Air Industry turbulence

Air disaster's have a way of changing the lookout of an airline.  From the Edge:

KUALA LUMPUR: Low-cost carrier AirAsia Bhd, whose share price dropped by as much as 12.9% yesterday on news that one of its planes had gone missing on its way to Singapore from Surabaya, Indonesia, may experience some weakness in the near term, said aviation analysts.

As at press time, the Indonesia AirAsia plane had yet to be found, which disappeared after its pilot failed to get permission to fly higher to avoid the bad weather on Sunday. The plane, an Airbus 320-200, was carrying 162 passengers and crew. 

Malaysia hasn't had a very good year in the aviation industry.  A concentration of air disasters in one country has never been seen before in history and is unprecedented.

Will Air Asia be alright?  I think they will be but they will suffer.  It goes without saying that this disaster will thoroughly trash the stock.  For one, Air Asia Indonesia faces two sources of customer drain, the risk adverse which won't fly with an airline that has had disasters and the prospect of a nation angry at them (Indonesia).

It may not even be right, but that's probably what is going to happen.  While Air Asia is dominant in Asia, it is not the only alternative in the low cost carrier industry.  People will jump to other airlines no matter how illogical or petty their grievance is.

The air disaster will do major damage to Air Asia's brand name. The one advantage Air Asia has is its brand name and if that brand is tarred, the chances to do well in the future drop drastically.  Everyone of their competitors are probably chomping at the bit at this moment

FCPO and FKLI technical update

Since the recent bottom near 1700 the market has rebounded quite strongly.  The rebound may have legs as an uptrend seems to be developing, The next major selling spot would be near 1850 by the looks of the charts.  It actually isn't that far away.  

FCPO has rebounded quite nicely and looks to continue its upward trajectory.  If you aren't sure why the market has rebounded, we can look to two things, the market has sold off extremely hard over the last two months, breaking a lot of technical areas and stops.  After all the selling, we are having a little rally.  The rally isn't just due to  short covering but fundamentals.



If you've never seen what a flooded palm oil palm oil plantation, you can look at this.

It's not exactly a little flood.  You need a boat to go harvest the palm oil fruit.  The rains are right now causing massive floods.  There is no way palm oil plantations can get a lot of the crop.

Felda Global Ventures, can things get any worse?

The palm oil industry in Malaysia isn't as free a market as one might think.  For instance.  Many producers have an unusual calmness when it comes to their product.  They think it's as good as money.  They won't bother sourcing for buyers because, there will always be one guy to buy it, Felda.

They know no real hardships because sourcing for buyers and refiners is a pricey endeavour.  In the US, sourcing for buyers in commodities is hard, but rewarding.  It teaches the farmers that no one can be relied on except for themselves and the work they do in not only crop production, but customer relationships.  

Sourcing for buyers is hard work, but a reality of a free market product.  Palm oil is a free market product outside of Malaysia.  In Malaysia, it is not.  Too bad, because efficiencies are lost and job opportunities foregone because of this entitlement attitude.  

Because Felda is a government entitiy, it will not use its infrastructure as leverage in negotiating lower prices from the local producers, which is why conflict of interest exists and why investors should be wary.

From Alliance Bank research:

 Upstream plantations’ 3Q14 PBT grew 32% y-o-y to RM146.4m. This was in line with increases in FFB and CPO output, which expanded by 3% and 13% y-o-y to 1,340k MT and 909k MT, respectively.

However, realised ASP eased y-o-y to RM2,317/MT (vs. RM2,341 in 3Q13). This was however offset by a weak downstream segment, which booked pretax loss of RM117.2m for the quarter (including RM52.0m unrealized loss on commodity contracts in Canada and RM50.7m loss due to negative domestic refining margins)

DRB Hicom

DRB Hicom is one of those stocks which has greatly disappointed.  It has tried for years to turn Proton around, but to no avail.  I think they did not realize the task of titanic proportions it takes to make this company positive.

Some of the hype with its new car may be deserved, but does one car model make a company?  I don't think so.  Proton will need to come out with hit after hit in order for the DRB Hicom to recover.  Even if they do come out with hit after hit, the process takes massive amounts of time and capital.  We're talking about years AFTER the first hit comes out.

For example, assuming the average new model design process takes 2 years, to get 3 hits, we are talking 6 years to get 3 hit models out there.  Most investors would say okay, call me in 6 years and rightly so.

