Sunday, February 28, 2010

XDL - Turtle bought 5,000 shares

XDL, XiDeLang, is a Chinese shoe maker based in Jinjang. The company went public in KLSE November 2009 but unfortunately from the day the company went public shareholders lost almost 50% within four months.

The company looks OKAY fundamentally. The management has been working hard to build a brand in a very competitive sport shoes market. There are at least 3,000 competitors in Jinjian alone. China shoe market is huge 10 billion pairs a year and has been growing at 10% plus a year. XDL has only a very small market share 0.04%.

The management has been focusing on brand building to maintain profitability. They spent quite decent amount of advertising, advertising cost is 1-2% to revenue. You can see that they reaped quite a number of recognitions in the industry. The profitability has been improving over years, they raised price last year to recover higher costs but benefits went straight to bottom lines. See how their gross margin improved from 23% to 30% over last 4 years. Action like this is a bit unusual in Asian management but I like it - business is about making money and not showing off how big your empire is.

The second thing to survive in China is extensive network to reach the customers. They have build close to about 2,000 plus retail and concept stores in major cities in China.

From sectoral comparison purpose, one of the smaller one listed in SGX is China Hongxing. The recent sell down on S Chip stocks due very bad reputations(a number of companies involved in scandals). Despite of the bad names, the company is selling for 5 times earning. The bigger ones listed in Hong Kong are enjoying much better appreciation, sector as a whole selling for 14 PE.

If we look at XDL financial, they are selling for 2.35 times earning based on 2009 results. They dropped a bomb last month reported 34% declined revenue QoQ. The management explained it was Q3 '09 sales in that quarter was abnormal due to "big scale product viewing event". If we take the latest Q4 '09 results EPS will come in around .12, selling for 3.3 times earning.

In view of that, Turtle bought 5,000 shares @ 0.40 of XDL for Turtle Portfolio last Thursday.

Friday, February 26, 2010

Caveat venditor

I've mentioned before about caveat emptor - let the buyer beware. There is an exception to this principle - caveat venditor - let the seller beware. The seller is responsible for the product liability if there is any fraud, misrepresentation or concealment of facts.

While this seems to be a good news but there are a number of practical problems when it comes to share investing.

1. What is the product that are we buying? What is the definition or specification of a contract in share investing?

2. Who is the buyer and seller when a transaction takes place? Is a transaction takes place between a company and individual investors ? Or individual to individual investors ? Or investor to investor but guaranteed by company or government?

If you bought share A from xx investor at $ 0.90, when share price drop to 0, are we going to sue xx investor(who we don't even know when we execute our buy order) or are we going to recover $ 0.90 from company A?

3. If the management decided to cheat all the investors(majority and minority), what kind of damages or from whom all the investors to recover their losses?

4. Who is willing to be Erin Brockovich, to initiate a class action lawsuit?

Lawsuit is the last resort and most expensive and time consuming way to remedy an unjust situation. I'm seeing almost like a Mount Everest climbing trip trying to answer that few questions, with so little resources. Don't get me wrong, I'm not condoning people with Mala fide neither I'm making an easy way out. That's why I'm adopted a philosophy of prevention is better than cure.

Our Minority Shareholder Watchdog Group Berhad is supposed to do something but I have not seen any real actions from them. Have they initiated any class action lawsuits? I'm not really sure, how could they help? You can visit their website

The Securities Commission of Malaysia has taken some lawsuits but is it enough?

SC charged ex-Directors of Welli Multi Corporation Bhd for furnishing misleading statements

On 15 April 2008, the SC charged the former Managing Director and Executive Director of Welli Multi Corporation Bhd (WMCB)for four counts of furnishing misleading statements to the SC and Bursa Malaysia. The misleading statements were for the revenue figures of WMCB from December 2005 to September 2006. The accused were released on bail for RM150,000 each with condition that all travel documents were surrendered to the Court. SC secures conviction against Emorevest Sdn Bhd for operating illegal futures markets

On 28 May 2008, three individuals and a company pleaded guilty for operating an illegal futures market under the Futures Industry Act 1993. The three individuals and the company were fined between RM30,000 and RM50,000 each.

