Friday, August 07, 2020

The Bursa Bull Market - Prognosis & Ramifications

PROGNOSIS

When Covid19 started baring its fangs, many countries imposed MCO, and the general belief was that EVERYTHING should be down and out. Many certainly believed that equity markets were a sure write off for the rest of the year. 

Not only Covid19, we also had the unnecessary plunge in oil prices to boot.


What happened was confounding. Not only did equity not tank and die, but they also staged a remarkable turnaround, unleashing a liquidity surge like a dam being cracked open. Who saw that coming?

Governments and central banks opened their wallets. While a substantial portion of the real economy is still in tatters, the stock market went off on its own tangent. I did turn bullish too a couple of months back, and as in any proper bull markets, there will be excesses.


THE NEW PLAYERS

But no one really predicted the deluge of interest locally. Initially we were launched into orbit via the glove makers. Given that that is almost the one sole sector showing signs of real profits. It started off innocently enough. Soon, new retail players started to join in. Was it because of boredom owing to the MCO? We will never really know but apparently from March till now, some 3 million new CDS accounts were opened!!! Three million!!!

Bursa and Sc were worried over the last 10 years over the declining number of retail participants. The average age of private investors were rising from 35 to 45 and if nothing new happened, soon the average age of retail investors will be 50. It appears that the generation reaching 20-30 from 2005-2019 had absolutely no interest in stock markets.

Bursa did plenty of roadshows, seminars, engaging speakers, even going to university ... but to little effect. What happened in one fell swoop, the younger generation all surged into the markets.

Hence the quality and roadmap of this bull run has taken a different trajectory from other bull runs of the past 20 years. We now have a more than substantive group with almost zero experience with limit ups, daily market corrections of more than 100, 200 points, limited appreciation of the role of syndicates and day traders.

In many ways, this bull run is not like any other bull run before on KLSE. We thought the markets can never return to the vibrancy mode of the 90s. Well, its stronger than the 90s in many ways. The volatility is there but nowhere as bad on the downside than during the roaring 90s. One explanation was that in the 90s, probably 50-60% of the trades were on margin WITH ZERO COLLATERAL. Hence any quivering will see dramatic sell downs.

These days, sell downs still happen but they were brief and easily supported. Hence in this sense the quality and sustainability of the retail funds this round is more solid. Nobody is buying with zero collateral.

How different are the new accounts?

- Internet media / guru led: Instead of using phones to disseminate information and tip back in the 90s, the trend is a lot quicker now, chat groups, telegrams .. tips can easily go viral.

- Substantive numbers have zero knowledge of past corrections. Little knowledge of how syndicates and PDTs operate - in some cases, that is a good thing.

- Less reliance on remisier: They used to be gatekeepers. During heady days, you can't even get through to your remisier ( and they have 3 phone lines mind you). Now internet trading makes it swifter, and you don't have to go through your dealers' "eyes roll" with your choices.

During the highs of the 90s we can boast of 2-4 counters limiting up a day. My gawd, we had 11 counters limit up yesterday!!!


NOTE TO FINANCE MINISTRY

While it is speculative at the moment, the powers to be SHOULD NOT stamp out the current market momentum. For one, the last 3 months have more than INJECTED SUFFICIENT STIMULUS, MONEY VELOCITY into the economy to more than cover the contractions owing to the prolonged ill effects of Covid19/MCO.

This will not only save the government coffers billions of ringgit in unnecessary stimulus packages but will help "redivert government funds" to other affected sectors not benefitting from the market boom.

Let's just see how much "money" has or can flow to the economy. Let's just look at the glove related sector. Let's just assume 20% of shares were traded by retail and gains were pocketed. 

CAREPLUS   540m shares  20% x 5.10 = RM550m

HLT   525m   20% x 2.30 = RM241.5m

SUPERMAX    1.3bn   20% x 21.00 = RM5.46bn

TOP GLOVE   2.7bn  20% x 22.00 = RM11.88bn

HARTA    3.4bn   20% x 13.00 = RM8.84bn

That's just a few, and that's like more than RM28bn ... imagine a stimulus program announced to inject RM28bn. Coupled with the run on small caps, we are looking at an approximate figure of RM35bn thus far. It doesn't stretch the government's coffers of debt burden.

That conservative RM35bn has a velocity of money factor into the real economy. Depending on which economist you ask, its 5x-8x value to the real economy. Simply said, the monies will be primarily used in the economy and spending flows, it trickles down the line.

