Stock Holdings

Current stock holdings for now (I find 5 stocks for a portfolio will be good enough for individual investors. Holding more than that could undermine potential gains. I guess an investor's aim is to train oneself to identify winning stocks while at the same time train oneself to be intuitive/alert enough to sense any negative sentiment and change fast, and I mean REAL FAST accordingly - I've learnt some difficult lessons of not acting fast enough, especially in cutting losses and switch counters fast):

Delloyd (RM3.14): I feel it's a matter of time before it flies. I like their share buybacks, increasing contribution from bus manufacturing, plantation and riding on increasing car sales. An extensive report on Delloyd can be found here in The Edge. Click here for previous posts.

Mudajaya (RM4.61): Ample opportunities to pick up Mudajaya at lower prices, though it can be risky pending announcements from SC regarding its disclosures on Indian IPP projects. However, looking at how Mudajaya came out to clarify and assure the investors/analysts coupled with working closely with SC as compared to other more dubious companies where CEOs go missing and so on, Mudajaya should be alright in this regard. In addition, "double joy" on announcements of potential IPP project in Laos and SC's email on letting Mudajaya off within a single day. Click here for previous posts.

Paramount (RM4.63): Same old story on Jerneh. Potential fat dividend on the cards? Business direction good as well with greater expansion/diversification into education sector while corporate earnings in the past quarter came out very favorable. Click here for previous post.

QSR-WB (RM2.07): More speculative. Looking at how the shares have been played up, a very big player is coming in. Recent news have been favorable such as expansion into India, potential acquisition of Yum!'s outlets and the resilient uptrend of its earnings. A good proxy to KFC which has shot up to the sky!! QSR currently trades at around 14.5x PER which is undemanding as it should trade close to other F&B counters which are at 17-18x PE levels in view of its leadership in the F&B sector. Should QSR goes up to RM5.50, QSR-WB could easily go up to RM2.50, more than 20% upside.

Latexx (RM2.72): As mentioned in the previous post.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

A simple look at glove makers - Which is the most attractive??

Top Glove's quarterly results just came out and the performance was not favorable owing to normalizing demand, weak USD and high latex prices. Is this a precursor to what we are going to see in the glove makers' performance for 3Q10? Will other glove makers' performances be as poor as Top Glove? I will try to present my simple guess and see which one is the most attractive for now.

Based on the table above, Top Glove should be the most affected amid high natural rubber (NR) prices, followed by Adventa, Supermax, Kossan, Latexx and Hartalega (The least affected). Therefore, we might not see earnings of other glove companies decline as much as Top Glove.

Owing to the high NR prices, some customers are switching to nitrile gloves which currently enjoy firm demand. Therefore, Latexx and Hartalega might continue to remain firm (or less affected) in their earnings/margins in the following quarters owing to their higher exposure to premium segment i.e. nitrile and powder-free gloves.

Looking at the glove makers performances above, I would prefer Latexx as its growth in earnings and margins appeared to be more resilient while its 2Q2010 earnings growth remain in the positive QoQ when others were experiencing contraction (except for Adventa but earnings are rather inconsistent and too small for my taste). From pure PER valuation point of view, Latexx remains the cheapest. Latexx is moving into premium segment i.e. Powder-free and nitrile gloves where demand is firmer. Besides, Latexx could also benefit from its washing system to remove protein content in the gloves which will come onstream in 4Q2010 and could contribute strongly to its earnings.

In my simple conclusion, Latexx will be my top pick for the glove sector for now.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Stock Holdings & Stocks Under Watch

There have been some requests from friends to inform them of my investment holdings and investments decisions I make. So, here it is. Hope this could help in some ways in your investment decisions and do feel free to provide feedback to me so that it could help improve my trades as well. Thanks.

Supermax (RM5.50):

Going to hold this for rather long-term until I see signs of negative turnaround for the glove industry such as supply glut, rising costs of energy/latexx, weakening USD and whether these factors can be passed on to customers. Supply glut might happen probably in another 2 years or more according to Stanley Thai. PER remains reasonable at 9.8x and 8.7x for 2010 and 2011 respectively, a huge discount to Top Glove which is trading at PE of 14.7x and 13.5x for 2010 and 2011 respectively. Earnings growth for 2011 is OK at 12.5%. The recent bonus shares (1 bonus share for 4 existing shares held) could further boost liquidity of the shares (They are already very liquid) as shares are cheaper with more shares in the market. Still like glove industry which is resilient and recession proof. Click here for more info.

Sunway Holdings (RM1.49):

The stock remains very cheap at PE of 7.4x and 6.4x for 2010 and 2011 respectively, which is at a huge discount of 50% as compared to its peers like Mudajaya, IJM, WCT or Gamuda. The company is poised to post record earnings this year coupled with huge project tenders of RM16bil with expected success rate of 10-15%. It is even cheaper than HSL or Naim which only concentrate in Sarawak and depend more on government projects whereas Sunway's orderbook is more diversified from Malaysia and government projects (Fear of overseas ventures being riskier???). It is also supported by project development and quarry business segments. Earnings growth at 15% in 2011 with strong orderbook of RM2.8bil which could last them comfortably for the next two years. Click here for more info.

