Tuesday 22 October 2013

Some Sort Of Deja Vu

If I study my previous mistakes in stock trading, they are all too familiar. 

First, impulsive buying at overvalued price. Then the share price went down. Checked the news and analyst reports, high target price given, so bought again to average down. Then some bad news emerged, share price tumbled again. Media and management gave some positive news. Analysts target price remained above current price. Bought more to average down.

Next, realized the mistake, but reluctant to realize loss, so kept as "long term investment" and avoided further average down. Price dropped further. Then, as lack of fund to buy other shares and saw others flying high, finally decided to sell with pain.

Now this scenario seems to recur in Tropicana.

Tropicana is the first share I bought in my current re-shuffled portfolio, besides Tambun which was bought long time ago.

I have to say that it was rather an impulsive buying as it actually does not fulfill my criteria of low PE, low gearing, high ROE & high dividend. The only exciting part is the growth potential. I bought it because of the story it sells - the ambition to grow towards the big property players like SP Setia, Mahsing, IJMLand etc.

Perhaps I should have studied more stocks before buying Tropicana, as I actually found quite a lot of better stocks after owning Tropicana. In another words, I should wait with cash in hands until I find a stock that really meets my criteria.

At the entry price of RM1.89 back in early June, I have lost 23% on paper on Tropicana. If you look at the price chart, you can see that it is my bad habit again - like to buy a stock that drops a lot.

I did not practice cut loss if I intend to invest long term. Previously I did set a cut loss at 8% when sometimes I trade purely using technical analysis.

Should I cut loss now?

       Tropicana 218McAlister

Recent Q2FY13 results released in late August was quite ok. Though net profit drops 12% QoQ, revenue rises to a record high of RM362mil. 

For the last few months, I think the development in Tropicana is quite encouraging. 

First, Tropicana is buying more land in Klang Valley and Pulai, especially the Canal City land next to IJM's Bandar Rimbayu. Though it may stress its already tight balance sheet, but I think it is a good deal in long term. Land will always appreciate and it can be sold to realize gain.

Through its press release after the announcement of Q2 results, Tropicana reveals that they achieved record sales of RM1.06 billion in 1HFY13. Its locked-in unbilled sales stand at all-time high of RM1.65bil at the end of 1HFY13. It plans to launch another RM2.05bil worth of new projects in the second half of current financial year.

Tropicana has just launched Bayberry in Tropicana Gardens and previewed its first development at Tropicana Metropark, Pandora serviced residence in Q2. Both received overwhelming response with Pandora 95% sold to date. Since its preview in May this year, the price of Pandora is said to increase 33% from RM650psf to RM850psf. Tropicana will  launch its next project Paloma in this 88-acre RM6.61bil Tropicana Metropark soon. Guess what will the price be?

       Tropicana Metropark

Another new project lining up this year is Tropicana Heights in Kajang. This 199-acres township has an estimated GDV of RM2.2 bil. I'm not sure whether it has been officially launched but Kajang is a good location and Tropicana should not have problem selling it.

Besides central region, Tropicana has also recently launched its first phase of Penang World City, a joint-venture with Ivory Property. 

All these new launches should be able to support Tropicana sales and profit in the near future.

As part of the exercise to reduce its gearing, Tropicana has signed letter of intent with CMMT to dispose Tropicana City Mall & Office Tower to the latter. The announcement was made back in 23/8/2013 but there is still no update as everything is in due diligence state.

       Tropicana Heights

Even though I am a bit regret after buying this stock, I still have some confidence in it. It still has not trigger my sell signal actually. 

Perhaps the recent share price collapse is related to its proposed 10% private placement announced in July?

Are the investors pissed off by the non-stop corporate exercises that expand the company's shares and dilute its earnings like no tomorrow?

Tropicana has just completed 10% share placement in June 2013 at the price of RM1.78. Could it be someone trying to pull down the share price so that they can get the placement shares at cheap price? The placement price will be decided at not more than 10% discount for volume weighted average market price for the past 5 days.

Perhaps Tropicana's projects are mostly bought by speculators and it may be affected by the upcoming Budget 2014 that continues to suppress speculating activity?

So, the impulsive buying done, the share price down, the good news out, the analyst target price are high (>RM2), and the share price continues to drop. It's some sort of deja vu. 

So next, should I buy now to average down to repeat my previous mistake all over again?

I am tempted to, but lack of fund. Anyway, better wait until after the Budget 2014 and private placement.

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