Follow by Email

Tuesday, 1 December 2020

Tradeview Commentaries - The Glove Dilemma

 







I am quite hesitant to write another glove commentary as I believe that my earlier article on "Yield Will Protect Gloves Share Price From Falling Further" would have  ease investors' concern on the sector. Shortly after I wrote the article, Top Glove Chairman during the press conference mentioned Top Glove yield is expected to be more than 6% in FY 2021. Later on, a clarification statement to Bursa by Top Glove indicates the yield would be 8% based on Bloomberg consensus forecast in earnings and existing 50% dividend policy. This is in line with my forecast of Top Glove's yield and by extension it provides a good guesstimate of FY 2021 performance for the glove sector as a whole. Even recent Comfort Gloves results was unbelievable. 

After Top Glove conference, it attracted investors interest for awhile. Sadly, it was short lived as the share price for Top Glove stabilised before the issue of windfall tax was raised again by  politicians before the Minister of Finance closed the topic for good. As the glove stocks was finally showing some colour, the continuous Covid-19 case reports and subsequent Labour Department raid for Top Glove Ipoh dorms dampened sentiment further. This led to opening of an investigation paper when the law was said to only take effect next year under a new act by the Minister of Human Resource himself in the media.  

With all these avalanche of bad news impacting Top Glove, it would be very normal for the share price of glove stocks to be impacted and underperform. This negative sentiment will naturally spill over to other glove stocks for fear of similar kind of targeting by Ministry of Human Resource / Labour Department. If indeed Malaysia's Labour Law and Labour Department is fair and efficient in their inspection or enforcement, I believe this issue would not only be applicable to the Glove Sector but others such as Plantation, Construction. 

The glove stocks share price movement has nothing to do with trends, fundamentals or earnings performance anymore. It comes down to only 1 important factor -  Confidence. Investor Confidence, Consumer Confidence, Business Confidence are all key driving forces that moves the machinery of the economy forward. In the stock market, investor confidence is the most important. If there is no investor confidence, it is  hard for the share price to perform. Investor confidence is a qualitative factor that is tough to quantify via common financial analysis. 

I am by no means absolving Top Glove of their responsibility in providing a good accommodation, welfare and environment for their foreign labourers. Top Glove who always tout themselves as the world's largest glove manufacturer with 26% of world market share should have taken preemptive measures to ensure such problems are rooted out from their system in entirety. Top Glove not only represent the country's proud glove sector, they also put Malaysia on the map. This would be a painful but good learning experience for the company. I believe Top Glove will come out a better and stronger corporation after this string of incidents.

Most know that I am  believer in the glove story, as it has growth, fundamentals and importantly the scale of a global market to do well continuously. I have written many articles on the sector and although my top picks of the sector has always been Riverstone and Hartalega, I still deem Top Glove as a very sound company. In fact, I think companies like Sri Trang, Kossan, Supermax, Comfort, UG Healthcare are strong. Many regard the glove companies as "lucky" to benefit from a global pandemic. A prominent politician even call it "Durian Runtuh". I beg to differ. Luck is when preparation meets opportunity. The glove makers that survive from intense competition of over 300 players in a crowded sector in 1990s to only 45 world class players today is no mean feat. They did so through sheer grit, hard work and innovation with no direct subsidy or bail out from the Government of Malaysia. In addition, they contribute significantly to employment opportunities and tax revenue & levy to the company. Latex glove makers also help the dwindling rubber planters and Nitrile glove makers drew foreign investment like Great Britain's Synthomer to Malaysia. Even Petronas is venturing to Nitrile Butadiene (raw material for glove industry) seeing the huge potential in the industry. In a nutshell, the glove sector despite this period of negativity is a sector we as Malaysians should be very proud of. We have no FAANG corporations in our country, but we have these glove giants. 

So if you are in a dilemma whether to hold glove stocks, I just have this to say - "It cant get any worst than this". Vaccines, Covid-19 cluster, investigation / fine by Labour Department, US Customs Detention, windfall tax rumours, pretty much anything you can think of has been thrown at the sector. The glove sector will survive just as they had done so for the past 30 years. There is no fundamental or structural change to the companies. It is because of negative headlines, local funds who have met their KPI for the year and not taking  positions to support the sector, and retail investors who lack the confidence to invest in the glove sector contributed to the weak share price movement. When all these negativity blows over, local funds will have to chase yields and returns, retail investors will become bold again, the glove stocks are naturally the most attractive to keep in your portfolio. Hopefully this  help clear some of your doubts. 


