Saturday 30 May 2020

Are You B40, M40 or T20?

Department of Statistics did a survey on Malaysia household income in 2016. It shows the income level of B40, M40 & T20 groups in Malaysia.

B40 = Bottom 40%
M40 = Middle 40% (what we refer as middle class)
T20 = Top 20% 

Household income means combined incomes of husband & wife if both are working, and I suppose it is take-home income (after income tax).

Household Income per month (RM)

Range Mean Median

B 40 <4360 2848 3000

M 40 4360 – 9619 6502 6275

T 20 >9619 16088 13148

According to the statistic, if both of your wife and yourself earn a combined income of RM5000 per month, you are classified as "middle class". 

Wow, it sounds great to be a middle class right? However, can RM5000 a month give you a middle class lifestyle especially if you have children?

These are 2016 figures, which are 4 years ago. I'm sure that in general, our income level has increased whereby RM5000 household income might be categorized as B40 now. 

The numbers below compare household income level of 2016 (in blue) and 2014 (in orange). The mean household income of M40 has increased RM840 from RM5662 to RM6502  in two years time.

But, please don't forget that inflation has caused the cost of living to increase throughout the years as well. 

So, our quality of life might not change much even though our income increase, as we also spend more at the same time.

If your household income is RM13,000, you are at the median level of the top 20% which means only 10% of Malaysian households earn more than your household.

Then you must be rich. If not you, who are those people who stay in million dollar houses and drive Mercedes, BMW, Lexus and other luxury cars? 

Is RM13,000 a month really considered "rich"? Well, I'll discuss this later.

Which group are you in, B40, M40 or T20? 

Tuesday 26 May 2020

Are You A Contrarian or Trend Investor?

"Be greedy when others are fearful, be fearful when others are greedy"

This is a famous quote by Warren Buffet. He can't be wrong, right?

Mr Fong SiLing (Cold Eye), apparently, also adopted this strategy. He mentioned again and again in his articles that the best way to profit from stock market investing is to practice contrarian investing (反向投资)

Based on his 40 years of experience and success, he can't be wrong as well.

Contrarian Investing: Going Against The Grain • Novel Investor

Recently he openly wrote that it is a good time to collect oil & gas stocks now. Oil price is at rock bottom, and so are many O&G stock prices. Everyone seems to be pessimistic about O&G now.

We know that eventually oil price will recover. O&G stocks price will recover as well, if they can survive the storm.

How long will it take for crude oil price to recover then? Can it be within 1 year, or 2-3 years? No one knows. 

Brent crude oil price has been in the downtrend since falling from above USD100 per barrel in mid 2014. It rebounded in 2016 from USD30 to reach USD80 in 2018. Then it fell below USD30 this year.

We know that it will go back to above USD60 per barrel again. It's just a matter of time.

By collecting good O&G stocks, you know that you are almost sure win, and may win big. However, how long are you willing to wait?

Are you willing to wait for 2-3 years? 

Some investors have no problem with that, and surely some do not have the patience.

       Armada: Downtrend for 6 years and counting

Besides O&G sector, there are other sectors which are also languishing in bear zone such as plantation, property, logistics etc.

Is it the time to collect stocks in those sectors as well? Now everyone is "fearful" in them, should we act now?

Stock market investing is like predicting the future earning of a company. For me, if you think that the recovery is close, then may be it's time to buy.

How close is "close"? Everyone has their own definition for that.

Property sector was hot in the early 2010s. New development projects were like mushrooms after rain and all were fully taken up. Property price went up like hell. A lot of non-property players diversified to join this property boom.

As a result, many property stocks at that time double or triple in price. 

The turning point was around 2015, when there was an oversupply of properties in the market, and the property price were unaffordable to many.

From that point of time, property sales dropped, company's profit dropped and the share price inevitably followed.

MKH: Property & Plantation
       MKH: Property + Plantation Play

Up to today, I still don't see any recovery hope for property stocks in the next 12 months. Covid-19 just makes the situation worse.

Nevertheless, after Covid-19's concern is over, would it be the time for property sector to turnaround amid low interest environment? 

I don't know when will this happen but my point is, buying property stocks in year 2016, 2017, 2018 or 2019 when most people were "fearful" in property sector is a contrarian move, but is it a good move?

I have a few property stocks before, and I have sold all of them except Matrix which I decided to keep.

The reason is simple, I foresee Matrix can continue to break new high in sales and profits even though the overall property market is going down hill.

To me Matrix is a well-managed company. It makes good sales, its unbilled sales go up and it gives good dividends too.

True enough, Matrix's sales and net profit increase year after year since listing in 2013. However, its share price has been quite stagnant in the last 4-5 years before Covid-19 dragged it down in Mac20.

It didn't drop like other property stocks though, but it didn't go up. So, its PE ratio is getting lower and lower at around 6x.

The reason is, Matrix is not in the positive "trend".

This brings us to "Trend Investing".

From my observation, trend investing is a good way to earn money in stock market, especially if you can identify the trend earlier than most people do.

So it means that doing homework does matter, not like rushing in when everyone already did so.

Currently it is the trend of gloves and PPE related stocks. If you are smart and alert, you might have bought and accumulated gloves stocks in Jan/Feb this year when Covid-19 started to spread globally, even though the jump in stock price only occurred in April.

Up to today I still haven't got any shares of glove stocks, mainly because I was slow to react, and most of the good glove stocks are "expensive" to me.

If you buy early in the trend, you just ride on it and make handsome profit. However, if you buy near the end of the trend, you might end up losing money.

The trend can last for few months to few years.

Last time the property trend lasted about 3 years from 2012-2015. If I'm not wrong, plantation stocks were also hotly debated at that time.

After that in 2014, the tremendous weakening of Ringgit against USD from RM3.20 to RM4.40 kick started the uptrend of export-orientated stocks.

Furniture, injection moulding, semiconductor and other export stocks were having a real good time.

       POHUAT: Furniture export stock 

This trend also lasted around 3 years until 2017 when MYR strengthened to below RM4.00. 

Last year there seems to be a brief box-packaging trend. Combination of several favourable conditions such as higher demand, lower raw material cost and promotion by some investors and analysts might have initiated and sustained the trend.

This trend lasted for about a year before being cut short by Covid-19.

How about the trend of technology stocks? Smartphones, 5G, IoT, cloud computing, driverless cars etc are the main trend of the world so I feel that it is always in the trend.

Even though we read that semiconductor industry has up and down cycle, or negatively affected by geopolitical issues, I actually don't feel any significant "out-of-trend" issue for the past 10 years.

When a tech company goes down hill, there will be another tech company on the up at the same time.

The important thing is to make sure that the tech company is always at the latest trend of technology. If not, it will be eliminated sooner or later.

       INARI: Uptrend from 2013 until 2018

Contrarian and trend investing seem to be two different kinds of investment strategies. Both can make money and lose money as well.

If you buy too early in contrarian investing, you lose time, and time is money.

If you buy too late in trend investing, you can be trapped and lose money.

No matter which kind of investors you are, it's all about the timing.

Those successful investors excel in the in & out timing, either using fundamental, technical, trend, contrarian or whatever methods.

We know that life is extremely tough for Airasia & GENM now. We also know that both of them will recover. 

Are you greedy now when others are fearful?

Friday 15 May 2020

Notion: Face Mask & Polypropylene Fabric Biz

Notion's 2:1 bonus issue just got ex-ed yesterday. With previous day's closing price of RM1.16, its opening price yesterday should be 77sen. It ended the day at 83.5sen (up 8.4%) even though its day high was 91.5sen.

After falling to 40sen in Mac20, Notion has miraculously crawled back to its pre-Covid price range of around RM1.20.

Recently we could see lots of so-called "Covid-19 related" stocks rocketed into the sky. The party is even joined by a hospital beds provider.

Is Notion one of those stocks?

Not long ago, Notion's chairman mentioned that the company is venturing into face mask production business.

This leaves lots of question marks to investors. What kind of face mask? What is the scale of the production? When will it start? How much sales does it expect?

Yesterday, Notion finally published the detail of its face mask business on its website.

According to the presentation, Notion will produce 3-ply & 4-ply face masks, and also polypropylene melt blown fabric used to produce face mask.

It has invested in 3 lines which can produce a maximum of 8 million of 3-ply face masks per month. This is expected to start operation in June.

It will also add one line to produce 4 million pieces of 4-ply face masks per month in August.

For the polypropylene melt blown fabric (PPMB), it has invested 2 machines which are able to produce 20 tons per month starting from June, and another 2 machines which are able to produce 25 tons per month from August.

So, Notion can produce 45 tons of PPMB from August, but the chairman said that Notion has orders of more than 100 tons per month from ready buyers in China!

As a result, Notion will develop its own PPMB machines in 3 months to produce another 100 tons per month.

The estimated sales of face masks (12mil/mth capacity) and PPMB (45 tons/mth capacity) are expected to be RM11.2mil and RM6.3mil respectively, per month at full capacity.

If this is true, it will potentially contribute RM17.5mil sales per month, or RM210mil per year! This does not even fulfill China's order of more than 100 tons PPMB per month.

Notion's FY19 (ended Sep19) total revenue was RM238mil. So this face mask business will almost double its previous revenue derived from HDD, camera, auto parts etc...

Gross margin is targeted to be 30-50%.

When it announced its FY20Q1 result in Feb20 before the Covid-19 fear, Notion gave a target sales of RM320mil for FY2020, mainly helped by the new EMS & aluminium extrusion business.

It's not easy to predict Notion's EPS since its recent quarterly financial results are affected by insurance claims and one-off items.

However, Notion's chairman did mention that its operating after tax profit for FY20Q1 was RM5.2mil from a revenue of RM70mil.

It will release its FY20Q2 (Jan-Mac20) result soon in early June. Of course its net profit will be much lower than the preceding quarter of RM14.2mil. 

Personally I hope its FY20Q2 net profit can be around RM5mil, which means an EPS of 1sen based on 504mil shares after bonus issue.

This figure is just a guess. If Q2 goes into red, I won't be surprise.

FY20Q3 is widely expected to be loss-making. Besides factory shut down, its existing business might be affected by cancelled or reduced orders from customers.

As the worldwide economy is gloomy in the near term, we are not sure how Notion's second half of calendar year 2020 will look like, but the venture into face masks business might come in time to keep the company busy and moving.

It does not need to rent a place as it just moved to its new and larger plant. It might not even need to hire more workers. 

Nevertheless, it might still suffer initial start up loss, who knows?

The demand for face masks is high now, but we don't expect this to last forever.

When the demand wanes, at least it has kept Notion afloat during the crisis, ONLY IF everything the management plans goes well.

Thursday 7 May 2020

My Portfolio April20

Summary For April 2020

Numbers of stocks 11
Share Sold None
Share Bought None

Overall 2020
Portfolio Return Apr20 20.40%
KLCI Return Apr20 4.21%
Portfolio Return YTD20 -6.55%
KLCI Return YTD20 -11.40%

Portfolio @ End of Apr20

Stocks Avg Mac20 Apr20 Div20 Apr20% Overall%
BJAUTO 1.92 1.13 1.36 2.75 20.3 -29.2
DAYA 0.035 0.005 0.005
0.0 -85.7
DKSH 2.500 1.970 2.350
19.3 -6.0
GESHEN 0.430 0.360 0.375
4.2 -12.8
HIBISCUS 1.050 0.340 0.490
44.1 -53.3
KRONO 0.76 0.430 0.590
37.2 -22.4
LEONFB 0.505 0.300 0.320
6.7 -36.6
MATRIX 1.42 1.57 1.68 6.00 7.0 18.3
NOTION 0.40 0.660 1.090
65.2 172.5
PRLEXUS 1.15 0.470 0.510
8.5 -55.6
SCIENTEX 2.735 7.54 8.30
10.1 203.5

There is no buy or sell transaction for me in April 2020. Apparently I have missed the opportunity to make a huge quick gain during the first phase of stock market sell down.

The consolation is, I have not sold all my shares and those remaining stocks make good gain in April consistent with the broad market.

Anyway, year-to-date my portfolio still loses 6.6%.

Some investors might have enjoyed their best moment in stock market investment, and some might have suffered their worst nightmare.

For me, I am just average I guess.

During this period of time, some say that we should buy and some say that we shouldn't. Well, if you have made a decision and regret it, just keep the experience and move on.

There are a few of my "ex-stocks" which have recovered so well and breaks my glasses.

Adventa, now at 90.5sen, has surged well past my previous selling price. I thought I was lucky to offload it when it has once fallen below 30sen...

Frontken is also a star performer and it is now very close to my selling price.

Notion has decided the ex-date of its bonus issue, which falls on 14 May. That's part of the reason its share price has gained so much recently.

During this MCO period, some people don't need to work and still get fully paid. Some are "not-welcomed" to work and get nothing. I still work but getting paid less.

Most companies face cash flow issue. Now the MCO has been slowly lifted and companies can at least take a breather, even though sales are likely to be bad initially.

If there is a third wave of infection like Singapore, then it will be a real disaster.

So, everything seems to get better. If you have missed the earlier chance, is this the time to buy shares now?

A lot of companies will announce their quarterly financial report this month. Of course most investors will be ready for bad results this time. Will there still be a huge gap-down in share price when a company announce a horrible result?

If there is, then it might be a good time to buy.