Tuesday, November 30, 2010

Simple thesis of Turtle bought Alcom

I discovered this stock while I was researching dividend yield strategy. This was part of my preparation in case the market start to move sideways. The reason of sideways movement is to allow earnings to catch up with prices. If you look at the big cap stocks many of them already selling at fair price(neither too expensive nor too cheap).

Dividend stocks on the other hand had been ignored. BJ Toto for example is giving almost 10% yield despite of all the bad news of tax increase or being removed from FBM-KLCI 30. Digi, TM, etc are also providing attracting dividend yield in excess of 7%.

Back to Alcom, this company has almost $ 46 million cash plus. It has outstanding shares of 132 million. They have been paying dividend consistently between 10-15 sen per year. They have to fork out like $ 13 to 20 million. But I think $ 13 mln dividend a year is very sustainable. The operations churns out about $ 12-13 mln cash/year. At $ 0.91, this translate into almost 11% dividend yield. 10% price recovery in one year time will give a potential return of 20%.

Monday, November 29, 2010

Turtle bought 3,000 shares Alcom @ $ 0.91

Write up to follow over the weekend.

RCE purchase will be delayed until the clear picture is formed or unless somebody will want to sell at irrational price.

Thursday, November 25, 2010

The man behind Penang’s economic transformation

Dr. Lim, your contributions will never be forgotten.

GEORGE TOWN: Tun Dr Lim Chong Eu, 91, who served as Penang Chief Minister for 21 years, was a towering leader who presided over the remarkable economic transformation of the state.

He led a simple life despite a political career spanning 39 years, shunning awards and titles, and only accepting a Tunship after retirement from politics.

When he took over as Penang’s second chief minister in May 1969, the state was going through a difficult period after the withdrawal of its free port status, with unemployment rising to 16.4%.

He implemented the Free Trade Zone concept in Penang – the first state to do so – wooed foreign investments and built one of the largest electronics manufacturing bases in Asia, earning Penang the tag as Silicon Valley of the East.

Dr Lim also presided over Batu Ferringhi’s transformation into a tourism belt, cleared pre-war houses to build the iconic 65-storey Komtar and built the Penang Bridge.

Born in Penang, Dr Lim attended Penang Free School. In 1937, he was a King’s scholar at Edinburgh University in Scotland and graduated in 1944 with a medical degree.

Formerly a medical officer with the Chinese Armed Forces, he founded the Radical Party in 1951 which won the first municipal council elections in George Town.

In 1954, he joined MCA and was a member of the Razak Commission for Education.

Despite defeating the late Tun Tan Cheng Lock for party presidency in 1958, he quit MCA a year later following differences with Umno over the allocation of parliamentary seats in the 1959 general election.

He formed the United Democratic Party in 1962 and co-founded Gerakan in 1968, which swept the Alliance ruling coalition out of office in the 1969 general election, leading to his appointment as Chief Minister.

However, in 1973, Gerakan, together with the Alliance Party, formed a coalition called Barisan Nasional.

In 1980, Dr Lim stepped down as party president, saying there were “many young and promising leaders in the party just as capable to hold the post”, and was succeeded by (Tun) Dr Lim Keng Yaik in 1980.

He continued as Chief Minister but retired after losing the Padang Kota state seat in the 1990 general election. He was succeeded by his former political secretary, Tan Sri Dr Koh Tsu Koon, as chief minister.

His message to the party then was to “always remember its roots and humble beginnings”.

After retiring from politics, he became a passionate horse breeder and turned his attention to business as chairman and adviser to several large corporations.

In 2007, he was named founding chancellor of Wawasan Open University in Penang.

Lim’s legacy will not be forgotten, especially by Penangites.

Tuesday, November 23, 2010

The longer the corrections, the stronger the bounce

I was anticipating the corrections to last longer, 2 - 3 weeks will be better. The sentiments were very firm making you believe that the reverse direction is not possible. It has taken a number of bad news to water the markets down, even that I still feel it has not corrected enough.

The market was trying to look for clues whether the liquidity will be mopped out. Naturally they look for signs whether the Chinese government will raise interest rate or order banks to increase their reserves and etc. The implication was a slowing down Chinese economy is bad because eventually demand for commodities and etc will be softened. This in turn will eventually affect its trading partners.

Then came the Euro-zone bank bailouts. Bailout of Ireland banks will probably require a strict fiscal diet that normally will force them to clean up the system -- we will expect contraction for a while. If Spain is the next target then I think the situation will turn even more bearish.

Then Thailand was reported to be in a technical recession because of two consecutive quarters of contraction. A number of Asia countries like China, South Korea, Taiwan, Malaysia, Singapore, Indonesia and etc are pointing towards a slow down. I can assure you that Q4 will be even slower than Q3, let's see how the market will price this in at beginning of next year.

