Tuesday 5 January 2016

Review 2015 / Preview 2016

Review 2015

When I decided to keep those 3 property stocks in my portfolio early last year, I actually did not expect my 2015 annual portfolio return to beat 2014's figure of 44.5%.

So, I am extremely delighted to have achieved 107% return in 2015.

KLCI ended 2015 at 1692.51 compared to 1761.25 at the end of 2014 , representing a minor loss of 3.9%.

       KLCI 2015: From 1761.25 to 1692.51 (-3.9%)

Given the internal & external issues that Malaysia faced in 2015, KLCI's performance was actually not as bad as most of us would have imagined. It was actually better than Singapore, Thailand and Indonesia.

The reason for my portfolio gain is no other than those export-orientated stocks such as Inari, Globetronics, Latitude Tree, Heveaboard, Geshen, Scientex, Johore Tin, Heng Huat & Jadi Imaging.

As mentioned in "Preview 2015" exactly one year ago, I planned to concentrate on export stocks in 2015 and this decision has certainly borne fruits now.

Could it be even better if I disposed all those property stocks last year and bought other export stocks in my watchlist such as Magni-tech, Prolexus, Superlon, KESM, Unisem, Thong Guan etc?

Certainly it will be better.

The table below shows annual stock price performance of 3 pure property stocks in my portfolio.

Year 2015 Performance of Property Stocks
Stocks End 14 End 15 Div 15 G/L%
HUAYANG 2.05 1.85 0.13 -3.4
MATRIX *2.33 2.49 *0.162 13.8
TAMBUN 1.62 1.41 0.097 -4.2
* adjusted for bonus issue

Throughout the year, only Matrix manage to register a "not bad" gain while Huayang & Tambun were both in red.

In the year of 2015, almost all property stocks suffer.

Huayang calendar year 2015's financial results were good as expected. However, unbilled sales drop due to delay in new project launch amid soft property market.

At RM1.85, it is trading at forward PE ratio of just 4.1x base on TTM EPS of 45.16sen, and its dividend yield is as high as 7.0%.

The response for its upcoming launches such as Mines South and Penang project could be vital to sustain its performance & dividends.

Tambun Pearl City's projects have been hit by delay in APDL approval, causing its financial results, unbilled sales and share price to drop.

Despite slow down in property market, projects in Pearl City are still very well-received and its new sales are expected to jump in FY15Q4/FY16Q1 after obtaining APDL approval in Nov15.

GEMS International School has started in Sep15 while Pearl City Mall is on course to be completed in Q1 of 2016. Jit Sin High School SPS branch is also set to start student intake for year 2017.

At RM1.41, Tambun is trading at forward PE of 6.1x base on TTM EPS of 23sen, with potential DY of 6-7%.

Matrix is a rare property stock that ends 2015 with a gain. More importantly for me, it will certainly achieve higher new sales in 2015 together with a record high unbilled sales, due to robust demand in its Bandar Seri Sendayan.

Its TTM EPS is 50sen, which means it is trading at forward PE of 5.0x at share price of RM2.49, with a dividend yield of more than 6%.

Matrix has an outstanding leader and management team. That's why I feel secure to invest in them.

So, it has been shown that in term of maximizing portfolio return, I have made a wrong decision in keeping those property stocks, though I have already expected this.

Those property stocks in my portfolio with high dividend yield act more like a diversification or buffer just in case export stocks do not perform up to expectation.

My main investment plan is still growth, and try to be part of its business owner as long as the company stays competitive and continues to grow.

In the year of 2015, I added 8 new stocks into my portfolio.

Earlier in the year, I bough Johotin (Feb15), Geshen (Mac15), Hevea (May15) & Jadi (Aug15) which are all export-orientated stocks.

These stocks have done exceptionally well, along with other export stocks bought earlier in 2013 & 2014 and kept throughout 2015.

Year 2015 Performance of Portfolio's Export Stocks
Stocks Start Price End Price On G/L %
GESHEN 0.575 Mac15 2.76 End15 380.0
GTRONIC 4.30 End14 6.50 End15 51.2
HEVEA 0.775 May15 1.62 End15 109.0
HHGROUP 0.43 End14 0.644 Dec15 49.8
INARI 2.54 End14 4.58 End15 80.3
JADI 0.056 Aug15 0.095 Nov15 69.6
JOHOTIN 1.54 Feb15 2.09 End15 35.7
LATITUD 3.65 End14 7.39 End15 102.5
SCIENTEX 7.09 End14 9.75 End15 37.5

Geshen is undoubtedly my best performer in 2015 with 380% gain in 9.5 months. Its FY15Q3 result was simply magnificent.