SC files landmark civil suit against IRIS Corporation for share manipulation

Marking the beginning of a new approach in combating market manipulation, the SC initiated a milestone civil enforcement action against two Malaysian individuals and eight other foreign individuals and companies for alleged manipulation, market rigging, and fraud of Iris Corporation Bhd shares.

In addition, the SC sanctioned two stockbroking companies and two dealer’s representatives involved in the case.

In pursuing its investigation, the SC worked closely with six foreign regulators to unravel the complex cross-border transactions.

When something goes wrong, is investor, regulator, accounting body, company management or Minority Shareholder Watchdog Group, director to be blamed? May be that question is NOT that good, the more relevant one: who is in the position to determine who is at fault? Judge Bao Zheng, please help us.

Wednesday, February 24, 2010

Compelling argument but ......

I have seen a lot smart people making good arguments but sometimes they have overdrive things ...... started off with solid argument of the cause but ending with low probability of cause will happen or over-exaggeration of the effects. Consider these arguments:-

The argument was China got a problem, it has got a bubble problem, when the bubble burst, it will bring down China, slumping China is not good, because the rest of the world will slump, because China is the source of the world growth.

Very logical, smooth and compelling argument actually but ........

China got a bubble ( true ? may be ? )

The effect of the bubble is something I have got a problem, stock market in China did crash from 6,000 to 2,700 and now back to 3,000. Did China slump? Did the rest of the world slump? (You know the answer)

The speaker assumed that China government is not going to do anything. They already have programs to control how banks should lend and tightening the reserve. Recent comments by their government to continue with the loose policy(after two shots of reserve tightening) makes me think they have got the over-heated situation under control or at least they are confident will keep it under control.

When the media amplifying the Dows are going down and etc will make people to buy in scary story headline like this. Going down, Yes. But has not really tested the previous correction low from the new high in January yet-- on both Dow Jones Transportation and Dow Jones Industrial. Making a new low or a new high? I'm betting it will make a new high soon.

Tuesday, February 23, 2010

Good advice by Richard Russell

So commented Richard Russell, editor of Dow Theory Letters, after the close of Monday's trading, in which the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 10,383, -18.97, -0.18%) finished a lackluster session with just an 18-point loss.

The prior trading session -- last Friday's -- was even less exciting, if that's possible: The Dow gained just 9 points that day, prompting Russell to say over the weekend that the market is on a "trip to a foggy nowhere."

Russell's recommendation to investors eager to nevertheless draw conclusions about what the market's recent squiggles mean for its near-term direction: "Avoid doing something stupid. Relax, read your local newspaper ... and take a walk. Accept the truism that the market isn't always saying something, and this is probably one of those times."

Well I've said it before, trend player will fast surrendering themselves into hibernation as lack of trends. A value investor will probably needs to get busy reading annual reports, finding the next undervalued stock. But I agree with him on one point, don't do anything stupid.

Monday, February 22, 2010

OSK Research upgrades Supermax, TP RM10

If this stock hit RM 10, this would be my ten bagger stock call. Since the company is focussing on organic growth, to generate winning streaks earning growth will not be on a smooth path. One also needs to be mindful that rubber price has been on the uptrend, soon cyclical costs like energy cost and macro trend like Ringgit strength and etc will come into play. I'm, however, still deeply satisfied with a six and a half bagger(RM 6 - 6.5). It's time to take profit and wait for correction to re-enter.

(TheEdgeMalaysia)KUALA LUMPUR: OSK Research upgraded its FY10 earnings for Supermax Corp Bhd by 15% in line with the company’s solid performance, strong rubber glove demand and management’s internal net profit target of RM168 million.

"Maintain Buy with higher target price of RM10.00 from RM7.94 previously," said the research house on Monday, Feb 22.

It said Supermax's FY09 results were above expectations, mainly boosted by higher selling prices of gloves and persistently strong demand from the Latin American markets, especially Brazil.