Then I received a SMS alerted me that there is a conflict between the North and South and Korea that may trigger instability in the regions. War ? come on-lah.

Despite of all these negative news, the big white wash out is still not here yet. When that moment arrives(another 3-5% drop), I shall not be gun shy -- buy on dip on liquid stocks will give a decent chance to make some money. Need some justifications? December typically has less news flow because the reporting season has ended and not many economic announcements as well. Given enough bad news, absent of bad news can be good news. It is also time for fund managers to do window dressing so that they can keep their jobs.

Let's change subject, if you ask me why I did not rush into buy RCE Capital. The logic is simple, my general observation over years of investing experience, rushing to buy a stock after a good news being announced is not a good idea, we tend to over-pay(buying panic). Two, if the big boys are not buying yet, retail investors don't have that kind of gun fire to create a strong breakout. So, let's other people to settle down with their emotions first.

Why am I still like to buy CIMBX25? Hang Seng Index itself has not done badly since it bottomed out in March 2009 but Chinese related stocks have not caught up and still cheap historically. It's also one of the worst performers in the world and I like to buy when they are out of favor. So I just put in some small amount of money at regular intervals.

I will be taking a few days off going holidays with my family. Ciao!

Monday, November 22, 2010

RCE Capital -- In valuation I trust ?

Outstanding shares : 710 mln.
Market Capitalization : 444 mln(710 mln x $0.625/share)

What is RCE Capital doing?
RCE is involved in the provision of personal loans and consumer-financing services to public and private sector employees, factoring and investment in a real-estate trust.

Business Model
RCE Capital has a solid business model. If you are able to deduct from a person with a steady income, it is easy to understand why their business model is solid. It is also easy to understand why they are granted by RAM a AAA asset backed security to keep their funding cost low.

The following is extracted from Maybank Securities way back in 2005 in their initial coverage report.

RCEM provides financing for KOBENA, KSB and KOWAJA to disburse to their members, who are government servants, in the form of consumer financing and personal loans. RCEM is currently increasing its focus on its portfolio of personal loans. Previously, RCEM disbursed mainly consumer financing to the cooperative members. With increase in competition from other cooperatives and companies, such as MOCCIS, Courts Mammoth and Berjaya Singer, RCEM began giving out personal loans, offered by KOBENA, KSB and KOWAJA under the Skim Pembiayaan Peribadi (SPP).

The repayment for the loans provided is done by way of direct salary deductions to be deposited directly into the Trust Account opened in the name of the various cooperatives. The deduction of the salary is undertaken by a centralized body, Angkatan Koperasi Kebangsaan Malaysia Berhad (ANGKASA).

The cooperatives offer financing and loan schemes for their members based of specified eligibility criteria. Deductions under the schemes do not exceed 60% of the individual’s basic pay.

RCEM administers and monitors collections from ANGKASA. The monthly salary deduction is remitted to the respective Trust Accounts jointly controlled by the cooperatives and RCEM. RCEM has direct assignment over Receivables and direct control over funds in the Trust Accounts. Service fees are paid to the cooperatives based on the supply arrangements with RCEM.


I am going to skip all the textbook reasons (durable competitive advantage, low PE, okay dividend yield (2.4%), reputable management team especially major shareholder is Azman Hashim of AMCORP)….. bla …. Bla…..

I am also going to skip the usual reasons of low liquidity, lack of research house coverage or slower growth to talk down the stock.

I will put my money on the line simply because I think

(i) downside is limited after the major shareholders exhausted selling.

I am sure they have depressed the share for 2.5 years with perpetual selling and finally this company is under-owned by institutional funds.

(ii) The sector as a whole is out-of-favor. If you truly believe that you like to buy things out-of-favor, this is it. Somehow, some day – the market sentiments turn hot, people will take notice or if the share price frustrates the major owners long enough, they will take it private. At the rate they are growing their book, it will soon selling less than 1X P/BV in 2 – 3 years time.

You can see in this chart that despite of all the reasons of lack of coverage, why would Goldman or Public Mutual managed to spot this gem in 2007?

(iii) Reversion to mean(let's say sentiments turn from 5X PE to 7X PE, potential price appreciation will be up to 0.98 on the conservative side). If we get superhot market, it may rocket to $X.XX(you have to use your imagination to fill it up based on PER band)

(Please click on any images to see detail)

Disclosure: The author has no position yet.

Friday, November 19, 2010

Turtle bought 2,000 shares CIMBX25

Bought 2,000 shares of CIMBX25 at $ 1.09.

Monday, November 15, 2010

Why So Quiet?

In case you are wondering why I am so quiet - not talking about stock markets or general topics. I have been busy of late fixing my house. Market correction is good because it allow me to spend time on some other things that are equally as important making money out of stock markets.