Though subsequent quarters' result might not beat that quarter, I hope that it will still be good to justify current share price, especially when Polyplas is in expanding mode and Geshen might acquire its remaining shares later.

When I first bought Geshen, I have the intention to put it in my empty core portfolio since there is a chance of more than 100% upside from my calculation.

However, just like Latitude last year, I failed to do so but as a consolation, it is still one of the "heavier" stock in my portfolio which has played a major part in my overall 2015 portfolio return.

Hevea's shares were bought in May15 at a "high price" of RM3.10 before bonus issue went ex-ed.

I bought it mainly because of its robust cash flow and I just felt that I should be part of its business. Its subsequent quarterly results were good surprises to me.

With Japan's domestic demand expected to increase prior to 2020 Olympic games, I think Hevea's product demand will still be strong.

Despite strong USD which increased its revenue and profit margin, Hevea actually suffered some forex loss due to USD denominated loan.

With its borrowings reducing fast thanks to robust cash flow, it is currently in a net cash position for the first time in its listing history and investors can expect lower forex loss and interest expense going forward.

Johotin has a roller-coaster year in 2015. Its share price rallied from around RM1.40 early in the year to RM2.80 in Nov15, before dived sharply to close at RM2.09 at year end.

The commencement of its milk packaging business seems to be delayed, and strong USD does not do any good to it.

I'm eager to see what this new business venture will bring to its top and bottom lines. I will continue to hold its shares but I might need to wait longer.

I invested in Jadi mainly because I think it will benefit from strong USD and low crude oil price. As its share price is low at below 10sen, I think it can potentially give 100% return in one year time if quarterly results are good.

True enough Jadi's share price advanced about 100% in just 3 months time from RM0.05 to RM0.11. I sold all its shares but only after it has retreated from its highest point, as this "opportunistic investment" has done its job and I planned to limit my portfolio to maximum 15 stocks.

HHGroup posted a rather bad quarterly result in the end of Nov15 and I felt that it might persist for a certain period of time. So I decided to sell off all its shares at around RM0.65 which was way below its high of RM0.88 just 5 trading days earlier.

Anyway, it's still a successful investment with slightly more than 100% gain in slightly more than one year.

For other stocks like Gtronic, Inari, Latitude & Scientex, I have discussed about them many times and there is nothing much to discuss here. Apart from Latitude which I think is currently quite "undervalued" because the management is reluctant to give bonus issue, others have very good growth prospect in the near term and are expected to have a good 2016.

As year 2015 drew to an end, I added in BJAuto, Notion, Complete & AWC to my portfolio. Besides Notion, the other 3 of them are not export-orientated companies.

From here you can roughly see my strategy in 2016.

I don't mean that export-orientated stocks will not perform well in 2016. Actually I hope that they will, because export stocks still make up 80% of my latest portfolio.

I wish to limit my exposure to export stocks unless there is one which is selling really cheap but I doubt whether there is any.

Many export stocks have extraordinary results in their most recent quarters because of significant jump in USD against MYR.

As a result, their share price also jumped significantly and hit record high.

Most of those stocks have significant forex gain which were classified under "other operating income", perhaps from their USD denominated cash or receivables etc, when there was a sudden jump in USD value.

As personally I don't expect MYR to further depreciate against the USD in 2016, I will try to avoid such stocks unless it has great growth potential and still not too overvalued.

Notion is a peculiar case. It is an export stock which is supposed to be a beneficiary of strong USD but it made massive loss from stronger USD due to unfavourable currency hedging.

As I don't expect MYR to depreciate further against USD, I actually expect it to gain a bit from its hedging.

Despite the loss in 2 consecutive financial years, its cash flow is actually not bad and it is paring down its borrowings in the same manner as Hevea. 

Nevertheless, it certainly need to generate more sales in the near future in order to turnaround in style.

I view BJAuto as a fixed deposit and plan to hold for real long term. It has and will have lots of cash to distribute as dividends, and I actually predict that Mazda's vehicles sales volume will double in around 5 years time (average ~2,000 vehicles sold per month).