Although the 4QFY09 numbers took a hit from a one-off interest expense of RM5.4m, Supermax’s net profit still sprang up by 10.0% q-o-q.

"We have upgraded our FY10 earnings by 15% in line with the company’s solid performance, strong rubber glove demand and management’s internal net profit target of RM168m. Maintain Buy with higher target price of RM10.00 from RM7.94 previously," it said.

Saturday, February 20, 2010

The next stock on my list: Tradewind Plantation

I've been calling to buy something have not done anything for Turtle portfolio yet. With the CPO price is hanging around RM 2,500. I'm quite serious this time to call Tradewind Plantation a buy. Annualized their latest quarter ended 31 Dec 2009 will make it an interesting trade.

Why I call it a trade and not a long term buy? It's because of its high level of debt of close to about RM 940 million debt(long term and short term in nature) that pull me back a little. A stretched balance sheet will make it a bit difficult to expand more aggressively. In the unlikely event of commodity price collapse, Tradewill will sure kena. This is a major issue for me to declare all greens.

The biggest potential that I see in this company is the potential of its landback that will double the current output in the next few years

This company has about 140 hectares of land but only half of them are matured. The other half are still young or under development.

Market is valuing this company for RM 1.53 x 629 million shares = 962 million or anualizing the current quarter, this company is selling for 7 times earning. For a company that have half of IOI Corp hectares which are selling for 20 times earning, I see potential for re-rating to 10X earning will drive the stock price to RM 2.30. In long-term(7 years from today) along the bumpy rides, CPO at RM 2,200-RM 2,500/MT, I see this company has a potential to deliver RM 0.50 earning per share, so I will leave it to you to speculate that potential share price if you apply 10X multiple. At the current quoted price, gross dividend yield is about 3.9%.

Disclosure: The author has long trade positions.

Tuesday, February 16, 2010

Peak oil theory is back ......

We have been been hearing about peak oil -- but this time we have an interesting twist. Peak demand. That is because the world is diversifying away from oil and relying on renewable energy especially from developed nations. This can happen as soon as in the next 10 years. I've mentioned before about 70% of the demand is coming from transportation, let's see how things have really changed. If not, they are just responding to one of the what if scenarios.

(theStar)JEDDAH, Saudi Arabia: A top Saudi energy official expressed serious concern Monday that world oil demand could peak in the next decade and said his country was preparing for that eventuality by diversifying its economic base.

Read more:

Sunday, February 14, 2010

Who's afraid of a sideway market?

George Soros appeared on the Bloomberg interview recently giving his economic outlook. He thinks the shape economy should look like an inverted square root --

"In 2010 there might some (recovery)... Whether you have a recovery depends on how deep you go. I think that for the US economy... What I expect is an inverted square root sign. In other words, you hit bottom you automatically rebound some. But then you don't come out of it in a V shape or anything like that, but you settle down.. Step down."

I'm in an opinion that we are going for a strong V shape recovery. The biggest premise is the government will quickly rush in for another round of stimulus the moment financial markets showing weaknesses or job markets are not recovering.

However, assuming I'm wrong, we are going for a stagflation that causing the market going nowhere. What should be the investing strategy? Legg Mason has an interesting piece: Who's afraid of a sideway market?

The key points was stock pickers are the winners, growth-based strategy will do OK but momentum players and passive index investors the worst. Click on this link on the detail of their arguments

We decided to study the behavior of the last sideways markets after recalling the exceptional investment performance generated between 1975 and 1982 by Warren Buffett at Berkshire Hathaway and Bill Ruane at the famous Sequoia Fund. Over these seven years, the book value of Berkshire Hathaway and the net asset value of Sequoia Fund generated cumulative total returns of 676% and 415%, respectively, and average compound annual returns of 34% and 28%, respectively. Remember, Buffett and Ruane were not traders. They bought and held outstanding companies.

Our Research Team examined the performance of the 500 largest stocks in the stock market between 1975 and 1982, and what we discovered surprised even us.

