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I have a list of stocks to kick out from my portfolio in Feb20. I decided to know their latest quarterly financial results first.
For some stocks, I hope to see better results so that I'll be able to dispose at higher price.
For some stocks, if the financial result does not "perform" up to expectation then I will sell.
In the end, only DKSH & Matrix posted good results. While Hibiscus & Notion didn't look too bad, the others were not quite up to expectation.
Amid the height of political turmoil & Covid19 fear, almost all stocks in my portfolio dropped as a result just like the companies are going bankrupt soon.
So I finally cleared a few stocks, but not in the way that I wanted to.
Those 4 stocks I cut in February (Frontken, PPHB, Latitude & Inari) were actually winning stocks, just that I earn less after the price dropped.
Frontken is one of the stock I wish to sell. The reason is I feel it is fully valued and has limited room to grow especially during this hard time. I was hoping for good FY19Q4 result so that I can sell at higher price. However, market didn't like the result although it's not too bad.
For PPHB, I was thinking to keep for few more days or weeks if the FY19Q4 results beat the previous quarter, and sell if it's not that good. So, it's obviously a sell for me but I didn't expect the share price to fall that much.
Inari & Latitude are a must sell to me, after holding them for so many years. Finally I manage to sell all, albeit at lower share price than initially hoped for.
For loss-making stocks such as Prolexus, LeonFB, Hibiscus & Krono, may be I should sell early but at current level, I feel that it's just too low for me to sell as I still have some faith in them.
Matrix, BAuto & DKSH have rather good dividend yield and the latter might still have room to grow. So I think they might be good to hold at this moment.
Adventa's latest result was not bad if there was no one-off items. Its hospital supply business is picking up though home dialysis business does not seem to make good progress.
Notion's operating PAT of RM5.2mil was not bad as well and I think I better hold until the bonus issue expected in April.
Scientex is the stock that I initially think I might hold for life, but now I guess no stocks are immune to be sold.
I bought Geshen in anticipation of a turnaround in its business and earning, but it might need more time if it's affected by the virus.
Now we're going into the second week of March. Stock market fell further and the virus fear grows globally. I foresee tough months ahead and bad Q1 & Q2 financial results for most companies.
Am I pessimistic about the stock market now? Yes.
However, I'll still sell stocks even if there is no virus or political issue, as I already have a plan in place to trim my portfolio to less than 10 stocks first, with a target of maximum 5 stocks.
I still need to sell but looks like I'm a bit "stuck" now.
Anyway, even with more cash on hands, I'll not simply buy as I feel that current issues might last longer than expected.
"Hyper Growth Phase" is according to its chairman, not me.
For its latest FY20Q1 (Oct19-Dec19), Notion achieved its highest quarterly revenue since 2012 at RM70.3mil with a net profit of RM14.2mil.
In the next 2 trading days after the release of this financial result, its share price fell 20% from RM1.24 to RM0.99.
Those who follow Notion for a while and study its financial report carefully should be aware that for the last 2 quarters & FY2018, its financial results have been "beautified" by insurance claims and one-off item.
So it's not surprise for the share price to fall especially when it coincided with extremely bad market sentiment that day.
Without those special gains, Notion's bottom line should hover around slight profit and loss in the last few quarters.
Nevertheless, investors buy Notion's shares because of its bright-looking future, as explained by its chairman.
888nextQ1 results PAT RM14.2 mil can be broken down into:
1) Insurance BIL claim RM9 mil after tax
2) Operations RM5.2 mil after tax
We still picked up relocation costs in Oct and Nov. The EMS could be better.
Project Nixon (EMS codename) we need 600k pieces of aluminium tubing for vacuum cleaners worth RM4.5 mil sales per month from June 2020 onwards. We need RM6 mil capex to build anodising line and extrusion lines.
Many other projects coming onstreamline in H2.
Project Stingray (Extrusion solutions codename) is a major expansion of the extrusion business from 200 tons per month capacity to 1000 tons capacity and billet furnace for upstream recovery of aluminium leftovers. Mainly for external customers.
