Tuesday, September 19, 2017

103 - Mostly Right, Less Wrong

103 - Mostly Right,
Less Wrong

According to multiple sources on the Internet, the average amount of remotely conscious decisions an adult makes each day equals about 35,000. In contrast, young children only make about 3,000 decisions each day.

Consciously or not, our brains are constantly in action making decisions most of  the times. Mostly, most decisions are not that particularly serious irrespective if the decisions are right or wrong or perhaps we can term is as harmless decision.

Take an example, a person is thinking of buying KFC as dinner for his family on his way home from work, but in the last minute there, he changes his mind and buy Nasi Kandar instead. To his family, a KFC or a Nasi Kandar dinner is still a dinner after all.

Of course there will also be other important decisions to make that one hopes to make correctly. The consequences could have a impact on us if our decisions  turn out to be a poor one.

If one is an investor at Bursa Malaysia, one is constantly making decisions to buy, sell or hold. We can never be right all the times. But if we are  able to make more right decisions than wrong decisions, then the chances of winning money from the stock market is brighter than the chances of losing.

One only has to reflect back on his previous shares transactions to determine if most of his previous decisions was mostly right or wrong ones.

In the past, I was able to make mostly right decisions especially the last decade till end of 2015. Not only that, those mostly right decisions were major ones that resulted in profits of over 100% or more than RM1.

When I did some analysis back, I realised most of my decisions NOT to sell too early (profit of between 10% to 30% range) were very decisive ones. Most of my friends and followers had already sold off. If I had sold off early, it would still be a right decision, but the profit would just be nothing compared to a profit margin of over 100% or above RM1.

So sticking to a pre-target profit-taking range is vital. If I had aimed for a profit range of 10-30%, my profit margin would be at that range. But because I DECIDED that my profit-taking range is much more than that (and also daring to hold and hold each time it rises more than it succumbed to mild profit-takings sessions in between), the end result is a big difference.

But then again, not every time my decision to only realised profits after it touched a 100% or RM1 level (whichever comes first or both) is always correct.
Readers would know by now how much I missed out for not taking profits when Focus Lumber Berhad rose over 100% and RM1 level as well over a space of one year plus after my initial and subsequences purchases again.

Many of my friends and followers were already exiting the counter when it was rising above the RM2 levels. When it rose above the RM3 level, it coincided with  its just concluded 10 sen dividend. Perhaps that 10 sen dividend coupled with the earlier interim of 5 sen dividend CHANGED my mind to keep this stock for the longer term.

Being a dividend lover, I reckoned that if it can pays a total of 15 sen dividends a year, the stock should stay at least at RM3. Well, I was wrong especially when its subsequent quarterly earnings posted lesser profits.

This proved that my decisions are not always right, but so far the decisions have been MOSTLY RIGHT and luckily LESS WRONG. This made a very big difference between winnings bigger and smaller profits.

Lately, especially since I started Kassim's Basket of Defensive stocks beginning on Dec 17, 2015, my usual decisions (for margin of 100% or RM1) has hardly see the light of the day.

Except for Harrisons Holdings (M) Berhad (which crossed the RM1 level profit margin), the rest are mostly in negative positions instead! Though several of the stocks actually went up as much as between 10-20% range, (meaning profits could have been realised) but I had already decided that was NOT my target profits.

Those decisions have now turned to be MOSTLY WRONG ones, those stocks with 10-20% range profits in hand are now in negative areas. Berjaya Sports Toto Berhad is the worst one, having dropped to an unbelievable 10-year low!

The good thing about this Kassim's Basket of Defensive Stocks is most of the chosen stocks are paying dividends and soon we will see the gradual increasing amounts of dividends received over the time.

Saturday, August 26, 2017

102 - Over promise and under deliver

102 - Over promise
and under deliver

"Over promise and under deliver" or "Under promise and over deliver" are two famous age-old business adages that everyone must have heard of and as well experienced the real meanings personally.

Let us get into the first adage that is "Under promise and over deliver" as an example. If a business states a product will be dispatched in five working days and it is despatched in three working days instead, it has performed better than it promised to. Customers are delighted to receive their products earlier than expected and is likely to feel satisfied and likely buy more products from the company in future.

On the other hand, an example of "Over promise and under deliver" happening  situation could be a potential buyer is promised of extensive wide coverage of after sales warranty package. But after buying and facing a defect problem, he discovered the warranty package has many hidden strict Terms and Conditions (which wasn't explained in details properly by the seller to the buyer in the first place) and his claim is rejected.

Once the client is not happy with this failed warranty claim, he is most probably not going to buy any future products from this company again.