When we looked for doubles--stocks that increased in price by more than 100%--we found that, on average, 3% of the 500 largest stocks doubled (or more) over the course of any calendar year. Put differently, on average, only 16 out of 500 stocks doubled in any one year. When we extended the time horizon to rolling three-year periods, we found that, on average, 18.6% of the stocks doubled; 93 out of 500. When we extended the time horizon to rolling five-year periods, the results were eye popping. On average, an astonishing 38% of the stocks went up more than 100% or more; that’s 190 out of 500.

Momentum strategies work best once the direction of the market has been established. Momentum strategies also are closely aligned with investor sentiment. In sideways markets, sentiment sloshes back and forth largely because the trajectory of the economic recovery is unknown. At times, the data may indicate the economic recovery is gaining strength, leading to a short blast in stock prices, only to be followed by weak economic readings which causes sell-offs. In this environment, momentum investors find themselves constantly whipsawed.

So…..who should be afraid of sideways markets? With no long-term trend in place, it will be tough for momentum investors to produce sustainable profits. Index investors could also be in for a rough time. If the price of the index is little changed in the coming years, the most index investors can hope for is a paltry 2% annual dividend.

Happy Chinese New Year

After spinning for the last few days, I finally managed to find some time to relax. Wishing all a happy Chinese New Year. I find this horoscope is pretty funny and hope to just post it here for fun.

Get your coat. It’s going to be planes, trains and automobiles for vermin this year, as the year of the Tiger ushers in a busy period of travel and energy. Your reward for climbing out of the sewer? For those who put in the effort, hard work won’t go unnoticed, and while you’ll spend much of the year putting in 12 hour days and scuttling from place to place, you can expect to be rewarded with more cheese to take home. With all your energy spent on climbing the career ladder, you’ll have little time to chase the tail of potential partners and 2010 could be a lonely one for rodents.

The only way the Tiger and Oxen get on is when the former is tucking into the latter for dinner, so Oxen should expect a year of dodging arguments, brawls and man eating cats. Conflict may arise both at work and at home, as the personalities of those energised by the year of the Tiger clash with the rather more laid back Ox. While others around you ride the rollercoaster of highs and lows, Oxen should do what they do best… just keep on ploughing through.

Break out the grill and slap on some antelope, the year of the Tiger has arrived. Although your star is at the height of its power, there are a number of other celestial bodies working against the Tiger and while success is very possible this year, you need to pick which battles to sink your teeth into. Money issues may be too risky, while advancement at work maybe tricky, as the year of the Tiger brings out the hot blood in everyone. This is, however, a good year for bouncing around on the Savannah and making new friends and you should also be sure to give your coat a good licking, as your fiery nature is likely to bring a number of potential mates calling.

After much of 2009 was spent cuddled up in your burrow, it’s time for Rabbits to hop upstairs and enjoy a fantastic 2010. The energy and enthusiasm of the year of the Tiger is ideal for bunnies, and if you have plans, be they at work or at home, this is the time to dust them off and take action. On the romance front, 2010 may be the time to take a swing around the warren and see who you like, but the restlessness of the year makes it a bad time to build a burrow together. Your best chance for success in 2010 lies in career advancement and putting your bank account the right side of rosy. Intelligence combined with your natural energy is the key to success, and as long as look at all the angles, you’re sure to make the right choices.

Sharing a similarly fiery personality with the Tiger, Dragon’s will need to clip their wings a little in 2010, if they are to find success. Spitting fire and stealing maidens will attract attention and is to be avoided. Stay in your cave and continue to work diligently on your relationships, career and love love life and you will be rewarded.

The knives are out for snakes in 2010, as conflict with the ruling tiger sign will see a year of backstabbing, plotting and betrayal. Personal relationships are likely to be particularly fraught, while snakes can also expect some poisonous arguments in the bedroom with partners. With tensions high you may be motivated to make snap judgments. Don’t, level headed Snakes who stay calm and don’t bite back should be able to win friends to their side, which will bring success both at home and work.

