.60 in less than 2 weeks.



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3. VS Indsutry

Our initial valuation for VS would be around RM2.50. When the share price fell to RM2 and slightly below, we knew this was the opportunity and called a buy on 5th April as well. VS rebounded to as high as RM2.40 in subsequent days and became among out top gainers that week.

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4. KSSC

Till today KSSC remains as one of our under the radar favourite gem. I remembered when we chose KSSC as our 2017 value pick, many were upset as the share price did not reflect. Until this year, it shot up all the way to 75 sens before retreating gradually. It is a significantly undervalue but it was a short span of time. Later on KSSC management declared dividend of close to 5% to reward shareholders. We maintain our initial valuation for KSSC to be RM0.65. When the market fell the other day, it fell to as low as 38 sens. That was a no brainer. Today it is hovering around 47 sens with more upside intact.

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5.  Uchitect

Our initial valuation for Uchitect is RM3. This was even before the capital repayment to shareholders were announced. When the market was weak, it fell to as low as RM2.30. We advocated to all our readers to consider buying on weakness. It remain was one the big gainers and rebounded strongly from Rm2.30 up to RM2.80 in less than 1 week. 

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6. MediaC

MediaC goes without saying is one of our solid and safe buy. Many would have known by now the reason for the surge is due to their separate listing in HKEX, One Media Group's 10% stake in Most Kwai Chung which saw a 2000% over subscription for the retail portion during a recent IPO in end March. While this is a valuation play, the fact is also because we believe MediaC is undervalued with only upside, not downside. We believe buying now on weakness is an opportunity for when it is time to rebound. There are many factors to consider, one of it is the assets of the company  surpass its share value, and whilst the earnings are indeed dwindling, the group may receive bumper earnings from election period. 


https://www.bloomberg.com/news/articles/2018-02-07/buying-the-dip-works-nicely-a-30-year-history-of-routs-shows

There are definitely others to the list of stocks we have watched, observed, consider, and called. Mostly with the market continuously being volatile, May is coming, election is soon, earnings season fast approaching, there is no doubt that we will see opportunities like this appear in the market. Hence, when the time comes, opportunity knocks, and value surfaces, what would you do? 

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Website / Blog : 
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Food for thought: 

 Image result for buy on dips quote


Wednesday, 21 March 2018

(Tradeview 2018) Value Pick No. 2 : Poh Kong Holdings Bhd.

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Dear fellow readers, 

This is my No. 2 Value Pick for 2018. 

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
_____________________________________________________________________________

Value Pick No. 2 : Poh Kong Holdings Bhd. (Initial Valuation RM 0.65 sens) 



The global markets have been quite volatile with some retracement since President Trump announcement on protectionist tariffs. On top of that, Malaysia is facing GE14 in the next 2 months. With a series of unpredictable events, we are looking at Poh Kong currently at RM0.54 sens. 

This is an old company in Malaysia with many years of experience  in the industry. Well run management holding down a traditional family business. It has over 102 outlets nationwide and many sub brands like Hemera, Love etc. Fundamentally it is a sound company that has solid dividend policy over the years. In a way, the growth is rather stagnant with some narrow margins until 2017, they started showing bigger revenue and margin in the same year. Traditionally, it is around 1.4%, as of 2017, the margin has rised to 3.4%. This is an encouraging sign for us as it may seem there is a growth path there. 



Additionally, if you look at the 5 year track record, as of half year 2018, the revenue is close to RM 490 Million, which is more than 2017. The diversified product range, new brands and different market segment penetration is enlarging the customer base for Poh Kong from the traditional ones of the past. Also, if you look at the NTA of Poh Kong, it is worth RM1.27. The current share price is RM0.54. With market cap of Rm220 million but net value of RM363 million and generating free cashflow of Rm60 million per annum, the balance sheet of Poh Kong is extremely strong.




Poh Kong is trading at a substantial discount on PTBV and PER compared to regional peers like Hong Kng jewelers such as Chow Tai Fook despite similar operations albeit a smaller brand name. If we take trailing earnings, Poh Kong is trading at 7x PER and PTBV of 0.44x.  While the DY is not great at aroud 1.85%, at least the company has been declaring consistent dividend over the years. Many good companies that are expanding even after doing well refuse to reward shareholders, with 0 Dividend Policy through out the years. So far, first 2Q of 2018 have exceeded first 2Q of 2017, this in effect shows a steady path of grow for the company and may further solidify its market leader position in Malaysia.




