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Tuesday, April 7, 2020

Lead Story: Once-in-a-decade opportunity, But who dares to buy?

Liew Jia Teng/The Edge Malaysia
March 30, 2020 14:00 pm +08

This article first appeared in Capital, The Edge Malaysia Weekly, on March 23, 2020 - March 29, 2020.

I am totally lost for words. I don’t think I can understand the market or the economy anymore. I have suffered huge losses. If I had known, I would have got out,” a local seasoned investor, regarded by many as an investment guru, tells The Edge over the phone.

“If I had known …” is a refrain more commonly heard from mom-and-pop investors. Perhaps everybody is equal in the eyes of the bear. Perhaps there is no shame for any investor, big-time or small-time, who has suffered crushing losses in the current coronavirus market crash.

In fact, not even Warren Buffett, one of the most famous investors of all time, is immune to the crash.

Going by GuruFocus calculations, Buffett’s equity portfolio has lost about US$80.2 billion, or 32%, since the US markets began sliding into bear territory in February.

Although the crash owing to Covid-19 is not the worst we have seen — 1973, 1987, 1997 and 2008 all saw similar or worse falls — it should be noted that those previous hammerings were preceded by big bull markets.

“But today, the crash was preceded by five years of bad performance. Those previous crashes all turned around quickly because our country was growing well. This time, I am not so sure [if we can recover quickly],” says the local seasoned investor, who prefers to remain anonymous.

As the global spread of Covid-19 and collapse in oil prices are likely to undermine economic activities and disrupt supply chains, stock markets appear to have priced in not only a recession but also a significant decline in earnings.

Central banks around the world are slashing interest rates and pumping in trillions of dollars of temporary liquidity into financial systems.

But it appears that these massive steps — deemed by many as pressing the panic button — are not enough to calm investors and ease disruptions.

Over the past month, the three major indices of Wall Street, namely the Dow Jones Industrial Average, S&P 500 Index and Nasdaq Composite Index, have declined by about 30%.

Likewise, Japanese and European stocks have also dropped between 29% and 34%.

Interestingly, Hong Kong and Singapore equities are currently trading at a single-digit price-earnings ratio (PER) of nine times, after declining 22% and 28% respectively.

At home, although the FBM KLCI also lost 21%, its PER remained relatively higher at 15 times.

Nevertheless, certain blue-chips are now trading at single-digit levels, which suggest cheap valuations.

Although the Covid-19 pandemic seems to have presented investors with a once-in-a-decade opportunity, or perhaps the best opportunity since the 2007/08 global financial crisis, market experts whom The Edge spoke to have warned that the worst may be yet to come.

Malaysia ‘not particularly cheap’, weighed down by other issues

According to Value Partners Group Ltd founding chairman and co-chief investment officer Datuk Seri Cheah Cheng Hye, foreign investors are worried about Malaysia’s recent political problems and concerned over the continuing weakness in the ringgit as well as the country’s structural challenges.

“I remain very cautious about the Malaysia market. At 15 times earnings, it is not particularly cheap. I think Malaysia has not seen the worst of the coronavirus outbreak,” he states.

Cheah opines that Malaysia will find it difficult to raise its productivity level due to poor investment sentiments at home and the reluctance of foreign investors to come in.

“The economy is in trouble if productivity doesn’t rise,” he observes.

However, Cheah acknowledges that buying opportunities have emerged across the region, as many Asia-Pacific stocks have become “too cheap” and some asset classes, particularly gold, look oversold.

“But I would advise investors to be selective. In particular, I think New York could have another 10% to 20% downside from the current level,” he warns.

“In a good-case scenario, a vaccine for the coronavirus can be found within this year and this would help investor sentiment to recover. But we cannot count on this — it may or may not happen,” Cheah stresses.

Affin Hwang Capital deputy group managing director Yip Kit Weng concurs, saying that despite the FBM KLCI’s year-to-date loss, there may be further downside. Moreover, the sharper correction in regional markets further accentuates the FBM KLCI’s valuation premium.