However, this ambitious prediction looks difficult to materialize as other than CX-5, I don't actually see lots of Mazda 2, 3 & 6 on the road as anticipated...

A massive loss in the final quarter of FY15 (ended Mac15) for Complete has made its overall FY15 result looked ugly.

The loss is an one-off impairment loss on vessel sales, as the company is trimming its shipping segment while expanding its land logistics business by building three more new warehouses.

For me, in normal circumstances, Complete should be able to generate EPS of 3sen a quarter, and it should be more after the new warehouses are in use soon in CY2016.

Anyway, it is a very small company without consistent dividend payout.

AWC, generally a facility management service provider, stirred some interest because of its recent acquisition of 2 companies with profit guarantee.

At current share price of about 38sen, it might be already fairly valued after factoring in the profit guarantee.

However, I think it still has some growth potential especially the impending contract renewal with revised rate for its facility management service with states government.

It is also expanding its management service to include private sector and healthcare facilities lately, and the new business acquisition (plumbing & rain water harvest system) will make it a more complete service provider.

The downside is, it last paid dividends to shareholders in 2013 despite a strong net cash position.

Year 2015 is a difficult year for Malaysia. Crude oil price continue to slide while crude palm oil price also went down.

       Crude Oil 2015: From USD56 to USD37 (-34%)

       CPO 2015: From RM2287 to RM2198 (-3.9%)

In Aug15, there was a panic moment in stock market in which KLCI fell sharply from 1740 to 1500 in less than one month time.

During that time, rumours saying that the stock market will crash and the country will go bankrupt were flying around. 

My sister who worked oversea warned me that her friends and also a family member who previously worked as a remisier, advised everyone to get out of the stock market.

My wife, who almost doesn't know a single thing about stock market & economy, even sent me a long message she received from a friend who also know nothing. That message described an upcoming economy "disaster and collapse".

Of course I was also worried, but I was confident with my stock portfolio and decided not to sell them like there is no tomorrow. I even bought and topped up Jadi shares at that time.

Looking back, I feel very fortunate that I did not sell any shares at that time, except a bit of Latitude shares in the end of Aug15. If I sold stocks like Inari, Geshen, Hevea etc, I'm not sure whether I will ever buy them back and my portfolio return will not be as good as it is now.

I don't mean that I'm more superior than those who sold their shares at that time. Again, I believe that no one can predict the future. Those who predict it correctly is just because of luck.

Now we are in 2016, has anything changed?

US has decided to raise interest rate in Dec15, so this uncertainty has gone.

Besides, the supposed Malaysia economy "killer" - low crude oil / CPO price, depreciated MYR & corruption, are still there.

Crude oil price has actually fallen further to below USD40 while CPO price is still sluggish.

USD/MYR still stays high at around RM4.30 and nothing has changed in the country's politics. 

So the same collapse theory and concern will still carry forward to year 2016.

       USD/MYR 2015: From RM3.50 to RM4.30 (-23%)

Preview 2016

For year 2016, as mentioned earlier, I think MYR will not get significantly weaker against USD as MYR looks like oversold to me.

Generally export companies should still do well but those with significant one-off forex gain without much sales growth might see their profits drop.

If you believe that US and Europe's economy are growing, then those companies who export to these region will get the most benefits.

Now, crude oil price at USD36 seems to hit rock bottom and the more likely trend in 2016 should be either sideways or up.

There is a possibility that MYR could stage a rebound against USD if crude oil price reverse its downtrend. Who knows?

Property and plantation sectors should remain "cold" this year I guess.

There is no particular sector or theme that I prefer to invest in for 2016. I will just look for undervalued good companies and/or companies with high growth potential.

My target is still 30% annual return from stock market investment. In order to achieve this target, I know that I can't be too diversified.

I will strive hard to obey to the maximum number of 15 stocks in my portfolio, and ideally it should be around 10 stocks.

Also, to have higher chance to achieve >30% return target, I think I should wait patiently and buy only when those shares are significantly cheaper during market correction.

Lastly, I wish all readers a fruitful and prosperous year of 2016.


  1. Hi BD I believe ur remarkable 2015 is not luck but thorough & deligent research on ur investment. U always think out of the box while others are chasing over the 'hot' stocks. Look forward to ur more sharings, and thanks for what uve shared through out the years. Happy new year and huat ah :)

    1. Totally agreed with wachxe. BDummy is no dummy but a competent and credible stock investor. I benefit much from your articles and stock selection, thanks!

    2. James, thanks for the compliment :)

  2. Thanks, bursa dummy. It is a good sharing.. :) Looking forward for you more sharings.

  3. Thank you BD for your kind sharing !

  4. Haha, seems like quite a number of people learn from your sharing, me too. If your past few years record can be extended, I think you can achieve financial freedom within the next 5 years, and be a full time investor and blogger.
    I have a question pertaining to Geshen : Polyplas new factory is suppose to complete in Aug'15, do you have any news on it's status, and how much production capacity can be increased by the new set-up ? Tq.

    I think O&G stocks should be able to rebound within 2016. I am keeping a close eye, and hope to reap profit from the upturn..

    1. This year I will be busier, with work and family, so might spend less time in front of computer... Regarding Geshen, available info are scarce and I really don't know any updates. Hopefully investment bank can start covering it. This year I think I should set aside more cash to wait for opportunity.

  5. thanks for all your sharing..i get inspired by your writing..

  6. Hi BD, there are many popular bloggers recommend George Kent as their 2016 stock pick lately. Cold eye also appeared as the top 30 shareholders. My attention was triggered and i took a look at it's quarterly reports. Below are my findings in brief :
    - The last 4 Q's EPS are 4sen, 2.8sen, 3.3sen, 2.8sen. All those 4 Qs have forex gain, and last Q being the highest forex gain at 11.6mil.
    - With this earning quality, the current price of RM1.71 per share seems too expensive.
    - However, i think the attractiveness of this stock is the coming LRT3 project that Gkent has won together with MRCB
    - According to one blogger's calculation, the expected EPS contribution from the LRT3 project would be 18sen per year.
    - The LRT3 project will start to contribute to top/bottom line in 2H2016.
    - My rough calculation is the 2016's EPS would be 14.7sen. So if i give PE=12, the fair price would be RM1.77 which is only close to the current price now.
    - 2017 onwards, EPS is expected to be higher since LRT3 revenue will contribute for the whole year.

    This stock doesn't really look like a good buy, but it seems like attracting many popular bloggers' attention... Have you taken a look at this stock before ?

    Anyway, i think the next Q's EPS without the 11.6mil forex gain should be lower than recent Q, and that may drive down the stock price. I think it can be a better timing to buy then if i really want to invest in this stock..

    1. Hi. First of all, this company has very thick politic smell :)
      As u mentioned, the only interesting part of this stock for me is about its LRT3 contract award, as a PDP and JV 50/50 with MRCB. The amount that GKent can get from this JV is expected to be RM4.5bil in 5 years (2016-2020), or average RM900mil a year, which is 3x its FY15's total revenue. The overall RM4.5bil is may be even higher than all its past 20 years revenue added up. It seems like a no brainer to bet on GKent after this LRT3 award, it has plenty of net cash and gives very good dividend too!

      The problem is I'm not sure how much net profit GKent can exactly get from LRT3. It's mentioned in the news that PDP of this RM9bil LRT3 can get 6% fee, or RM270mil to GKent, or average RM54mil (EPS 18sen) per year. I have little understanding in construction field and I'm not sure whether this amount is net profit or still need to deduct some other cost. What is PDP's job? Will it construct the project itself, or just act as a "supervisor" and subcontract all works to other contractors? When there is overrun of cost, does GKent/MRCB need to bear it or Prasarana or subcontractors will bear it? I don't know. This type of big project is prone to cost overrun and delay I think.

      Yes, its FY16 result so far has quite a big sum of forex gain due to plenty of cash in foreign currencies. If its business is stable in FY17 (2016) I think fair EPS should be roughly 9sen excluding those forex gain and contribution from LRT3. If LRT3 can really give 18sen EPS a year, then GKent will be worth to buy for longer term. However, I have no idea on how much it can get. Also, contribution from RM1.1bil Ampang line should come to an end soon, and I'm not too optimistic it can be awarded more big projects after this fat LRT3 award.

      If we just make thing simple, such a record high contract award & orderbook should be able to lift GKent's future earning significantly. That's logic.

      Just my 2 cents.