Hence it is totally silly to even think of imposing a windfall tax on glove makers. How much can the government get? Assume they make RM3bn this year, taxing 10% is only RM300m ... but you will impact gravely on the market run. Collectively they have already "injected" RM28bn into the real economy, and even more in coming months ... do you really want to derail all that for RM300m. What can you do with RM300m a year? They are doing R28bn stimulus thus far. So think properly.

The worst thing to do is to save up the gains or used to pay down debt to the banks as banks are still very wary and hence the flow of funds stops at the banks currently.

3 million new CDS accounts, what you are having is a broad based rally benefitting an awful lot of people. It is not an elite club. It goes a long way to energising the real economy.


WHAT ABOUT THE BUST

When it happens, it happens, just don't prick it with man-made methods. Presently only things such as reduction of margin will shock the market lower. Brokers have already rules to protect themselves, no need to kill the goose laying golden eggs. It is not like the 90s, all brokers have adequate protection on their remixers, dealers and margin lines as they are.

There are a lot of positives on the current market. The only bad mouthers are those who do not have a position and is willing a correction. Of course the exuberance caused many silly counters to sillier prices. Let it be, its part of a bull market. There will be excesses. All our accounts have margin limits. No one will die this round unless you borrow from Ah Long.

Tuesday, August 04, 2020

Circuit Breakers


Well, it did catch almost everyone by surprise. The announcement by Bursa to have a ceiling price for a few counters. It is a long-standing rule, it wasn't invented on an ad hoc basis. First of all, I don't think any of the normal "metrics" were broken: e.g. lots of trades being rolled over; suspicious trades to move prices higher, etc... One can see that the buying was genuine and the retail army was very formidable.

According to Bursa rulings, when a stock or warrant hits a limit up or limit down for two consecutive trading days, "as the case may be on the next market day, the exchange may maintain the trading price at the last done price of the previous market day for such period as specified by the exchange"

"MAY" is the key word. Kudos to Bursa for doing so.


Even after a few bouts of "proper correction" in the gloves sector, the band marches on. Some of that retail liquidity moved into small caps and soon a bull market reminiscent of the 90s was born. Apparently, some 3m new CDS accounts were opened over the last few months. Something unthinkable has happened. When Covid19 started baring its fangs, many countries imposed MCO, and the general belief was that EVERYTHING should be down and out. Many certainly believed that equity markets were a sure write off for the rest of the year.

What happened was confounding. Not only did equity not tank and die, but they also staged a remarkable turnaround, unleashing a liquidity surge like a dam being cracked open. Who saw that coming?

Governments and central banks opened their wallets. While a substantial portion of the real economy is still in tatters, the stock market went off on its own tangent. I did turn bullish too a couple of months back, and as in any proper bull markets, there will be excesses.

The Bursa rule, to me, is right and proper. Daily volumes were hitting record levels and being broken again and again. A genuine exchange may just be a conduit to transact trades. If trades were genuine, no one should stop them. Alas, we are in an imperfect world, where herd mentality and over-exuberance can cause untold ramifications if not held in check.

That is why most markets have circuit breakers, to prevent a stampede. To provide a cooling-off period when things get silly. Greed and crowd mania can be very bad things when they get out of hand. 

I am not saying markets need correction but let's all take a breath, step back, and reassess. Circuit breakers are there to SAVE OURSELVES from ourselves. 

Tuesday, July 14, 2020

Feed Service Platform Providers, Buck Up Please


This data collection is about as raw as it can get. Trading platforms keep malfunctioning or not functioning at all at the worst times. The providers cannot keep saying they did not expect such volume throughput. BULLSHIT!!!


Just take the biggest ever daily volume traded and budget it by multiplying by 2.... that should be your system's tolerance. Anything else is irresponsible.

Apologies to D Chia who took the brief survey, although sample size is small, I think its VERY REFLECTIVE of the reality.

 Don't mind Bursa making tons, don't mind paying this fee and that fee to do a TRANSACTION... but please la... not first time, not second time... this is like Tenaga brownouts la. At least TNB offer discounts... c'mon Bursa... you are the gatekeeper that ALLOWED the two buggers to provide feed, nobody else.... Do things better la., record profits but treat the players like chicken shit, for want of a better word.

Don't blame the brokers, you also cannot blame the service providers... you can only blame the GATEKEEPER, who allowed the service providers to provide such service to all clients for such a long time, without a SOUND OF PROTEST, DISSATISFACTION, COMPLAIN ON BEHALF OF USERS...

So who should be answerable to this poor level of service ... but who is always applauding record daily volumes no end... please help us help you, or help you help me. Well, somebody should have done something, and that something should HAVE BEEN SOLVED MONTHS AGO.

Its a situation so prevalent. If it happens ONCE a year, no bother... tell me how often has it occurred. DON'T KILL THE MESSENGER.

a) why only 2 providers. 
b) if its a cost-profit solution, fine ... then why is there NO PUBLIC REPRIMAND, or fine for subsequent and many glitches and failures of the trading platform???
c) are the 2 providers unable to provide the quite simple level of technology transaction?... I mean, its just minimal stocks (in Malaysia), one market and pretty straight forward ... I mean, last count, there are nearly a hundred exchanges. What makes ours so unique that we cannot solve the problem properly ... at least tell us.
d) stop the PR about how to improve fund raising n other capital market issues  blah blah when this very fundamental service also not up to par. Seriously, this has been dragging its feet for so long. If not, I won't be using such harsh language.

Monday, July 13, 2020

Gimme Your Money


How in hell can two put warrants go record over 500m shares traded, and on a day their mother shares have been going up???

My very first job in the industry was as a warrants specialist in Japan, so I like to think I can still calculate premiums and such.



TOPGLOVE HA - Its a put warrant, which is a right to SELL the shares. The ratio is 50:1, which means you have to buy 50 units of the put warrants to sell one share of Topglove. The exercise price means you then have the right to sell at RM12.00. (Sorry if I am sounding condescending but too many newbies in the market place jor).

Look at the time to maturity, its 26 February 2021, just after CNY.Hence if you bought at 25 sen, to have the right to sell one thousand shares. You are looking at:

25 sen x 50,000 = RM12,500, paying for the put warrant only gives you the right to sell at RM12.00. Who wants to sell now when Topglove is at RM24.00... nobody. People can still buy put warrants when they are bearish or want to hedge their long positions. But you know things like brain cells went out the window when the put warrants went up a few hundred percent when the mother also went up by 9%. The probable explanation is they thought they were buying CALL WARRANTS. Cannot be that silly right?

Or can they? You need a license to own a gun, you need to take driving test before you can drive a car or fly a plane. You need a handicap certification before you can play at good golf courses. STOCKS ... you got money, please press play and ruin your lives.

Back to calculation, so you are out RM12,500. RM24.00-RM12.00 = RM12.00 (that's the amount of price differential before the plain put warrant starts making you money). Condescendingly, that means the share price has to drop 50% BEFORE the put warrant starts making money.

So the PREMIUM you are paying  is RM12.00 + RM12.50 / 12.00 = 204%. TWO HUNDRED and FOUR PERCENT PREMIUM!!!! Plus a time to expiry of less than 10 months. Beautiful, just beautiful.

For such a put warrant, even taking into account its volatility, the range of fair premium should be between 30%-60%. No more.

There is absolutely no reason to pay over 200% premium for a short life put warrant or call warrant. Even if you are EXTREMELY BEARISH, there is a set structure of "valuation". Anything out of that scope would be termed as burning money... do it during Cheng Meng, not in the market.





Basically, you can do the same calculations with Supermax HB. Both are hyper OVER valued. Expect massive correction. The issuing bankers are printing money as we speak.





Wednesday, July 08, 2020

Commentary: AirAsia & BTM Resources


AIRASIA


So, AirAsia announced huge losses. So what was the surprise? Was the quantum too severe or beyond expectations? No, it was expected. 

What about the pseudo PN17? You mean the analysts were not aware that was an automatic thing? The financial trigger points are all there in front of us.

Rights issue, in many cases, would be viewed negatively. Looking at AirAsia, at these levels, shareholders would want the most minimal dilution. Bearing in mind less than 6 months ago the shares were at RM1.75. Today's closing 70.5 sen. 

EVERY SINGLE AIRLINE needs help. Pray tell one that doesn't!

The pandemic coupled with the oil glut are black swans of the highest order. Governments are the backbone of it all to bring about a recovery in the affected areas where possible.

We do not produce many global brands or even regional brands of significance. Much of that stems from the fact that our population is less than 30m. It is so much harder to scale up in every single business. It took Mamee Double-decker years to champion its way regionally. The Malaysian government must look away from politics and extend swift help to companies that are "competent" and has regional or global branding leverage. ...Whether you like the CEO/owner or not.

What was MAS extended a lifeline so quick? Why was AirAsia left to be strutting its stuff regionally to seek financial help?

Last heard Danajamin might be providing up to RM3 billion to AirAsia. Hope that is more than a rumour.

As AirAsia, you are squeezed. You have to come up with a cash infusion. A government agency led loan may be the best option if the terms are not so onerous. A rights issue is less dilutive and may help existing shareholders keep more of their future equity at current prices.

To hear that AirAsia may have to issue new shares to Singapore (government investing firms) or SK Group (South Korea) is so here breaking. That we have to sell stakes to another country who really appreciates the business and leverage that it offers, when you find no takers locally.

AirAsia is easily one of the top managed budget airlines, and an Asian regional champ. If you were to invest now into an airline at present prices, with the surrounding climate, it has to be AirAsia.

Yesterday ZERO Covid cases in Malaysia. AirAsia is flying domestically. Much of Asia is doing so much better in grasping with the pandemic, hence earlier recovery and travelling around Asia than any other substantive parts of the world.

the auditor noted that the recent progressive
uplifting of restrictions on interstate travel and domestic
tourism activities within AAGB’s operating countries have
led to positive developments for its business operations.
Passenger seat booking trends, flight frequencies and load
factors are gradually improving to cater to increasing
demand. The auditor added that the AAGB’s financial
statements have been prepared on a going concern basis. Its
validity will depend on factors such as successful recovery
from the pandemic and favourable outcome of the group’s
discussions with financial institutions to obtain the required
funding for its future plans. 
now. 

The Group intends to raise
RM1.4bn in capital to strengthen its equity base and for
liquidity. Other than raising capital, the group is also
implementing cost saving measures across the board with at
least 50% pay cuts, reduction in fuel volume, restructuring
of hedging contracts, deferment of aircraft deliveries as well
as deferral of lease expenses.
We maintain our HOLD call and target price (TP) of RM0.80,
based on 1.0x price/book value (P/BV), given that the easing
of lockdown measures, pick-up in travel demand as well as
resumption of AAGB’s flights across all domestic markets
indicates signs of recovery. Challenges remain though with
key risks including slower-than-expected travel demand, a
second wave of infections and increased volatility in fuel
prices.
(AllianceDBS Research note)

I am in total agreement with this research note (my 1-3 month target is close to 90 sen) and think that the other research houses are too timid in their evaluation and prognosis. 

Found another research house with balls.

Look at the reasons for the losses. They have unwound most of the oil price hedges which caused losses. Moving forward they would no longer have that burden. I mean I do not get to drill down on the figures but no rights issue should be done below book value.




BTM Resources



Finally a more credible looking development for BTM Resources.


The Edge KUALA LUMPUR (July 2): Sawmill operator BTM Resources Bhd said its wholly-owned subsidiary BTM Biomass Products Sdn Bhd has obtained approval from the Sustainable Energy Development Authority (SEDA) to build and operate a renewable energy electrical power plant.
The electrical energy power plant (EEPP) will have the capacity to supply 10 mega-watt (MW) per hour of electricity to Tenaga Nasional Bhd, and is located in Chukai, Terengganu, it said in a bourse filing.
Meanwhile, BTM said it has received the relevant feed-in tariff (FIT) approval certificate today and the approval granted is for a period of 21 years with the commencement date set at no later than Jan 23, 2023.
“The expected date of signing the power purchase agreement (PPA) with Tenaga Nasional Bhd is October 2020 at a fixed tariff rate of RM0.3486 per kWh for 21 years,” it added.
In terms of the construction of the EEPP, BTM said it is targeted to commence in June 2021 and is expected to be completed in December 2022.







Mind you, BTM Resources has only 141 million shares, and at current prices its market cap is at ridiculous RM24m. While its financial performance for the past few quarters have been less than desired, its manageable losses. Net asset per share stood at 15 sen. I think once the private placement has taken effect the shares will be more than interesting. Obviously the placement was to raise funds for the above venture. I mean, what's the downside to RM24m market cap???







Tuesday, June 30, 2020

Margin Valuation Prices As Price Targets



What a novel idea... the supposedly latest share margin valuation prices for glove stocks MAY actually present itself as a ready-easy targets for the glove makers to hit in the short-term. After a couple of weeks of solid consolidation, looks ripe for the next wave up.






Sunday, June 21, 2020

Frothy ...



The froth rising to the top. When ppl start speculating on rto counters it’s frothy. Know that an IPO n a rto both takes just as long. No real reason to go rto if your company is solid.


The Bursa Bull Market - Prognosis & Ramifications

PROGNOSIS When Covid19 started baring its fangs, many countries imposed MCO, and the general belief was that EVERYTHING should be down and o...