My Portfolio Jul24

Summary of July 2024

 

Portfolio @ End of Jul24

July 2024 was a bad month as my portfolio shrank by 5%, even though KLCI advanced 2.2%.

I think most of the small & mid cap stocks do not perform well despite the bullish KLCI.

August is even worse and it almost wiped out my paper gain this year!

I didn't make any sell transaction in June and July. The timing of selling seems to be my weakness as always. 

I didn't sell EUPE, Fajar & LEESK when they were riding high, and didn't sell enough shares of TAS either.

I don't know whether they will ever revisit their previous high...

To make things worse, I just added Hiaptek into my portfolio in the wrong timing.

It seems like a bad move as its share price dropped non-stop immediately after that.

The consolation is that I only bought my first batch in July thus it is not a lot of shares.

The reason I invested in Hiaptek was because of the massive capacity expansion of its 27.3%-owned JV Eastern Steel Sdn Bhd (ESSB) from 0.7mil MT to 2.7mil MT.

ESSB started steel production in Kemamam, Terengganu in 2015 but was quickly shut down after 10 months due to tough market conditions.

It was revived in 2018 when Jianlong Group from China became its new partner by acquiring a 60% stake in ESSB.

Jianlong Group is ranked world no.8 in steel production. It later raised its stake to 68.8% in 2021 and ESSB embarked on a capacity expansion phase since then.

ESSB currently produces steel slabs & billets. In FY23, 29% of them were sold locally while 71% were exported to countries shown below.

ESSB is the sole producer of steel slabs (flat products) in Malaysia. Steel slab is the core ingredient in the manufacture of steel plates, hot rolled coils (HRC) and cold rolled coils (CRC).

Mycron Steel, CSC Steel & YKGI produce flat products other than steel slabs & HRC in Malaysia.

Long products (billets, bars, rebars, beams, wire rods) are used mainly in construction. They are also produced by Masteel, Ann Joo, Southern Steel & Alliance Steel.

The new blast furnace plant of ESSB has commenced operation in early Oct23. Will this 4x increase in capacity translate into 4x increase in its bottom line?

Of course it's not that simple, as volatile steel price, forex, interest rate, supply & demand status etc will directly affect its profitability.

Steel price has been trending down since the start of the year. Strengthening of MYR against USD & SGD does not seem to favour Hiaptek too.

Anyway, greater economies of scale, recent addition of a 50MW power plant and a 700,000 MT coke oven plant are expected to offer cost savings to ESSB.

In its FY23 ended in Jul23, the JV in ESSB contributed RM44.5mil to Hiaptek's bottom line. 

In both FY24Q2 & FY24Q3 (Nov23-Apr24) when the new 2.0 MT capacity started to kick in, ESSB contributed RM8.4mil & RM37.7mil to Hiaptek respectively.

According to the latest quarter report, ESSB has successfully utilized 90% of the new 2 mil MT capacity.

This means that the demand is there, perhaps the soft steel price is prohibiting it from achieving further height.

On its prospect in FY24Q3 quarter report, the management anticipates "significant revenue growth" and notable cost savings, and expect "substantial contributions" and positive outcomes from ESSB in the "coming quarters".

Frankly speaking, the statement above is the main reason I bought my first batch of Hiaptek shares even though the steel price is weakening. 

Initially I wish to wait for its FY24Q4 result to decide on my next move but I have bought the second batch during the drastic drop in share price in early August.

ESSB is currently working on its HRC project to become the only producer of HRC in Malaysia since previous sole HRC producer Megasteel ceased operation in 2016.

Malaysia's demand for HRC was 2.0mil tonnes in 2022 and ESSB will produce 2.7mil tonnes a year. It is expected to be up and running by the end of 2024.

HRC is widely used in downstream products such as CRC, galvanized & pre-painted steel coils, welded steel pipes & tubes for various industries.

Previous sole HRC producer Megasteel went bust. It is interesting to see how Hiaptek will fare in this new venture with its China partner.

Anyway, all these expansion move by ESSB and Hiaptek are not new. The news have already started circulating since about 2 years ago.

It's hard to explain why I didn't have interest in it before and only invest in it now. It seems too late but hopefully it can still yield positive return in the next 1-2 years.