In our every daily lives, we encountered either one adage each time we have a "transaction" done with any person or a company.

One of the most prevalent of "Over promise and under deliver" happenings can be found especially in the insurance and investment industry. (My apology, I don't mean to say the people or the company from insurance and investment are dishonest, but it is usually the related agents and consultants that tends to misrepresent a colour picture of over promise returns that attract potential buyers/investors).

Personally I have my fair share of such over promise and under deliver encounters. Many years back, I was inside a bank enquiring something about my current account at the customer's service desk. When the teller or rather customer service assistant checked my account and discovered I had some money in it, she shared with me their latest insurance cum investment plan that promised higher returns over a period of 20 years that fixed deposit rates could not match.

Mind you, she even wrote down that amount of return on a piece of paper that is simply too enticing to say no. What she didn't know was that I had some experience in insurance industry before, so I innocently expressed I would buy the plan, but out of curiosity if such plan comes with a proper policy, she said yes. Then I further said that amount of return (after a period of 20 years) would be stated in the policy, she bravely said yes.

But when I said if after signing up and discovered the policy didn't state the amount of return as mentioned by her, how? This put her back nervously suddenly and she "pretended" that she will confirm with her superiors immediately.

Several minutes later, she came back (no longer confident anymore herself) and said that the amount would not be stated in the policy. Then how would I know I would be receiving that amount you mentioned earlier? I further asked her how did you get that amount of figure when the policy didn't even mention any amount of return?

At this point, she knew she has been "caught" selling me a product that in a very misleading way by someone with knowledge in insurance and investment. She then explained that the amount of return is based on the "projected" rate of return of investments over the years.

She further elaborated that normally the "projected" rate of return is based on three levels, i.e. low (about 2-3%), medium (about 4-5%) and high (6-8%) return. Then I asked which level is her "projected" rate of return for my case and guess what? Mine is on the "projected" rate return of the high side (6-8%).

See, she was daring enough to sell me a policy with a projected rate return of 6-8% over the next 20 years! If I have been a simple layman with no knowledge of insurance and investment, I would have been misled and bought the policy with high hopes only to know the real rate of return in 20 years time!

By then, when the so-called projected rate of return is not achievable, do you think I could still find her and seek any justice? She might even be no longer in this job or had moved to some where else!

There must be many naive people who bought such misleading plans from such misleading agents/consultants. I came across many such clients who were not aware that the policies they bought were based on projected rate of return of the high side over the next 20 years!

A few even claimed that their agents/consultants are their good and trusted friends and would not misled them. It was only when they found out from their policies that there were no such confirmed printed "promised" amount of figure that they realised that I was actually talking the truth.

Even up to this days, this kind of misleading selling ways are still in the market here and there. This year alone, I was approached several times by agents/consultants selling the same misleading ways during their companies' road shows at various shopping malls.

This brings us the questions of why are they selling this way?

One, agents/consultants are under pressure to sell to fulfil their required quotas or they will be out of job for failing to meet sales targets requirements. As such the pressure to sell in any ways by hook or crook tend to happen.

Two, the commission is roughly 20-30% over the next few years and is quiet attractive if one is able to sell many policies.

Three, many people tends not to understand the technical details of how insurance and investment work and are easily misled by those attractive "projected" rate of returns. So we all know the human nature of greed, the more  returns, the better.

There was even one agent who told me during a roadshow at a mall that such plan is offered for a limited time or whenever the quotas are taken up! I was advised not to miss such a good investment opportunity. When I asked him personally did he buy such plan for himself or any from his family, he could not answer truthfully from the way he responded to my unexpected question.

Many agents/consultants are not in this career for the long haul. Many are young graduates, most probably trying out this insurance/investment selling for the first time and will see how it goes from there. That is why most of us must have bought policies from previous agents/consultants only to discover months or years later they are no longer in the industry anymore.

So the next time you are approached by agents/consultants selling such insurance/investment plans anywhere, remember to be cautious especially over the overly promised return rate for the next many years. It is just a projected rate of return only.

As we all know, nothing is guaranteed when it comes to investment. There is always the element of risk involved.

Meantime, have a nice Merdeka celebration day!

A question from
Lucas Lee on August 4, 2017:

Please enlighten if there are any other food/ consumer counters worth investing at the moment.

My reply : I personally think many food/consumers stocks are facing compressing margin erosion pressure. Besides the stiff competitions from one another, the subdued economy has prompted many to shop thriftily as many companies are forced to raise their prices due to a weakening ringgit and rising raw materials.

Of course there are a few doing good exceptionally, but their share prices are not at attractive valuations to buy.

I am still searching for the next ..... Hup Seng Industries Berhad?