_______________________________________________________________

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


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


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


Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: 












Saturday, 28 November 2020

(Tradeview 2020) - EPF iSinar Withdrawal Programme & The Stock Market

 



Dear all, many have emailed me with the concerns on the potential impact of the iSinar programme expansion allowing 8 million members to withdraw RM10,000 from the "sacred EPF Account 1" announced by Tengku Zafrul recently over the week. Largely, I can segregate the gist of questions to these 4 points :

1. Should EPF savers still leave their money in EPF or withdraw to the maximum allowable limit?

2. Will the dividend for EPF next year still be good?

3. If the EPF is financially sound, why did the CEO of EPF said there is a need to liquidate the assets to meet surge in withdrawal demands and shortfall? 

4. If EPF liquidate assets, would the KLCI Bursa stock market be impacted?

I shall answer the questions point by point and try to avoid any comments on politics but solely focus on the economics behind this issue. 

On Question 1 :

I think it comes down to individual financial circumstances to make this decision. For the longest time, I have always held on the belief that EPF money shouldn’t be touched until the very last resort. It is the savings for your old age so that you do not need to work in McDonald’s when you are 70 or 80 years old when your savings run dry and normal employment opportunities are no longer available to you. Allowing withdrawal now is also in expense of savers, who maintain good discipline and fiscal responsibility over the years to enjoy the fruits of their labour in the twilight years. 

However, the counter argument is the Covid-19 pandemic has brought many households which may suffer from loss of jobs, pay cuts or business closure to their knees. If one cannot survive today, there is no future to talk about. This is especially true for the B40 & M40 segment. Near my office, there used to be only 1 Nasi Lemak seller by the roadside. Today, there are 3 Nasi Lemak and 1 Chee Cheong Fun sellers within 5 mins walking distance. It is such observations that made me understand the plight of others better. 

My view would be to only withdraw if you already have absolutely no where else to turn to as the final resort. If you are intending to withdraw to buy a new car, upgrade your house or spend on a new iPhone, this would be grossly wrong. As for savers, EPF by law is required to give a min 2.5% return per annum to members and at this rate of return, it is still higher than all Fixed Deposit rate given by commercial banks today due to the 100 basis points OPR rate cut through the year by BNM. If look at the chart above of EPF dividend performance for the past 15 years, the worst performance was in 2008 during the Global Financial Crisis. Even then EPF declared 4.5% dividend yield then.

Additionally, I conducted an internal poll with my private group subscribers. 79% would leave their EPF funds in Account 1, 15% would withdraw the maximum allowable limit and 6% would leave half and withdraw half subject to eligibility. 

On Question 2 :

Prior to iSinar initiative, I was still rather confident that the dividend to be declared next year would be quite good, if not better than last year's performance as the stock market did very well this year especially when compared to regional peers. The stock market has rallied from a low of 1208 during the “March Plunge” on 19th March to a high of 1607 as at last Friday. This is despite the strong headwinds of a pandemic driven economic recession. Even domestic bond markets are performing well with large inflow due to attractive yield compared global bond market low yield. After the iLestari and now iSinar initiative, in addition lower EPF contribution inflow as many members has either loss their jobs, suffered pay cut or companies have closed down, the net inflow vs outflow gap widens significantly and likely it will be in negative territory for EPF this year. This would mean the potential dividend return next year would probably be lower than last year. In the event it matches last year's performance, the full impact will be felt in the years down the road. This is in line with what CEO of EPF, Tunku Alizakri Raja Muhammad Alias said "There is no such thing as a free lunch" in reference to the need to sell off assets to make funds available to depositors withdrawing from their EPF Account 1 & 2.

On Question 3 :


I believe many have a misconception when it comes to the CEO statement on liquidation of assets. EPF like any other funds, have to be invested in the equity, bond, real estate or money market instruments. Cash / dry powder cannot be the the bulk of the holdings as EPF mandate is to deliver returns to members. To do so, the cash on hand cannot go stale. However, this does not imply that EPF is lacking in cash allocated for yearly withdrawal. In fact, it is because this year is an exception / anomaly as a result of the pandemic driven economic recession and policies made by the Government which caught EPF asset allocation practice off guard. Hence, it cannot be business as usual as “something’s gotta give”. 