The good news is some of the substantial shareholders has been acquiring recently and loading up more position in the counter. This include some of funds which usually focus only on strong value counters. 

Our initial valuation for will be RM0.65 based on the back of 6.5 EPS at 10x PER. This is our prudent estimation without taking into account of the full year growth. For those who likes a solid management, boring but fundamental business with a strong assets and track record, can consider Poh Kong.



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Food for thought: 


Monday, 19 February 2018

(Tradeview 2018) - Ancient Chinese Philosophy & Investment Thesis For Business




Dear fellow readers, 

Gong Xi Fa Chai & Happy Chinese New Year 2018. We would like to take this opportunity to wish all who celebrates a wonderful CNY festive season and others happy holidays. 

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
_____________________________________________________________________________

In conjunction with Chinese New Year, our team would like to share a perspective on looking at businesses from a different lens. We would like to take the opportunity in this new year to talk about Ancient Chinese Philosophy and analysing certain aspects of the corporate world.

As one of the oldest civilizations in the world, and with the largest population, China has produced internationally known statesmen, philosophers, thinkers, and leaders; yet we see so little on Chinese leadership or management philosophy by Chinese scholar. This is not until recent years; the Chinese economy has become a major driver of global growth and a shaper of global markets that people start to pay attention to the possibility of ancient Chinese philosophy may be a valuable source of inspiration for contemporary management and business strategy.

There are many Chinese philosophies and ideologies such as Daoism, Legalism, and the Art of war appreciate by many business leaders, they reflect that their business value and their decision-making foundation to regulate with the vagaries of challenges are shaped by ancient Chinese philosophies. One of the world’s richest and most influential men, Mr. Li Ka Shing emphasized in his recent interview, the importance of check and balance in business methodology that can be achieved by using western management model with Confucian school of thought as internal philosophy, and he has proven that it works well by the success of his business. Feel free to watch bloomberg video interview of Li Ka Shing as source of reference.



Today we will discuss a well-known Chinese teaching by Meng Zi also known as Mencius, with the aspiration of “he who rules the world that has the hearts of the populace”. (得人心者得天下)

The inspiration for Meng Zi to come out with this quote is from his observation on; those kings, who know the needs of the people, try his best to provide to those needs and are kind to his people will eventually win the crown. Vice versa, those rule by fear will be overthrown if aforementioned leaders rise among peasant. In Meng Zi’s archive, he discussed two kings, Jie and Zhou. He noticed that those failed Kings share some similarity in their characteristic; both are extremely intelligent and rich, however, they egoistically assumed that with their vast knowledge, skill, financial power, and reputation, they were invincible, thus did not appreciate the talents and ignore ideas and feedback from his trustee. They were blinded by their success and enjoyment and couldn’t see that people of the land living in misery. They ruled by injecting fears to the people and suppressing resistance by administering cruel punishment.

Predictably, people could no longer bear with this leadership style and turn to another leader. Meng Zi concluded that, in order to become a successful leader, one must be recognized by the followers, to be recognized by the follower, the leader must understand the needs of the follower and fulfill them. By doing so, trust and support of the people will be earned.

When it comes to Politics, there is no doubt the above age old wisdom is applicable throughout. Good world leaders are few and far between, if there is, usually they wont last. Hence, Machiavellianism and Utilitarianism have often been the preference of most leaders be it in the political or business world. It is very careless for mankind to fall into the slippery slope of contemplating end goals as means to justifying their actions when philosophy should be the guiding principle in running a country or company.

At Tradeview, we are apolitical. Hence, we will only look at things from the perspective of businesses. If we look at some of the best business leaders today, few names are truly respectable. From the western world, there is the likes of Mr. Warren Buffet, Mr. Ingvrad Kamprad and from the east there is Mr. Li Ka Shing, Mr Robert Kuok. 


























If you notice, there will always be some similarities between the above titans of the industry. Firstly, they rarely come by, possibly once in a generation. It will take decades before the next one comes along. Secondly, they are usually there for a very long time (sustainable and consistent). Thirdly, they are usually humble, low profile, never flashy and always grounded. Fourthly, they are usually at the helm of their company, involve in day to day business operations even at an advance age, personally attending to issues and overlooking the business - in short tireless work ethic and always hardworking. The list can go on but if you were to ask anyone on the street, most would agree, if we were to invest in any of these companies held by the above mentioned business leaders back 30-40 years, we would be sitting on huge amount of wealth to last a a lifetime. 