    2. GKent said that its latest order book stood at RM5.5bil so one would think that all those value including RM4.5bil from LRT3 will go into its revenue. However, I feel that the RM4.5bil will not go to GKent's revenue, as this big project should be subcontracted to other contractors who will share this revenue. What GKent get is "management fee" as a Project Delivery Partner which is 6% or RM270mil. So this RM270mil should go to GKent's revenue. There are still some cost to be deducted but perhaps not too much. Pls correct me if I'm wrong, and hope someone can explain what is the role of PDP.

    3. Hi BD, many thanks for your sharing of knowledge on GKent above. I google and found the explanation for PDP :
      The main concept of PDP is that the PDP assumes complete risk ownership and accountability for project deliver, including specifications to cost, time and quality by integrating all contractors involved. The risk of cost overrun and late completion would be borne by the PDP. See the link below :

      The explanation sounds to me that project owner will hold PDP responsible if cost overrun and delay. However, since PDP outsources the works to various sub-contractors, it is up to the PDP to have separate agreement with it's sub-contractors on cost overrun and delay matters (PDP may pass the additional cost to sub-contractors).

      Thus, the expected EPS for year 2017 is 9sen + 18sen = 27sen,
      and expected EPS for year 2016 is 9sen + 9sen = 18sen.
      (note: I use 9 sen as the EPS without forex gain and LRT3 contribution as you mentioned above.)

      Anyway, I think the next Q result without much forex gain will be lower than the recent Q, and hope the price can drop for me to consider to invest into GKent. It is not attractive at this current price.

    4. Thanks for your sharing, it's very helpful to me. I also think that next Q result will be much lower QoQ, unless there is a surge in contribution from Ampang line job.

  7. Hi BD,

    Thanks for your sharing and I still remember during last year August, I asked your opinion on the Opensys and Econpile which I had bought and you hinted to me that the trend is heading towards export counters. I listen to your advice and switch 90% of my portfolio to export counters and now they are giving me very good return.

    Once again, thank you and congratulation on your remarkable portfolio performance

    What do you think about Hevea recent rumour ? I am still holding on to Heave with the price of RM0.90



    1. Haha. I can't remember whether I gave u the hints to buy export stocks. Congrats to you too.

  8. Hi BD,

    Hevea has replied on all the rumours.




    1. About Hevea, I feel that there is clearly a hostile plot to make Hevea fall, not only its share price but the company. If all those allegation are true, it's not hard to predict who is behind all these.

      Out of all those allegation, the Korea issue is a non-issue as it's a misunderstanding. The court cases or conflict among directors/shareholders is definitely not good for any company but I think Heveaboard does not need to announce it to Bursa as it is just personal conflict among shareholders. So Hevea has done nothing wrong in it.

      The more worrying part is the alleged accounting fraud, though the sum of money involved is not huge, it is still disturbing to me if the management purposely cheat the shareholders. I don't know much about the accounting thing and can't give any comment. However, I feel that there is no good reason for the company to do so.

      For the "throw glass" issue, I might also throw things when get irritated. If someone place a broken glass on your neck, then it's a bigger issue. As for the luxury cars, I don't think it's a big issue as it may be a reward to those who are important to the company.

      It looks like there are more stories to come, so we don't actually know the whole story. I believe its share price will stay suppressed for a while. If Hevea really commit serious accounting fraud, then it's bad and all its impressive history are nothing as it might also "beautify" all those figures.

      So it's the case of whom you believe in, the Yongs/executive directors or those who brought up these issues.

  9. Hi BD, actually i want to seek your view of oil price, say below usd 20 dollar per barrel. Personally i dont see much issues on this except market need some time to adapt to such low oil price issue. As i'm already fully invested.. So i m preparing to get margin to add position at bargain price. Do u see low oil price a big issues?

    1. Hi PS, actually I'm not a right person to give this type of opinion because my experience is still shallow. I just think that low crude oil price will not be good for Malaysia and it will affect her ratings, economy and stock market. Anyway, I think that perhaps it's time in 2016 to get some O&G stocks, as the downside might be limited compared to potential upside. I don't know how long this super low oil price will stay, and personally I will not encourage use of margin. It's a double edge sword...

    2. Hi BD, thank you for your reply.

  10. Thanks BD, your analysis write up benefits me a lot, thanks for your kind sharing, and hope you keep it up to continue benefit the real dummy like me.. wishing u a helathy, joyful, fruitful years ahead..