EPF will need to liquidate assets or some of their existing position in bonds, equities or money market instruments to meet the urgent demand and need for withdrawal of members especially since Account 1 is now accessible. 

A simple example : Imagine you who invest in the stock market actively, suddenly with very short notice, your wife or husband tells you that there is  emergency need for funds, hence you need to pull out money from the equities market now. What will you do? Will you sell your profitable positions which you believe can do better if you continue holding or will you sell the loss making position which you believe can rebound? Either way your investment plan is affected. This is especially bad for long term value investors who makes exponential returns in later stage of the investment horizon. EPF in essence is a long term investor. This would mean EPF will be impacted one way or another from the liquidation of assets / position. 

On Question 4 :


This is the one which most investors in the stock market are concerned about, it is important to understand the vast investment holdings of EPF extends beyond local stock market. EPF would have options to sell foreign equities, bonds in global markets outside of Malaysia equities. If they opt to sell local equities more than the others, it would definitely cause a sell down in the KLCI Bursa. I believe EPF wouldn’t do that but only embark on selective profit taking in sectors that have done well this year. Hypothetically, if I am the decision maker, selling foreign stocks which has ran up to record high would be a quicker and better option without causing systemic risk to the local financial markets. Bonds market where yields are less attractive though would be an issue in terms of the price of sale. 

In addition, if members of EPF withdraws funds from Account 1 and put it back into the equities market, spurring another retail rally, there may be some net-off effects. Hence I am of the view the risk of large self off in local markets is not high at this moment although there will be some selling pressure unless foreign funds make a comeback with a bang. We must remember it is local funds that has supported the KLCI Bursa stock market with retail investors filling the void as foreign funds sold stocks in Bursa to the tune of RM 23 billion to date in 2020. 

Conclusion :

The intent of this article is to alleviate some concern of readers and assist one in better understanding the situation with EPF moving forward in the near term. My humble view, if at all, the government should not be asking people to dip into their own future savings to save themselves but should use government internal funds to support these community. Funds allocated for select new infrastructure projects, repairs or upgrading of building work can be postponed as it is not of the utmost priority now compared to the livelihood. The increased allocation for controversial issues such as PMO, JASA departments can also be reduced to compensate for the shortfall. My fear is this allowance for withdrawal will set a precedent for the future and open the floodgates. After all, EPF is one of the last few bastion of our country’s esteemed institutions that have yet to be exploited at the expense of the Rakyat.

_______________________________________________________________

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


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


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


Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: 











Saturday, 21 November 2020

(Tradeview 2020) - Yield Will Protect Gloves Share Price From Falling Further





In 2019, EPF declared 5.45% Dividend yield for Conventional Deposits and 5% for Shariah Compliant Deposits. The Divided Yield is highly anticipated every year by savers especially retirees who would rely on yearly withdrawal to sustain their livelihood. If the EPF yield declared for that year is bad, there will be huge public backlash. Hence, Government of the day will do whatever they can to ensure dividend payout is good or at least above expectations.

Source : RinggitPlus

In fact, if we compare the pension fund returns for EPF to others around the world, our EPF has one of the best performance in the world. Now, when it comes to EPF savings, savers are very particular about dividend yield given. What I find strange is that majority of investors in the stock market, especially during bull runs is no bothered about Dividend yields. Naturally, these investors believes that the stock they are investing should give better returns in terms of capital gain compared to the miniscule dividend yield. 

Following the vaccine news announcement by Pfizer & Moderna, the vaccine positivity has led funds to rotate away from  high growth stocks to value stocks. A good example in Malaysia would be the shifting of funds from Tech & Glove stocks to Banking and some recovery themed stocks. This has resulted panic selling across growth stocks and panic buying in value stocks. This chart below as a comparison is very telling :








Now the question is whether such movement in the stock market is warranted? I think there are two points to this question.

One, there is a difference between value stocks and recovery stocks. Value stocks are company with strong balance sheet and fundamentals which business were somewhat impacted by the pandemic / MCO. The value stock has enough assets, cash to navigate through the pandemic without the risk of default. These stocks are like the banks, telecommunication, utilities  and insurers.