For those of you willing to plough your hard earned money in DRB Hicom, here you go.  The stock has just hit a major support point at RM 1.49.  I think the support is strong, but the stock will fundamentally get wrecked for the next few years.

KLCI and FCPO technical update

The FKLI tested a failed down trend line by a big chunk.  So far it has rebounded quite meaningfully compared to the test, leading me to believe the market has found a temporary bottom.  Overnight markets are also helping.  Such is the life of an FKLI long trader.  It seems everyone is ready to sell overseas markets to the point they've sold too much.  When the US markets do better, the FKLI does better by a big chunk as well.

FCPO is trading in a holiday range.  I don't know what to make of it.  It's not exactly strong or weak, just muddling through.  The whole Russia issue doesn't seem to be going away.  FYI Russia buys a fair amount of palm oil, about 300 thousand tonnes a year.  I imagine palm oil is affected by the threat of capital controls to stem a severely weakened Ruble.

Air Asia Technical Analysis

Air Asia has received a lot of press lately as a company that would have a lot to gain as oil price trades in the 50s.  Personally, I think the stock has a lot going for itself.  The domestic low cost airline is a mature industry with clear and predictable volumes compared to the volatile demand Air Asia X is facing.  If they have an under capacity problem, it shouldn't be that severe and should easily be solved.  Finally, a weakening Ringgit does wonders for the tourist industry and should help contribute to Air Asia's bottom line.

But I do have a caveat.  The airline hardly pays a dividend.  At roughly 1.5% it's not a lot to go on.  So I wouldn't hold my breath on the company.  Airlines are notoriously bad on returns to shareholders.




Technically speaking, two uptrend lines have been violated pretty hard, so there probably will be a lot of resistance.  Maybe I'd prefer a buy lower at RM1.8 a share given the risk profile of this counter.   The price appears to be muddling around at the moment.

Long term FKLI chart and how trend lines work

I remember mentioning in a previous post about a long term trend line near 1700.  Here it is.  This trendline signifies a breakout from the FKLI previous decade high.  As you can see we have gone lower than the trend line. 

Trend lines are usually set by people who have clout in the market.  Sometimes these trades by big players don't pan out and thus the big player has to re-evaluate his position and is praying for the market to come back to his original trend line so he can cut his remaining position at a positive number.

Trend lines are more like guides than hard fast market rules.  Sometimes the market does dip below the trend line, but buyers push the market up to its trend line and beyond.  Hopefully it turns out this way but of course it all depends.  The lower it dips below the trend line, the more of a failure that trend line is.  I would be extremely concerned if the market dipped near 1600.  That point is a lot further than the big player who pushed the market higher would want.

Magnum Technical Analysis

Magnum stock is one I've always liked and personally purchase their products from time to time.  The stock pays consistent dividends.  The company plies its trade in the gaming industry and has reached a market size which enables it to compete with the big boy, Berjaya Sports Toto.  It's latest 4D jackpot is within the 20 million Ringgit prize pool which is a testament to its market strength.

Any time I get a chance to buy a stock like this on a discount, I'll take it any day.  There are only a few things which have always been recession resilient, alcohol, taxes, cigarettes, death industry, and gaming.  Of course most of these industries face the risk of government meddling, but assuming status quo, buy these industries on the cheap.

Gaming tends to also have a problem with over expansion world wide, but in the case of Malaysia I doubt it will ever experience that scenario, given the conservative religious majority.  Restrictions on new entrants and a resilient industry is a winner in my books.  The price of course is the major issue which leads me to some price analysis.

The stock is on an uptrend with a breakout in 2012.  It is now approaching that particular trend line sent at the start of 2012.  For me, a buy below 2.25 would be the best, but I would consider putting in a purchase at the trend line.

KLCI/FKLI and FCPO Technical Analysis

It's been a quiet weekend.  Not much news only that industrial production has expanded which is good, but the market has been bad regardless. 

The FKLI has stopped its downtrend with the rally a few days ago, buyers can take note of a breakout trend line at 1711, as well as a couple of failed trend lines to provide upside fuel.  At the moment the market is trading in line with regional markets which is somewhat good news in that the selling is getting exhausted for now.  Our market tends to follow regional cues when prices are in line with other markets.  Of course if other markets take a nosedive, we will likely follow.



FCPO has stopped its downtrend lower for a few days now.  But it's tough going for CPO at the moment as Friday saw some selling on a day which is usually quiet.  It may be a bad omen that sellers are willing to sell on a day people are supposed to be off.