We expect RM10 to 12 mil per month sales contribution from Stingray in FY2021.
We are transforming the group into an aluminium total solutions company more than precision machining or fabrication but complete integration in 3 years time.
If you are a short term term investor then you may be missing out on the longer longer term prospects.
But always caveat emptor ie do your own analysis and risk assessment.
Notion is on a hyper growth phase. But the global markets look unsteady so be careful.
From its FY20Q1 report, it shows that current quarter's BIL insurance claim is RM12.2mil before tax. So it looks like actually the claim only contributes RM9mil from RM14.2mil of after tax profit.
I think the RM5.2mil operating net profit is not bad at all at this stage. If it can perform similarly for the whole year, then it can achieve RM20mil PAT for FY2020, or EPS of 6sen. This is supposedly still without all those "new projects" kicking in.
Another encouraging part is the 56% growth in revenue of its EMS segment which is expected to grow much further in the second half (H2)
"As the demand of metal parts for the EMS appliances sector continue to grow rapidly over the next year, it will be the mainstay growth driver for FY2020 and even FY2021. As the group delivers in volume and quality, our EMS customer is supportive of localisation of
parts and conversion of plastics to metal parts and new models development augurs well for this space." - FY20Q1 quarterly report
Conversion of plastic to metal parts sounds interesting.
Anyway, since Notion management mentioned that H2 will be strong, I'll assume that its FY20Q2 result and even FY20Q3 will not be that spectacular. Of course Q2 will be much lower compared to Q1 without the insurance claim, but I don't expect loss unless it is significantly affected by Covid19.
At RM1, Notion's share price is not considered very low at the moment. So readers must study the risk and reward properly before investing in it.
February 2020 should be a forgettable month for most stock market investors.
If you're making loss so far in year 2020, you're definitely not alone. The loss might just be temporary and you might still register positive return at the end of the year.
For me, surely I'm heavily affected. Even without calculation of the return I already knew that year to date I'm making loss.
I have a plan in place since Jan20 to trim my portfolio which has too many stocks. I already have a list of stocks in mind to clear.
However, I decided to wait until the latest quarterly report announcement in Feb20. This has proven to be a bad decision in hindsight.
Escalating concern over Covid19 worldwide, sudden political crisis and last but not least, out of expectation's CY19Q4 financial results all sent the stock price tumbling.
Is it a temporary setback with quick rebound, or will it be the beginning of a prolonged bear market?
Of course no one knows but if you ask me, I think generally year 2020 might not be a good year for stock market.
KLCI has dropped more than 20% from peak of 1,900 in mid 2018. Currently it stands at 1,482.
I'm still not sure to what extent Covid19 will affect the economy in Malaysia & worldwide. Some companies may benefit from it and vice versa. We can only get a glimpse of it in CY20Q1 financial results to be announced in May.
A lot of experts expect the Covid19 fear to subside comes May, as the weather gradually turns hot, just like SARS in 2003.
However, Covid19 seems to be highly contagious and definitely affected more people and countries. Up to today, more than 86,000 Covid19 cases have been reported in 64 countries, and we have countries like South Korea, Iran & Italy which reported exponential rise in cases recently.
In contrast SARS has affected only 29 countries with only 8096 cases reported. Fortunately, the mortality rate of Covid19 is not as high as SARS.
Anyway, we can be 100% sure that Covid19 impact will be over one day, just the matter of when. Two months later, six months later or even one year?
Airlines and tourism industries will no doubt be negatively affected. Those companies who depend a lot on China as customers or suppliers or producers might also feel the heat.
Regarding the political turmoil in Malaysia, it seems to be settled but it might not be in reality. I'm really sick of politics and won't make any comment here.
So far I have trimmed my portfolio a bit last week but not in the way I wanted to. I keep more cash now as planned. I don't know whether I'll regret that later.
I'll remind myself, fear in stock market gives opportunity.