Two, recovery stocks are referring to companies which are mostly badly affected by the pandemic such as tourism, hospitality, airlines, retail, travel etc. These companies are not equivalent to value stocks because these companies may not have strong fundamentals to begin with. In effect, it means there is default risk to these companies. So I do agree in buying value stocks and always keeping them in your portfolio but I do not agree that one should look at recovery stocks any time in the near future. 

The reason is because even if vaccines are rolled out, it will be done gradually and the lasting impact of Covid-19 is not eradicated overnight. These recovery stocks will take a long time to return to pre-Covid 19 level earnings. Currently, the market investors or speculators are just riding on the optimism of reopening of economy and resolution of the pandemic ahead of time. This brings me to why Glove stocks are still necessary to be kept in your portfolio even after vaccine announcement.






For the longest time, Glove stocks were given many different categorisation by financial analysts. Some called Glove stocks as cyclical, some say defensive, some say growth but which category does Glove stocks truly belong to? 

It is cyclical in nature due to the events of the world (HIV, SARS, H1NI, EBOLA, Covid-19) and fluctuating raw materials cost (Latex Gloves depends on Natural rubber, Nitrile Gloves depends on Nitrile Butadiene Rubber which is linked to oil). Why then some call Glove stocks defensive? The key reason in my view is because of its designation as part of healthcare sector and it is apolitical with continuous demand over the years. 

In my humble view, Glove stocks are quintessentially growth stocks. There is no denying their growth stock nature just by looking at their earnings and share price chart over the past 10 years. But, due to the supernormal profits in FY 2020, 2021 and potentially 2022, Glove stocks are moving from Growth to Yield.






One of the key determinant of whether a share price moves up organically is earnings. Excluding M&A and corporate exercise, the direct correlation between share price uptrend is earnings growth. With earnings growth, the increased in profits / excess cash will be used to lower debts, pay dividends, investments, capital expansion or cash reserves. This is why I say Gloves are moving from Growth to Yield stock especially so within the next 1 year window. Just look at Top Glove as an example, it has in place a 50% Dividend Policy. Which in effect means, 50% of the profits would be used for dividends to reward shareholders every financial year. So let's do a simple back of the envelope calculation to understand the potential dividend that Top Glove will declare in FY 2021. 



Top Glove : 

FY 2020 Profit after Tax = RM 1.867 Billion              50% Dividend Policy = RM 934 Million 

FY 2021 Profit after Tax = RM 10.378 Billion            50% Dividend Policy = RM 5.19 Billion

FY 2022 Profit after Tax = RM 5.295 Billion              50% Dividend Policy = RM 2.65 Billion


The current share price is RM 7.30 as at 20th November :
 
The Dividend per share for FY2020 is 11.8 sens which translates to Dividend Yield of 1.6% 

The Dividend per share for FY2021 is 63.5 sens which translates to Dividend Yield of 8.7% 

The Dividend per share for FY2022 is 32.4 sens which translates to Dividend Yield of 4.4% 

Do you think the current share price of Top Glove is cheap or expensive based on looking at its earnings and yield? Objectively, it is undervalued even looking at FY 2022 where the analyst projects a fall in earnings due to the end of Covid-19 pandemic. Taking a normalise averaged out Dividend Yield across 3 years, Top Glove shareholders at current share price would enjoy 4.9% per annum.





Now, lets turn to Hartalega. It has 60% Dividend Policy where 60% of the net profits every financial year are distributed to reward shareholders. So let's do a simple back of the envelope calculation to understand the potential dividend that Hartalega will declare in FY 2021. 

Hartalega: 

FY 2020 Profit after Tax = RM 435 Million              60% Dividend Policy = RM 261 Million 

FY 2021 Profit after Tax = RM 2.88 Billion               60% Dividend Policy = RM 1.73 Billion

FY 2022 Profit after Tax = RM 5.07 Billion               60% Dividend Policy = RM 3.04 Billion


The current share price is RM 14.40 as at 20th November :
 
The Dividend per share for FY2020 is 7.75 sens which translates to Dividend Yield of 0.55% 

The Dividend per share for FY2021 is 50.5 sens which translates to Dividend Yield of 3.5% 

The Dividend per share for FY2022 is  88.7 sens which translates to Dividend Yield of 6.16% 

Similarly, do you think the current share price of Hartalega is cheap or expensive based on looking at its earnings and yield? Objectively, it is undervalued especially looking at FY 2022 where the analyst projects a continuous growth in earnings despite the end of Covid-19 pandemic. Taking a normalise averaged out Dividend Yield across 3 years, Hartalega  shareholders at current share price would enjoy 3.4% per annum.