Notion (RM3.04):

This stock is about growth, high margins and strong shareholders. PE of 9.35x and 7.3x for 2010 and 2011 respectively. Earnings growth expected to be more than 25-30% over the next 5 years (If I can recall, this figure came from the CEO himself). Nikon is a substantial shareholder of about 9%. Global electronics/semiconductor sector is thriving, driven by greater usage of digital devices. With more usage of laptops, game consoles (X-box, PS3), IPAD (more tablets coming from HP and Blackberry?), demand for HDDs continues to be strong. Click here for more info.

Latexx (RM3.49):

Smaller glove manufacturer, PE of 9.4x and 7.4x for 2010 and 2011 respectively. Earnings growth expected to be strong at 27% for 2011. Stock price is cheaper which allows investors to hold more shares. Better than Adventa for now due to Adventa's hiccups in its latest quarterly results and delay in production expansion.

Stocks under watch

1. Coastal Contracts (RM2.35): Cheap valuation and high earnings growth but looks riskier for this current market (Dependent on contracts, too narrowed to O&G sector, share trading cold, costs dependent on steel prices, reliability of subcontractors). Might consider going in again when sentiments are better and shares are more liquid/volatile. Click here for more info.

2. Eng Teknologi (RM2.55): Cheap valuation, PE around 4x (unbelievably low, wonder why?). Expansion plans? Earnings growth expected to be little. Will research more.

3. APM (RM3.90): PE still below 10x. Potential to go higher. Tan Chong, MBM, Proton have moved up after the recent selldown except for this counter.

4. Dufu (RM0.54): Nobody's playing. Shares are too cold. PE exceedingly low at less than 4x. Customers too concentrated on 3 players i.e. Western Digital, Seagate and Hitachi Global Storage. Share performance is soft like tauhu :p Click here for more info.

5. Naim (RM3.00): Beneficiary of Sarawak projects. Click here for more info.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Supermax (RM3.35): After a good rally, more legs for upside?

My humble answer is YES! Supermax has just released its 3QFY2009 quarterly results and the earnings are nothing short of magnificent!! Net profit for 3QFY2009 results were 155% y-o-y and 55% q-o-q higher. The better performance was due to stronger demand, greater operating efficiency, cost control and its OBM business which commands higher prices, leading to higher margins.

Currently, there are six listed glove companies, namely Top Glove, Supermax, Kossan, Hartalega, Latexx and Adventa. Let's compare the valuations of these six companies:

1. Top Glove: PER'09 - 15.2x

PER'10 - 12.9x

2. Supermax: PER'09 - 7.3x

PER'10 - 6.6x

3. Kossan: PER'09 - 11.7x

PER'10 - 8.8x

4. Hartalega: PER'09 - 13.3x

PER'10 - 10.9x

5. Latexx: PER'09 - 13.6x

PER'10 - 10.2x

6. Adventa: PER'09 - 16.0x

PER'10 - 10.8x

Supermax the cheapest: Supermax has the lowest forward PER of only 6.6x, which is grossly undervalued compared to average forward PER among peers of about 11x. Should Supermax trade at 11x, its share price could reach more than RM5.60. In addition, Supermax, being the world's second largest glovemaker after Top Glove, should trade close to Top Glove's valuation at 12.9x, which is double that of Supermax's.

Industry: Due to the strong demand for gloves worldwide especially with the emergence of developing countries such as Brazil, China & India which have an increased awareness of hygiene, coupled with the threats of viruses like HIV, H1N1 etc against a backdrop of lack of capacity expansion among glovemakers worldwide, glovemakers are clearly the beneficiaries. According to industry trends, glove demand is expected to have double digit growth. Assuming 10% growth p.a., the world will need some 170bn gloves by 2011, of which 55% could be supplied by Malaysian glovemakers. As such, Malaysian glovemakers are carrying out aggressive expansion plans to increase each of their capacities by 3-8bn pieces p.a.

Expansion: As for Supermax, it is planning to accelerate its expansion plans, bringing forward its expansion of 12 new production lines in Klang from Jan 2010 to Nov 2009. It also plans to refurbish some old lines and put in new lines in its Malacca and Sg Buloh plants which will raise its total capacity from 14.5bn to 17.7bn pieces by mid-2010. In addition to all these, it also intend to build a glove city in Klang, starting with its first plant there by 2011 which will have capacity of 3bn pieces p.a. Should all these go well as planned, the company will have about 20bn pieces p.a. capacity by 2011 from its current 14.5bn.

4QFY2009 to be better: Supermax has already booked its sales right up to Feb 2010, which means its 4QFY2009 results are more or less secured. Should they maintain their performance as 3QFY2009, their EPS could reach 47 sen in FY2009. With this, their PER'09 will only be at 7x, compared to peer PER'09 of 14x. This is a massive 50% discount.

Valuation: On the conservative side, Supermax should trade close to RM4.70 just by attaching PER'2010 of 10x. If it should trade close to Top Glove, its share price should break past RM5.00. I don't see any reason for Supermax to trade at this level of RM3.35 which has a lower PER compared to its smaller competitors like Hartalega or Kossan.

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.