Tuesday, 2 February 2016

My Portfolio Jan16

Summary for January 2016

Numbers of stocks 14
Cash:Share ratio 7.2%
Share Bought KESM @ 4.80
Share Sold Huayang @ 1.83
Overall 2016
Portfolio Return Jan16 -10.1%
KLCI Return Jan16 -1.46%
Portfolio Return YTD16 -10.1%
KLCI Return YTD16 -1.46%

Stock Portfolio @ End of Jan16

Satellite Portfolio
Stocks Avg Dec15 Jan16 Div 16 Jan16(%) Overall(%)
AWC 0.375 0.39 0.41
5.1 9.3
BJAUTO 1.92 2.14 2.17 2.5 2.6 13.0
COMPLETE 0.79 0.805 0.795
-1.2 0.6
GESHEN 0.77 2.76 2.23
-19.2 202.6
GTRONIC 2.43 6.50 5.47
-15.8 125.1
HEVEA 0.775 1.62 1.35
-16.7 74.2
INARI 0.66 3.66 3.23
-11.7 389.4
INARI-WB n/a 2.13 1.66
-22.1 n/a
JOHOTIN 1.54 2.09 1.98
-5.3 28.6
KESM 4.80 n/a 4.85
n/a 1.0
LATITUD 2.09 7.39 6.96
-5.8 233.0
MATRIX 1.77 2.49 2.37
-4.8 33.9
MATRIX-WA n/a 0.425 0.400
-5.9 n/a
NOTION 0.40 0.42 0.39
-7.1 -2.5
SCIENTEX 5.47 9.75 10.50 26.0 10.4 92.0
TAMBUN 0.77 1.41 1.27 3.0 -7.8 64.9

  • Dividend ex-ed for BJAuto (2.5sen), Scientex (26sen) & Tambun (3sen) in Jan16.
  • Negative portfolio return of 10% mainly due to significant retreat in export-orientated stocks especially Geshen.
  • Worst monthly portfolio return since Dec14.
  • Scientex becomes the 8th stock to surpass 100% gain.
  • Added KESM due to optimism on automobile semiconductors demand.
  • Sold Huayang at a loss of 13.3% inclusive of dividends received
  • Failed to reduce the number of stocks in portfolio, currently stays at 14.
  • To trim portfolio and keep more cash.
  • To buy only during significant share price/market correction 

Wednesday, 20 January 2016

How To Interpret Foreign Exchange Gain/Loss in Financial Report?

If you wish to know the answer for this question, then I'm sorry because I am also looking for it.

We know that when MYR value drops, exporters that sell their products or services in foreign currencies will get a profit boost.

However, if the raw material cost are denominated in foreign currencies and it makes up a big portion of its overall cost, then weakening MYR might not give too significant increase in profit.

If the export company has lots of debts/borrowings denominated in foreign currencies, then weakening of MYR might not be good for them.

In a company's quarterly financial report, it will show how its profit before tax are arrived at, either below the income statement or in the explanatory notes.

This section will usually include some realized/unrealized foreign exchange gain/loss.

For example, in Latitude latest FY16Q1 quarterly report:

It shows that in FY16Q1, Latitude has a net forex gain of RM7.829mil, and these are already included in arriving at the net profit.

(1) What does this foreign exchange gain made up of?

I'm actually not sure and hope that someone with accounting knowledge can help to explain.

From my guess, this forex gain/loss should be from its receivables/payables, cash/debts denominated in foreign currencies and perhaps other items in the balance sheet.

For example, company Z exports its products in USD.

Lets say credit sales of USD100k is made at exchange rate of RM3.50 in early Q1. This means that a revenue of RM350k is registered and it will have USD100k as trade receivables.

In the middle of Q1, part of the bill USD40k (receivables) is settled at exchange rate of RM4.00. So there is a realized forex gain of 40k x RM0.50 = RM20k.

If other outstanding amount are not yet paid and MYR ends Q1 at RM4.30, then there will be an unrealized forex gain of 60k x RM0.80 = RM48k.

So the total forex gain for this particular sales is RM68k in Q1, which means that the company can potentially receive RM418k from a sales that worth RM350k.

The same should apply to payables in foreign currencies.

For borrowings, if a company secured USD100k borrowings at exchange rate of RM3.50, and it repaid USD30k at exchange rate of RM4.00, it will have a realized foreign exchange loss of RM15k.

If MYR ends the reporting quarter at RM4.30, then there will be an unrealized forex loss of RM56k.

Am I right?

However, (2) Which exchange rate is used as reference in the subsequent quarter? Is it the rate when sales are made, or the rate at end of previous quarter?

Lets use the company Z mentioned earlier as example.

Company Z makes USD100k sales in early Q1 at RM3.50 rate, and ends Q1 with USD60k receivables at RM4.30 rate. If the bill is settled fully in Q2 at exchange rate of RM4.10, will it register a realized forex gain of 60k x RM(4.10 - 3.50) = RM36k in Q2?