“At current FBM KLCI PER valuations, market expectations are potentially still too optimistic and we think that there is likely further downside for the benchmark index should there be a further selldown in global equity markets. The sharper corrections in regional and global markets are also making the FBM KLCI look relatively unattractive,” he points out.

Thus, Affin Hwang Capital has further cut its FBM KLCI corporate earnings growth forecast from 1.3% to -4.7%, to reflect its cut in gross domestic product (GDP) growth to 3.3% from 4% — its second reduction for the year.

“Alongside a higher market risk premium, we lower our FBM KLCI 2020 year-end target to 1,200,” says Yip.

With the announcement of a RM20 billion economic stimulus package, he believes domestic demand and private consumption will remain supportive of growth despite expanding at a slower pace.

“We believe Malaysia will not fall into recession. There are many good companies and investable stocks but fundamentals take a back seat given that Covid-19 is affecting both supply and demand chains. This, coupled with the current low oil price, adds more pressure on the Malaysian stock market,” says Yip.

Despite the substantial cut in corporate earnings growth forecast, Affin Hwang Capital chief economist and head of research Alan Tan suspects that this may still prove too conservative and that there could be further downside risk to earnings, should the Covid-19 pandemic be prolonged.

“In view of our earnings revisions, downgrades to target prices and the increased volatility that we are anticipating for the market, we review our sector positioning and largely move away from cyclicals,” he says.

Affin Hwang Capital has downgraded plantations and electronics manufacturing services from “overweight” to “neutral”, and oil and gas, transport and logistics, utilities, financial, and gaming sectors from “neutral” to “underweight”.

It is only “overweight” in relatively defensive sectors, namely healthcare and real estate investment trusts (REITs).

“We are still convinced of the growth story in the rubber gloves space. The weak ringgit against the US dollar should be positive for glove makers,” says Tan.

Geoffrey Ng Ching Fung, investment adviser and director at Fortress Capital Asset Management (M) Sdn Bhd, agrees that Malaysian stocks are pricing in an earnings decline.

“If we assume no PER contraction on the index, then [we expect] about 20% decline in market earnings,” he says.

Stay calm as the panic will pass

With the exception of the 1997/98 Asian financial crisis, Ng highlights that the FBM KLCI is near the bottom of the valuation range on a price-to-book basis for most of the previous economic or pandemic crises.

“We would agree that the market is in a complete risk-off, panic-selling mode and certainly pricing in an imminent recessionary environment, characterised by significantly slower near-term economic activity, consumption, exports and price pressure on real assets,” he says.

Investors may look to be overreacting but, at this time, it is a total risk-off measure, Ng says, so in-the-money stock investments generally get sold first, followed by cut-loss positions if liquidity requirements are still unfulfilled.

While it would be safe to assume that dividend payouts will fall across the board for companies that experience weaker earnings and cash flow during the period of the pandemic, Ng insists that he will still be looking for companies that historically boast high payout ratios as he expects such a trend to continue or even rise as a percentage of earnings.

“Some of these sectors include breweries and tobacco. However, this may be offset by increased pressure from the government through the raising of excise taxes on such sectors in the near future,” he says.

Ng’s advice to investors is to stay calm as the panic will blow over.

“Take the China market’s recent lead, where there was evidence that the Covid-19 outbreak was starting to be controlled. The world markets, including Malaysia, will stabilise and recover once the pandemic is seen to be under control.”

Ng is of the view that the current Covid-19 crisis certainly presents one with the best opportunities to buy stocks on the cheap but there are caveats.

“Asset prices were already ripe for a correction given the long-running equity bull market. The onset of Covid-19 has released a lot of pressure from this ‘late-cycle bull market’, which has reset asset prices to more realistic fundamentals. If the world economy doesn’t fall off a cliff and provided that the pandemic doesn’t last too long, we do see this as a great opportunity for investors,” he says.

More of a crisis for the West

Value Partners’ Cheah points out that based on historical experiences, a pandemic like Covid-19 will go away over time.

“Indeed, China is quickly resuming full production and the country will still be able to enjoy economic growth this year of around 2.5%,” he says, noting that while the coronavirus has caused a global crisis, it is much more of a crisis for the US and Europe.

“Of course, China and Japan are also suffering, but frankly, the crisis is much more serious in the West, particularly in the US.”

Cheah says the Chinese economy is driven by domestic consumption and investment, rather than exports, so the slowdown in global trade has only a limited impact on China.

“In contrast, the impact on the US, and to some extent Europe, is much bigger. This is because the US economy was already over-extended by the beginning of this year. The New York stock market had reached a historical high, while the US interest rates were at historic lows,” he continues.

Cheah observes that the US economy had been enjoying an expansion for over 10 years — a record length of time — and thus, the West was fragile and vulnerable when the pandemic hit.

In many ways, he says, the disease was not the cause of a crisis but acted as a trigger.

“This is very different from China where the disease put a brake on an expansion that was moving along nicely. The outcome is going to be that the West will face a financial and economic crisis that will not go away quickly,” Cheah remarks.

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股樓關係錯綜複雜 未必齊上齊落




[湯文亮 敢說反話]

Monday, April 6, 2020

陸振球:非常時期 善用期權



之前有朋友覺得油價低而希望囤油,雖然不是做期貨合約而避過要call margin,但因其是買入3倍槓桿的石油ETN,在油價短期內大跌一半以上,其買入的ETN被強制清盤,差不多total loss,問我意見,我說若是囤油,較佳選擇是沒有槓桿的ETN ,雖然升時爆炸力會相對遜色,但會較具防守力,看錯巿能返家鄉的機會較高。

朋友的例子,反映在非常時期選擇合適的投資工具很重要,比如匯控(0005)因撤回派息和回購股份計劃而股價急跌,便有不少持股朋友問如何應對,筆者在本刊今期「投資超限戰」專欄便指出,若持有匯控又不想斬倉,可short call自製派高息,其實如想低撈匯控,也可short put先賺期權金,待其真的再跌時才低位買入,便可以降低買貨成本;而相反,其實淨買call也有好處,匯控回升固有賺錢機會,如看錯巿最多也只是輸了期權金而不會陷入愈溝愈淡的陷阱,以至泥足深陷。

[陸振球 主編的話]

Friday, April 3, 2020

Kossan Rubber Industries Berhad - Divesting Vacant Freehold Land

Kossan made an announcement pertaining to the disposal of a piece of vacant land in Kuala Langat for a cash consideration of RM153.4m. Upon completion of the disposal, which is targeted to be in 1QFY21, Kossan will register a net gain on disposal of RM39m. We view the disposal positively as Kossan would be able to unlock the value of the vacant land and reinvest the proceeds into its Bidor expansion. Given the one-off nature of the disposal gain, we maintain our earnings forecast for FY21F. Our Outperform call on Kossan is maintained, with an unchanged TP of RM6.00.
  • Disposing vacant land. Kossan announced that it has entered into a conditional sales and purchase agreement with Best Eternity Recycle Technology SB (BERT), for the disposal of a piece of vacant industrial land located in Kuala Langat, measuring 390.4sqm. The land will be sold for a cash consideration of RM153.4m and Kossan will lock in a gain of RM39m upon completion of the disposal, which is expected to be in 1QFY21. We believe the disposal consideration was fair, given that the piece of land was valued at a market valuation of RM145m in January 2020.
  • View on the disposal. We view this development positively as it enables Kossan to unlock the value of the vacant land and the proceeds received can be ploughed back to fund for the Group’s next phase of expansion in Bidor. Recall that Kossan had acquired two plots of leasehold land in Bidor, with a total size of 824.1 acres, for a purchase consideration of RM82.4m back in March 2018. The Bidor site will house and centralise all of Kossan’s future expansion. Note that Kossan has accelerated its Bidor expansion plan, with its first plant expected to be operational by FY21F, as opposed to its initial target of FY22F. In our view, the disposal was timely as the proceeds can be used to satisfy part of the Bidor expansion’s capital expenditure needs.
  • Plant 18, Plant 19 and beyond. Plant 18 (+2.5bn pc pa) has been fully commissioned in November 2019, while Plant 19 (+3.0bn pcs pa) is expected to be fully operational by 1HFY20. With more lines coming on stream, these two plants will continue to support the Group’s earnings growth for FY20F. Upon completion, Kossan’s total installed capacity should reach 32.5bn pcs pa. As for the Bidor expansion, management has previously guided that it will take c.8 years to complete and capacity would double to c.65bn pcs pa once it is fully commissioned.
Source: PublicInvest Research - 3 Apr 2020

