Mispricing of Focus Lumber's Share Price?

Mispricing of

Focus Lumber's 

Share Price?

The recent results released during the month of May wasn't really encouraging for most companies for the quarter reviewed from January to March 2016.

The majority of companies reported lower profits either quarter to quarter or quarter to preceding quarter basis. You just need to glance through a random check on the newspaper to see. Some even reported loss for the first time.

What does it mean if the majority of the companies are earning lesser or worse still plunged into the red? Does it mean the economy situation is bad or getting worse by the days?

I am not an economist by profession. I gathered all these whatever information from the newspaper or through online news. It doesn't seem to be going well especially for most business concerned.

Even car sales are down. What is shocking is the declining sales of Perodua.

Perodua sold a total of 14,898 vehicles for April 2016, down 15.3% compared to 17,854 vehicles sold recorded last April 2015. Tan Chong fared even worse, posting its first ever quarterly loss in 17 years during its  first quarter ended March as intense competition and the weak ringgit hit its bottom line.

No wonder most of the companies's share price on Bursa Malaysia has been declining by the days. When share price decline, those minority share holders are the most affected. You and I will agree that most of us are just silent minorities of any listed companies we invest.

Any significant movement of the share price either north or south will have a bearing for most of us. But for the major shareholders like those directors, I strongly believe they are just too rich to be bothered so much by the fluctuation of share prices. After all when one has several millions in the account, a loss of one or two millions won't have any effect on them.

Back to the poorer earning results of most companies, I find it strange that certain companies suffered worse than some when investors start to dump their shares immediately the next trading days.

Take for instance, Focus Lumber Berhad, it share price dropped massively by 27 sen on the next trading day after announcing a Q1/FY2016 earnings of 3.21 almost similar to 3.22 eps of corresponding period.

But another company, Star Media Group did not suffer such fate. It announced a very poor earnings of 2.10 sen for Q1/FY2016 on May 24. When compared to the corresponding period of 3.6 sen, it is down by as much 56%. But if you compare it again to its preceding quarter of 6.7 sen recorded for Q4/FY2015, the drop is even bigger by as much as  68%.

As a matter of fact, Star's Q1/FY2016 results of 2.1 sen is the worst since 2010. It has never recorded any profits lower than this before 2010.

One would have thoughts that the share price is going to tank like hell the next trading day. But did it? No, Star share price just dropped three sen to close at RM2.36 on May 25.

There are several companies announcing similar earnings per share to Focus Lumber yet their share price did not drop too.

Another company Imaspro Corporation Berhad also did not suffer the same fate as Focus Lumber. It announced an average Q3/FY2016 results of eps of 3.48 sen. Add this from its two earlier quarters of 2.05 and 3.27 sen respectively and this gives you an annualised eps of 11.64 sen which is even lower than FY2015 of 12.51 sen.

Compared the dividends of Focus Lumber and Imaspro of the last few years and you know that while Imaspro has been consistently with a 3.5 sen dividends, Focus Lumber's dividends grow in tandem with higher earnings.

Yet at the moment of writing, Imaspro share price is still traded at RM2.18 (near its 52-week high of RM2.19), but Focus Lumber is traded at RM1.97 (down RM1.12 from its 52-week high of RM3.09). Even Star is traded at RM2.51 now.

What does this tell us? Is there a mispricing of share price for Focus Lumber?

It looks like it is to me at this juncture when I started to compare around. I strongly believed that it is a matter of time Focus Lumber will find its right value price which should not be trading at below RM2 level.

But for it to find its right value price, the next Q2/FY2016 results will have a very significant bearing. We will know if Focus Lumber has benefitted from a stronger USD vs Ringgit during the review month of April, May and June. So far, we all know USD has been trading strongly around RM4 to RM4.10 plus level vs the Ringgit. If June follows the same, the Q2/FY2016 results for Focus Lumber should at least be a very good one.

Hopefully the management of Focus Lumber would have got it right this time and benefitted from some foreign exchange.

My basket of defensive stocks

My basket of defensive stocks are not that so defensive after all at this  point if one is to compare my purchase price and the current  price. With the exception of  NTPM still trading around my buying price, the rest have fallen into the negative zone. CCB, Chin Well and BP Plastics are now having paper loss.

This must be a record for me for the first time in so many years to experience three consecutive stocks pick that went suffered paper loss together. (I apologised to all those who recently followed by my stocks picks,  especially those who put high hopes on me and bought the shares).

But my consolation is that these three stocks were bought off their peak time and because of these, it provided me some cushion of avoiding potential big loss, at least at the moment.

Although CCB and BP Plastics both reported good results, but both still suffered share price declination. As for Chin Well, it reported a lower eps of 3.61 compared to its preceding quarter of 6.23 and also it lower when compared to it corresponding quarter of 3.94 sen.

I think this poor results caused Chin Well's share price to drop from RM1.60 + to RM1.50+ levels. But I believed Chin Well is a well run company with strong Taiwanese management at the helm. It is also a cash rich company and very focus on its business.

I believed the long term benefit of holding on to Chin Well is there. We just need to ignore the short term fluctuation of its share price. I hope this partly helped to explain to a Mr. CK who asked me about Chin Well on June 2, 2016.

Incidentally, The Edge this week published a good detailed half page report of Chin Well explaining its business challenge in this difficult challenging time. It is a well written report. Chin Well investors should read this report. The page has been cut out and kept inside my research library folder for future references.