Thursday, August 3, 2017

101 - Not So Titanic After All

101 - Not So Titanic
After All

According to orddictionaries.com, there were several definitions of the meaning of TITAN. But one of them is being described as noun A person or thing of very great strength, intellect, or importance.

Most of us would have been impressed if we come across any person or company with the name of Titan being part of it. A scroll over the thousands of companies listed on Bursa Malaysia could only yield one company with such name with the word Titan.

By now if you still have no clue which "Titan" I am referring to, then let me refresh you again. Yes, I am referring to this most popular Titanic stock, Lotte Chemical Titan Holding Berhad (LCT) that is currently sending shivers down the spin of those investors who thought anything below its IPO price of RM6.50 is a bargain buy!

There has been hardly such dramatic actions of such comeback-re listing mega giant stock such as LCT. Right from its pre-IPO exercises that were under-subscribed and instant immediate working round the clock co ordinations between the promoters, corner stone investors and others to ensure a much reduced price IPO of RM6.50 (from RM8 initially) and also at a reduced numbers of shares.

Further hints of how bad things to come was when it traded below its IPO price at its debutant day (although it touched as high as RM6.53 at one stage). and from there the selling pressure was absorbed by Maybank Investment Bank (Maybank IB) buying the LCT shares as part of its exercise to stabilise the share price of the integrated petrochemical firm. (Maybank IB is allowed to buy up to 27.77m shares, equivalent to a 4.8% of the total number of shares offered under the IPO).

But once Maybank IB announced it has ceased its stabilising exercise because it has bought the numbers of shares required, LCT saw its price trending near its RM6 base.

I am quiet convinced many investors were waiting to see how its share price perform by itself (without the Maybank IB's support) and should it stabilised at that RM6 range for sometimes, it seemed quiet a safe entry point to enter.

I admit I was amongst those waiting to look for a safe entry point to enter too.   But then when LCT announced its quarterly results on July 31, 2017, its poor earnings of just 6.58 sen (Quarter on Quarter / Year on Year - 71.88% down), there was only one way the share price would head and i.e. south all the way.

LCT dropped as much as RM1.40 (opened at RM6.10 and closed at RM4.70 on that historical titanic day!) Since then, its share price has been hovering around the RM4 plus range (as low as RM4.14).

Now the whole fiasco of this crumbling LCT stock raised a lot of many questions  of how the episode has been scripted out right from the start. Some pointed out that the promoters were very anxiously to list its shares at whatever cost while the opportunities are there.

And its initially over-priced IPO price of RM8 was indeed very luckily under
-subscribed  for those initial eager investors. But if they thought they had a good bargain at a reduced price of RM6.50, they or anyone else (perhaps other than the promoters themselves who should have privy informations of the progress of LCT of the last few months) didn't expect the coming scripts to be that way.

Few days after its IPO debut, LCT coincided the occasion with its very poor April to June 2017 quarterly results and the rest is history! Since then, LCT has been struggling to stay just above the RM4 mark.

The whole titanic saga has once again raised many doubtful questions of the level of transparency of public listed companies. 

Now if this set of poor results had come out just before its pre-IPO exercise of RM8, do you think the subscription rate would receive any response from anyone especially the corner stone investors? By then, it is a foregone conclusion that LCT will have to reprice its IPO to most probably as low as RM4 per share (to justify this kind of just 6.58 eps).

Or similarly shouldn't LCT practices good governance at least by issuing a pre-statement of how its operation has been affected by a water disruption that caused its plant to shut down for a total of 13 days in April 2017 and caused a decline in production volume of 75,000 tonnes and also higher consumptions costs.

All this has a very serious effect on its share price. Now those retailers or any fund managers who bought from the open market must have felt disgusted and realised why the IPO was urgently listed at RM6.50 once the take up rate for its  earlier initial IPO price of RM8 flopped.

What about the corner stone investors? The fund managers or their investment experts or their research teams must have done a poor job not knowing about this too. If the fund managers themselves didn't know or have any access to this disruption water issue, then the only one who knows is the company themselves. And when you are armed with informations other don't, the advantages are there for those who have.

It is even worse for those retailers who won't even know anything other than what is being written about the prospects of the company. And I am always cautious about these kind of  promoters of any going to be public listed company.

If the promoters don't paint a nice rosy picture ahead, the take up rate will be under-subscribed  and they might lose a client and future business. It is either my survival than your interest.

So beware again of future mega listed public listed companies. Sometimes it is better to invest in those smaller ones that are managed by the founders themselves, companies such as Hup Seng Industrial Berhad where not only the founders are helming the key positions, their immediate relatives are in too and their interests at stake is much more than our meagre numbers of shares invested.