SCOMNET - STB sees surge in new orders

April 3, 2020 @ 11:52am

KUALA LUMPUR: Supercomnet Technologies Bhd (STB) has emerged as a beneficiary of the increased global healthcare expenditure as a result of the coronavirus (Covid-19) pandemic.

The company, which manufactures critical devices used for Covid-19 treatment, has recorded an increase in product demand, particularly since the beginning of 2020.

Moving into the second quarter of the year, STB expects to see further increase in new orders, especially from the United States and Europe.

"The company is working hard to fulfill the demand that it received. Based on inquiries and orders, we anticipate demand for medical devices to further increase in the US and Europe over the next few months.

"This is because Covid-19 is at different stages in each country, and all governments are trying their best to contain the infections," STB spokesperson said in a statement today.

Among its products that have seen a surge in orders include the disposable bronchoscope, which is used in the first line of lung treatment for patients with suspected or confirmed Covid-19 infections.

The usage of the bronchoscope is currently highly recommended by the American Association for Bronchology and Interventional Pulmonology.

The other product is a critical care monitoring cable that is presently being used for Covid-19 patients in the intensive care unit.

STB produces medical cables that are generally used for connecting various medical devices outside the human body.

It also produces reinforced tubes - used as endoscope and part of endoscopy accessories, connectors and medical tubes.

All of its medical tubes are produced for the North and Central American and European markets.

Due to the critical mission nature of its products, its cables are approved by various approving authorities such as the European Medical Agency, and the Food and Drug Administration of the United States.

Meanwhile, STB production activities remain undisrupted despite the Covid-19 pandemic, and affirmed its ability to meet the sudden increase in product orders.

Early last week, STB received the approval from the Ministry of International Trade and Industry (MITI) to allow the group's subsidiaries, Supercomal Medical Products Sdn Bhd (SMP) and Supercomal Technologies Sdn Bhd (SCTB) to operate during the Movement Control Order (MCO) from March 18 to April 14.

"Although our working staff have been halved, the plants are operating at maximum level for critical devices used for Covid-19 treatment. We are confident of fulfilling our existing customer orders for the year. I would also like to thank the government's support and our hardworking staff for all their efforts during this time," said the company spokesperson.

For its financial year (FY) ended Dec 31, 2019, STB recorded a 54.61 per cent jump in net profit to RM18.82 million on the back of a 39.28 per cent increase in revenue to RM122.97 million.

The Group currently has a dividend yield of 3 per cent based on the 1.5 sen it distributed last year.



iPhone 只卖一种手机,但他凭此爆品做到世界前三名。



2019 年中旬,日本zhensho 餐饮集团,以5300万美元或2.2亿令吉收购本土鸡饭品牌The chicken rice shop 全部100家门店,这项交易虽然后来有些争议,但卖主已袋袋平安,轻舟已过万重山!







2016年,他把他的“3头马车“策略提升至“4轮驱动“,就是从海产加工、综合畜牧、棕榈油种植与加工,再添一员即全家便利商店(Family Mart),全部都是和日常消费品有关,属于刚需(中国用词:必需品的意思)产品。




99开了接近2000家,KK直追500家还忙着上市, 上市后股价和生意继续飙升,各行各业凄凄惨惨,只有他们笑看风云。





iPhone 只卖一种手机,但他凭此爆品做到世界前三名,手上的现金比美国政府还多,他们成功让顾客想买行动电话的时候首先想到他!



马来西亚每年有60万新生儿,平均每个月有5 万个婴儿诞生,假如我们的品牌占了10% 的市场份额,每月就有五千个新增客户,销量还是蛮不错的。