Market Comments

It had been quite sometimes I did not update my blog due to heavy load on my work and personal investment. Stock market, Bursa Malaysia, reached its all times high as above 1600. Hartalega, Public Bank and Allianz close to their all time high as well. Although I see no bubble on these counter, but I also realized that the whole stock market actually supported by "feel good" environment created by our Government. It is so unhealthy that the whole index is supported by these GLC or GLIC, further affected by the listing of heavy weight GLCs. My take is this situation would be "disappear" immediate after the election, it is better to reduce exposure and get ready for next wave of volatility. 

 Secondly, in my more than 10 years investing experience, I never seen investors priced the so called "dividend yield counters", consumer counters, defensive counters, telco or cellco so....so..... aggresive. It is hard to believe that general investors can accept dividend yield of 3-5%, and further more PE is more that 20. Look at PPB, BAT, F&N, Nestle, Carlsberg, GAB, TM, Digi, Axiata, Pavillion Reit, CMMT Reit......blah blah blah. Is it because of low interest rate? I dont think so, we had been in this low interest time since 2008. Instead joining the party, it is always better to leave the party early and get prepared for the aftermath. Stock market is a place where only minority can survive in long run. To be fearful when other is greedy. 

 I also opine that this is the correct time to offload the 2nd, 3rd grade or penny stocks. If as today these stocks still below your purchased prices or under perform the stock market as a whole, forget about it. They will not perform neither better in near future, under this environment it still not going up, there are slim changes it going to go up in future.

Capital required to grow

Normally a company able to achieve growth in its business/ profit via a few type of capital models.

1st, this type of companies possess pricing power, it able to generate more revenue by increase selling price, thus increase its profit. This type of companies do not required additional capital to grow its business. All the profits are able to return to shareholder. This is a fanta-bulous business.

2nd, this type of companies using its or part of its profit to grow its capacity. Some are able to grow by only retain less than half of its profit, excess cash will return to shareholder. Some are required by regulator to retain part of profit as business grow bigger, like bank. However there are some need to retain most of its cash flow just to expand business.

3rd, this type of companies using cash generated by its operation to buy other business. To them it is merely a capital game.

4th, this type of companies have to take debt or using using debt to grow their business. To them doing business, it is better to use other people money instead of own money. However excessive debt is showing more trouble ahead. The bigger a company grow, debt will escalating higher.

These are the reason how a company paying out dividend. Some investors are very happy because they are able to buy a growth company, however they are without consider the above. They told others that how their company able to grow year after year, especially when its share prices rally.

To me what is a big deal that a company that able to grow by taking debt and more debt.

Comment - My Portfolio

To me the reporting season is over. Public Bank reported satisfactory results, EPS growing at mid teen as expected. Dividend payout as per guidance given by the its Management. The immediate future of banking industry is not rosy, this can be observed by PE fetch by Maybank, CIMB and also Public Bank. To my surprise all the banks are traded at low teen level, this is not usual, unlike the situation of bearish market every is cheap. Investor always priced the immediate future into share prices, i don't want to talk about world economy, it is the booming of property price and stringent credit control do matter. Sales of newly launched properties are not snapped immediate like previous, secondary market is slowing down, all these mean loan growth will likely to slow also. Now we also heard about hire purchase is more stringent also. Based on the above, how investor willing to pay premium for banking stocks? CIMB is the stock to be avoided by most investors due to GE13 is not far from now. Experience of 2008 where the index plunged almost 100 point within 2 days and this counter is hammered down by the market. However it do survive and perform satisfactory there after is something to think about. Is the market already priced in this event?

Hartalega reported results within expectation, and corporate proposal of 1 for 1 bonus issue and 1 for 5 free warrant is something the market like the most. No wonder its share price had appreciate more than 40% from beginning of the year. Construction of Plant 6 already started, and expected to commission 2 new lines by Sep 2012. Finally it is not undervalue any more. One of my friend called me saying that we should sell it as it is traded at PE 15, when i ask more the answer is only it is PE 15. Plenty of stock traded at PE more that 20 like DIGI, Maxis, Axiata, Nestle and blah blah...., and seem like he is not interested to ask. It is true that Hartalega never traded at PE 15, not like Topglove anytime investor willing to pay PE 18 and above. Some said margin is dropping due to new capacity from its competitors, this is valid. However eventually it is the low cost producer will win the game. Profit margin of bank is going down for years, but Public Bank still survive and making record profit year after year, this is because the market is still growing . Similar to nitrile glove, the market is growing and will grow further from developed countries. No point you going to sell the best nitrile glove producer which going to grow for years to come just because it is traded at PE 15. Name me a stock in Bursa Malaysia is possess superior quality than Hartalega, which happen to be in grow industry.

Financial results of Allianz is below my expectation, 15 mil out of court settlement and 10 mil losses for insurance pool, which affect its profit significantly. Dividend payout also at lower end. Its share price going to be side line as investor have nothing to shout about.

Comment and opinion

Happy CNY and Huat ar....

Look like Hartalega finally goes up, I had been holding this counter for 3 years. The return is not bad at all. Like what i had said previously sometime is purely luck and sometime you need a marathon to obtain satisfactory results.

Allianz is another counter I plan to increase my position for this year. Currently i only hold a little of it only, my concern is the liquidity problem of this counter. Therefore I must be sure that I need to hold it for very long in order to get good return, and selling it may be a issue since lack of liquidity. Allianz is not appeal to investors currently is due to dividend issue as compared to other insurers like LPI, once Allianz start paying good dividend its share price will reflect that. GAB, DIGI and LPI are traded at very high PE because of their dividend payout. Investor will priced their using dividend yield model instead of PE valuation. Allianz posses that potential as the mother company may want to recoup their investment. This was happen to Digi previously, it never pay dividend, its share price hardly move. However since it start paying good dividend and exercise capital management to return excess capital its share price shoot up for years.

It is very interesting to watch how Maxis perform from now, will investor priced it using dividend model and will it fetch a comparable PE or dividend yield to Digi.

Some ask me about plantation counter, however i did not follow any plantation stock currently.

Adding Position to Hartalega

My first purchase of year 2012 is Hartalega....again. Can't find better bet, still opine that Hartalega is attractively priced. Yes, latex price is low compared to months back, however this nothing new to Hartalega. If i not mistaken the current latex price, price of latex glove is almost on par with Hartalega's nitrile glove price. Therefore customer still can choose a better product at similar price. The foundamental of Hartalega is not affected.

My portfolio beat Index for year 2011, however is still below 15% of what i targeted. As i said previously, some times i need a marathon to get satisfactory results. I still stick to what i know better in term of stocks and strategy.

Since every week, paper is publishing stock pick for year 2012 or dragon year, do I have some? Yes, my pick will be Hartalega and Allianz. I also see Jobstreet is attractive at current price although it may be affected if the economy turn bad. No matter how it still a cyclical stock. I also think that celco is able to grow further since there are so many smart phones in the market. Few years back i thought that celco is a mature and saturated industry that purely for dividend play but i think the situation is changing.

I also think that Cypark is in a good industry, landfill management and solar energy however i don't know how reliable of their management. Further more, political issue may affect the company business.

Able to foresee and able to capitalize

It has been sometimes i did not update my blog, very sorry to all the viewers.For the past few months, thing has been stagnant until recently.

Yes i manage to foresee it is only the correction for stock market not the beginning of the bear market. However able to foresee and able to capitalize on it is a seperate issue. As i mentioned previously, i did not purchase any stock for past few months. Indeed my stock portfolio did not change for more than 1 year. My core holding - Hartalega, Public Bank and Allianz did not perform well in term of share prices, but their scorecard in term of financial results are satisfactory.In year 1929, Philip Fisher also managed to foresee the market was going to collapse however he did nothing. Instead he was looking for stock which was relatively cheap or stock that yet to go up. He was losing money, although he was rigth that market eventually collapsed few months after his prediction.I managed to foresee HLFG is going to be the winner of Hong Leong Bank - Eon Bank saga, but i failed to capitalize on it. I said Astro and Aeon Credit is attractive but i also failed to purchase any. I also made a few bad call like YTL Cement, and luckily i did not buy. All these are recorded down for me to review for my future investing decision making.Year to date i still barely making money but only dividend received.

In year 2008 i started to invest in property, and going aggresive by year 2010. What i want is to diversify my investment vehicle. I was lucky that the property market was booming starting from end 2009. Some of my investment still yet to see the result but what can said is property investing is profitable. You need to be selective and not over leverage.

Similar to my stock investment, although the result is not satisfactory currently but i still have confidence. This because i foresee my stocks holding going to make more money (business profit) than now for years to come.

Comment and Opinion

I did not manage to capitalize on the recent share price correction. Limited fund available at the moment and this fund also reserve for my property investment. I still of opinion that the sell off is only correction not the beginning of the bear market. I aware that many will think otherwise. Share market tend to correct every 3-5 years and this time should be also correction not recession. Some investors already feel the pain, especially those invested in the 2nd grade stocks. In order to survive in the stock market and make money always not an easy task. Over more than 10 years of investing experience tell me to only stick to really well managed companies is the way to weather through the market fluctuation. One should always take a long term perspective and prepared for the up and down of the market. If you ask me some of the stocks are quite attractive like CIMB and Aeon Credit. I sold one service apartment recently and reinvested into a terrace house. This is big investment for myself, hopefully i made a correct choice, instead of buying share i vested in property. Seldom people buy terrace house for renting purpose but i plan to do that. Recent property price hike make some of the landed sub-sale look attractive as compared to newly launched condo or landed.