Horses will have many fences to jump in the Year of the Ox, but the year should bring much more happiness than 2009. There is success to be had, both in your home life and in business, but you will have to be careful not to gallop off down the wrong track, as the potential for a tumble is also lurking. You should look to old friends and family for advice, and be wary of counsel from those who may not have your best interests at heart.

With much of 2010 spent butting heads, 2010 promises far more fulfilment for Goats as your natural intelligence and commitment work hand in hand with the energy of the tiger sign. Goats are likely to prosper in relationships, both romantic and platonic, and this is a great year to give your coat a wash and go out a visit neighbouring pastures. You should, however, be wary of lending money or entering partnerships with your new found buddies, your confidence later in the year may lead to you agreeing to things you’ll later regret.

Pack your bananas, 2010 is likely prove low on monkey business and high on work for primates, as both your career and home life undergo periods of change .As rivals in the jungle, Tigers and Monkeys don’t see eye to eye, and unless you toil hard, much of this change will work against you. You should be particularly wary of undertaking any major decisions in the next twelve months; opportunities to swing from tree to tree may seem advantageous at the time but without careful planning you may fall flat on your ass. If you do find yourself in trouble, be sure to turn to family and friends who will be happy to offer advice, support and pick the fleas from your back.

Roosters will have much to cock-a-doodle-do about in 2010, as the stars align to usher in twelve months of good fortune. If you’ve been keeping all your eggs tucked away, now is the time to think about investing them. Whether buying a new house, opening a new business or splashing out on a new car, your choices with money in 2010 are likely to be fortuitous. Ambitious roosters who are looking to climb the career ladder should also find some opportunities for promotion. The only drawback is your love life, and you’re likely to spend most of 2010 eating chicken feed for one.

Canines who want to get the best out of 2010 will need to spend less time sitting around scratching themselves and more time out on the hunt. Success is waiting for dogs in the year of the tiger but it won’t necessarily be easy to find. You should try and build on your reputation as dependable and loyal at work, which, while unexciting, is likely to be appreciated in a year packed with fiery hot heads. For those looking to share their kennel with a canine friend, you need to get out more and let people know that you are the cream of Crufts.

Pigs spent most of 2009 trying to avoid being turned into pork chops and thrown on the pan by jealous enemies and spurned lovers, luckily the year of the Tiger is lucky one for the Pig and they should break free of the butchers and enjoy success on all fronts. In particular, 2010 should give career hogs a chance to showcase their superior brainpower, resulting in promotions at work and a swelling piggybank. Back in the sty, pigs should plot to settle down, as the year of the tiger will bring intense and long lasting relationships rather than quick flings.

Thursday, February 11, 2010

Portfolio Update - February 10

Have not got time to update my portfolio lately. I'm sitting on RM 5,000 plus cash or about 80% invested. Need to buy something soon. Will do a bit more update during coming holidays.

Tuesday, February 9, 2010

Big Picture TIme

The three pictures tell quite a story while the markets are correcting. If you have been following my blog, I turned bearish second half of 2008 reached the point of maximum bearish in March 2009 and turned bullish since then. While the market begin to show some downtrend, this time, there are no good reasons for me to turn bearish. It's because the fundamentals painting better very bright days ahead. The worst of unemployment is certainly over, non-farm payroll started to expand rapidly, unemployment certain peaked out and consumer sentiments are getting better. All these will lead to consumer spending again. So it is a matter of time that stock markets are going higher again.

Saturday, February 6, 2010

Testing time

Just got back to the country .... a lot interesting stuffs going on this week. Not going repeat them here as I'm the laggard while most of you already know everything. My trip was too exhausting, I felt asleep every night in less than counts of three.

Nevertheless, the big worthy news out there that I need to briefly mention is from what I read in old papers on the plane were

(i) markets were busy pricing in potential exit strategy by ECB and demand of fiscal discipline by Trichet's hawkish remarks to bring down country deficits plus potential defaults and etc( old news actually)

(ii) initial claims for unemployment insurance went up but quickly reversed by good news on unemployment fell below 9.7%.

