Thursday, 20 April 2017

When Crude Oil crashed, Polymer company blossom on lower cost. Now Cocoa crashed, this company will benefit sharply

When the equity market takes a correction, that means things will start to cool off, and prices will start to come down and consolidate again. This is part and parcel of the life in the equity market. Share price goes up, share price goes down. In fact, you will need to get out of the market if the share price does not goes up or down.

I had to agree that the market had been over bullish since the start of the Year 2017. Anyone who took a bearish stance for the past 3 months had definitely miss out a good opportunity. Of course, all the opportunity comes with 2 sides of the risks - risk of gaining too much and don't know what to do with the money, and risk of losing too much and have no money then.

As you can see, one of the method in trading the stock market is to track the pricing of the commodities. For instance, when FCPO (Crude palm oil futures) goes up, then the local plantation player will generally be able to reap better profits because of the better margin they receive for selling their plantation fruits. Of course, when FCPO dived below certain level, plantation company will start to suffer from thin margin, while some will fall into the red due to lacking of economies of scale or inefficient operation process.

This can be applied to the recent major event in the global market - The crash of Crude Oil. When Crude Oil crash into the region below USD 40 per barrel, a lot of oil company went into financial and cash flow problem. This 2015 oil crash had resulted in Singapore based Ezra going into bankruptcy, which had also directly affect Perisai Petroleum listed in KLSE.

However, on the other hand of the world, businesses that used crude oil as input material are enjoying better margin due to a cheaper raw material supply. For example, Nylex manufactures polymer which uses oil as raw material. The cheaper price of oil resulted in better margin, hence better profit for Nylex.

Another example can be taken at SLP Resources Berhad. This plastic packaging company also manufacture its own plastic and plastic polymer. Ever since the crash of crude oil, SLP had been reporting humongous growth and profits, and is rewarding shareholder with hefty dividend as well.

You must know that every crash will be a crash on the surface, but behind the crash is a new opportunity.

Now, I am going to highlight to you a commodity which had crashed to it's 5 year low - Cocoa.

Above I am showing you the price chart of US Cocoa Futures. It is notable that Cocoa had crashed more than 40% from the peak of USD 3200 to the current USD 1900. I don't know if you would want to label a 40% drop as a crash or not, but I had to tell you crude oil also crash around 40 to 50%, and global analyst called it a crude oil crash.

Maybe you might not know what is Cocoa, but I believe everyone in the world would had tasted a piece of Chocolate before. And that ingredient to make chocolate came from cocoa.

For this reason, I am going to highlight to you that this company is that is standing to benefit from the crash of the cocoa prices. This company is - Guan Chong Berhad (GCB - 5102)

The business of GCB is very easy.
1.) GCB purchase raw cocoa
2.) GCB open up the grinding machine and grind the cocoa into cocoa powder
3.) GCB will sell the cocoa powder, or process them into cocoa butter and sell it to the global market.

As you can see, the major raw material input cost will be Cocoa. And now that the prices of Cocoa had fallen for 40%, that will effectively put the input cost lower by 40%

As you can see, GCB had not really participate in the bull run, however, they had been spending time in the consolidation stage.

According to the technical chart, the consolidation could be ripe, and GCB will be ready to take the ride up, back with low cocoa price that will help them save 40% of input cost in the coming days.

Today I am not going to tell you more, but just highlighting to you that
1.) International Cocoa prices had crashed to the lowest in 5 years.
2.) GCB will stand to benefit from a lower raw material price.

If you still do not understand, please do your own research and take sometime to understand this industry. Again, investment comes with risk, so please do your own due diligence before investing into any equities.

In the next article, I will put down some of my detail analysis and forward projection into GCB, and draw out the relationship between the prices of Cocoa with GCB dividend policy. If you believe the cocoa prices will stay at the range of 1800 to 2400 in the next 12 months, then GCB is definitely something you would like to hold on for at least 1 or 2 years.

Thursday, 6 April 2017

This packaging company is valued below USD 10 million for now, but it is going up soon.

As we talk about investing in Malaysia, one of the coming up segment in the Malaysian equity market could be looming at the packaging and warehousing segment. I will continue to put my bullish view on this segment due to the attractiveness of the future potential that Alibaba can bring to Malaysia by putting Malaysia as the main regional distribution hub.

As you would know, the move of Alibaba will definitely invite a lot of MNC over in setting up manufacturing arm and factory here in order to have a better proximity. This will also invite transfer of technology, and will be a big boost for the Malaysian economy. When all this happen, I could not deny that packaging company will going to be golden gooses that will pay fat dividend in the future.

Of course, I had recommended a few packaging company earlier that are doing well, but sadly it was rammed up unethically by some people which I do not have any idea who they are as well.

So I am going to introduce to you again another potential company again, and I hope you guys will queue up properly to invest. Remember, I am asking you to invest. Invest in the future potential, not asking you to make a killing intraday trading, agree ?

I am going to be very straight forward with you on this company called Master-Pack Group Berhad (Master - 7029).

This small little Penang based packaging company had been laying almost unseen by many investor. However, I had to agree that as of lately, there had been some buying up volume that cause the company to go up. Yes, I agree that the share price had went up, but I will also state some of my reason to see this company going further.

If you refer back to some of the corporate exercise that had went through during the 2015 tenure, there is a a private placement amounting to a maximum of 5 million shares being placed out at the price of RM 1.00, which is the Par Value price of the share.

So, this investor Mr Ch'ng had invested RM 4 million to acquire 4 million stock in Master. And subsequent to that, now he had a total of 5.2 million shares, which is almost 10% of the total share issued in Master (Master total share issued is 54.62 million). The other larger shareholder will be Yayasan Bumiputera Pulau Pinang Berhad, holding 29% of shares.

For a fundamentally sound company like Master, and being the cheapest in the whole packaging industry (currently only RM 38 million in market capitalization), it is viewed that Master had a high chance being taken over now as foreign fund are targeting to take control of the company by acquiring substantial stake in the company shares.

To support my claim on Master being a highly valuable target, I would like to point towards the case of Iretex Corporation Berhad (Iretex - 7183) that had saw new shareholder from Singapore emerging as controlling shareholder. The entrance of Elite Cosmo Group Limited into Iretex albeit the company lacking on fundamental and displaying poor financial performance had raise eye brown on what is brewing in the packaging industry in Penang.

If I am to compare Master and Iretex, you can see that Master is a profitable company, and also commending a much higher NTA of RM 1.32 compared to Iretex NTA of just RM 0.36. However, both of the company are standing at a market capitalization of just RM 38 million as of now. But, we have to take note that Iretex also have Iretex-LA and Iretex-WA, which makes Iretex commanding a higher market capitalization indirectly.

Based on this, Master is definitely undervalue, and very prone to foreign fund that are eying on this industry.

It had also came to my knowledge that Master had also recently secure more packaging contracts. According to some industry sources that are familiar with it, it is being said that Master could had possibly secure a new packaging contract with a local solar manufacturer. While I cannot really verify this piece of news, if you are serious about it, probably you might want to take a drive to the factory of Masterpack and see if there are any solar panel laying around. Haha. If you really did saw, then you better know what to do next.

As I had said earlier, I recognized that Master already went up. But due to it's forward looking prospect, and chance of being taken over at a higher price, I would still think that Master is a very attractive company. After all, comparing Master and Iretex, Master is way better than Iretex fundamentally. But since a Singaporean company can see the beauty of Iretex, what about Masterpack which is sitting at just a market cap of RM 38 million and NTA of RM 1.32 ?

You do the maths, and decide the rest. Who knows take over RM 1.00 can be offered ??

Tuesday, 4 April 2017

Can this company repeat the feat of VS Industry ?

Entering April, it is notable that the market continue to remain robust. As for KLSE, the bull defense at 1750 could be signalling a push towards 1780 in the coming days. One of the major contributing factor had to be attributed towards the inflow of foreign fund once again into the local equity market.

However, I had to agree that a lot of stock are actually being "fried" up in the midst of this 3 months. Now, some are in the stage of "refrying", while some are actually getting ready to be fired up.

One of the recent performer in the market that is contributed from it's stronger performance based on quarter to quarter comparison had to be Astino Berhad. As you can see, I always like to look upon the company that have potential, but neglected in the sense of seeing their share price no reflecting the true value, or forward looking potential. In fact, I had show you guys how I analyze into Astino using my simple method. And that was just 2 months ago where I had recommended on Astino when it is just laying at 70 cents. Today Astino is RM 1.00, and the public had started to realize on the potential of Astino now.

Now, I would like to take this opportunity to show you once again on my latest finding, where this company, which is dealing with EMS (Electronic Manufacturing Services) is liken to the Geshen and VS Industry 3 to 4 years ago.

As you can see here, Geshen and VS had saw their share prices rocketed upwards strongly due to more EMS contract secure, where one of the contributing factor is largely to do with the weakening of MYR against the USD, making Malaysia an ideal place in terms of manufacturing cost savings.

Of course, Geshen and VS already created their history, and you can only be jealous of it's past moment if you are not inside the ride.

But, I am now taking this opportunity to tell you about this company which is able to walk the path where both Geshen and VS had walked. But again, I have to tell you that please do not proceed to read if you are not willing to take excessive risk in such company that are turning around. It will be better for you to invest your money in fundamentally sound but boring company like Kfima, where you can at least taste some dividend.

However, if you insist in knowing this particular company, then I will tell you that this unknown company that many of us do not even know it's existence in the KLSE.

This company is - BSL Corporation Berhad (Bslcorp - 7221)

So what is so interesting in this company that it have the potential to become the next Geshen and VS ? I will extract the main point from the latest annual report of the company and tell you it's potential.

According to the official news, the company had secured production and delivery for a reputable TV maker for back chassis. Basically, other than the LED Screen, the rest of the TV are back chassis. Looking on, the profitable contract will be the EMS contract for air purifier as well as hand sanitizer.

Not only that, BSLCorp also had embarked into the renewable energy scene quietly without much people noticing. BSL Eco Energy is a 51% owned subsidiary of BSL. It can handle the EPCC of a project site.
While a lot of big company had been making big headline with 1MW, BSL Eco Energy had already built up the 1MW solar car park roof for UTM, KL.

This project is already completed and commenced operation since January 2017. Should there be nothing wrong, BSL Eco Energy will be deriving income from the renewable energy generated from the 1MW Solar Car Park roofing, benefiting the bottom line for BSLCorp.

Although a small company, I can see that this company is a doer without much talking. A few years back, the company had been net positive cash. However, much of the cash are invested into new operations to cater for EMS, and also the renewable energy segment. Now, this will be the time for BSLCorp to reap income from it's investment.

As you can see from the chart, BSL had been without any significant trading volume for a very long time, but not until the very recent that there are some open interest. As BSLCorp already broken above it's resistance line, I would like to take this opportunity to highlight this potential company to you before he start to run without brake pads again like how Geshen and VS did during it's bull run.

Now this is your decision time again. If you believe that BSLCorp can take the path taken by Geshen and VS through EMS contract, then invest in him. If you do not believe BSLCorp can perform, then shy away from it. Of course, BSLCorp now will also enjoy recurring income from their 1MW solar carpark in UTM, which is a plus point.