I put it as Stock X as I fear that I might have bought it too early, and it's proven that indeed I am. However, I don't mean that it's time to buy Adventa's shares now.
The first time I bought Adventa's shares was in July 2016, but I have been following it for a few years before I made my move.
Adventa used to be a medical gloves manufacturing company until it sold this business in 2011 to a private company related to its MD Mr Low Chin Guan.
After a brief period in PN17, Adventa kick started its new businesses in healthcare industry in the form of hospital supplies distribution, medical devices sterilization & home dialysis.
I bought Adventa's shares only because of its home dialysis business under its wholly owned subsidiary Lucenxia.
Lucenxia has come out with the APD (Automated Peritoneal Dialysis) machine called "Intellis" under the Malaysia's Economic Tranformation Programme (ETP) launched by the previous government.
If you don't know what is APD, you can refer the the earlier post "About Stock X".
To prove its efficacy, it must run clinical trials first and this is usually a long, painful & money-burning process. After several delays, Intellis was finally launched in January 2016.
Nevertheless, Adventa is not the only one who provides APD in Malaysia. Prior to that, there are already two established international players here: Baxter (US) & Fresenius (Germany).
So, Adventa does not monopolize APD, but it offers "Made in Malaysia" perhaps cheaper option of APD.
For Adventa's business to become successful, I think there are a few criteria that need to be met.
First, it's the efficacy of Intellis. In other words, it must work well! No one will ever use something that is in doubt, especially when it's related to health. If it passed the clinical trials, I assume that it should be OK unless new issues arise later.
Second, it must be priced competitively. Patients will rent the APD machine with service and not buying the whole machine. So the monthly expenses must be cheaper than Baxter & Fresenius, just like Proton cars must be cheaper than Toyota cars then only got people buying Proton.
Generally, CAPD is the cheapest way of doing dialysis. HD & imported APD cost higher. Adventa's local APD ideally should cost in between CAPD & HD.
Unfortunately I don't know the exact cost of Intellis APD at the moment. I read an article earlier from Focus Malaysia and Adventa's MD mentioned about the cost per patient of this Intellis. I can't remember the figure and can't find that article now, but I feel like it's slightly lower than HD cost, perhaps about RM3000 per month.
Third, it's about government support & policy. A significant numbers of dialysis patients are being paid by the government/JPA/Socso. Even if it's supported by NGO, most are also subsidized by the government. If the government approves payment for Intellis users, then it can have a chance to get more patients to choose Intellis.
To get government support, cost & expenses are surely a factor, besides some political connection. If it can save government money, surely it has a chance especially when government has tight budget.
Anyway, APD is still not that popular among Malaysian, with only 13-14% of PD patients are on APD while the rest are on CAPD/DAPD (modified form of CAPD)
To recap, 10% of dialysis patients in Malaysia are on PD, the rest are HD. So APD is 13-14% of those 10%.
In numbers, only 605 patients are on APD in year 2016, out of total 39,711 dialysis patients. That's merely 1.5%. However, we can see that the numbers of APD is increasing yearly without fail since 2007.
After the launch of Lucenxia's Intellis, it might create more awareness and increase the percentage of patients on APD.
Like I mentioned before, most kidney failure patients will be put on HD first before PD, that's why we have 90% of patients on HD.
From online search, I found that Malaysia Ministry of Health actually has adopted "PD first" policy since 2013, which means all kidney failure patients will be prepared for PD first, only if PD is not feasible then only do HD.
"PD First" Policy reported by New Straits Time Malaysia in 2014
Current practice is like "HD first" which is the other way round. This "PD first" policy is never implemented, if it really exist.
If "PD first" is seriously carried out, how much do you think it can benefit Adventa? You guess it.
Hong Kong is one of the region who successfully adopted PD first policy since 1985. As of year 2013, 76% of kidney failure patients in Hong Kong were treated with PD.
