The hottest summer since 1955 in Iowa and Illinois is eroding yield prospects for corn and soybean crops in the U.S., the largest grower and exporter. Signs of diminished output appeared this week during a four-day, seven-state sampling of about 2,000 fields in the Midwest organized by the Professional Farmers of America, which will report its findings later today. A Bloomberg survey of 25 tour participants showed all expected the government to cut its corn-harvest forecasts and 21 predicted a reduction for soybeans. (Bloomberg)
World wheat production will be 0.4 percent higher than a July estimate at 677 million metric tons on better production in the European Union, Russia and China, the International Grains Council said yesterday. The EU estimate was increased 0.5 percent to 137.5 million tons. (Bloomberg)
The new head of the IMF on Saturday, Aug 27 called on global policymakers to pursue urgent action, including forcing European banks to bulk up their capital, to prevent a descent into a renewed world recession...."Monetary policy also should remain highly accommodative, as the risk of recession outweighs the risk of inflation," Lagarde said, adding that central banks should stand ready to jump back into unconventional policy actions if needed. (Reuters)
The U.S. won’t slip into recession after Federal Reserve Chairman Ben S. Bernanke said the central bank has more tools to support growth if needed, said Templeton Asset Management’s Mark Mobius....Mobius is positive on commodity stocks and expects higher raw-material prices as inflation accelerates...He is “pretty positive” about Southeast Asian equity markets, he added. “Looking at Southeast Asia, it’s Thailand and Indonesia.” (Bloomberg)
August 29, 2011
August 23, 2011
13 Reasons to Invest in Wellcall
I made this list based on an article about Wellcall in The Edge Malaysia yesterday.
13 Reasons to Invest in Wellcall:
1. It is the largest exporter of industrial rubber hoses in Malaysia
2. It is able to pass down the cost to customers if raw material prices (rubber) rises gradually
3. It has the flexibility to switch between natural and synthetic rubber
4. 98% of transactions are in US dollars (advantageous if the US dollar strengthens)
5. Its operations are capital intensive rather than labour intensive, with a workforce of only 400.
6. Its products are more for niche markets, especially in the oil and gas (O&G) sector. Other major application markets include automobile, ship building, mining and food and beverage (F&B).
7. It has no significant competitors in Malaysia due to high cost of equipment.
8. Its current production utilisation is reaching 80% and planning to expand.
9. It derives 90% of its revenue derived from foreign markets, i.e. Asia, Middle East, Europe, North America, Australia/New Zealand and South America. It is expanding its customer base in places such as Africa, Russia and Latin America.
10. 85% to 90% of its sales come from the replacement market because industrial hoses last up to eight months before they are replaced.
11. It does not hold stock of its products because production is based on a job order basis, thus preventing overcapacity and price dumping.
12. The market for industrial hoses has a growth of 4% to 5% a year.
13. High dividend yields and debt free
I like reasons No. 7, 8, 10, 13.
Main risks would be 4 and 9.
Its share in global market is only 0.4%.
Its website comes out in the first page of Google when I searched the term "industrial rubber hoses."
It would be a good buy if the global economy is expanding.
13 Reasons to Invest in Wellcall:
1. It is the largest exporter of industrial rubber hoses in Malaysia
2. It is able to pass down the cost to customers if raw material prices (rubber) rises gradually
3. It has the flexibility to switch between natural and synthetic rubber
4. 98% of transactions are in US dollars (advantageous if the US dollar strengthens)
5. Its operations are capital intensive rather than labour intensive, with a workforce of only 400.
6. Its products are more for niche markets, especially in the oil and gas (O&G) sector. Other major application markets include automobile, ship building, mining and food and beverage (F&B).
7. It has no significant competitors in Malaysia due to high cost of equipment.
8. Its current production utilisation is reaching 80% and planning to expand.
9. It derives 90% of its revenue derived from foreign markets, i.e. Asia, Middle East, Europe, North America, Australia/New Zealand and South America. It is expanding its customer base in places such as Africa, Russia and Latin America.
10. 85% to 90% of its sales come from the replacement market because industrial hoses last up to eight months before they are replaced.
11. It does not hold stock of its products because production is based on a job order basis, thus preventing overcapacity and price dumping.
12. The market for industrial hoses has a growth of 4% to 5% a year.
13. High dividend yields and debt free
I like reasons No. 7, 8, 10, 13.
Main risks would be 4 and 9.
Its share in global market is only 0.4%.
Its website comes out in the first page of Google when I searched the term "industrial rubber hoses."
It would be a good buy if the global economy is expanding.
August 20, 2011
Faber favours Asia
According to a MarketWatch article, Dr.Marc Faber favours emerging market equities and corporate bonds for the long term, and also gold.
"Faber's own stock portfolio is centered on dividend-paying Asian shares, particularly in Malaysia, Singapore, Thailand and Hong Kong. These include a variety of real estate investment trusts and utilities....he's also turned positive on Japanese banks, brokerages and insurance companies....Faber is convinced that the price of gold will continue rising and that any pullback is a buying opportunity."
"Faber's own stock portfolio is centered on dividend-paying Asian shares, particularly in Malaysia, Singapore, Thailand and Hong Kong. These include a variety of real estate investment trusts and utilities....he's also turned positive on Japanese banks, brokerages and insurance companies....Faber is convinced that the price of gold will continue rising and that any pullback is a buying opportunity."
August 18, 2011
Hup Seng
Hup Seng Industries Bhd. is involved in manufacturing and trading of biscuit and beverage (Incomix brand coffee). Besides the domestic market, it also exports it products to over 40 countries in Asia, USA, Russia and Africa. Overseas market accounts for almost 30% of its revenue in FY2009 (no information given for FY2010.)
The ratios I look at (refer to my earlier post).)indicates it is in good financial health. The company has no borrowings.
current ratio = 3.2
working capital - LTD = $75.25m
DE ratio = 0.058
LTD/PAT = 0.37
cash/debt = 1.27
5 year historical average ROE and ROR is 11% and 7% respectively. Revenue and earnings have grown compared to 5 years ago. Profit margin improved significantly in 2008 onwards compared to 2004-07, perhaps due to the crash in commodity prices. The company paid at least 10 cents per share of dividend annually since FY2005. It is already paying dividends totalling 10 cents for FY2011.
Risks to it profitability include raw material cost (palm oil, wheat, fuel) and the government’s gradual withdrawal of subsidies.
It's share is currently trading at a PE ratio of 8.9.
The ratios I look at (refer to my earlier post).)indicates it is in good financial health. The company has no borrowings.
current ratio = 3.2
working capital - LTD = $75.25m
DE ratio = 0.058
LTD/PAT = 0.37
cash/debt = 1.27
5 year historical average ROE and ROR is 11% and 7% respectively. Revenue and earnings have grown compared to 5 years ago. Profit margin improved significantly in 2008 onwards compared to 2004-07, perhaps due to the crash in commodity prices. The company paid at least 10 cents per share of dividend annually since FY2005. It is already paying dividends totalling 10 cents for FY2011.
Risks to it profitability include raw material cost (palm oil, wheat, fuel) and the government’s gradual withdrawal of subsidies.
It's share is currently trading at a PE ratio of 8.9.
August 16, 2011
news bits
The Pekeliling flats area, located along Jalan Tun Razak-Jalan Pahang is to be redeveloped. Now known as Tamansari Riverside Garden City, its developer Asie Sdn Bhd has awarded Mah Sing a contract to build properties for RM900 million. Asie expects to award two more contracts by year-end to build properties worth over RM1 billion. The project has supposedly been put on hold thrice (1976, 1997 and 2008.) (Source: Business Times)
Comment: I hope they look into the traffic congestion problem first.
The business outlook for shipping firms in Asia-Pacific remains weak because of continuing transportation supply exceeding demand. In a statement today, Standard & Poor (S&P) said high fuel prices and economic uncertainties, coupled with other factors such as overcapacity, would continue to hinder the recovery of the main shipping sectors in the region and globally. (source: Bernama)
Comment: This could be favourable for logistics companies.
Chief Minister Tan Sri Abdul Taib Mahmud said today that the Sarawak government hopes to attract at least RM200 billion in private investments for the Sarawak Corridor of Renewable Energy (SCORE) over the next 20 years. RM26.4 billion worth of investments in 13 projects have been approved so far.(source: Bernama)
Comment: This one is sweetener for coming elections or can really score big ?
Comment: I hope they look into the traffic congestion problem first.
The business outlook for shipping firms in Asia-Pacific remains weak because of continuing transportation supply exceeding demand. In a statement today, Standard & Poor (S&P) said high fuel prices and economic uncertainties, coupled with other factors such as overcapacity, would continue to hinder the recovery of the main shipping sectors in the region and globally. (source: Bernama)
Comment: This could be favourable for logistics companies.
Chief Minister Tan Sri Abdul Taib Mahmud said today that the Sarawak government hopes to attract at least RM200 billion in private investments for the Sarawak Corridor of Renewable Energy (SCORE) over the next 20 years. RM26.4 billion worth of investments in 13 projects have been approved so far.(source: Bernama)
Comment: This one is sweetener for coming elections or can really score big ?
August 15, 2011
MRT project
The table below shows the public listed companies shortlisted (marked with blue) for the Mass Rapid Transit (MRT) project in Klang Valley. There are a total of 18 packages (the numbers shown in each category)- 8 for elevated civil works, 8 for stations and 2 for depots. The tenders for the multi-billion public transportation project would be called in stages beginning from next month until December 2012. This will be Malaysia's biggest rail infrastructure project, which would be integrated to the existing LRT, Monorail and KTM services.
(*There are other shortlisted companies or joint ventures which to my knowledge are not subsidiaries of public listed companies.)
(*There are other shortlisted companies or joint ventures which to my knowledge are not subsidiaries of public listed companies.)
August 13, 2011
cement producers
The top 3 cement producers listed on the KLSE are LaFarge Malaysia (LMCEMNT), YTL Cement (YTLCMT) and Tasek (TASEK). LMCEMNT has the largest market capitalization and revenue, followed by YTLCMT and TASEK. However, YTLCMT actually currently makes more profit than LMCEMNT, based on the rolling profit of the previous 4 quarters. LMCEMNT is a subsidiary of the world's biggest cement maker Lafarge SA, traded on the Paris bourse.
The following table compares them (using data from the lastest quarterly and annual reports.)
It can be seen that both YTLCMT and TASEK fulfill all our 5 criteria of financial strength (see my previous post). YTLCMT has the highest return on equity (ROE) while TASEK has the highest return on revenue (ROR). Note that both these figures are 5 year averages.
TASEK tends to have the lower historical PE ratio,perhaps due to its low trading volume and liquidity. The company is a subsidiary of Hong Leong Asia (which is owned by Tan Sri Quek), which holds something like 72% of the shares.
At current stock prices, YTLCMT and TASEK are trading below their average historical PE ratio. However TASEK had a gain on disposal of property amounting to 43m in 4QFY10. Without this one-time gain, it is trading at its historical average PER.
The catalyst for cement producers would be construction activities from the ETP govt projects. Risks include ceiling price by government and energy costs (coal, electricity, diesel).
As I am only sharing information, I will not make any recommendations. I also make no guarantee to the accuracy of the information given.
*Note that the historical PE ratio is calculated based on the financial year end's closing price.
The following table compares them (using data from the lastest quarterly and annual reports.)
It can be seen that both YTLCMT and TASEK fulfill all our 5 criteria of financial strength (see my previous post). YTLCMT has the highest return on equity (ROE) while TASEK has the highest return on revenue (ROR). Note that both these figures are 5 year averages.
TASEK tends to have the lower historical PE ratio,perhaps due to its low trading volume and liquidity. The company is a subsidiary of Hong Leong Asia (which is owned by Tan Sri Quek), which holds something like 72% of the shares.
At current stock prices, YTLCMT and TASEK are trading below their average historical PE ratio. However TASEK had a gain on disposal of property amounting to 43m in 4QFY10. Without this one-time gain, it is trading at its historical average PER.
The catalyst for cement producers would be construction activities from the ETP govt projects. Risks include ceiling price by government and energy costs (coal, electricity, diesel).
As I am only sharing information, I will not make any recommendations. I also make no guarantee to the accuracy of the information given.
*Note that the historical PE ratio is calculated based on the financial year end's closing price.
August 11, 2011
market view
According to Hong Leong Investment Bank's latest Market View report today, their FBM KLCI year-end target of 1,670 (15x 2012 earnings) is "at risk with downside bias in view of risk aversion and potential global recession." It is noted however that Asia is facing this from a "position of strength given room for monetary loosening, ample liquidity, strong banking system and rising consumerism amidst reducing inflationary threat."
For investors who want to remain invested, they recommend defensive stocks such as Public Bank, Axiata, Digi, TM, Maxis, KLCCP, BJToto and Boustead as well as some high dividend yield stocks and REITs.
For investors who want to remain invested, they recommend defensive stocks such as Public Bank, Axiata, Digi, TM, Maxis, KLCCP, BJToto and Boustead as well as some high dividend yield stocks and REITs.
August 09, 2011
Target price
When is a stock considered cheap and when is it expensive? What is the intrinsic value of a company's stock?
When I first started out, I struggled with this concept. Many investors use different method of finding the intrinsic value. It is actually quite subjective and even Warren Buffett does not reveal how he arrives at the value of a company.
As retail investors, we love to find research reports where the target price is given. However we should beware of how the target price is arrived in most cases.
Most research analysts will give a target value based on the price-to-earnings ratio (PER) of a company. For example, the analyst takes the average PE ratio of the company over a period of time, say over 5 years. Then according to the predicted earnings (eps) at the end of FY13, for example, the target price is arrived. So if the average PE ratio is 15 and eps for FY13 is estimated to be $0.10, then the target price is 15 x $0.10 = $1.50.
We immediately see the potential problem here- the earnings estimate may be too optimistic. Or it may assume a blue sky scenario. If a black swan suddenly emerges, there will be a cut in the earnings estimate, and target price is reduced. You bought the stock last week with a potential 30% upside, suddenly new research report comes out and you are suddenly told that you should sell!
Rather than taking the average PE, some analyst may even take the PE at the high end. For example, if a stock's PE ranges from 12-18 in the past few years, the analyst may take a higher value of 16 or even 18.
When I first started out, I struggled with this concept. Many investors use different method of finding the intrinsic value. It is actually quite subjective and even Warren Buffett does not reveal how he arrives at the value of a company.
As retail investors, we love to find research reports where the target price is given. However we should beware of how the target price is arrived in most cases.
Most research analysts will give a target value based on the price-to-earnings ratio (PER) of a company. For example, the analyst takes the average PE ratio of the company over a period of time, say over 5 years. Then according to the predicted earnings (eps) at the end of FY13, for example, the target price is arrived. So if the average PE ratio is 15 and eps for FY13 is estimated to be $0.10, then the target price is 15 x $0.10 = $1.50.
We immediately see the potential problem here- the earnings estimate may be too optimistic. Or it may assume a blue sky scenario. If a black swan suddenly emerges, there will be a cut in the earnings estimate, and target price is reduced. You bought the stock last week with a potential 30% upside, suddenly new research report comes out and you are suddenly told that you should sell!
Rather than taking the average PE, some analyst may even take the PE at the high end. For example, if a stock's PE ranges from 12-18 in the past few years, the analyst may take a higher value of 16 or even 18.
August 08, 2011
Added HUPSENG and BJTOTO
Today I added to my BJTOTO holdings at $4.10 and bought into HUPSENG at $1.72.
Berjaya Toto is in the gaming sector and is basically a dividend stock.
Hup Seng Food Industries manufactures biscuits, cookies and crackers as well as a coffee manufacturing division. Around 70% revenue is derived from domestic sales (as at FY2009). It has a 60% dividend policy, as far as I know. Based on its FY2010 annual report, it has no short term loans and only $8.6m of non-current liabilities with a cash pile of $54m.
Berjaya Toto is in the gaming sector and is basically a dividend stock.
Hup Seng Food Industries manufactures biscuits, cookies and crackers as well as a coffee manufacturing division. Around 70% revenue is derived from domestic sales (as at FY2009). It has a 60% dividend policy, as far as I know. Based on its FY2010 annual report, it has no short term loans and only $8.6m of non-current liabilities with a cash pile of $54m.
Large red bars
Many stocks gapped down when today's market opened in Malaysia, and we'll probably end up with a large red candlestick bar in the charts at the end of the day. S&P downgraded US debt to AA+ on Friday.
I am rather peeved that some of my paper profits that took some months to build have been wiped out or reduced drastically in a day.
My current forecast is that we'll have a 20-30% correction in the KLCI for 2H2011 i.e. it will be a downward bias market for the rest of the year, until we have some fresh catalyst. This will be a good time to accumulate some good quality dividend yielding stocks, while I'll try to unload some of my more vulnerable, speculative stocks if I am able to make a small profit on them. Otherwise I'll keep them for the long term. I know some traders would say to cut loss, cut loss, cut loss. But I know the stocks I have are companies that are financially strong and can survive a downturn (and have survived the last downturn). So I am comfortable with the temporary illiquidity.
It's time like these that knowing the financial condition of your company becomes more important so that you don't simply sell your good quality stocks in panic selling.
According to Macquarie, the US debt downgrade will benefit Malaysia and Singapore bonds.
"Singapore and Malaysia will be the main beneficiaries of inflows into the region as global funds step up diversification into non-dollar assets after the US lost its top credit rating, according to Macquarie Group Ltd.
International investors will add to holdings of Singapore bonds, the only economy in Southeast Asia with a top rating from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, the bank said in a research note dated Aug. 6. Malaysia, which has the world’s largest Islamic debt market, will become more attractive to investors in the Middle East, according to Australia’s biggest investment bank."- Bloomberg
Read more: US downgrade to benefit Malaysia: Macquarie
I am rather peeved that some of my paper profits that took some months to build have been wiped out or reduced drastically in a day.
My current forecast is that we'll have a 20-30% correction in the KLCI for 2H2011 i.e. it will be a downward bias market for the rest of the year, until we have some fresh catalyst. This will be a good time to accumulate some good quality dividend yielding stocks, while I'll try to unload some of my more vulnerable, speculative stocks if I am able to make a small profit on them. Otherwise I'll keep them for the long term. I know some traders would say to cut loss, cut loss, cut loss. But I know the stocks I have are companies that are financially strong and can survive a downturn (and have survived the last downturn). So I am comfortable with the temporary illiquidity.
It's time like these that knowing the financial condition of your company becomes more important so that you don't simply sell your good quality stocks in panic selling.
"Singapore and Malaysia will be the main beneficiaries of inflows into the region as global funds step up diversification into non-dollar assets after the US lost its top credit rating, according to Macquarie Group Ltd.
International investors will add to holdings of Singapore bonds, the only economy in Southeast Asia with a top rating from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, the bank said in a research note dated Aug. 6. Malaysia, which has the world’s largest Islamic debt market, will become more attractive to investors in the Middle East, according to Australia’s biggest investment bank."- Bloomberg
Read more: US downgrade to benefit Malaysia: Macquarie
Evaluating a company
In this post, I will share with you my approach in evaluating companies whose stocks are listed on the Malaysian stock exchange.
My method for evaluation is based on what I have read from a few books, mainly:
1. The Intelligent Investor - by Benjamin Graham
2. How to Make Money from Your Stock Investment Even in a Falling Market - by Ho Kok Mun
3. Secrets of Millionaire Investors - Adam Khoo and Conrad Alvin Lim
I invest in Malaysian stocks for the long term and for dividends. I do not use a trading approach.
My method for evaluation is based on what I have read from a few books, mainly:
1. The Intelligent Investor - by Benjamin Graham
2. How to Make Money from Your Stock Investment Even in a Falling Market - by Ho Kok Mun
3. Secrets of Millionaire Investors - Adam Khoo and Conrad Alvin Lim
I invest in Malaysian stocks for the long term and for dividends. I do not use a trading approach.
The Beginning - Investing in Malaysia
Let me start off by first telling you that I am an ordinary retail investor, a layman, who does not have a finance background and have never worked in the finance/banking/investment industry. However I am learning more about finance and investment, skills which I wish I have learned earlier in my life.
I started buying shares back in 2007, before the global financial crisis hit. I have invested in unit trust funds since more than 10 years ago, and did not bother to learn buying shares until then. Finally I decided to do it on my own by reading some investment books.
The purpose of this blog is just to share some information that you might find useful. These are information I use for evaluating stocks. It is not a recommendation to buy or sell. I also treat it as a learning process since I do not claim to be a great investor (if that was the case, I'll be charging money or holding courses ;)
I buy shares based on a fundamental approach. I will share with you in another post my current approach.
I started buying shares back in 2007, before the global financial crisis hit. I have invested in unit trust funds since more than 10 years ago, and did not bother to learn buying shares until then. Finally I decided to do it on my own by reading some investment books.
The purpose of this blog is just to share some information that you might find useful. These are information I use for evaluating stocks. It is not a recommendation to buy or sell. I also treat it as a learning process since I do not claim to be a great investor (if that was the case, I'll be charging money or holding courses ;)
I buy shares based on a fundamental approach. I will share with you in another post my current approach.
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