The country which benefits the most from falling crude oil is....

Lower crude prices does kind of result in lower petrol prices due to the government now moving petrol prices to a managed float.  But the other side of the coin is the weakening currency.

Moving from 80 USD to 70 USD dollar crude oil is a 12.5 percent discount.  The ringgit has also moved from 3.3 to 3.5 which means crude in Ringgit terms is going from 264 to 245 which is a 7.5 percent discount.  So while the nation does benefit in terms of lower cost of petrol to some extend its not as much.

So which country gets the biggest affect in lowest crude oil...ding ding ding.  The USA.  They capture the full effect of a fall in crude oil price which is 12.5 percent.  Business should definitely be good there.

IJM Corp Technical Analysis

IJM is one of those interesting conglomerates who has been outperforming the market as of late.  Wait a minute, a conglomerate that is outperforming the market?  I didn't know there was such a thing!  Jokes aside,  IJM has been doing quite stellar lately.  It could have fooled me as I thought it was a punter type of stock when I looked at it.

A closer look at the stock reveals two trend lines.  Although its history as a company has been volatile, the stock does seem to have found its footing as of late.  Perhaps its fortunes have been related to its property division which is doing quite well compared to others.  It's order book is strong as well for huge infrastructure projects.

I would have liked to see more consolidation in the stock, but sentiment has been incredibly bullish.  I'd fancy a buy lower near RM 4-5 a share.

Ringgit to USD hits 3.50

From the edge daily

The ringgit is leading a retreat among Asia’s emerging-market currencies as oil prices slide and strategists predict Malaysia’s worsening current account will lead to further losses.

BNP Paribas SA, Macquarie Group Ltd., Malayan Banking Bhd. ( Financial Dashboard) and Skandinaviska Enskilda Banken AB are all in the process of cutting ringgit estimates, with the French lender saying Malaysia is set for the first deficit in its broadest measure of trade since 1997

I mentioned earlier in previous posts that the market collapse the last few weeks was due to oil price weakness. Now we see analysts who are late to the party.  The budget deficit was something I mentioned earlier, but the trade deficit is what is really hitting the market.  I'm not sure what Malaysia can do to stem a weakening currency.

The central government could raise rates, which would be detrimental to companies.  On the other hand they could lower rates which would spur capital investment and economic activity which in the long run is good for the currency.  In the short run though the currency would take a hit.  I advocate plan c.  Keep rates where they are.  Let the currency fall where it will.  Keep it simple.  Keep rates normal.

I suspect though that because the country doesn't want to have a trade deficit, the country will raise rates to bring imports in line with exports.

What will be the central bank's next move?  Zeti has received accolades as a central bank chairwoman.  For me, I don't think its deserving, as she largely has done nothing over the last few years.   I would say if she saw this coming, she could have

1) Lowered interest rates when the currency was strong.  Doing so would raise the economic output and build more foreign reserves.

2) With the lower rates already factored in and crude oil thus putting pressure on the currency, she now can raise rates without an extreme effect on the economy, For example starting from a lower base rate of 1.5 percent to a rise of 2 percent would put the economy on decent footing than a 3.5 percent to 4 percent increase in interest rate hike.

KLCI and FCPO tech analysis with some failed trend lines

Lets take a look at FKLI.  If I was a betting man, I'd suggest the FKLI may be due for a short term rally or slow down in price.  We are approaching failed trend line at the bottom.

In FCPO I can't really discern much from the failed trend lines.  but despite the helter skelter trading sessions over the last few days we still are in a downtrend according to daily time frame.  RM 2,190 looks like top side resistance for now.

Don't erase your trend lines, KLCI outlook

I'm beginning to wonder if trendlines are some arbitrary pricing action manipulated by big players.  The reason being that a lot of trendlines that fail to materialize to a downtrend or uptrend are still valid after they've been proven invalid.  That's a mouthful.

A failed trend down in October for palm oil has simply just been flat out wrong.  Nevertheless, all that selling has seemed to be a large position as the seller who started that downtrend swiftly reversed his position at where the downtrend would be just yesterday.

It's as if the seller said...okay guys I know i'm wrong at this time but I've got a backup sellers behind me that should push the market down.  If it gets back to my area, i'm gonna take a load off.

Boy was that load big!