Or for Q2, we use the exchange rate at end of Q1 which is RM4.30 as a reference so company Z will register forex loss of 60k x RM(4.10 - 4.30) = -RM12k when the rate drops from RM4.30 to RM4.10?

Besides, there is another "foreign currency translation" profit in the income statement under "other comprehensive income".

For Latitude in the same quarter, the amount of foreign currency income is relatively huge at RM42.710mil in a single quarter.

(3) What does this foreign currency translation income made up of?

I think this should be for its foreign subsidiaries which is in Vietnam.

As Vietnam Dong also appreciates significantly against MYR, there will be forex gain but I'm not too sure how this number is derived from but it seems like it is from the increase in net assets of its foreign subsidiaries QoQ due to currency exchange rate changes.

From what I understand, this type of profit should not be included under profit attributable to shareholders but it should not be totally ignored so it is put under "other comprehensive income".

So, it will not contribute to the company's net profit and EPS.

Hopefully some expert will help to answer the questions marked in red above.

Wednesday, 13 January 2016

Hevea Under Attack

Recently Hevea has been under relentless attacks by a few people in i3investor.

I'm alert to this as I'm also a small shareholder of Hevea.

Last week I wanted to write about my opinion on this issue but finally I did not do so. I thought that I should not let my decision affecting other readers since the reliability of those information are in doubt.

A few people made the allegation, and some people tried to counter it by posting feedback from Hevea's management. All these information might not be true.

Yesterday, the first reliable source of information finally came out. CIMB organised a conference call with Hevea management and its institutional investors, and published the note today.

Last week, the first allegation was that Hevea's directors & major shareholders had some physical conflict and are involved in a few civil suits.

The major issue the author wished to bring out was that Hevea tried to hide these law suits from the shareholders/investors by not disclosing them to Bursa when they are obliged to do so.

Both parties consist of HeveaWood controlled by HeveaBoard's MD Yoong's family, and Dato Loo who is a non-executive director & founding member of HeveaBoard.

Those who know Hevea well should know that HeveaWood is not a subsidiary of HeveaBoard but is a major shareholder of HeveaBoard.

This is just some personal conflict among HeveaWood shareholders who also happen to be HeveaBoard shareholders.

So I think Hevea has no obligation to reveal these law suits under material litigation in their financial report as they do not involve Hevea directly. 

After CIMB's report, we know that the law suits are because of non-payment of dividends at HeveaWood and the court has actually decided in favour of Yoong's family.

Of course these conflict among directors is not good for Hevea. However, it should not affect Hevea's operation as Dato Loo is not an executive director and this case were already closed even though an appeal seems to be on-going.

       Yoong Hau Choon & Dato Loo Swee Chew

The second allegation was about 700 containers stuck in Korea port and Hevea could potentially face hefty fines and was alleged to sell hazardous products!

I opined that this could not be true. The number of 700 is too huge and how can Hevea passes Japan test but fails in Korea?

Finally it turned out that it was 700m3 containers and the Korean custom actually used the wrong testing method. This issue has also been resolved.

From the 2 allegation above, we can know that the attacker has close relationship with Hevea as he can gain access to those information. 

However, why did he only tell half of the story? Didn't he know that the Korea issue is just a misunderstanding and has been resolved without "hefty fines"? 

He either knows only a bit and inevitably gave inaccurate information, or knows the issues well but chose to mislead the public deliberately by posting and exaggerating only on the negatives.

If he is really a neutral person who is trying to help the investing public as he claimed to be, he should quickly write another article to support his earlier claims or apologize for his mistakes, especially the 700 containers story.

However, he didn't.

So to me, there is a well-organised plot to attack Hevea & its current executive directors for whatever reason I'm not sure but it seems to me that it is related to earlier law suits.

As for the accounting fraud part, though I'm not good at accounting, I wonder why the "amount due to/by related parties of HeveaWood & HeveaBoard must be the same. Can't there be other parties involve other than these two?

Now CIMB has reported that there are other parties involved so this allegation is a joke.

Similarly, the attackers should counter CIMB report or Hevea MD's clarification by giving concrete evidence. If they fail to do so, this just exposes their desperate plot to down Hevea with purpose.

There might be more allegation coming out but the credibility of those attacking authors are surely waning.

I just write my view on one of my company I'm investing in and I might also be wrong. 

Hevea's MD might cheat those institutional investors and gave empty promise if he is really that bad & "no big no small" as described by the attackers.

The attackers will surely continue to find faults in Hevea and we can't rule out that they might find something real in the future, as I don't think a big organisation can do things 100% right.

We as outsiders can only use our own brain to think and make a decision on who is right or wrong.

Please be reminded that this is not a buy or sell recommendation on Hevea.