Sunday, April 05, 2020

Things To Do During Lockdown


All local councils, utility companies, construction firms (those with permission) and city planners in Malaysia should take the opportunity during the lockdown to:

- repair roads
- lay your lines 
- finish your towers
- change faulty lightbulbs
- speed up construction projects that creates congestion
etc ....

Basically try to finish up things that would disrupt traffic.





Saturday, April 04, 2020

Why I Think Markets Are Too Optimistic

Bastardisation Of Currencies

When governments keep throwing money at the problem, some succeed while others are restricted by their fiscal constraints and prudent financial management. There's only so much budget deficit you can stomach. Not the US and Eurozone, they can literally print their way out of the problems at hand, with no need for any asset backing, particularly from the USA. The rest of the world, we can't do that. Our printing capacity has to correlate with our foreign reserves, government debt to domestic and international bodies, our GDP, etc...

What that does is that at every major financial crisis, involving the big guns, its the smaller guys that get whacked. The big guys has printed more monopoly money, get the money circulated, pay down debt, give people money to spend, and spend trip way out of the issues. The smaller nations just have to tighten our belts and compete ever harder to maintain status quo. Its colonialism in the financial age.

Just when you think colonialism is over, in financial markets, the masters still get 10x, 20x, 30x more than the slaves earnings per day. Even when the master make mistakes, its still the saves that kena.






The Horny Black Swans That Keep On Reproducing

That rant aside, have a look at the video. You will begin to appreciate why swiftness, preparedness and commitment to curtail were so important. Just look at China, South Korea, Singapore and HK. Compare that to the top 4 European countries, plus UK, Iran and USA.

Looking at the trajectory alone, the latter countries have not even peak yet, although Italy has shown positive signs of peaking. USA at near 277,000 confirmed cases, and the equity markets there seemed to have rallied. All markets are forward discounting machines. I want to know how many cases has the US markets discounted thus far, taking into account the substantive trillions of dollars worth of stimulus: 300,000 ... 500,000 .... one million or 2 million? Mind you, China and South Korea seem to have peaked at 80,000 and 11,000 respectively.

How can you discount something that has not peaked? You cannot take the statistical distribution for China or South Korea and extrapolate because: the level of preparedness were different; the "more authoritative governments" have better deployment and effectiveness in curtailment strategies; the level of resources and testing are different ... hence it is likely the trajectory will be pushed out higher and further than the former group.



Look at the above statement from US White House (reported in CNBC)... 93,000 deaths, at 1% mortality rate = 9.3 million cases. OK let's take a 5% mortality rate (which is very worrying for the public) = 1.86 million cases. Look at those figures for a while and compare China's 80,000 and South Korea's 11,000. Even if you double both those figures: 160,000 and 22,000 ... compare that to 1.86 million.

OK, let's not even look at those figures, let's halve that further from 1.86 million to 930,000 cases to deal with say over 2-4 month period. There is no way the US system can take it. There are only 924,107 hospital beds. Other illnesses may require at least 50%-70% of those beds.



So, you still think the US equity markets have discounted the fallout from the virus? If its 1 million cases over 4 weeks .. I think US cities will descend into a state of anarchy ... making handguns very handy indeed.





The Latecomers

Has anyone looked at Japan? Its about to boil over.  Last Thursday the prime minister's plan was no lockdown and everyone gets 2 cloth masks. Look at the table above. On 2nd April  Tokyo had 97 new cases, still hunky dory. That's just Tokyo, in Japan the total has surged past 340 cases.  Ueno Park was only closed on 24th March to the public.

Well, everyday in March 2020 till they closed the park, the scene was like this everyday:




Now imagine the scene below being played out 20 hours a day in every major city in Japan with no lockdown:



... at schools, Disneyland, malls, cinemas, etc...

Japan is a time bomb.

There are other latecomers as well, places where "proper testing" had been insufficient, masking the real numbers. Consider Indonesia and Pakistan to start with.


The Bigger Time Bomb For Us

Unfortunately, Ramadan is just around the corner. Will Malaysia allow the 1 million legal and 1 million illegal Indonesians and other foreign workers to go back for Ramadan. Do we have the resources to check, test/quarantine them when they come back. What about illegal channels of entry? Will we have another wave after Ramadan?

Sunday, March 29, 2020

Why The Government MUST Implement These To Save SMEs





The government tried to assuage the fears faced by SMEs by directing a lot of help in credit and financing. This shows very clearly there is very little understanding of being an entrepreneur by the government.

Why would SMEs take loans to pay salaries and rental when they don’t have any income to sustain their businesses?

Do you know how much SMEs contribute to the local economy? If we end up with about 200-500 people dying from the virus after two months, that might be deemed as "successful". The rest of the workforce can look forward to a 20%-30% closure and/or bankruptcy by the SMEs as things stand.

At that rate, we can look forward to a loss of some 800,000 to 1.3m jobs. We have to balance between being cautious, and having "something to come back to after the storm".


Look for "calculated ways" to introduce a 50% work rate for as many businesses as possible, taking into account the need to control the spread of the virus.

MITI must be more accomodating and take on a more empathetic advisory role in dealing with companies requesting to restart working at 50%. Rather than reject if conditions weren't met, do advise them on how to get approved - be it cleanliness issues, sanitizing, testing, etc...

UK and Canada have rolled out a 75% subsidy for the salaries of SMEs' employees. While that would be a bit debilitating for Malaysia to consider, I think we should strive harder. Maybe not 75%, but maybe 35% for a 3 months period? Whatever it is the present situation is insufficient.

Clearance of goods from ports, the SST to be paid should be delayed for 6 months and/or Companies be allowed to retain 10 % of SST payable for the next 12 months.

All commercial electricity bills to be reduced by 50% for the next 3 months.


A moratorium of interest payments for the next 6 months.

All EMI’s to banks and NBFC to be put on hold for 6 months with no levy of interest or delayed payment.

Employer share of the EPF not to be paid by the companies but to be borne by the government for a period of 6 months.


Property tax for FY2020-21 to be reduced to half for all commercial properties.


Monday, March 16, 2020

Whodunit



Forced-selling doesn’t kill investors. 

Investors who go max on margin buying kill themselves. 

Why blame the system when the rules and conditions are there for all to see before they signed up?




Thursday, March 12, 2020

What Kind Of Bear Market Are We Talking About Here


Well, its official, its a bear market. We somehow still cannot call it a crash but a correction. I don't mind this bear market at all cause it is "within reason" and "within grasp". Let's look at how different the current bear market is from the 2008 crash and 1998 Asian crisis.

1998 - This one you can feel it in your bones. Once it happened, there was an immediate domino effect on all emerging markets' currencies. Our currencies were suddenly seeing 20%-35% drop in value in a matter of days. That sobering crash allowed us to see the extent of the mess that easy credit had on everyone, and how everyone geared to the hilt. 

I immediately knew I would be out of a job within a few weeks. You know very well that the whole Asian emerging markets' economies will shrink, the effect was close to 20%-30%. Companies were trying their hardest to park loans and renegotiate terms, but it was inevitable, we needed these companies and these loans to fail. The longer we stave them off the longer the contraction and slower the recovery.

That was a big lesson from Japanese markets. Since the correction in 92/93 in Japan, all listed companies there refrained from facing the music. Even banks dared not collect. The whole taichi movement last 12-15 years.

2008 - This was scary cause it involved the very existence of the top 5 banks. If they failed, the whole capitalist system could unravel, and that could unravel the whole financial infrastructure for all markets and capital flows. 

It was a lot scarier because financial markets and its derivative instruments (in particular) have dwarfed the real economy. Hence any big missteps will be amplified in a bad way to the real economy.


2020 - This one has to do with the virus morphing into a pandemic. Oil prices has shock value but not much to do with the real bear market. Saudi Arabia wanted Russia and the rest of OPEC to toe the line. Russia wants lower prices in order to kill off Americal shale/fracking producers. At most, the US producers will file for bankruptcy. The top 5 banks in the US only has between 1%-3% of the loans exposed to shale/fracking companies. No big deal.

The good thing about this bear market is that it has very little impact on the integrity of the financial markets and liquidity. The prolonged impact is what everyone is looking at. But just on the fact that it has little systemic effect on the financial system is a huge load of relief. In that way, this bear market IS NOT SO SCARY.

Looking at China, where the outbreak has peaked, we saw economic activity dropping by 30-40% over a 2-3 month period. HK had a longer tough run with the protests over democracy reforms and almost immediately by the corona virus - companies on the frontline are failing by the droves. Nobody will sympathize with the mall or commercial property owners. The lack of business will not be able to counter 50% discounts to rentals.

These frontline industries (retail shops, f&b outlets, airlines, etc..) will feel the brunt very fast, as soon as 1-2 months. Subsequently, the contraction will be felt via employment cutbacks. By 4-6 months, significant job losses will be next. Followed by defaults on mortgages and subsequent forced sales and personal bankruptcies.

Governments can step in to address the situation: no mortgage payments for 3 months or personal tax cuts... but business failures will overwhelm and job losses at smaller firms will be more pronounced than bigger ones.

The markets are now trying to discount a substantive contraction in their economies by 20-30% over a 1-2 month period. If it drags on, the equity markets will dive again later.

For now, we are reaching a good level for a quick buyback during tomorrow's weakness. Trade, don't hold as the situation is still fluid.

https://andropausesuccor.com/

https://andropausesuccor.com/

Monday, March 09, 2020

Irrational Market Blue-Black


There are black swans and there are Black Swans... but this swan somehow can give birth to many little black swans. The world is already trying to come to terms with Covid 19. Central banks have cut rates, governments have put through fiscal packages to alleviate the economic effects. Now suddenly we have the oil plunge. 

Let's be sober here, Saudi Arabia is cutting its nose to spite the face. Even though their cost of oil production is a lot less than Russia, its not that cheap. The strategy is to get Russia to come kowtowing for the March 18th meeting. NO ONE affiliated with OPEC wants the current situation, no one wants USD25 to prevail. Would you keep going to work if you KNOW FOR A CERTAINTY you have to pay the employer RM1,000 a day??!!

Hence it is a short term strategy, but I would still avoid oil & gas stocks for the time being because sentiment is bigger than facts now.

Last time I heard: low oil prices is good for the global economy, generally. Why are we reacting this way??? Are the OPEC countries a substantive consumer of global goods??? Rhetorical indeed.

If G7 and G15 can come together so quickly to address Covid 19, don't you think calls will be buzzing across continents to say WTF ... we don't need this shit now?!!

If you are among the lucky ones who are not exposed that much to the markets, and can take a 1-3 months view at least, you should put your money to work, even in some local stocks.


That's because there are some great second liners that have been hammered 15%-30% over the last few days alone. Just look for the ones with least exposure to disrupted supply chains owing to the virus and not entirely correlated to oil prices, plus they are profitable and cash flow positive.

The list is meant for readers to go and do their own research and not a call to buy blindly.


MYEG - (Recent high 1.38, today 1.03) How da hell is oil prices important here? Slowdown in economy, ok a bit, but you know our we have car registration, etc... that is humdrum transactions but must go one.

NOTION VTECH (Recent high 1.38, today 72.5 sen) - Last quarter made net profit of RM14.2m, bonus issue coming up soon. Chairman reiterated that they are actually benefitting from the breakdown in supply parts.  Project Nixon (EMS codename)  need 600k pieces of aluminium tubing for vacuum cleaners worth RM4.5 mil sales per month from June 2020 onwards. Project Stingray (Extrusion solutions codename) is a major expansion of the extrusion business from 200 tons per month capacity to 1000 tons capacity and billet furnace for upstream recovery of aluminium leftovers. Mainly for external customers. Notion is transforming the group into an aluminium total solutions company more than precision machining or fabrication.

DIALOG - (Recent high 3.45, today 3.03) This company stands to benefit as an oversupply of oil will require companies to find storage space. Probably at Pengerang SPV1.

Tuesday, March 03, 2020

Follow Me On TWITTER



Owing to the shifting paradigms on communications ... I feel a Twitter feed is imperative to send out messages concernings markets, stocks, new posts. Do follow me on Twitter so as to not miss out on important "stuff". Button on the right side.


Friday, January 31, 2020

Quarterly Reporting Must Stay


The Edge:

The Singapore exchange is about to make life easier for listed companies -- the safer ones, at least.

The bourse’s regulatory arm plans to end quarterly earnings reporting requirements that currently apply to all companies with a market capitalization of at least S$75 million ($56 million), according to Tan Boon Gin, the chief executive officer of Singapore Exchange Regulation.

When the rule change takes effect on Feb. 7, only riskier companies will need to report earnings every three months, Tan said at a press briefing. SGX RegCo will also tighten other disclosure rules and introduce a new whistleblowing policy as part of efforts to protect investors, Tan added.

Other global exchanges have moved away from mandating quarterly reporting for all their companies. The European Union ended its requirement in 2013, while Hong Kong only applies the rule to companies on its small-cap exchange. The U.S. Securities and Exchange Commission is currently reviewing the issue.
”Internationally, there’s a shift away from quarterly reporting and this is to allow companies to focus on the long term,” said Tan. About 75% of the local market currently reports on a quarterly basis, according to SGX RegCo.
Under Singapore’s new policy, a listed company will have to report each quarter in circumstances including when it receives a qualified report from its auditors, or when they express concern about the company as a going concern. The requirement can also be imposed if SGX RegCo has regulatory concerns about a company regarding disclosure breaches, for instance.
Additional disclosure requirements will be introduced for rights issues
    Acquisitions that reduce net profit or net asset value by 20% or more, or where the target is loss-making or in a net liability position, will be subject to listing rules.
    Companies will need to appoint an independent valuer for significant asset disposals.
    Firms will be asked to disclose material price- and trade-sensitive information, and any changes to near-term earnings prospects.


(Sept 19): AirAsia Group Bhd chief executive officer Tan Sri Tony Fernandes said he agrees with US President Donald Trump's call for companies to issue financial reports just twice a year, rather than four times, as it drives analysts to make short-term decisions.

"One of the few things I agree with Donald Trump is quarterly reporting is null and void. Should be six months. Analysts driving to much short-term decision," he said via Twitter today.


My View:

a) QR should stay. Any listed company, big or small, should have the discipline of being able to look at their financial status at ANY TIME, be it monthly or quarterly at the bare minimum. Half-yearly leaves too much room for things to happen. A company's management should have the desire to be able to close their books at a week's notice. Financial discipline is paramount to any company that rides on sound management and have a close eye on deviations. If a company needs to have that, investors should be just as eagle-eyed.

b) QR may be lighter in its requirements. Just the basic financials BS/CF/IS, plus commentary on substantive changes to Debtors and Creditors, or any revaluations/disposals of significance. Keep it to the bare minimum.

c) QR does not and should not add much financial burden on listed companies. As mentioned, all companies should be able to close their books within a week. Are you to tell me monthly meetings obtain figures for discussion that are 6 months past? These are things all listed companies should be doing already.

d) QR would also "help to reduce the leeway" for the massaging of earnings. Enough said.

e) There is already insufficient information pertaining to the company's fundamentals. The sector's prospects and outlook are not being highlighted sufficiently by basic financial media. Only the top 40 stocks in Malaysia get any form of decent analyst coverage, what about the other 900? There is a dearth of "credible information" for local investors on local stocks. If The Edge can find a willing audience on a daily basis, shouldn't that tell you investors need better information flow?

f) Half-yearly reporting also gives rise to "insider knowledge". The longer the reporting period, the higher the "value" that is accrued to insiders. Owners, board members, CFOs, accountants, corporate lawyers, industry followers, insider share movements, etc... all will benefit more from Half-Yearlies than QR.

g) If you were a substantive shareholder, would you be happy to only get a half-yearly update on your invested company? No. Why should normal investors be deprived of that information?

h) Does QR limits a company's long range planning? No. Why should short term price gyrations affect your company if your fundamentals are strong. Eventually all QRs will even out positively if your long term fundamentals are good. Yes, stocks will react to QRs, but these are the norm of a market, a daily market place that tries to forward discount a company's prospects. 

If you argue for long term reporting, why not report all earnings in one month and then close the market for one year, then report again... that is as preposterous as eliminating QRs.

Tuesday, January 28, 2020

Coronavirus Impact On Local Stocks


How should one play the "coronavirus" as an investor? Should we even invest at all? Isn't there something "not quite right" about making money out of certain people's sufferings? If you bought certain stocks which jumped owing to the coronavirus, is it evil to think in your heart that the longer the virus spreads, the better my returns?

So what is ethical investing anyway? Do these funds shy away from these healthcare-related counters? Do you buy and hold fire extinguisher companies that benefited enormously from the unrelenting Aussie bushfire??? Where do you draw the line? Do you even bother in the first place?



Hence, my views here are not an indication of my values barometer. I assess these stocks as an investment option. How the situation develops is part of the fundamentals' story. So, please, leave your principles, values, morality and political correctness behind.


Momentum Investing

You can try to rationalize why you shouldn't jump in, but you cannot block a momentum rally owing to a significant perk in "substantive factors" in a stock's earnings prospects. 

 Demand yet to surge, but this could happen anytime soon. MQ Research’s checks show glove manufacturers have not yet seen a surge in glove demand on the back of the virus outbreak. MQ Research believes Chinese buyers have increased demand for cheaper vinyl gloves in the first instance. If the outbreak is prolonged, there could be a spillover to rubber gloves. The upcoming travel period around the Lunar New Year holiday could spark an acceleration of the outbreak and spur global glove demand.

Who will be the biggest beneficiary? Glove manufacturers are running close to an optimal utilization rate of 85%. Thus, any spike in demand could tilt the pricing power back to the manufacturers. MQ Research believes manufacturers with the highest exposure to the Asia market and with the highest capacity additions could be the biggest beneficiaries in terms of sales volume from this virus outbreak. Among glove manufacturers, Top Glove has the highest capacity additions, while Supermax and Sri Trang have strong exposure to the Asia market.


Biggest Consideration: Utilisation Capacity, Product Mix & Clientele's Region Exposure

MQ Research believes manufacturers with the highest exposure to the Asia market and with the highest capacity additions could be the biggest beneficiaries in terms of sales volume from this virus outbreak. Among glove manufacturers, Top Glove has the highest capacity additions, while Supermax and Sri Trang have strong exposure to the Asia market.

Of MQ Research’s covered stocks, MQ Research prefers Top Glove over Hartalega due to its wider product mix, diversified market exposure as well as the potential benefit it could see from this virus outbreak. Nonetheless, Hartalega could also benefit if customers in developed countries (Europe and United States) start stocking up on rubber gloves as a preventive measure. 


Is It Too Late To Get Into The Big 4?

The Big 4 Heavenly Stars: Top Glove, Hartalega, Supermax, and Kossan. Yes, it is late if you get in NOW and you are a trader (i.e. window period of less than a week). No, if you planned to hold. Just look at the long long term charts (2003-now) of some of the Big 4.

You cannot fully anticipate the outbreak of each epidemic, but rest assured epidemics or health scares will be the norm moving forward owing to the mutation abilities of viruses. As long as you buy and keep, EVERYBODY makes money from glove makers. You are even more "secured now" as the Big 4 have reinvested heavily and now carries a huge moat around their business that will be hard to knock off from their perch.

Even the "political collateral damaged" Supermax maintained its long term outperformance since 2003 till now.

Just look at the lovely rise over the years for these stocks. These are stocks you can keep and keep and reinvest.







What About the Newer Players?

You mean Careplus and Comfort. well, just look at these two tables:






Capital expenditure can do a lot of things for the same companies in the same industry. But when the bigger players have the bulge bracket, it is very hard to even be competitive in terms of margin. Even if demand jumped 3x, they do not have the capital to take advantage of the situation.






Cost To Income ration, again in almost any other industry, there will be niches you can explore. However, the overwhelming size of the Big 4 will make it inevitable that every single resource will cost the small guys more. The Big 4 have economies of scale in almost everything.



OCNCASH, Only Small Player I Like

Oceacash is involved in wide ranges of hygiene manufacturing of diapers, sanitary napkins, wet wipes, surgical apparel, caps, masks and gowns.

Today was only the first day it jumped. Even so, its market cap is still just RM180m on just 245m shares. The hygiene business should dominate proceedings. I think RM1.00 is around fair for a company that happens to be in the right sector, plus with a fantastic correlation to supplying Malaysia's best selling car. 

We remain positive on Oceancash’s (OCP) business outlook after our recent meeting with management. We continue to like OCP, considering the i) favourable growth prospects in the hygiene’s nonwoven segment, ii) steady contribution of foreign felt sales from Thailand and Indonesia, as well as iii) strong management team with in-depth technical know-how. At 10x 2020E PER on the back of a projected EPS growth of 33% for 2020E, OCP’s valuation looks appealing. We reiterate our BUY call with an unchanged price target of RM0.61. This note marks a transfer of coverage.

Foreign Felt Sales to Drive Insulation Segment Growth
Profitability of the insulation segment was flat in 9M19 despite higher felt sales (+6% yoy) as this was largely offset by weaker PBT margins (-1ppt to 18.7%, exacerbated by adverse forex movement in 1H19). Prospects wise, we believe the increasing contribution from Thailand and Indonesia (foreign felt sales accounted for c. 61% of 9M19 insulation revenue) should be more than sufficient to cover for the expected shortfall in local felt sales (est. 2020 TIV forecasts lower by 1% to 590k units).

Insulation Felt Plant in Thailand Should be Ready for Action by 2H20
Elsewhere, construction of the felt production facility in Thailand remains on track to be completed by 2H20, and OCP is planning to relocate one of its two existing Malaysian production lines to tap into 1) the strong demand for resinated felt and 2) increase utilisation of excess capacity (current utilisation rates: est.50%). Locally, we understand OCP has been supplying felt to Proton refreshed models (ie. Saga, Iriz and Persona), and with this track record, the company is hopeful to participate in the Proton Complete Knocked-Down (CKD) X50 supply chain moving forward. We think OCP may give the CKD X70 contract a miss due to unfavourable pricing, similar to our observation of other auto-parts players.

Hygiene Segment’s Margins to Benefit From Cheaper Resin Cost, …
Outlook for the hygiene segment still looks promising - 9M19 PBT rose by 10% yoy to RM2.5m, on higher revenue (+1% yoy) and improvement in PBT margins (+0.5ppt to 6.1%). We believe the cheaper resin cost (est. 80% of hygiene’s raw material costs) will likely see an uptick in hygiene’s margins in the coming quarters.

Source: Affin Hwang Research - 3 Jan 2020



Well managed, look at the steady earnings. Now what if PBT jumps by 100% over the next 2 years. Is RM180m market cap still valid???

Thursday, January 23, 2020

Talking About ICON


ICON went limit up for the wrong reasons. Some are saying its because the terms were so convoluted and that not many know how to calculate the capital reduction.

PLEASE, this is not your first rodeo, this is not the first capital reduction exercise. You are all supposed to be professional investors or advisors.

The limit up was obviously caused by the 50 into one capital reduction. A simple calculation showed that ICON had 2.377bn shares. Divide that by 50 = 47.5 million shares. That must be close to the fewest number of shares listed by a company on Bursa.

The complaining parties ARE those who SOLD SHORT unwittingly. Imagine you had 100,000 prior to the ex date. It was trading at 4 sen, you value was RM4,000, and as with 99.9999% of ICON investors, you had lost money already big time.

Then you woke up and saw the price going limit up.

(0.035 x 50) + (100 × 0.105) ÷ 101 = 0.12 

Add the 30 sen limit up, you have 42 sen, today add another 30 sen you have 72 sen.

As you can see even at 72 sen, with just 47.5m shares its market cap is just RM34.2m. Of course, there are still other derivatives to cater to but let's forget that for now.

The main reason for the double limit up... OVERSOLD SHORT. Imagine that same guy with 100,000 shares (value RM4,000) and seeing it going limit up at 42 sen. Sell first lar... Trouble is he sold 100,000 consolidated shares when in reality he had only 100,000/50 = 2,000 shares.

Imagine you have to buy back the 98,000 ... say at an average of 62 sen ... you would have lost 62-42 = 20 sen x 98,000 =RM19,600

Bearing in mind your value was just RM4,000 to start with. The figures will multiply if you had shorted 1,000,000 ...

Bursa has done no wrong. This has been the same process for the longest time. Even our online accounts have default settings that do not allow investors to short sell stocks, i.e. selling what you don't have in your portfolio.

The ONLY people who can short sell are DAY TRADERS or proprietary traders or company dealers... though some bigshots do deal through company dealers' accounts first. Hence if you kena short sell... you get very little sympathy from all.


Things To Do During Lockdown

All local councils, utility companies, construction firms (those with permission) and city planners in Malaysia should take the opportunity...