With S&P down closed to 10% completes the definition of a correction, I think we are about there to buy something. Stock picking and discipline are key.

Emerging markets are still vulnerable to corrections as valuations are still expensive, even though it has higher growth potential. I find it difficult to find undervalued stocks after the sharp price runs up. I have to pass most of the companies that I looked at lately. The closest was Pantech but I still have to wait for the price to come down. Since price is what we paid and value is what we get, here is what I think about Pantech. RM 0.90 (fair price, little upside), RM 0.70 (trading buy), RM 0.60 (strong buy), RM 0.40 – RM 0.50(close my eyes and buy).

Pantech main businesses are (1) Trading of pipes, fitting and flow controls (2) Manufacturing of pipe fitting. Trading part of the business contributes more than 80% of the revenue, the other 17% is from manufacturing. Trading margin is lucrative 17%, manufacturing is fair 14% despite of higher depreciation of 10%. Manufacturing results should get better as more orders flow in.

I misunderstood their business at first glance, thinking they are in hardware store business. You know-lar, those PVC toilet fitting and etc. No, they are supplying stuffs to O&G and petrochemical industry which require stringent quality. This translates into consistently high ROE above 20% but they use quite bit debt financing their working capital.

What strikes me was they ventured into high yield and “exotic pipe” driven by high pressure and increased corrosives requirements. I read this as more and more ventures going into deep water. If we believe the theory of the end of cheap oil, Pantech will fit well into next wave of deep water oil exploration. This has kept their revenue from falling off the cliff in FY 2009 when crude oil tumbled that caused many companies canceling/freezing projects. They are well position as they are very close to their customers in Miri, Bintulu, Kikeh, Brunei and etc.

The other attraction point is their manufacturing arm Pantech Steel expanding their overseas presence. Currently, 80% of their products(butt welded fitting is the major) to US, Canada, South America(Mexico, Venezuela), Europe and ASEAN(Vietnam Indonesia, Brunei). They are also going after almost all major oil producer countries like UEA, Kazakhstan, India, etc.

Depending on which angles we look at it, resilient sometimes mean hanging tough out there, not necessary new records of revenue or profit. Pantech revenue is expected to drop around 10% and 20% declined in net profit. EPS will likely to come in around 0.135/share FY 10, at 0.94, the company is selling around 7 times. Though exploration activities should pick up soon, for EPS to go back between 0.16 to .23 will be tough for FY 11. So growth may not come in fast enough, the only way is to wait for Mr. Market to miscalculate and dump shares.

Monday, February 1, 2010

Obama Offers $3.8 Trillion Budget With Focus on Jobs

Just finished packing my bag.......will be away from the country for a few days again. A few quick lines before I crashed out. Good luck to Obama when he gets this record budget approved. I see less than 1% chance that we are heading for a double dip recession with this follow through program. Just hope that he can stimulate the economy strong enough to be reelected next term, if not Republican will be the one gets all the benefits why he is working like shi* to steer America out of the worst recession since 1930. Is it time to get back to equity? A qualified yes but timing is a little bit tricky.

Feb. 1 (Bloomberg) -- President Barack Obama proposes a $3.8 trillion fiscal 2011 budget today that calls for $100 billion in additional stimulus spending and projects this year’s deficit will hit a record $1.6 trillion.

The plan would reduce the shortfall in part by imposing more than $800 billion in higher taxes and fees on those earning more than $250,000, banks that benefited from the financial industry bailout and the oil, gas and coal industries.

The spending blueprint being sent to Congress for the fiscal year that begins Oct. 1 reflects the administration’s struggle to boost the economy and job growth -- both top concerns of voters -- while tightening the government’s belt to reduce deficits in the years ahead.

“We’re trying to accomplish a soft landing in terms of our fiscal trajectory,” Peter Orszag, director of the White House Office of Management and Budget, said in a briefing.

The $1.6 trillion deficit forecast for the current year represents 10.6 percent of the U.S. gross domestic product, making it the biggest by that measure since World War II, according to administration figures. The deficit in 2009 was $1.4 trillion.