Tuesday, December 13, 2016

How should one trade 2017

I looked back at what I have mentioned for 2016. I was not too far off except that towards the end of the year Ringgit dropped to 4.4 against USD. The drop actually happened from mid November onwards as the most part of the year, it was hovering around 4.10. Export stocks dropped as in Top Glove, Hartalega as well as companies such as Globetronics. Hence, those that have been buying those counters are experiencing a bad year.

What do I see for 2017 then? For the next one year, I expect our economic growth to go below 4%. While it does not seem very good, it is not all that bad. Our economy cannot afford to overheat, hence growth of close to 4% is good enough for now. For past many years, our lending institutions including the banks and such like BSN, Bank Rakyat and other lending agencies have been pushing for consumption growth. At least once a week, there would be those who would called me for personal loans. This shows how much push the banks are still towards personal loans. Our private debt to GDP has grown to more than 90%, one of the highest in the region.

2017 may be an election year but our own pump priming is running out of steam mainly because the government is fearing of if it pushes too hard, we may break as our own consumption driven economy has been running out of steam for more than a year now. Hence, anything that is discretionary i.e. houses, automotive would be bad for next year. This does not mean however one should not touch some of these companies as the pessimism has already sunk in since last year.

The good part in Malaysia is that unemployment is still low although I do expect them to get worse. Inflation is still in check and in that respect interest rates are also low.

How about investment?

I am an optimist. How and why as I have been painting the gloomier outlook for the country for 2017? The country (people) probably have been gloomier than me for 2 years now. Foreign funds have not been positive on our stocks.
I have written about our KLCI stocks, few months ago. True enough, if one is to follow the Top 30 index, it would look bad as personally, I do not know which company to put my money into. There are some due to poor long term fundamentals such as telco and oil & gas stocks while some others are due to the state of the economy. Also, these stocks are probably fully invested by our own funds hence they are probably pushed to be overprice (for a while now), with the fundamentals are without much potential for growth. (so, be careful if you are dependent on EPF to bring you your 6% return - the more I think the more I do not think it is possible)

What do I look at

The bad part is very large stocks are not interesting at all. The smaller ones which is better for retailers is not that bad actually. I am looking at a handful of stocks and some of them have become even more attractive since I have looked at them. Who are they?

Airasia

It is a transport cum travel stock which is very much related to the height of people's engagement with travel be it for business or leisure. The beauty about Airasia is that it is in Asia Pacific, being one of the largest airline growth area - it is the largest low costs airline in Asia and low costs carrier business is flying high. If Singapore Airlines (SIA) is thinking budget, what more an incumbent. Airasia is not very far off from SIA and have a better structure than SIA or any other airlines. SIA is strong in Singapore but Airasia can be stronger in Malaysia, Thailand and many other countries it is operating in. It does not have the problem of being a national carrier.

Of course, many would fear the competition but basically budget is the new normal and Airasia is in the lead. I do expect airspace to open up - and it is even better for Airasia. One year ago, when so much pessimism on the stock was happening - it went to 78 sen i.e. market cap of below RM3 billion. Now it is trading at RM2.51 or market cap of RM8.5 billion (inclusive of the new shares to be issued to Tune Live), is it expensive? Definitely not. I definitely wish I could have bought more at RM1.20, but I bought enough then.

Even today, I am looking at buying the stock as its fundamental is continuing to improve and if the sale of its leasing arm transpire, investors will be able to clearly see its value as its balance sheet will be very different.

Ekovest

I did not catch the stock at RM1.00 traded about a year ago but fundamentally it is still worth more than where it is trading now (RM2.35). Why am I interested? Several factors. It is defensive, hence if economy goes south, it will not be so badly affected as compared to many other types of companies, and it is not expensive - in fact still undervalued. I have mentioned of its value for DUKE 1 and 2. In fact, if economy severely slows, defensive stock typically can be the ones that are sought after.

Another reason is that the founders cum controlling shareholders seem to be willing to expose and create value for the shareholders. Of course they own a large chunk of the shares, but not all the time shareholders are willing to do the right thing - i.e. declare a decent 25sen dividend from an exercise (in this case when they sold 40% of DUKE highway to EPF).

Due to the several projects that the owners are involved in, I believe it is a period where it will want to create value and exposure for its holdings. Additionally, I have studied road infrastructure stocks such as PLUS, WCE, LITRAK etc. Some are good, some are not worth it - such as Silk.

For Ekovest, it is bringing value earlier than another one of my favorite stocks i.e. WCE. Hence if I am willing to hold for WCE, I am glad that one which is already bringing cashflow is now in my horizon.

WCE

I guess I am the only one talking a lot about WCE and still losing money over this one stock. You may not like it if I am to say I do not mind losing money for another 2 - 3 years so that I can accumulate more over the period. I have been thinking, even if it is RM2.00 by next year, I will not sell, although it makes me feel good. Hence, might as well let it be 90 sen.

At RM0.90 it is below RM1 billion and looking at a project that is 50 + 10 years (the additional 10 years is if it does not achieve a certain IRR) and a tolled highway that is second longest and situated in the west - I have much positivity over this project.

It may not be a brownfield project but it is managed by a good team of managers.  Only thing, is if you are looking to make money next year, I doubt it. But if you are not looking to put your money that earns less than 5% elsewhere, this is for consideration. That's all I can tell now.

TA

This is one counter which is defensive, even if I say it, no one seems to believe. I traded it at a high price but I guess (just to console myself), it is ok if the amount is small. It is now at 45 sen. It has been bad due to poor financial performance last year mainly from weak Ringgit, weak stock market, hotels have been closed for renovation and what many did not really notice is pure accounting reasons. End of this year, it is changing even if our Ringgit is weakening further.

I am not putting very detail information here but for TA, does enough people know it is the other way round? It owns many assets overseas (and debt as well which are naturally hedged) and if RM drops it is in fact better for TA and TA Global especially. It is a naturally hedged stock against poor RM sentiment. Just that accounting wise, it will not show and in fact it will show bad numbers with accounting losses. How? Accounting playing mind tricks again, as it is forced to declare accounting losses for its foreign currency denominated loans while nothing is done for its assets held overseas.

Since Trump won the election, Tony Tiah has been buying almost daily and there does not seem to be anything fishy from his purchase - just pure fundamentals as TA also owns some stocks and bonds in US as well. I do not treat TA as a long term 10 years hold as it is not as dynamic as some of the companies out there but it is certainly very sweet in terms of being defensive and great value.

Tune Protect

If I mention this stock, the Tony Fernandes sceptic would say I like another of its stock. (Well, I do not quite like AAX actually) I however did mention that this company will have better cashflow as well as less volatility as against Airasia. If Airasia (and AAX) sells more seats, Tune Protect will sell more insurance due to the nature of its exclusive arrangement with Airasia. Airasia, as we know will sell more seats especially over the next few years when the group is busily ramping up its number of planes. It is also changing from 180 seat plane to 186 seater.

In fact, if Airasia goes aggressive (in pricing) or any of its competitors go aggressive (such as MAS in 2012 to 2014), Tune Protect is the one within the group to hold (or buy).

I also like it because of the democratization of the insurance industry and it is the right time for that to happen with advent of e-commerce. I am betting Tune group to be one of the more aggressive group (due to also lack of legacy issues) to jump on it. Typically, if the insurance business are kept simple especially on the product side, this company will do well.

Happy Investing.

8 comments:

chan vei said...

if i may ask ur opinion on TROP please?

felicity said...

I think there will be low risk with Trop. It is now going into township development, very much so like Ecoworld. Its assets are worth a lot (relative to its price), and the group is just waiting for turnaround. You will notice that township development has one major challenge. Lots of money to throw upfront and reap them back in the later years as compared to single development. This is because of the costs to do landscaping etc are huge.

I like Trop as it has changed its strategy into building its brand while the price is still very low.

AdCool said...

Disagree on TA as the owners reputation has been affected adversely by his insider trading charges back then. Hence, the counter may not be able to attract external fund to own the shares. And the current performance is not helping either.

The company failed to create values for the shareholders (both dividend and share price) and even with much better reported profit, the counter just wont move. In my personal opinion, this counter needs to fix its branding, reputation and confidence more for now. Tony Tiah and his wife may need to resign from their positions from the group and allow new management to take over in order to boost better confidence for the investors.

felicity said...

Hear you, AdCool, but don't you think the charges were also politically motivated? I can see that foreign funds are not keen, to me it does not matter that much as FF does not put money into most of the smaller companies anyway.

AdCool said...

If there is no FF and no Government control funds to invest in the counter, it's gonna be tough for the share price to move up even if it makes profit. In comparison with AirAsia, the appreciation of the share price are mainly boost by FF and also the confidence in Tony Fernandez selling and story telling about AirAsia. TA lacks these two factors.

felicity said...

I sometimes would like to take a contrarian opinion. If it is already invested by foreign funds and local funds like EPF, then the run up is tougher.

TA has a dividend policy i.e. 30% to 40% of operating profits if not mistaken. What is important is whether it has positive growth factor and would the controlling shareholders share the proceeds with minority shareholders. And of course it has to be at a good valuation.

Perhaps I am different. This is more Graham approach though.

starleague said...

No DKSH ? Recall that you had written a fair amount on it previously. Keep up the blogging / have enjoyed reading so far

starleague said...

-