You can see that company earnings, growth and yield are all correlated. The most important point to takeaway is this - the company's share price should be determined by its ability to deliver earnings first, grow earnings second and sustain earnings third. This will naturally form the transition phase of a company from growth to value to yield stock. 

With that in mind, do you think that the Glove stocks, both Hartalega (RM14.40) and Top Glove (RM7.30) specifically, would be trading at current price or even lower when the coming years they would be having a Dividend yield of 3.5% & 8.7% in FY 2021, 6.16% & 4.4% in FY 2022? Definitely no as investors and funds who chase for yields will move the share price up. The worst case scenario - you still get to collect dividend at a higher rate than FD.




I understand everyone have their own view and opinion on the glove sector because it is an industry that is relatable, understandable and Malaysia is the world leader. The scrutiny adopted towards the sector is of higher standard compared to other sectors because of the access to information and knowledge. Whether one uses DCF, PER, Dividend Yield or EV/EBTIDA to value glove companies, at the end of the day, valuation is an art, not science. There are many factors to consider and it is hard to say one's valuation method is better than the other.

This was an article I wanted to write a long time ago during the September Glove selloff. I held back from publishing because I was anticipating Glove earnings season would clash with a vaccine newsflow month which may lead to a potential selloff. I was hoping that readers and investors who are rational would be able to see the record earnings and not succumb to headlines news and fear to panic sell. Sadly, many neglected to view the facts & data objectively. Even some (not all) professional analyst were similarly panicking where their judgment was impaired by mainstream view and “herd mentality”.


The recent good news shows that what EPF is doing is in line with the key message in my article. EPF was the big buyer on 17th November 2020 (Tuesday) when gloves were still being sold off after Pfizer and Moderna announcement. EPF did not buy small as they bought close to 174 million shares more than RM 2 billion worth bringing them above the 5% substantial shareholding level. Hartelega being my Long Term Value Pick means there is little you need to worry about and EPF being a long term shareholder buying into Hartalega is a strong validation of this investment thesis. It is also a confidence booster to the sector.


My simple conclusion remains :

1. Severe shortage of gloves in the market, 
2. Earnings visibility for at least 1 year minimum for the sector, 
3. The companies will be delivering continuous record earnings in coming quarters 
4. Transition from Growth to Yield or Growth + Yield stock,
5. With the recent selloff, Glove stocks have become very attractive valuation wise. 

If you are wondering whether you should still hold glove stocks in your portfolio, that is a decision you must make on your own. However, the history of the financial markets has taught me that yield is very important to investors and funds, hence it will ultimately form the bottom to protect glove stocks from falling further. When the downside is protected, the upside takes care of itself.

_______________________________________________________________

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


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


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


Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: 










Friday, 20 November 2020

Tradeview Commentaries - Market Irrationality Swings Both Ways

         




Dear all, I hope my constant writing is not becoming a nuisance. I have been receiving many emails over the glove stock selloff by readers. Most are panicking as they see their portfolio profits evaporating since Pfizer announcement last week followed by Moderna last night. 

Investing requires knowledge, competence, strategy and importantly qualitative aspects that help you navigate the troubling times. It is easy to be a "hero" when the market is rallying, but the true test of your aptitude & character is during a selloff. One requires a calm and collected composure coupled with the nerve of steel to do well in the stock market continuously. You must be able to handle an irrational selloff of epic proportion to sustain, otherwise it is possible to be wiped out entirely. 

This morning, during the huge selloff for gloves, how many actually went against the flow to catch the bottom? Remember I have always said the best time to buy is when the fear is in your gut? Did you have that feeling this morning? If so, and you acted on it, you would be making good returns by the close of trade today. I am delighted to see the market closed strongly for gloves after the series of bad news on Top Glove factories, Moderna announcement and negative comments in the media by certain fund managers / research houses which impacted the gloves stock price further. But what I find the biggest irony is how certain individuals can flip their view overnight. I remember some were in fact big glove bulls just few weeks back. If a columnist or professional, keep switching his opinions based on the herd mentality, would you value his opinion? I am not saying that such opinion is wrong but there must be justification to backup an opinion. Investors, unlike politicians, we do not need to play to the gallery hence what we express should always be objective.  