EUPE recorded an increasing FY25Q1 revenue of RM112mil, with PATAMI of RM9.4mil (EPS 6.59sen).

This result is not too bad actually, just that the preceding quarter FY24Q4 result was too good (PATAMI of RM14.5mil, EPS 11.2sen), with some cost savings recognized upon completion of projects in Northern region.

Its share price has dropped from RM1.50 to below RM1.30 about one to two weeks before the result announcement. Most investors could guess a "lackluster" upcoming quarter result.

I think the launch of its 2 upcoming big projects with GDV > RM1.5bil (Circadia Belfield & Edgewater) is key for EUPE's financial and share price performance. 

In its latest FY24 annual report released in Jun24, it mentioned that it plans to launch Edgewater "by the end of this year" and it will have 5 major projects on stream (including Circadia Belfield) by next year.

Anyway, in its recent AGM on 22 Aug24, it was reported that both projects will be launched in 2025.

EUPE's latest unbilled sales stand at more than RM710mil, still more than 2x above its FY24 total revenue of RM340mil. 

Its latest land in Bangsar is estimated to have RM300mil in GDV, and only will be launched in year 2026.

EUPE highlighted such statement in its FY24 annual report: "Next year, we expect to see our financial results exceed the record levels we achieved prior to the disruptions associated with COVID."

Its record level PATAMI was RM42mil from revenue of RM304mil in its FY21 ended on Feb21. Its financial performance was adversely affected by Covid in FY22 & FY23.

If it can match this RM42mil PATAMI in FY25, with 147mil shares, EPS will be 28.6sen.

TAS registered an unexpected loss of RM0.9mil in its FY24Q4, resulting in a gap down of its share price the following day.

The quarter report just mentioned "fewer vessels delivered" but I heard that there were delay in delivery of 5 vessels due to Raya celebration in Indonesia.

Two of the backlog has been delivered in July and the remaining three should be delivered in August, together with few others "normal delivery".

Thus I guess it might deliver at least 5 vessels in FY25Q1 and it should post a decent profit next quarter if it is true.

Rhonema's FY24Q2 result was not that great. Even though revenue increased to record high of RM56.4mil, its PATAMI dropped QoQ from RM3.2mil to RM2.7mil (EPS 1.23sen).

Its animal health products & equipment segment has been growing well but overall profit was dragged down by the loss in food ingredient segment. 

TMCLife's FY24Q4 result came in as a bad surprise too.

Its net profit plunged to RM1mil (EPS 0.06) which is almost its lowest ever recorded.

The reasons stated were reduced patient volume & case intensity, termination of certain customers contracts and discounts given to customers.

This quarter coincides with fasting month and Hari Raya in April. I think this will more or less reduce its patient load but its financial result was very good in the same period last year.

Nevertheless, it proposed a final + special dividends of 2.2sen giving it a dividend yield of 3.7% at share price of 59sen.

I think TMCLife should be able to do well in long term, so I'm prepared to average down if there is a chance.

MI's FY24Q2's result was magnificent, with record high quarter revenue (RM127.2mil) and PATAMI (RM27.6mil, EPS 3.09sen).

Furthermore, it was achieved without significant one-off gain especially the forex gain which beautified its profit in previous quarters.

Nevertheless, just like the previous quarter, the management of MI decided to portray some negative sentiment in its prospect.

A lot of insiders who have the "privilege" to buy its shares just before the result announcement was caught off-guard.

"The management foresee that the PAT in 2H2024 will be much lower than 1H2024.... current walking on eggs situation of the international operations...". These "poisonous" words definitely kill its share price.

Last quarter the "wishful thinking" doesn't seem to affect investors good mood but this time it definitely has.

Is this "honesty" a good for stock investors? Or has it been overly pessimistic?

To me who hold its shares, I don't like such comment but those who wish to buy its shares at lower price will welcome it.

Anyway, I think I have never seen such "special" comment on prospect in Malaysia's stock market.

The MYR has strengthened significantly against USD & SGD recently. All export orientated stocks will experience a significant forex loss in their CYQ3 or Q4 results.

I think most of the stocks in my portfolio will be affected negatively besides EUPE, Fajar, Rhonema & TMCLife.

Shall I look more into those import-orientated stocks now?

Anyway, the extraordinary forex gain or loss will not last for long.