Hoopla Over Maxis & Market Mood

I am happy that Maxis did not get whacked by retailers to stratospheric levels. I really think private investors have grown up a lot. They listened, they read, most of them know this Maxis is not the Maxis of old. I hope they also appreciate that the mobile penetration rate is vastly different from what it was ten years ago. I also hope they did not get fixated at the previous privatisation / sale at around RM15 (I think, I forgot). Most importantly, they refused to pay above fair value (deemed as having a properly competitive dividend yield) for what is basically a 70% dividend stock. By that, I mean they did not "take out the institutions" or gave them more gains than necessary. We all deserve a pat on the back. The players have grown up - if you lose enough money, you will learn, we all do.

What about the liquidity drain that Maxis was supposed to effect on the bourse? Yes, I have heard some selling their other shares to ready funds to buy Maxis, thankfully they have been few and far in between. Is there liquidity being soaked, yes of course, its not a small issue. A lot of funds had to rebalance their portfolio to accommodate Maxis. Due to the very tiny issue to the public, not an excessive amount of funds was tied up. In fact, the sluggish markets over the last ten days can be attributed to this liquidity being drained, or it actually scared many players into not participating in the markets owing to the fear of a possible down trending market.

So, if the US and China markets continue to behave, will the next few days be OK for local bourse? Most would believe that with Maxis out of the way, the markets should resume its uptrend to try for 1,300 ... will they be proven right. The markets have reached my target of 1,280 for the year. To me, it could overshoot that but it will be difficult to breach 1,300 this year, regardless of how well the US and China markets are performing. To conclude, the risk-reward is not particularly attractive. I have been scaling down holdings, and sticking to very selective stocks with near term catalysts only - in other words I would stay very selective and stick to diligent stock picking. As it is, I am finding it increasingly difficult to pick stocks to feature - the markets is trying to tell me something.

I do think there will another good round come January/ February 2010, but it will have to come down a bit first for that rally to occur. You cannot possibly have a good run for more than 3 months, it will over extend itself and be tired. One should always read markets like they view an athlete, they will show signs of fitness, strength, confidence, or weakness, tiredness, sluggishness etc. They way to read the signs is to monitor the top volume and top gainers, is there constant rotation or the same names, are the leaders moving with good catalysts or just simply goreng stuff. There will always be goreng stocks, the stronger they can do it, the stronger the underlying willingness of the market to participate, but when these stocks fail to attract followers, the answer is obvious. I would stick strictly with stock picking mode only and reduce mid-term or long term stocks.


p/s photos: Jessica C. (Wacoal's top model)

Why I Like Yungkong Galvanising Industries

As the global economy recovers, it is also timely to look at stocks that were hurt by the downturn in global trade. As mentioned during my talk, you cannot outrun a crisis, but if there is little capital being decimated, and your business structure is in place, you should recover splendidly eventually. Evergreen was a prime example. I have just discovered another in Yungkong.

Yung Kong Galvanising Industries (YKGI) manufactures and sells galvanized and coated steel products. YKGI subsidiaries are involved in the manufacture and sale of galvanised and steel products, furniture hardware and accessories. The group primarily operates in Malaysia, where it is headquartered in Kuching.

The group recorded revenues of MYR479.3 million (approximately $144.4 million) in the fiscal year ended December 2008, an increase of 3.8% over 2007. The group's operating profit was MYR19.6 million (approximately $5.9 million) in fiscal 2008, a decrease of 44.2% compared to 2007. Its net profit was MYR1.2 million (approximately $0.4 million) in fiscal 2008, a decrease of 91.5% compared to 2007. Naturally Yungkong felt the harsh realities of the global turmoil, and its chairman explained their situation splendidly with clarity and purpose, facing the harsh realities head on.

Dato' Dr Hii Wi Sing in their Dec 2008 annual report said: "Yung Kong Galvanising Industries Berhad (YKGI) experienced a year of unavoidable and unpredictable norm with an unprecedented steep rise and followed by the deepest slump in prices for most commodities, including our raw materials and products. This happened so abruptly and sharply. Normal market principles become invalid and inapplicable during this plunge, and economies and markets crashed of tsunami scale. Massive consolidation occurred and everyone is rushing to cash out faster than the others. The great expectation of a bumper year for 2008 for our operations was abruptly terminated much earlier than the management’s anticipation, thus reversing most of our Group’s record pretax profit (PBT) of RM23.66 million achieved in the first half of the year to RM4.80 million for our financial year ended 31 December 2008. This is a stark comparison to RM20.56 million achieved in 2007. The weak result was due to a writedown (RM10.70 million) of inventory to their net realizable value and provision for doubtful debts of RM1.74 million. Our profit was further dampened by FOREX loss amounting to RM5.80 million caused mainly by the unexpected strengthening of the US dollar against the trend of most economists and professionals’ general consensus and predictions."

Catalyst #1 Earnings Recovery - This is the key catalyst. For the quarter ended June 2009, it recorded a revenue of MYR82.3m and a net profit of MYR1.92m. I expect even stronger results for the rest of 2009. Another good indicator is their inventories level, which stood at MYR91m as at end of 2008 and has been whittled down to MYR70.8 by end June 2009. Now you will blink if you miss this, for the quarter ended September 2009, net profit for that quarter jumped to MYR7.14m. Thats a strong recovery trend. Owing to the fact that they had a poor 1Q2009, total net profits to date as of end Sep 2009 came to MYR3.12m. It would be silly to incorporate the 1Q 2009 loss to the full year as that would not paint a fair picture of the current state of affairs. Assuming they make another net profit of MYR7m for 4Q2009, total net profits for the year would still be above MYR10m. On 195.5m shares, that works out to be a net EPS of 5.1 sen. At the current price of 46 sen, that comes to a PER of 9.1x.

Catalyst #2 Absurdly Cheap Even For A Cyclical Stock - As I said, if you annualise the third quarter alone MYR7.14m x 4 = MYR28.56m net profit theoretically. That works out to a massive 14.6 sen EPS. Divide that with its share price of 46 sen gives a PER of just 3.15x. A load of comfort here. Even if you take into account the full conversion of its warrants, the share base comes to 237.9m giving a net EPS of 12 sen, still less than 4x PER.

Longevity & Long term partner - On 9 May 2008, Yungkong celebrated the 25th anniversary of the signing of the Joint Venture Agreement between Yung Kong Co. Bhd, Sarawak and Marubeni Corporation (MISI), Japan for the operation of YKGI in 1983. The launching of their Klang’s operation was held on 10 October 2008, thus signifying the completion of the current phase of development in making YKGI an integrated steel coil coating company in Malaysia.

The net asset per share stands at 72 sen, no worries there. Yungkong is symbolic of the kind of cyclical recovery stock you want to hold for the medium term. My anticipated 30% should not be difficult to attain.

The above were views on stocks and sectors that I like, not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.


p/s photo: Jessica C.(top model for Wacoal)