As what I shared to my subscribers, this is how I view Top Glove negative news on Covid-19 cases - if  Top Glove production is hampered, it will only worsen the glove shortage as Top Glove supplies 26% of world market share. Clients have no choice but to buy from others even at a higher ASP to the address immediate demand. Having gloves at high price is better than no gloves due to the need to fulfill contracts with hospitals and end consumers. This will in turn benefit the other glovemakers unaffected. Why should the other glovemakers share price plunge irrationally? For Top Glove, they will need to draw on all their inventories during this closure and by the time their affected factory can resume operations, they will need to catch up with their new capacity. Failing which, the shortage persist and will drive the ASP even higher. 

Of course today's reversal may be just a technical rebound due to oversold position in gloves. But from the huge movement in the afternoon session, I believe it is the foreign funds who bought in. Maybe EPF. Some share buyback as well possibly. But retailers would be the smaller portion. If you believe in the glove story, it is not because you are irrational, after all irrationality swings both ways. Those who are advising you to buy O&G, Hospitality, Tourism, Airline stocks are the ones who are being irrational. The fact remains even if the pandemic blows over, will you resume travelling immediately, will you start flying again, will oil price suddenly spike without OPEC controlling supply? It will take 1-2 years maybe more before earnings recover to pre-covid levels. Glove stocks on the other hand are giving you great record earnings visibility for the next 1 year. So you have a bird on one hand, but decided to go for two in the bush?   

If I have to choose one metric to guide me in selecting stocks for investment, I would choose earnings. Apart from share buyback & corporate exercise, earnings is probably the only factor that have direct correlation to pushing share price upwards. Good luck.



_______________________________________________________________

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


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


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


Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: 





























Wednesday, 18 November 2020

Tradeview Commentaries - Learn To Separate Wheat from Chaff

        




Do not waste your time, effort and money on goreng penny stocks which promises the future potential earnings which likely does not exist. Those who talks about venturing into various new businesses such as gloves etc are often relying on sunshine and rainbows to attract naive new investors especially retailers. 

There is no way new entrants like them can compete with existing players with clientele, scale, technology know how and certification. While it is true that some select few new venture may be legitimate due to ex-management with experience being involved, majority are fluffy and dubious. If you want to put your investments into penny stocks that promises earnings, it would be wise to put your funds into the big established players which have shown you the actual earnings and continuous record high earnings yet to come. Many of the big boys like Hartalega, Top Glove, Kossan, Supermax, Riverstone are all at attractive prices again.

Do not let your hard earned money be taken away from you. Remember the saying - the market never fails to punish the greedy, the egomaniacs and the ignorant. Just because prominent investors or blogs promote it, does not mean it is true. Times are very tough, business is very hard to build and establish, making money isn't an overnight effort. Do not be caught up by wishful get rich quick promises. All the best and stay safe.

_______________________________________________________________

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


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


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


Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: 


























Monday, 16 November 2020

Tradeview Commentaries - Unwavering Confidence In Glove Makers In Spite of Vaccine Newsflow

       




The market sentiment over the week was a mixture of anxiety and joy. Joy for those who believed in value stocks and blue chips, whereby it surged tremendously. Anxiety however, are for investors of glove, PPE and related stocks which reacted adversely due to the news of Pfizer vaccine. 

On a positive note, following US elections and Pfizer vaccine news, foreign funds have been flowing back to Malaysia for 3 consecutive days and even exceeded 20% overall market participation level. 

In the coming weeks, there will be more vaccine news. It will likely be Moderna and Astra Zeneca to follow. Potentially, China vaccines will also come through with their phase 3 safety data. 

In this case, it will bode well for Value stocks (Banks, select blue chips) and Legitimate Vaccine related companies 

How about glove, is it all over?

Through the year, I have done many site visits personally and met with management of key industry players, even spoke with established distributors. Whatever I have shared are not information pluck from the sky based on airy fairy hopes but on objective facts. I will update all my latest view post-Pfizer announcement. 

1. Earnings visibility for gloves are still at least 12 month / 1 full year through 2021. (This is not a disputed fact even by the most bearish analyst for the sector. )

2. Vaccine or no vaccine, ASP and demand won’t fall off the cliff. (Again not disputed fact even by the most bearish analyst)

3. Mass vaccination will take time, and implementation for the world even longer. At the very least 1 year. (This is a fact stated by WHO & Dr. Fauci.)

4. Glove strong demand due to severe shortage will last through to 2022. New hygiene practice and structural step up, increased healthcare budget for governments around the world and stockpiling requirements contributes to this. (This is a fact)

5. Potential future oversupply concern. (Two camps arguing with 1 side arguing due to new entrants there will be oversupply but I don’t believe this as new entrants can’t compete with established players due to certification, safety standards, economies of scale and technical know how)

6. Eventual decline in mid 2022/2023 for ASP and demand (strongest argument for glove bears. My view - I can’t tell what happens in 18 / 24 months. No one can. As the time progresses, more visibility comes through. But I believe ASP will plateau later than sooner, definitely not this year) 

7. Glove stocks are overvalued. These are noises by naysayers and bears. No matter which method I adopted, PER multiples against past year Standard Deviation, DCF or the most accurate EV/EBITDA (EV ratio), dividend yield forecast, gloves stocks are undervalued and a mile from being overvalued. This is a fact. If analysts are objective and fair in their assessment for all companies in Bursa using the same stringent assessment scrutinising glove stocks, there will be absolutely no companies that we can buy or invest anymore. Tech stocks are by far grossly overvalued, recovery stocks like airlines / tourism are taking into account future earnings which does not exist, local vaccine related stocks with MOU has no proof of ability to deliver as the best vaccines are taken up.

In a nutshell, I think some investors and select funds are overly conservative in valuing glove stocks. They are worried being caught as the last one holding the stocks choosing to forego 1 full years of record Profits and potential bumper dividend.

Use this opportunity to buy on weakness. When value emerges ignore the noises. I think Riverstone, Hartalega, Top Glove, Supermax, Sri Trang, Kossan are good fundamental companies worth a place in your portfolio regardless of the “overnight vaccine experts” who think otherwise. 



_______________________________________________________________

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


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


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


Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: 



















Tuesday, 10 November 2020

Tradeview Commentaries 2020 - Pfizer's Vaccine Is Not Distributed Via The Rain (Importance of Diversified All Weather Portfolio)

      




KLCI Bursa has not rallied in such record quantum in a long time (3.3% for the day). The vaccine positivity truly spread across global markets with huge funds rotation away from Glove and Tech stocks into recovery, laggards and beat up stocks. 

Today by far, I received the most questions from readers who are panicking over the selloff in glove stocks. The common 2 questions : Should I sell / cut loss now then buy back later? & Should I buy O&G, Tourism, Recovery stocks? I will be blunt - both are wrong questions to ask.

In my Principles of Investing article series, Rule 4 - Diversification Is the Best Defence written in my blog April 2020 shortly after the "March Plunge", I emphasised the importance of having a diversified portfolio and techniques of doing so. Often when the stock market or particular sector is doing well, investors forget about this important rule. Only when something bad happens, the "what ifs" comes in. 


Most readers know I am one of financial writers who is very confident with the prospects of Glove stocks. I have publicly written on 5 of those. Am I still holding gloves in my portfolio, the answer is yes. Am I still confident? The answer is yes. Do I intend to buy more glove stocks? The answer is yes but on weakness. Where does my confidence stem from despite the announcement of Pfizer's "Great News for Mankind" yesterday? The answer is fundamentals. 

As a fundamental investors, I look at the earnings, yield, balance sheet, prospect, management and various factors assessing the company before deciding to buy. If there is no structural change to a stock, my view remains valid. However, if there is structural change to the company, I will make an objective decision whether to buy or sell. So the fact remains - glove stocks will have earnings visibility for the next 12 months, minimum. Vaccines cannot reach most of the population in the next 12 months. Remember, Pfizer's vaccine even if proven 90% effective, it is not distributed via the rain, where it pours over the globe to vaccinate everyone and eradicate Covid-19 overnight. 

I do not deny the risk for the investment thesis of gloves have risen. But it also does not mean the investment thesis for recovery / laggard stocks automatically becomes viable. Many are loss making and will continue to suffer, the worst being tourism related and oil & gas. The Pfizer vaccine or others to follow reduces the default risk / bankruptcy risk of these companies. That is the important truth. 

Coming back to my topic. Diversification is a form of risk management in investing. When one falls, another rises. Then it covers the losses and ensure your position is hedge against any form of potential "black swan event". This is why I am confident to buy and hold gloves stocks as well. I am not a thematic investor, I do not look short term. I invest to build a portfolio for a sustainable returns over a long duration in time. This means I invest whenever I see value, not when the news reports something. 

Do you all remember in my last week commentaries I shared publicly some of the stocks I have advocated to my private subscribers to buy on weakness before the US elections? In the list, there was only 1 glove stock amongst all. You can refer to the picture again above. All of it today, has rallied and cover the fall in gloves stocks. It negates the potential impact if I were to only hold a single sector stock. 

This brings me to my key message. Avoid chasing stocks that has rallied, always buy on weakness and you will have the margin of safety to protect you. Avoid rushing to buy on dips, exercise patience, let it settle and buy when you feel the fear in your gut. Lastly, headlines creates gyrations. Market is never rational, that is why it moves up and down. Often the sways are very violent in one direction or another, but at the end of the day, it will normalise and find an equilibrium. This too is a fact.





_______________________________________________________________

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


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


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


Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: 















Thursday, 5 November 2020

Tradeview Commentaries 2020 - Budget 2021 Preview & US Election Conclusion (No Windfall Tax for Gloves, Expansionary Budget 2021, Biden Wins)

      



Dear all, this is my 3rd commentary in 1 week. The last time I wrote so many commentaries in a span of a week was during the panic / massive selloff of Glove stocks between end August - September. This time is because this past week is probably the biggest week of the year packed with all major events globally and domestically. 

I am not a Guru, not a Sifu, but I am an objective financial writer. I believe readers who have read my writings would agree I share my opinions on matters from a macro view down to the specific stocks with integrity. The most important trait of being a writer is to be responsible for what you write. What you write must be consistent and can be validated. Also you must walk the talk. With that your reputation will be one that is honest, accountable and transparent. 

I have written many times in the past year that I do not believe Glove stocks should be subjected to windfall tax, as it is not a commodity like Palm Oil and Oil & Gas. The mechanics will not work because glove companies manufacture various kinds of products and gloves with different classification across. In addition, Glove companies DO NOT receive subsidies unlike commodities. Furthermore, the Government through corporate income tax would benefit greatly from any supernormal profits. That would make the most sense in terms of revenue collection. Otherwise, being selectively arbitrary to target private sector companies that are doing well is anti-capitalistic / interfering with free market economics. This would attract negative repercussions as it does not instil confidence of investors in your financial markets. Ant Financial's IPO last minute suspension by Chinese regulators should serve as a stark reminder. Therefore, I will reiterate here that Glove stocks should not and will not be subjected to windfall tax in Budget 2021. Any irrational selloff should be a window of collection. If indeed it happens, it would be morally unconscionable as government around the world are supporting and giving incentive to the healthcare sector in the fight against Covid-19, not otherwise. 


With regards to the overall Budget 2021, it will be one of the most expansionary budget (fiscally) as the government have been given the mandate to resuscitate the economy at all cost due to Covid-19 pandemic. Politics aside, all parliamentarians would want a budget that can help the people and the economy.The Government also have the approval from earlier August 24th Parliamentary session to raise debt ceiling to 60% for this fiscal policies. If the Budget 2021 meets or exceeds expectations, it will spur a broad based relief rally across all sectors, not only glove stocks. 

Lastly, after 2 days since US Election day, the final results are still in tabulation due to record voting and mail in ballots. As per my earlier forecast, Biden will win and squeak past Trump. A Biden win is the return to normalcy / normalisation of global politics, economics and rebuilding of foreign diplomatic relationships between nations. If Trump concedes and dont drag it out with court case, it will be best for everyone. Otherwise, any irrational selloff is  a buying opportunity. I have said this as well through the week. My screen shot below shows my recent buy call for my private subscribers during the irrational selloff through the week.



I am human and subjected to fallacy as well. Mistakes are common but I believe what I have written so far is unlikely to be wrong. All the best. 

_______________________________________________________________

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


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


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


Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: