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Saturday, January 27, 2018

Wizard of Finance - "picks" for 2018

Author: wizard_of_finance | Publish date: Sun, 7 Jan 2018, 11:24 PM

Hi all,

Apologies for the lack of postings in the past few weeks. Needed a good break after a long year. January is a time where there would be many stock-picks by legitimate experts and sometimes unfortunately not-so-legitimate experts. This year first week of January has been pretty bullish and hence the number of stock calls have increased significantly as well. In a bull run. anyone can be a stock market genius. We urge caution as always.

Here are some of our "picks" based on our research, broken into several categories.

A) Good Prospects but significant movements last week

As this post is going out on the 7th January 2018, some counters that we have identified with good prospects might have moved a little too substantially over the past week for our liking of a safe entry price. Be aware that our approach has always been to take a position in a stock when there is a comfortable buffer. Safey first is our mantra here at Wizard of Finance. However, should you have a greater risk appetite and have confidence in the bull market continuing, these are the stocks you can consider. Otherwise, monitor these counters regardless and any short term pullbacks would be good opportunities to acquire.

1) Sapura Energy - this stock has been sold down significantly towards the end of 2017 and we believe it has found its bottom as evident by the significant rise in its price towards the end of last week. Our prudent and extremely comfortable entry point would have been around the RM0.70 mark. However, we also think that there is still upward potential. While Sapura Energy will most probably end the FY with a loss, the upward movements in crude oil prices is a positive. The bad news of the loss and exit of a major shareholder has also been largely reflected, if not overreacted, in its current share price. As long as crude oil prices show positive movements, we think Sapura Energy should rebound to at least the RM1.00 level.

2) Armada - Similar to Sapura Energy, this stock will stand to gain from the positive movement of crude oil prices. There has been massive impairments in the previous FY and there could be possibilities of a write-back on these impairements should the O&G industry recover further. Simiarly, we would have preferred if the entry price had a buffer of around RM0.80. Any short term pullbacks will be a good buying opportunity.

3) Ekovest/Ekovest-WB - Ekovest has been unreasonably punished by the market in the previous months and towards the end of the last week there were significant movements to mark this. We think Ekovest is a good counter that has unfortunately been penalised for corporate actions that its major shareholder proposed. While some concerns over the merger with IWCIty is warranted (the reaction however was unreasonably negative), the first sell-down from the Bandar Malaysia deal had to rationaility to it at all as Ekovest was never involved in the deal. If one were to consider the cash flows that would be flowing into IWCity, the negative reaction could be unwarranted. In the case of Ekovest, we also prefer the warrant as it has a reasonable expiry of June 2019 and gives us more upside when the mother shares move. Again, any short term pullback after the significant movements last week is a good opportunity to buy. RM1.00 to RM1.02 for the mother shares is a prudent entry point,

B) Good Prospects - long term prospects (detailed write-up likely to follow for these)

These are stocks with strong fundamentals that are good long term prospects. The counters below all have low PEs.

1) Engtex - We have written about Engtex before here - We believe an entry at any price below RM1.10 is prudent.

2) RCE Cap - Decent dividends, strong NP margins and low PE. The only downside has been its signficant increase in its share price early last year. It has stabilised at the RM1.50 to RM1.60 range.

3) EG Industries - Low PE. Share price has been a laggard. New product offerings promises better margins and most recent quarterly has been a positive after two successive disappointing quarterly reports.

4) Insas - Insas and its ever existing mystery as to why its share price has been such a laggard. As a holding co it has the holding co curse where the values of its holdings in its investment are not reflected in its share price. Inari, its major investment, continues to perform well. It also has its Financial Advisory - Corporate Finance unit that has a niche in advising SMEs (an additional advantage is Insas' reputation in the tech industry)that will likely see upside to demand for its services with the introduction of the LEAP market. Additional news flow to watch is its investment in DGSB recently. It bought a stake in DGSB for 4.75 cents. Share price of DGSB has increased significantly since then, closing at 14.5 cents last week. This means Insas' investment in DGSB is worth RM39 mil for a cost of investment of RM12.8 mil two months ago. Also interested to see what does Insas plan to do with DGSB and given how well Inari is doing, it is quite an interesting one to monitor.

C) Worth Monitoring

1) Fitters Diversified - Fitters is a counter that we have monitored closely. There hasn't been any major movements in the past month or so except from last week. The counter has been supported well by the company's share buybacks. The company also recently turned a positive quarter after 3 consecutive quarters of negative results. We foresee the next quarterly result to be a postive one and a massive improvement from last year's result. It has also won several contracts that we foresee would contribute to the next quarterly result. If the next quarterly is positive as per our expectation, Fitters could be due for a significant price movement.

2) AAX - Tan Sri Tony Fernandes factor. Will monitor to see if the company manages to turn around the negative surprise in its last quarterly. The rise in crude prices would normally be negative for cost - from increasing fuel price - but the rise in Ringgit should offset this. Also, AAX hedges some of its fuel costs.

Those are our "picks" for the year. We will update this list as we go along and we shall share with you any interesting counters. Again, we urge caution even during a bull market as it could lead to overconfidence. Ride the bull market but always take profit when your targets are met. To this end we would like to wish you Happy New Year and may 2018 be a profitable year for all of us.

Addition to watchlist - Orion IXL -

Disclaimer: This is not a buy call. Please do your own research before investing.



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