It can be a disaster but also an opportunity

With bad news flooding the market from QE tapering till the lastest of possible war in Syria, we can easily observe negative news from all source of media. Of course when normal people like us receive the news, market already show the require changes. The use of biological weapon in Syria is nothing new but when US announce of taking punishment action, market suddenly alert about this threat. The first changes after market start to slide, price of crude oil and gold start to shoot up. Together with foreign selling pressure, the drop in last week was really quite pretty.

Many margin user did receive margin call but it didn't get serious until force selling happen. However, the bearish market did not persist until the weekend because the local institutional did some window dressing since this weekend is our independence day. With the panic selling happened last week, now is the technical rebound stage. Whether this trend continue or not will depend on whether Syria war really occur in next week.

With UK stepping down from participating in the war, I bought in 20lots  Airasia in anticipating for a rebound at RM2.55 while I sold off 20 lots of Supermax at RM2.35 after nothing much changes even though the quarter result is great. I contra 30 lots of Yeelee at RM1.17 that I bought at RM1.12 on last Tuesday and earn around RM110 after deducting the trading charges. I am getting ready to ride the wave and will definately anticipate more wave coming.

Another wave coming soon

Before last Tuesday, everything in KLSE seem normal. All of sudden, selling volume increase tremendously. I manage to sell off Cscstel at 1.32 and Marco at 0.155 to increase my cash position and gain around RM180 after deducting trading charges. However, I did a mistake of adding 20 lots Supermax at 2.4 increasing my average price to Rm2.195. This make me hesitate on Thursday to increase my position at RM2.22 when panic selling happen again.

 I will keep Supermax since its quarter report should be out by next week. Hopefully the result will be great since US dollar appreaciate a lot and rubber price has been stable all this while. Demand also increases as I observed there are quite a lot outbreak of bird flu around the world including Mers in Saudi Arab, H7N9 in China, H1N5 in Cambodia, H1N1 in India and flu season is coming in US from October to May.

FED's minute on last Friday did not mention much of QE tapering so I would expect there will be another round of panic selling around 17 and 18 September. For the mean time, we may observe technically rebound and the one thing I wanna make sure is whether foreign shareholders will sell again. So far this had happen to Indonesia, Thailand and Filiphine, it just unknown when is Malaysia's turn. Therefore, I get ready my bullet and also buy myself a new gadget Samsung S4 as a reward for myself.

Position strategically

After some time invested in KLSE, I believe we all can perform much better as long we can position our portfolio well. Although we may not be as professional as fund manager, retail investor has much more freedom in handling their portfolio. Unlike retail investors, fund managers not only need to invest more than 90% of the fund at any time, but also most of the time only cover stocks which are relatively well known. Fund managers seldom touch on small capital counter as they are mostly under coverage. Therefore, it will be the best if retail investor can make the move much faster than those fund manager did. Along the years, I observed many such counters such as Prestariang, tambun,  Myeg and so on. These hidden gems are little known when they firstly listed and become popular when some report are written on them. I believe there are still many such counters since there are over 1000 counters in KLSE. Such value investment is alike with the popular investor called the Cold Eye or Fond Si Ling in Malaysia.

Before start any investment, I will always look for a theme behind those counters. Supermax for example is bought when H7N9 broke out in China. Only after i bought in Supermax, i found out MERS in Saudi Arabia has lasted even longer than H7n9. Now Malaysia Ringgit depreciating and reducing rubber price will surely help Supermax to gain further. This is because its earning is positively correlated with US dollar value since Supermax export all its rubber glove manufacture in Malaysia. Rubber price that contribute to the cost of rubber glove is negatively related with Supermax's  earning. Although Supermax's new plant haven't finish according to the schedule, I believe the 2nd quarter result will be much better than before. Buy in the right time, right place and we will gain the right returns. Lets wait and see.

New move into the market

After tired of waiting for correction, I made some move this few days.

Last thursday I bought in 30 lots of Cscstel for 1.29 in anticipating for 2nd quarter result but it seems to be quite dissapointing as it turned out EPS only 2cents making EPS up till 2 quarters only around 6 cents. In quarter report, Cscstel is anticipating a much weaker outlook for next half year since steel is still abundance from China. However, I observed Cscstel started a new round of share buyback again. With 70 cents per share, I think Cscstel can use those money to buy back share in the open market to improve EPS since they seldom distribute special dividend this few years. The following is the newest price target by Hong Leong together with their report:

Hong Leong Trading Buy for Cscstel aiming RM1.50

Highlights
On a qoq basis, 2Q13 net profit weakened to RM7.5m (from RM17.5m in the previous quarter) mainly on the back of:
 (1) Lower sales volume;
 (2) Lower selling prices; and
(3) RM9.4m inventory writedown.

1H13 net profit rose by 54.3% to RM25.1m mainly on the back of the strong performance due to sharp recovery in sales volume (whereby earnings registered in 1Q13 itself was already more than the earnings registered in 1H12), but partly mitigated by RM9.4m inventory writedown incurred in 2Q13.

While international steel prices seem to have stabilized, we are holding our cautious view on the company’s mediumterm outlook as overcapacity in the region (in particularly, China, Indian, and Korean steel mills) will continue to weigh on the sector’s profitability including CSC Steel. Despite our less bullish view on the company’s earnings outlook, we believe share price downside is limited by its RM265.8m net cash (translates to 70 sen/share or 54% of share price) in its balance sheet.

Risks

Downside risks-
(1) Overcapacity in China remains over the longer term; (2) Volatile input prices; and (3) Influx of steel products at cheap prices.

Forecasts

We are maintaining our 2013 earnings forecast, but cut 2014 earnings forecast by 19% to RM43.5m largely to account for lower sales volume assumption.

Rating

Trading BUY
Positives – Strong balance sheet
Negatives – Inability to pass on higher cost of raw materials to end-users

Valuation

SOP-derived TP cut by 6.8% to RM1.50 to reflect the downward adjustment in our 2014 earnings forecast, which more than offset a slightly higher net cash balance. Maintain T.BUY call on the stock.
Source: Hong Leong Investment Bank Research - 5 Aug 2013
http://klse.i3investor.com/servlets/ptres/17341.jsp


Besides that, I also topped up another 15 lots of Supermax at RM2.25 today to add up total of 50lots. Malaysia Ringgit depreciating toward Us dollar together with softening of rubber price and increasing of Mers cases lead me to accumulate more Supermax. Supermax at PE 12.39 still way behind its opponent's PE namely Topglov 17.6, Harta 21.15 and Kossan 16.52. Still waiting for Supermax latest quarter result to see what is the next move. I hope this will come before Fed next meeting on 16 and 17 September as I will clear of some stocks again to wait for another round of stock discount. Tomorrow will only be half day trading since Raya is coming. Selamat Hari Raya for those who are celebrating.