The sad thing today is the generation only looks to instant gratification and fast returns without any basis. Without actual fundamentals to back any of the investment thesis, people will blindly follow the herd and crowd. When we invest our hard earn money, we should always ask ourselves, how many plates or bowl of noodles one has to sell in order to make this much money over a duration of time? If we ask ourselves such questions, we would tend to be more careful before simply putting our money behind a company just because our friends told us to do so. 





Case in point No. 1 - Bitcoin. Many months back, we had lots of readers and subscribers asking us about Bitcoin and if Tradeview would recommend buying. We have maintained the same position from Day 1 until present, how do you value something that has no intrinsic value? How do you assess the fundamental viability and worthiness of the item? Isnt it just a bubble and Ponzi scheme waiting to burst? In order to not offend those who invested, we just answer, we do not invest in things we do not understand. This is not an "I told you so", but a form of discussion. Hindsight is always 20/20. Fact is, we know the value of Bitcoin and other cryptocurrency lies in the Blockchain Technology, not the cyrptocurrency itself. Hence, it is always important to know what one should invest in. 



Bitcoin few months back vs Today


Case in point No. 2  - MLM. MLM has existed a long long time. Since the Tupperware parties days in 1950 or Avon cosmetic products until present day. This is a sensitive topic as we know many have different views when it comes to MLM. Supporters think it is a Godsent which help provides livelihood and sustenance. Dissenters think it is a scam which monetises personal relationship, erodes the ethics of hard work, stifle creativity and ingenuity etc. There are many successful MLM companies today that is still doing well such as Tupperware, Amway, Coway and others. Equally, the number of MLM scams are abundant. One thing to note, we acknowledge MLM as a form of efficient business model but we do not recognise MLM as creating value for society or being a part of it equates to entrepreneurship. Everyone throws the word of entrepreneurship around just because it is "sexy" but how many truly understand the concept of building business or creating value? MLM supporters often adopts campaigns and large scale conferences to show a collective front and efficiently using the herd mentality to convince, motivate, propagate to new joiners and members them to be part of the movement. We will save this topic for another day but we hope that young minds will focus their energy, capability and creativity on truly building businesses and creating value instead of rushing in for the quick gratification of short term monetary gains and lose out on meaningful long term goals in life.




A very wise business leader of one of the blue chip company in Malaysia once told me, the key to sustaining a company is the "Value". Only the right company's value can ensure the it survives the test of time. An example would be Mitsui Fudosan, which has been around for over 300 years. The current business leaders of Mitsui attributes their success to the "value of the leader or founder".


Whenever new readers ask Tradeview about our investment philosophy, we always say we focus on the Fundamental Analysis as the key and Technical Analysis as guide. What we seldom share is our strength is the ability to analyse and dissect a company beyond the financial records. We look into the business itself and the people behind the business before we come to a conclusion whether to proceed to put our money behind the investment. If the numbers adds up but we do not like the business leader or management team, no matter how enticing, we will skip. However, if the business leader or management team displays an extraordinary grit, charisma, work ethic, value and brilliance, we would focus our attention and monitor the company very closely. In a nutshell, we should always assess businesses on the following 

1. business model, 
2. nature, 
3. business leader, 
4. management team, 
5. company's philosophy, values & principle.


PS: We would like to share the credit of this article with the writer, a brilliant up and and coming consultant who first wrote an article Titled : Ancient Chinese Philosophy as a Source of Inspiration for Talent Management / Leadership Management. For those who understands Mandarin, can read the following.

桀纣之失天下也,失其民也;失其民者,失其心也。得天下有道,得其民,斯得天下矣。得其民有道,得其心,斯得民矣。得其心有道,所欲与之聚之,所恶勿施尔也。

“夏桀和商纣之所以丢掉天下,是因为民众不再支持他们;之所以不再支持,是由于对他们失望。要得天下的办法就是去获得民众的支持,做到了就能得到天下;要获得支持的办法就是获得他们的认可,做到了就能得到; 要获得民众认可的办法就是做民众期望的,不要做他们反感的。

《得人心者得天下》选自《孟子·离娄上》

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Food for thought: