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Monday, 26 October 2020

(Tradeview 2020) - Flash Crashes Come & Go, Do Not Fear. Ride It Out.

     


Major events are catalyst for the stock market. Depending on the outcome, more often than not, a knee jerk reaction is triggered. For those who have position in the stock market, the dilemma of holding or selling becomes the million dollar question. 

2020 is a truly extraordinary year. It is extraordinarily worrying and uncertain. For Malaysia, the people’s mandated government fell due to Sheraton Move. Then the Covid-19 pandemic exploded globally. Yet in the middle of all this, the stock market went through an extraordinary period of boom due to the reactionary monetary policies from the federal government. 

From the lows of March 2020, the stock market went through a V shape recovery before hovering around 1500 levels. It is now end October. In another 1 week, US will be having their election. Globally, it is the most important macro political event as it impacts the global economy especially after 4 years of Trump’s rule. Under Trump’s Presidency, trade wars between nations commenced, trade agreements & international accords were abandoned, multilateralism & globalisation were replaced with unilateralism and nationalism. Again, all these happened whilst a global pandemic swept the world. 




Coming back to the domestic front, it would now appear that Malaysia is going through its own major political event. With the incumbent PN Government seeking to stay in power via “Emergency Declaration”, that was a risk of triggering a huge selloff for the stock markets. Foreign investors be it in the stock, bond or FOREX market do not like uncertainty. What they dislike even more is the erosion of democracy and free markets. In the event this “Emergency Declaration” is allowed in whatever name or form, it would be tantamount to a subversion of democracy and in turn the free market as an authoritarian government doesn’t require Parliament endorsement for its action allowing executive branch of the Government a free hand to enact an laws, policies and orders they deem fit. Thankful, this democracy crisis was averted yesterday when the King rejected the proposal by the Prime Minister. 


My biggest concern however has always been the US Elections 2020 as its the major political event for the world. The outcome will either roil or rally the markets globally, including KLCI. It will also determine if the stock market recovery of Bursa is L shape or W shape. In my view, most funds be it foreign or local have been selling off to raise cash and stay sidelines. In the event of a steep selloff, their position is protected and they have cash to manoeuvre.



 



This is one of the rare video interview of Warren Buffet when he was only 31 years old and his views on the 1962 flash crash. I think its apt for me to share this as I believe the potential selloff in the coming 1-2 weeks is temporary in nature and not caused by structural or fundamental change to the economy. 





Majority of retail investors loses money. From my experience, even many professionals / experts loses money from investing. This is because investing based on sentiment and herd mentality doesn’t give you an edge over others. The stock market is a zero sum game where when someone wins another loses. Most who are successful in the stock market or in life for that matter definitely would have extraordinary traits that the majority doesn’t possess. One may be extremely intelligent, prudent, brave, patient or lucky. Any of the traits mentioned, if you have one over the others that means you have an edge. 

My readers would know by now I am a contrarian investor. I do not go with the common view. This is because I am objective. Just because select media, analysts or funds thinks in a way doesn’t mean I will follow. Being objective and impartial in my view allows me to make the best decision based on the circumstances. However, as a believer in buying on weakness, selling on strength, potential flash crashes in the coming weeks will provides good  opportunity for me to enter the market. 

KLCI apart from the healthcare and tech stocks, majority especially traditionally strong blue chips companies has been whacked down terribly. I have not seen Tenaga below RM 9, Genting below RM3, Axiata below RM3 etc for a long time. However, these Foreign fund favourite stocks are being punished for a reason. It is also in line with the fact that foreign fund have been ditching out share market for a long period now. I believe strongly this is related also to our unstable political situation. 

In my article last week, I stated “if the healthcare index do not perform and continued being sold off, nothing else will do well. Possibly tech sector may still sustain (but bear in mind if anyone thinks Gloves are overvalued, tech is 3 times overvalued). This means, no other sector will generate returns and yields to the funds in the next 1 year if the healthcare sector is dismissed as game over.” 


There are only 2 courses of action for investors in the event of a market selloff. 

1. Either you stay sidelines and observe (wait & see); or
2. You buy on weakness in batches (scale your entry)

This is on the assumption that you have cash on hand. Panic selling, which most retail investors do during a market selloff , is the sure way to lose money. This is because panic selling leads to even more vicious selloff and you neither benefit by selling at low price or when the market rebounds, you have no position on hand to capitalise on the uptrend.

No one knows what will happen in the next few weeks. Whether current incumbent government would still be in power, whether a new leader will emerge, whether Trump or Biden will win and so on. But I know the pandemic would still be around and vaccine which may or may not be approved by November would not eradicate Covid-19 in the next few months. This means if you adopt either of the 2 choices above, your best bet for buying on weakness would only be the glove sector and select blue chips. This is a foolproof playbook. 

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Food for thought: 












Friday, 23 October 2020

(Tradeview Commentaries) - When Healthcare Sneezes, KLCI Catches A Cold

     



I was driving on the road past few days and with the CMCO reimposition in the economic heart of Malaysia, I realised everyone is suffering. Big business or SME, this Covid-19 pandemic has delivered its second blow towards the country's economic health. The haste and lack of clarity by the Government in re-imposing this CMCO has caught many off guard once again. Around the commercial square near my office, I saw many roller shutters which were closed in March never to open again. Those survivors from the first lockdown, would likely not survive this second round. Unlike the first time, there were still moratorium for loans, this time, most would have exhausted their reserves. 

It is extremely unfortunate but this pandemic truly taught me the important of cash reserve. Having cash reserve isn't enough. The usual practice is 3-6 months of cash in hand. This pandemic is coming to a full year. If indeed a company has only 3-6 months of cash in hand, technically, they would have gone under by now. This further highlights the importance of being net cash with minimal debt.

This economic downturn will have lasting effects as well. It will take time to recover and the impact will change the old ways of doing things including adoption of technology be it for delivery, connectivity infrastructure, working from home, ecommerce etc. From a hygiene practice angle, the importance of PPE stockpiles & R&D or biopharma technology will take precedent in the the progress of society. 

If we are to look at investing in be it in our local market or foreign markets, there are only very select few sectors that one can safely put their funds. I remembered few months ago, many of my readers asked me about Disney. They told me this is the best time to buy Disney stocks because 1. Disney+ streaming service 2. Marvel & Star Wars series 3. Theme park will return once Covid-19 is over. Disney is the prime candidate for recovery play. Sadly, Disney announced it is laying off 28,000 employees on 30th September August. Such a strong blue chip company with solid balance sheet also have to resort to cost cutting measures to stay operational, what more the others? 




This brings me to my topic. I am a believer in buying on weakness, selling on strength. I am also a strong contrarian. I bought heavily during the 2020 March plunge. I would say almost 90% of my cash were ploughed into the market in March. Reason I am sharing this is to show you evidence that I am a strong believer in recovery ahead of time. But I do not see signs of recovery anytime soon. They always say share price moves 6 months ahead of time. Hence I can understand why there are strong arguments from certain media commentators, analysts, funds industry experts who says gloves stocks are over, its time to rotate to recovery. They said that in July, August, Sept, October. We are heading into November now. Those who started buying then, have lost money heavily. They moved too soon believing the "market talks" of Vaccine by October and miracle disappearance of the pandemic. This wishful thinking is similar to that of Trump. It is nice but wishful. 

I would put it bluntly, if the healthcare index do not perform and continued being sold off, nothing else will do well. Possibly tech sector may still sustain (but bear in mind if anyone thinks Gloves are overvalued, tech is 3 times overvalued). This means, no other sector will generate returns and yields to the funds in the next 1 year if the healthcare sector is dismissed as game over. I believe strongly that only glove stocks have the earning visibility minimum 1 year ahead. As of now, even Hartalega, Top Glove, Supermax, has come out to say their capacity is fully booked till end 2021. No longer 1H 2021. Its end 2021. 

Do not be afraid of mini sell offs or profit taking by funds. Gyrations are normal. Be objective in your analysis and you will do fine. Similarly, be prudent but buy low sell high.

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Food for thought: 










Monday, 19 October 2020

(Tradeview Commentaries) - Best Time To Buy, Is When The Fear Is In Your Gut.

    



    

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 : [email protected]
__________________________________________________________

Since 12th August until 17th October 2020, I have written : 
  • 17 commentaries (more than 10 on Gloves)
  • 10 articles (more than half on Gloves and vaccines)
I wrote increasingly frequent as the market plunge and less so when the market rebounded. This was the same back in March plunge 2020. I believed readers and retail investors needs the most guidance and assurance during the selloff instead of good times. It’s presumptuous to assume my writings can calm the market but there were many other good financial writers who wrote sensible, wonderful and powerful articles which helped our investment community stay calm in the face of extreme panic selling back in August / September. 

I remembered one of my long time subscriber asked me during the height of the selloff “Why is the market ignoring stellar results and although earnings defies expectations, analysts still downgraded the Glove stocks as though it’s overvalued penny stock? What should I do now?” My answer was simple : “Now is the best time to buy because you feel the fear in your gut. Others would too.” He bought then. And he sold today. 
 
My sharing today focuses only on one key message to investors and readers of mine. You all know I have been writing for many years now, long before all these FB live “Gurus”, “webinars coaches” etc became normal. All my past writings are in my blog and channel. So you all know, I am easily one of the most transparent, honest and accountable financial writer in the investment community. I am not promotional and definitely put my readers interest at heart as I know majority of retail investors use hard earned savings to invest in the market. If you really want to achieve financial independence or consistent supplemental income, digest the message I am trying to convey - the only way you can survive and excel in the share market is to be :

1. knowledgeable (overcome ignorance) 

2. humble (overcome ego)

3. patient (overcome greed)

4. committed (overcome laziness)

5. courageous (overcome fear)

6. convicted (overcome indecisiveness)

Do not waste time with penny stocks based on tips, do not be swayed by noises / negativity. Use logical deduction, common sense and reasonableness whilst focusing on fundamentals and earnings as well as balance sheet of a company. 

This entire saga of Glove sector is an evident testament of it. It is in fact one of the most memorable investment experience of my life and a defining moment in my investment journey. 

Most of you who are still holding glove stocks, I am sure you understand what I mean. Those who are no longer holding or refuse to invest in glove stocks, if you let down your ego, you will comprehend what I am saying. 

Riverstone, Hartalega, Top Glove, Supermax, Comfort, UG Healthcare, Sri Trang share price are all driven by fundamentals. Essentially, fundamental earnings will always dictate share price movement regardless of the criticisms, negativity and adversity. Those are just noises and gyrations. Those who called recovery play asking others to rotate out of gloves to oil & gas, retail and tourism stocks are now being punished by the market for moving too soon. Ego and ignorance are being punished, losing money is just a byproduct. 

And those who were sensible and held on probably made even more than the first round they invested in gloves stock this year. We, as Malaysian investors are very lucky because we have an entire glove industry that is supporting the KLCI Bursa and delivering strong earnings which translates to income for many households including my own. We have the access to the opportunity of a lifetime for investment which other financial markets don’t simply because Malaysia control 65% of gloves market share. 

I decided to take this opportunity early in the year, more so during middle of the year and again during August & September selloff. I will be the first to admit publicly, it is not easy going contrarian against the market sentiment & momentum but this is one investment experience of a lifetime which I do not regret one bit. 

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Food for thought: 









Saturday, 17 October 2020

(Tradeview 2020) - “Principles of Investing - Rule 5 : "Be Cynical, Be Skeptical & Always Avoid Tips”

   


    

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 : [email protected]
__________________________________________________________

With CMCO being reimposed for the next 2 weeks in the economic heart of Malaysia, many have re-started the previous work arrangement of working from home or at least alternate rotations. I believe this would once again attract retail investors back to the market due to the flexibility in work schedule. Hence, it is timely for me to share this article. 



This year in fact is a record year for retail investing in Malaysia. Due to the lockdown as a result of the pandemic, retail investors flooded into the share market. However this is not a phenomenon unique to us. India, South Korea, US, China and many other countries experience the same thing. There is a good article by CNBC on Malaysia retail investing, you can check it out here :











This reminds of an incident from few years ago when a subscriber told me he invested in Sumatec. I asked him “why did you buy Sumatec? He said because the volume is big, everyone is talking about it, share price went up a lot and rumour is Halim Saad driving share price up as he is going to inject Kazakstan oil & gas business into the vehicle”. Today, Sumatec is worthless. The rumour never materialised and many retail investors got burnt. 




Whenever this happens, I feel very helpless. Majority of the retail investors are either new investors, retirees, working or middle class with insufficient exposure or in-depth knowledge of the financial world's inner workings. Many worked hard to make a living and with the savings, invest in equities hoping to get extra income to supplement their living expenses or put their children through college. Majority end up losing more money than they actually invested. This leads to vicious cycle. Very few successfully invest their way out of the low or middle income trap. It pains me to see this and it has happened to even close friends and family of mine. We must understand that the share market is a ruthless place where it punishes those who are ignorant, greedy and stubborn. Let me share the example of XOX Bhd.



Few months back, the forum was hot with news on XOX grand revival due to the entrance of a man with the name Daniel Tam. Even the local mainstream news reported this as shown in the above picture with this headline. I am not sure if it was an error by NST or it was a collusion between the reporter and the syndicate. This Daniel Tam was actually an executive / shareholder in We Solutions Ltd. A jewellery company  which was transformed to an electric vehicle company. It was renamed today to Apollo Futures Mobility. Li Ka Shing and his foundation invested in We Solutions Ltd some years back. This Daniel Tam is not a director or shareholder of Li Ka Shing’s Cheung Kong Holdings. The news report by NST totally confused between Cheung Kong Holdings belonging to Li Ka Shing & Chong Kin Group Holdings Ltd belonging to Daniel Tam's own private vehicle. So basically whoever that is trying to play up this wrong / poor reporting - was trying to manipulate (goreng) the stock. My advice back then to my readers and subscribers was definitely to stay away from XOX. What is the price today? It went to a high of 30+ sens and plunged to 12 sens today. I wonder how many retail investors are still trapped in XOX today?





This is but only one company I am highlighting. Definitely, what is done by XOX and the operators / syndicates behind are grossly unethical, morally wrong and bordering on criminal. However did our authorities like SC act on it? Recently, The Edge also did very good investigative journalism on the Hidden Hand behind Penny Stocks surge. They have done a similar reporting in 2016 as well. By right, retail investors, as long as you google and do your simple research, you would have come across the syndicate operated companies which you should stay away and avoid.

2020 : 


2016 :








These are not new names. Maybe some are even the same company but names has been changed. With evolution of time, probably now with different modus operandi such as using social media and apps or fake gurus using facebook live. Of course, the argument at large is willing buyer willing seller or greater fool theory. Some even argue speculations indicates a healthy and vibrant market. My view is different - a healthy and vibrant market does not equate allowing operators the free hand to cheat, lie, misrepresent or mislead. Indeed, today's investors are more astute then years ago. However it doesn't mean that using fake MOUs or  announcing questionable deals with no facts & figures to back up which subsequently doesn't materialize should be allowed. Those with basic legal knowledge would know that MOUs are not legally binding but merely an expression of intent / interest. It is not the same as signing an agreement with actual transactions / consideration made. Looking at the list of stocks above, I would say majority of these names should be avoided at all cost.




This year, the returns from FBM Ace exceeded 120% and FBM Small Cap exceeded 60% from the March lows. FBM KLCI however only rebounded 20%. This essentially means if you put you investment capital in the Ace market in March, the chances are you would have doubled your money compared to KLCI stocks. Realistically speaking, are small cap or penny stock earnings doing much better than big caps? If anything, blue chip companies have sufficient cash reserves or borrowings to ride out compare to smaller companies. Hence, this disjunct between reality and expectation has widened significantly due to in flow of retail investing.



Before Jho Low, there was John Soh. One of the biggest market manipulators in his heydays with many "disciples", he is currently implicated as the mastermind in the SGX penny stock scandal. His pump and dump operations evolved and grew bigger over the years and many of his stocks that were manipulated trap and burnt retailers badly. Should we pity those whose money was trapped because they speculated on the penny stocks related to John Soh? Some say no. For me, I still feel sad knowing retail investors lose money to syndicates or operators unless of course the retail investors keep making the same mistake or driven by greed and stubbornness.

To be a survivor in the share market, it is of utmost important for fellow investors in the market to Be Cynical, Be Skeptical & Avoid Tips. Simply because :

  1. Hearsays are often truth mixed with fiction
  2. When the "tips" arrive to you, it must have gone through many channels which means more often than not, the good news have been priced in.
  3. Not being in the operators' inner circle, you will never know when is the bottom to enter and when is the peak to sell. If you are lucky, you get out before the dumping starts otherwise you are caught.
  4. Even insiders make mistakes and have incomplete information flow. So unless you have the full picture, there is no way of knowing what is actually happening.
  5. The saying "Buy on Rumours, Sell on News" is overrated. Truth is when the news is out, its usually too late.

I would encourage all readers to focus your energy and effort on understanding a business of the company you are considering to invest than to seek out rumours / hearsays / "tips". Stay tune for my next article “Principles of Investing - Rule 6 :  "Comprendo, Invest Only In What You Understand.”
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Website / Blog : https://www.tradeview.my/


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


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Food for thought: 











Wednesday, 7 October 2020

(Tradeview 2020) - Malaysia's Gloves are like Swiss Watch. Simple Purpose, Intricate Process.

        



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Fellow readers who follow my articles would by now know I am a strong believer in the Glove sector and absolutely find the investment thesis for Glove stocks attractive even at this juncture. The recent end August-September sell off (the longest sell off and recovery, almost 6 weeks to return to earlier levels) was like a lightning bolt that jolt investors and the market. It was swift, strong and scary. I believe most retail investors would have either panic sell or seek to pray to almighty for some reprise. 




This was made worst by the naysayers reports, comments on media and string of news cycle that punished the glove stocks further. The apparent "nail on the coffin" was when a major local fund sold down the stock desperately for income recognition purposes. In my prudent estimation, I think billions worth of glove stocks was sold off by this major local fund alone in that duration. I may be wrong on the figures but ready to be corrected if proven otherwise. 




If not for the massive corporate share buy backs from Top Glove, Supermax and insider buy backs by Hartalega, Kossan and Riverstone, I believe investors' confidence would be further eroded. Then came EPF charging with guns blazing across all Glove stocks even UG Healthcare (Sg Listed) becoming substantial shareholders in most which was a true sign of confidence to the market. We must also note that President Trump who was infected by Covid-19 further heightened the awareness of this frightening pandemic where the most powerful leader of the free world is not spared. Then our own local Covid-19 second wave begun which started emptying malls and keeping people indoors again. The culmination of factors led to a strong rebound in the sector for the past week. 



This series of events led to a very obvious conclusion - many retailers, investors, authors, professional managers are driven by sentiments rather than facts / objectivity in their investment decisions or opinions. The innate nature of man is to seek solace and comfort in consensus. A simpler word - herd mentality, following the flow. Few and far between can take a contrarian view and act on it. And this is why majority of the people loses money when investing. If you can overcome this - you will be the minority that makes great investment decisions.




Looking back at all my articles, commentaries on my blog and telegram channel, you all can see every time the market sells off, I would write profusely in a bid to highlight to readers to remain calm, steady and take this opportunity to buy on weakness. When that feeling in your gut is at its max, that is the best time to buy. I for one knows it is very hard to execute. It took me years to do it and up until today, both myself and my subscribers are learning to adapt to new situations everyday. During this recent selloff and with the market rebounding, we are seeing the value of patience, objectivity and staying calm being rewarded. 


So why am I confident with the glove sector? I am not sure how many investors or professional managers have personally done a site visit with management of a glove company. I am fortunate to be able to do it multiple times over the course of past 1 year. As an outsider of the industry, I would describe well run glove companies are like classic watchmakers such as Rolex, Patek or Audemars Piguet. The function of a watch is to tell time. Simple purpose. But the process and machineries behind is a culmination of years of R&D, design and precision engineering. 




Glove is the same right? Its just something you wear on the hand. Simple. But each process of glove making from the boilers, dipping lines, packaging, testing, delivery have to be seamless and precise. Especially now, with constrained capacity and factories running at close to 100% operational capacity, the margin of error is so small that any slightest mistake would be immensely costly. Why is Rolex sports model selling at crazy price in the second hand / grey market? It is so ridiculous to a point that when you buy select models from a official retail store, the moment you walk out, the watch doubles in value. Think Submariner, Nautilus, Royal Oak and those in the same class. 




The reasoning for Rolex sports model watches being in demand is really quite simple : 

Demand has risen due to rising class of affluence, social media and appreciation for the finer things in life. 

Supply on the other hand is constrained. Rumours are Rolex only manufactures 1 million watches per annum and of these only a small allocations are sports model watches. 

Hence, when demand far outpaces supply met with constrained supply capacity, the price will just keep on rising. Even if it hits a plateau, it will remain elevated provided demand tapers or supply rises. Rolex keeps supply tight.  

Now apply the same reasoning for Rolex sports model watches to Nitrile Gloves : 

Demand has risen due to unprecedented pandemic sweeping across the globe for a prolonged period of time (almost 1 year now) 

Supply on the other hand is constrained. Medically certified grade or FDA approved Nitrile Gloves are wildly in demand compared to Latex, Vinyl and others. 

Hence, when demand far outpaces supply met with constrained supply capacity, the price will just keep on rising. Even if it hits a plateau, it will remain elevated provided demand tapers or supply rises.   




Just like watches, there are many brands and tier 1 brands are Patek, AP and Rolex. Some would argue Vacheron Constantin, A. Lange Sohne should belong up there too. Then of course you have your other brands like IWC, Breitling, Hublot, Panerai etc. (Note that I am excluding Richard Mille and the likes as those are out of the norm.) For Gloves, especially Nitrile Gloves, the Tier 1 gloves manufacturers are Hartalega, Riverstone and YTY. Therefore, like how Swiss watches commands the respect of the world buyers, when it comes to gloves especially Nitrile Gloves, Malaysia's glove makers have the same status as Swiss watchmakers.

These Glove makers have proven time and again they deserve to be where they are today. Ignore the noises, stay objective and take this opportunity of a lifetime to make a great investment decision where most investors in the world do not have the same access. 

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


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


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Food for thought: 








Wednesday, 30 September 2020

(Tradeview Commentaries) - Looking Ahead to A Volatile October Election Month

       




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Today’s Q3 window dressing ended with a whimper. It appears that there is not much push upwards and plenty of profit taking especially in the glove sectors. It is my view the closing is directionless and may be a signal for the October market direction - either sideways or downward bias. I would like to be wrong. From the macro perspective there is an overwhelming pressure to stay sidelines or hold cash, but from a valuation or bottom picking view point, the market currently gives many opportunities. 

Of course many would like to wait and see the outcome of US election, impact from end of moratorium, Covid-19 vaccine approval prior election, and Covid-19 situation. In Malaysia itself the cases are on the rise. I believe most who were bullish about vaccines are now questioning the timeline and potential efficacy. This would mean Glove sector has longevity in terms of the investment horizon. At Tradeview, we are still very confident with the Glove stocks especially after tonight’s news confirmation indicated to us the earlier sell off of the glove sectors was likely due to a particular Local Funds need for income recognition to declare dividend for their unit holders.


  
In terms of price movement, I think this recent retracement is healthy if it can stay above these levels to form a support for higher price rise. Do remember, those who can sit tight are usually the one most rewarded. 

As we enter US final campaign period, the volatility heightened as expected. Domestically, the political risk subsided following Sabah election. 

How should we move forward? 

Maintain healthy cash position and don’t be too concerned with gyrations. If you are holding a fundamental value stocks with good earnings prospect, all is well. But if you are still holding penny stocks based solely on rumours and news with unproven earnings visibility, it may be a good time to be afraid.




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Food for thought: 




Saturday, 19 September 2020

(Tradeview 2020) - Long Term Value Pick 5 : Hartalega Holdings Berhad (5168) The King of Nitrile Gloves

       


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Hartalega came out very strong during the recent AGM. What I like about Hartalega's message is the confidence it gives to the shareholders and market including their statement when asked on analyst earnings forecast : 

KUALA LUMPUR (Sept 16): Hartalega Holdings Bhd, which expects an additional demand for 120 billion pieces of disposable gloves in the next three years, does not foresee any sharp earnings contraction after 2021 as some analysts anticipate.

"The analysts are correct [on the earnings forecasts]. But when it comes to the third year, after 2021, they start to give us [earnings] contraction... and [it's] a very sharp contraction.

"I mean this is an opinion, right? They can be right at the end of the day. I do not know. But by my guidance, what the analysts have said cannot be right,” Hartalega's executive chairman Kuan Kam Hon told the media after the group's annual general meeting yesterday when asked to comment on analysts' earnings forecasts.

"We are on the ground. We have been in the business for the last 30 years and analysts are not able to see what we are able to see," he added.

This has been a strong point of contention in the markets between two camps - those who believe in the glove story and those who don't. Particularly, this is especially poignant when this concern was highlighted by 3 research houses namely JF Apex, Ambank and Macquarie. The 3 of this relied on this fact to give justification for their bleak outlook of the sector. So which is which? Is Mr Kuan, the industry titan correct or the analysts?

Lets have a look at this 3 minutes long video below from the AGM which gives a very good flavour :





As mentioned before, for a stock to go up and share price to rally, the majority of market participants must believe in the story in order for the buying momentum to outweigh the selling momentum. I have written extensively on glove stock and the sector so I wont repeat what was shared earlier. 




I would like to take the opportunity to zoom in and focus on Hartalega following the AGM. The few key takeaways which convinced me to consider Hartalega to be my 5th Long Term Value Pick are as below :

1. The visibility of earnings for the next 2-3 years minimum. Please note I am not citing the lock in committed order of 18-20 months. But potentially 3 years - 36 months. The issue here is no longer about ASP and deposit paid for locked in order. It is the issue of structural change in demand due to hygiene practice resulting in continuous shortage of supply against demand. 

2. Management years of experience as pioneer and market leader carries more weight than analyst. Some owners of companies' are promotional and lack credibility. Not the Kuan family. They are known to be hardworking, humble and ethical in their conduct of business. This is the market reputation and street credentials. This is what I value most in a business. Strong management running a quality business.

3. The expansion and succession plan are all in place. By his side, Mr Kuan junior demonstrate eloquence, stability and knowledge. Furthermore, with NGC 2.0, by 2027, the group's total annual installed capacity shall increase to 95 billion pieces per annum. As shareholders what we like to see is both expansion for growth and succession for stability. This will allow us to decide the investment horizon to longer term.

4. Premium valuation. Don't get me wrong, I am not recommending to buy stocks at expensive valuation. What I meant is, the market will always accord premium valuation to companies which are fantastic. Paying a fair price for a wonderful business is more important than paying a cheap price for a good business. Currently, if we compare to others, Hartalega is no longer trading at a huge premium unlike before Covid-19. In fact, if you were to consider Hartalega now, you are investing in this good business at a fair price with strong outlook and growth prospects. Top Glove and Supermax are the earliest to hike their ASP significantly. Hartalega, Kossan and Riverstone hiked the ASP much later as they value long term business relationship and committed to earlier pre-Covid 19 ASP. Hartalega and Kossan both has recently indicated that for future quarters, they will be hiking ASP significantly in the range of 30-50%. This leaves room for imagination on their potential upside.






5. Prominent substantial shareholders including their major client Medline Industries Inc. As per the latest list of 30 largest shareholders in the 2020 annual report, we can spot big names like Great Eastern, AIA, GIC, EPF, Norges Bank, Vanguard Emerging Market Index Fund, Australia Employees Superannuation Trust, Prudential amongst others. Big names aside, what impressed me most, is the fact that Medline Industries Inc from US which is one of the biggest privately held manufacturer and distributor of medical supplies is the 7th largest shareholder of Hartalega. Just imagine, if your major client have so much faith in you that they want to take a stake in your company. That not only signifies confidence the company but also rightly guarantees continuous order flow. Your client essentially ties his interest with the company and believe in growing hand in hand for the long term.






6. Hartalega is steadfast to remain the world leader along with other Malaysian glove makers. Be it China or the new entrants recently announced in the news, in my view, will not be a substantial threat to the Big 6 players. This is because of their ability to deliver, capacity, R&D & technology innovation. 

Let me cite this example, Hartalega came up with the Anti-microbial gloves which is the first in the world. It is now pending approval with the FDA and in our view, it is a game changer that cements their leadership position in Nitrile Gloves. We must remember, to be a leader, capacity is not the only metric. Technology and innovation are key to ensuring you maintain your pole position. From a 2018 news report, Hartalega spent US$10 million in R&D on this gloves with Chemical Intelligence UK. This is before the pandemic. With heightened awareness, this product of Hartalega will differentiate them from other industry players.


Comparing to my past writing on Long Term Value Picks, this time it is slightly different. The reason is because I have covered extensively on glove stocks and sectors which you can read from my earlier posts. For me, when all is said and done, when choosing a long term stock to be in your portfolio for many years, it must meet my 5 metrics :

1. Strong, honest and capable management team / owner
2. Consistent Growth, Earnings & Dividend payout
3. Strong balance sheet & cash position / cash flow
4.Can hold across decades / generations without risk of delisting or bankruptcy
5. Undervalued & lack of appreciation from investors

At this juncture, Hartalega meets all the metrics even at RM14.16 

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