Our neighbour Thailand also adopted PD first policy since 2008. It is reported to be successful and their PD users comprise approximately 30% of total dialysis patients in 2015.
Most of the patients on PD are on CAPD which has lower cost, but we can expect APD will also rise because of more awareness of PD.
Percentage of HD & PD in year 2015
Back home in Malaysia, the dormant PD first policy is not easy to execute in my opinion, unless we have a very dedicated health minister to make it happen.
As you can see, dialysis is a big business. We have a lot of private dialysis centers (HD) that are owned by or connected to doctors, nephrologists (kidney specialists) & prominent figures in the society. So it's not that easy to promote PD first.
Adventa might face headwind for its home dialysis business to grow fast at home, but perhaps there is a chance overseas?
It has been a while that Adventa works with Sri Lankan government to introduce its APD there and currently it might be in trial phase. If it can be rolled out successfully, then it will only be good news to Adventa's shareholders.
Photo from Adventa Berhad website
A lot of things happen after I bought Adventa's shares. In Oct 2017, news broke out that Top Glove was going to acquire Aspion, a medical glove manufacturing company previously sold by Adventa.
As Aspion was at that time held by a private company Adventa Capitals Pte Ltd, which has the same name "Adventa" as publicly listed Adventa Berhad, speculators jumped in to push up the share price from 60sen to almost RM1. Then everyone knew it was a mistake and the share price quickly retreated to 60sen.
A year later, Top Glove found out that the acquisition price was overstated by RM640.5mil and filed law suit against Adventa Capitals (not Adventa) and its directors. Again, Adventa's share price took a hit.
This time it was not totally irrelevant because Adventa's MD Mr Low Chin Guan is also a director of Adventa Capitals. So his accounts were frozen and the initial plan to inject fund into Adventa through rights issues and free warrants has to be called off.
Personally I don't like this rights issues as it will significantly dilute the earnings. So its cancellation is a good news to me.
The burning question is, is the MD Mr Low Chin Guan a credible and trusted person to lead Adventa? Hmm.... I really don't know.
In May 2019, Adventa announced its decision to dispose entirely its sterilization business (E-beam) and took a net gain of RM35.2mil. It distributed 7 sen per share of special dividend back to shareholders ex-ed on 14 Jan 2020.
Sterilization business has been the only profitable business of Adventa in recent years, while its healthcare segment (hospital supplies distribution & home dialysis) is loss-making.
Moving forward, we can expect Adventa's bottom line to be in red throughout year 2020. When can it turn profitable will largely depend on its home dialysis business.
Actually I welcome the move to divest its sterilization business, to get the much needed cash to concentrate on healthcare business and pay the debts.
Just weeks ago, because of the Covid-19 outbreak, somebody still thinks that Adventa produces medical gloves and its share price jumped again only to fall back as expected.
The home dialysis business is still in infancy stage, its success will depend on how well Adventa promote it locally and regionally, as well as government policy.
As explained above, I think it is not easy to roll out fast in home soil. So, regional expansion might be the key.
If Adventa receive RM3000 per month from each patient using its Intellis APD machine & service, it will generate RMRM36,000 of revenue in one year per patient.
If there are 100 patients using it, one year revenue will be RM3.6mil. At this stage I'm not sure whether it can break even or not.
If there are 1000 patients using it, revenue per year will reach RM36mil and it should be able to generate profit. I expect the profit margin should not be low if it achieves economy of scale.
One thousand users seem to be a lot, but it's only 1.5% out of 70,000 estimated total dialysis patients in Malaysia in 2020, and we're not even counting contribution from overseas.
APD is cost effective & convenient, and it improves the quality of life of dialysis patients. I can't find a reason why anyone will not consider it as first choice.
The current truth is, patients are not given a proper chance to choose, which is sad. I believe that one day the public awareness will increase and APD will be more commonly used.
Adventa published a very good video (as shown below) on its Intellis APD cycler few years back. I think those whose family members, relatives or friends who are planning for dialysis should take a good look into APD.