Selling Apollo Food Holdings Berhad shares at RM5.37 on July 18, 2017.

Yours truly decided to sell snack confectionary maker Apollo Food Holdings Berhad at RM5.37 on July 18, 2017.

A regular good dividends stock bought at RM 2.45 on May 24, 2006, the dividends received since that day amounted to RM2,500.00 which is more than my original capital invested.

Normally I do not like to sell such regular paying dividend stock, but the last few quarters of results looked not promising for Apollo. Hence I am worried if such trend continues, it will report lower profits and future dividends will be less. Already it has earned less than for Financial Year 2017 than 2016 which is reflected also in its dividends payout from 30 sen to 25 sen respectively.

But this is my decision and if you are holding Apollo shares, please make your own judgements. Apollo could just prove me wrong later with improving results. At the time of posting, Apollo share price is traded at RM5.18 on August 3, 2017.

Monday, July 10, 2017

100 - Mega IPOs - out of vogue?

100 - Mega IPOs
- out of vogue?

Lotte Chemical Titan Holding Bhd's (LCT) ambitious mega plan to list its shares back on Bursa Malaysia after a seven year absence was given a wake-up call by the very poor response from the investing public, particularly the foreign funds.

Touted as one of Malaysia's biggest initial public offerings (IPOs) in recent years, it nearly didn't take off. The high pricing of RM8 per share and its too huge shares issuances sizes were too much for the investing groups to absorb.

It was after some 72 hours of tough re-negotiation again that finally a re-pricing and a reduced number of shares issuances agreement finally to see LCT on track for its listing debut.

Is the days of mad-scrambling for big reputation companies' Initial Public Offerings shares over? I do not have the answer. I can only point out to a few recent giant IPO that those who subscribed to their shares and stayed invested  until today will rue their actions sadly.

In 2012, palm oil firm Felda Global Ventures Holdings Bhd (FGV) listed at RM4.55 and surged to as high as RM5.46 bringing cheers to hundreds of thousands of plantation farmers and family members whom were offered guaranteed IPO shares. (Many must have taken bank loans to finance their IPO purchases. If they are still keeping the shares which most likely to do so, they are now face with a loan to service with interest yet their shares prices are down more than one dared to dream).

Since then, nothing has gone right for FGV and its shares price dropped to as low as RM1.18 on Aug 26, 2015. The share price is now at RM1.65.

In 2015, Malakoff Corp Bhd, a giant independent power producer to the country's main power company Tenaga Nasional Bhd (TNB), listed at RM1.80 Despite having a stable cash flow and a 70% dividend policy, its share price has not done well. It touched a low of RM1.02, incidentally at the time of writing on July 10, 2017.

For those employees at Malakoff with bank-financed loan for its IPO shares must be feeling gutted to be now, in debts and most probably cursing their position now. How to have motivation going to work everyday with such a situation?

More recently, this year In April, another very large IPO, Eco World International Bhd (Eco World) listed at RM1.20. But its share price even touched a low of RM1.00 and a high of RM1.36 since listing debut. Currently it is trading below its IPO price and closed at RM1.12. (The fortunate thing is the successful bidders for the IPO shares were given two free warrants for every five shares held after the IPO).

So why did all these mega companies flopped after making its listing debut? Save for Eco World's mild decline, the other two, FGV and Malakoff's declines are  sharply painful for the faithful subscribers or those who invested in the market directly and still holding on to their investments.

I think one reason must be the over valuations. It is common sense that if a company is going for listings, valuations play a very important role in determining the IPO price eventually. And this is where valuations come in.

The higher valuations accorded, the higher price will be offered to those who subscribed successfully. And the company would have collected its IPO proceeds regardless of what happens to its share price later.

Back to LCT, there are many puzzling questions that needed some answers. We can't blame the promoter of LCT for trying to price its valuation IPO price as high as possible. But what about the five cornerstone investors? The five : Permodolan Nasional Bhd (PNB), Maybank Asset Management Sdn Bhd, Maybank Islamic Management Sdn Bhd, Eastsprings Investments Bhd and Great Eastern Life Assurance (Malaysia), who agreed to acquire around 136 millions IPO shares (representing 18.4% of the base offering of the IPO).

Did these five companies with their huge resources and research investing team conduct any own analysis of LCT and arrived at their own valuations? If they have done so, then they must have arrived at a "surprisingly" collectively same valuations of LCT at this IPO price of RM8 per share.

I am sure if one of their research team had valued its IPO price at example below RM8, they would have advised their company about the difference and hence would have perhaps renegotiated with the  IPO promoter of LCT.