As school holidays are approaching, I plan to take some time off with family or doing something for them. So blogging will be very light.

The correction that I have been waiting is finall here. Based on a general rule of thumb, it will normally last 7 - 9 trading days. Based on the market momentum that I observe, the players seem to be quite smart and did not sell indicriminately. I see players picking up stuffs.

For the whole of 2010 year-to-date, we never have any corrections more than 100 points. The most severe was around 80 - 90 + points and most of them are in the region of 30 - 50 points. Projecting where the market will stop falling based on this data is as good as flipping a coin.

I have just taken out a 50 sen coin from my drawer. I am going to toss it: head drop 50 points and tail drop 95 points.

The coin had finally stopped spinning. The result is

The coin has spoken, so forget all the moving average, etc..........

Thursday, November 11, 2010

Some really old updates (PPB and WIlmar)

I featured PPB and Wilmar three times way back in 2008/2009. Here are the old links if you need to refresh your memory:




There were 5 risks that I talked about, I re-produce them here

1. Collapse of crude oil bring about collapse in soft commodities. It's a low margin business. Net income %: 2003 -- 0.9%; 2004 -- 1.2%; 2005 -- 1.25%; 2006 -- 3.07%; 2007 -- 3.5%. Profitability improvement is due to better economies of scale and also favorable commodity sector.

2. If you trade, the risk of screw up always exist -- involving future, options and etc.

3. Change in government regulations like price control or taxes. Sold down of stock earlier of this year when China government requires them to submit for approval prior to price increase on cooking oil.

4. Weather and natural disasters.

5. Much slower growth ahead via organic growth."

True enough, after smooth sailing of 2.5 years, the got hit in the last quarter. Here is the announcement.

If they trade, I know they will get hit one of these days. Just look at this chart on the volatility of the margin especially in the oilseed and grains segment(this was the culprit of the shocking loss in the last quarter).

When I made a buy call at that time because the risk was low due to the extremely depressed price(RM 9/share). When it has almost doubled, the risk rises tremendously when I have hard times to understand their income statement and balance sheet.

I don't understand the losses on $ 141 million on cash flow hedges.

When you look at their Balance Sheet, you will see $ 300 million Derrivatives here and there. It will make you really headache when you are trying to evaluate the company.

I am not sure how the market will react to this but it is time to take profit and to re-enter again around $ 15 / share.

Tuesday, November 9, 2010

Corrections coming?

If we look at the volume traded at KLSE, it has more than 1 billion shares change hand for most of the trading days since September 2010. KLCI keeps making new highs with sustained volume may be able to convince a few newbies to believe there is a strong underlying demands. Can the wind direction change? The sectors rotation are getting narrower with exception of Finance and Plantation. Most other "hot" sectors like property, trading and services, small-cap, construction are getting a little bit cooler -- declining volume. Cyclical stocks like technology have been in very bearish territory.

This rally is driven by liquidity. The foreign fund flows have been strong since September.

That has to do with US $ investors selling dollar and buy emerging markets. Malaysia is one of the beneficiaries. They need some reasons to buy something, the story like Economic Transformation Program, etc are just to fall into the right place.

But US $ tide can turn, at least for the short-term. When the tide turns, rally can quickly fizzle out and you can see penny stocks will suffer the same sympathy selling.

If you visit prominent and savvy blogs -- all of them are turning cautious. Many of them are in wait-and-see mode. Some of them are calling for smaller bets and waiting for corrections. With most people are cautious, that means they have a lot dry powder left, therefore I don't think the bull market is over but I am anticipating corrections before the markets are ready to move higher.

Friday, November 5, 2010

Priced in ?

About two weeks ago, I felt that I need to take a break from the markets. That will allow sufficient time for a few issues to play out. I normally do not care so much for issues like that because stock markets are normally forward looking trying to price in most of the issues like Republican will wallop Democrats, QE 2, earnings, etc.......

Dow managed to make a new high yesterday at 11, 434. Bullishness among investors and traders are quite high The market went higher because it has converted more bulls especially those people has been waiting for a market setback hoping some of the traders to sell on news. The sell off did not materialize. March Faber for example was waiting for market to sell off if QE announcement was less than $ 1 trillion. The market did not sell-off though the quantum was only US $ 600 billion. Luckily I did not have any shorts or else I will be hurting like crazy.

The retail investors are in the driver seats now. Since they have just joined the party less than 1 month, I think the KLSE party will go on for a while. The usual year end rally and Chinese New Year rally will make a lot people smile.

I will make a few personal trades(I won't be sharing these trades because these trades are from popular blogs and newspapers and broker tips) but I will keep Turtle portfolio original mission to generate 10% return per year slow and steady(so expect very little action on Turtle portfolio). Despite of strong momentum ahead, I will still want to wait for a reaction before jumping into actions.

Wishes all Happy Deepavali.