Remarkably, it needed the absence of interest to subscribe for the portion from all those foreign funds that set up the alarm bell. Thus the promoters had to reprice the share from RM8 to RM6.50 which is a big discount of around 18% and also cut the numbers of shares issuance by one-fifth.

At this adjusted price of RM6.50, I think the valuation of LCT would have be at a price earnings ratio of 20 (based on its net profit of RM1.3bil). This is also considered on the high side unless the market perceived LCT as another premium chemical player which deserved a higher PE ratings. The other is Petronas Chemicals Group Bhd (PetChem) which is trading at a PE of around 19.

But of course by the time you are reading this, LCT would have made its debut on Bursa Malaysia on July 11th and market would have its own natural mechanism of trading between buyers and sellers to determine the price again.

Mr Market will deliver its verdict today!

Monday, July 3, 2017

99 - Luxchem continues to grow

99 - Luxchem continues
to grow

Demand for glove will always be there as long as world population continue to grow. Because glove is one area the medical industry will continue to need to use.

The products are often either necessary or mandatory and therefore the industry is inherently resilient. That means demand will stay firm no matter how severely people slash their spending. It is widely believed that the demand for glove is growing at 10% per annum.

I realised the extend of such demand for usage for glove when during my last few visits to several different private hospitals and on the movable side table was a box of gloves - ever ready to be used especially by the attending nurses or doctors. And each time after a usage, the glove is disposed and a new one is required for the next usage.

No wonder the big four King glove manufacturers of Malaysia, Kossan Rubber Industries Bhd, Supermax Corp Bhd, Top Glove Corp Bhd and Hartalega Holdings Bhd continue to expand their capacities over the years.

Business is so good for them that if one is a very early bird investors of these four companies, one would have reaped massive returns on their investments to date.

As latex is required in the process of manufacturing the glove, one small low profile company that has been quietly supplying the big glove industry is chemical supplier, Luxchem Corporation Berhad.

Luxchem being an industrial chemical supplier focuses on several industries' needs - rubber, latex (glove), fiberglass reinforced plastic, coating, ceramic and polyvinyl chloride.

Luxchem's businesses are divided into two segments i.e. Trading (79.6%) and Manufacturing (20.45). Revenue from the Malaysian market is 70% with the balance from export market.

Realising that the Malaysia market is perhaps at a saturating point, it ventured into Indonesia in 2011 and further into Vietnam in 2015. I think the management of Luxchem must have seen that Indonesia and Vietnam, both with a population of 263 million and 95 million respectively (compared to 30 million for Malaysia) presented a very big growing market to tap.

Its overseas ventured seemed to have paid off so far. Its Indonesian market contributed 15% of trading segment revenue for Financial Year ending 2016 while its manufacturing segment did even better. Export sales contributed 84% from countries such as Vietnam, Thailand, Bangladesh, Australia and Singapore.

The, the acquisition of Transform Master Sdn Bhd in 2016 helped to kick start an impressive 1st Quarter 2017 results with revenue increasing by 36% to RM 218 million and net profits jumped to RM13.6 million which is an remarkable 94% increase!

Luxchem will continue to focus on high-growth export markets such as Indonesia and Vietnam which collectively account for 23.9% of its revenue base (FY2016). And its revenue continues to grow impressively.

Consistently rewarding shareholders
with good dividends

Luxchem is also another stock that consistently rewards its shareholders with dividends that can match the fixed deposits by the banks. Since its listing debut on the Main Board of Bursa Malaysia in June 2008, it has paid out dividends every year without fail, thanks to its consistent earnings too.

Early bird investors who had subscribed to its IPO at RM1.10 and dared to hold on until today would have seen their investments ballooned to nearly 300% based on the current price of RM2 plus level, and this does not take into consideration the total dividends of RM785 (from Year 2008 to 2016).

There wasn't much coverage on Luxchem initially after its listing in 2008.
There were the occasional reports or blogs written about Luxchem. But what caught my attention to invest in Luxchem shares is its steady results and its slow but gradual rise in dividends payout ratio.

And I am the type of investors who likes to invest in this type of simple to understand yet very focussed minded business company yet boring but a very steady paying dividends stock.

After some deeply reviews of pros and cons, yours truly decided to invest in Luxchem shares at RM1.18 on May 11, 2012 and again at RM1.19 on May 29, 2012. Since then, it has turned out to be one of my best performing stocks I have ever invested. I am glad I have been daring enough to hold on until today because there were many instances I was very tempted to sell off for profits, but the main reasons were it has been steadying paying good dividends twice a year consistently.

Why sell off a growing golden goose when it gives you golden eggs twice a year, year after year?