The FKLI pretty much lives and dies by the price of oil.  They simply get tons of money from the commodity and with Malaysia on a spending spree as well as oil at such a low price, the Ringgit is not so hot.



Fret not though, all is not lost!  We still have hope in the last remaining trend line at near 1710.  This breakout was inspired by infinite QE.  Of course the failed trend line at 1790 will be the resistance.  I won't be erasing the failed trendline just yet.

Telekom Malaysia technical analysis

TM is a Tough stock to analyze.  At first, we have the downtrend.  Yes I know the downtrend was sparked by a split from TM to Axiata.  Nevertheless whether there is a corporate exercise or stock splits, The technical levels more or less stay the same.

In my opinion, TM bears some similar characteristics to punter stocks.  On the previous Tropicana post, I describe punter stocks as one that kicks all the way up and all the way down.  More or less since the de-merger of Axiata and TM, the stock has been punted up.  I have no idea whether it will be punted down or not but we shall see.

It's Long term uptrend line has barely been tested and when it has, very rarely has there been consolidation.  So, it fits the defnition of a punter stock.  But since this is one of the great stocks in Malaysia, we'll give it the benefit of the doubt in that it's really in an uptrend, not a huge range.

In that case we will look for purple trend line to be tested hopefully some time in the future.

FCPO and FKLI/KLCI Technical Analysis update

The FKLI  is trying to test the long term trend line at 1790.  The next few months will be crucial.  If the market still breaks significantly lower, the uptrend will need some time to form again.

FCPO has started a new downtrend.  The support at RM2,193 was handily broken.  At the moment, it is not certain just how low FCPO will go, but by all accounts most palm oil producers will have a difficult future.

In a previous post I was speculating perhaps FCPO was forming a breakout by staying above the RM 2,040 mark.  That turned out to be totally wrong.  Instead RM 2,193 gave out like a rusty old car on a rainy morning.  And we are at RM 2,100.

Tropicana City technical Analysis

Tropicana is known for its high end devlopments and has an excellent land bank, reported a nice 24 percent growth in earnings this morning, but when I read earnings increased from 2.12 to 2.2 sen, I wasn't that impressed.  Third quarter always seems like its weakest and overall, this year hasn't been stellar.

So lets look at the charts.

The question is, is this stock in an uptrend?  I would say it is more of a punters stock as a trend isn't clearly defined.  A punter's stock means the stock gets kicked way up and kicked way down.  I don't see many consolidation periods.  Personally I would stay away.

I can't really recommend anything but to buy below RM 0.80 send and sell at RM1.60.

Indonesia to Foreign banks: we be rolling, we be scammin

I believe CIMB was the first to report dismal earnings in the form of its Indonesia operations not performing so well. More will be coming.   From the latest CIMB research report on Maybank:

The operating environment in Indonesia had been challenging since the middle of last year, due to the rise in inflation and tight liquidity, which has exerted pressure on banks’ margins and asset quality. As such, the net profit of Maybank’s unit in Indonesia, Bank Internasional Indonesia (BII), plunged by 69% yoy to RM100m in 9MFY14.

Lets recall the time where buying large stakes in Indonesia banks were all the rage a couple of years ago.  Maybank purchased Bank International Indonesia for 3.8x book value.  Ridiculous price!  Now what has happened since then?  Joko has been elected president, he has cut fuel subsidies and cost of living has increased.  Indonesians *surprised* now find it hard to make payments on their loans.

Indonesia has more or less outsourced its risk in the banking industry while gearing up to settle their in house problems.  Score 1 for Indonesia, foreigners 0.  I'm sure Indonesia will be willing to buy the stuff back at a discount. 

CIMB and Maybank...ouch.

FCPO and FKLI technical update

The FKLI is trying to reach the resistance level at 1855.  The support near 1803 was tested just once two days later at 1810 before jumping up to 1840.  The buying is something of an oddity but looks like people are anticipating healthy economic news.

Ideally we would like to see the market attempt to test that lower level more than just once.  Three times would be much better.  If the market really is breaking up higher and the buying is strong, we should wait for a solid break above 1855 to make a decision.  At this point the market should still be ranged bound.

FCPO is entering the start of a new down trend according to the DTI indicator.  Now lets look at the likelihood of the downtrend starting.

The major point to consider is whether the new downtrend is heading into tough support areas.  The answer is No, the RM 2,250 and below is no man's land and is anyone's game to where the market can go.

The likelihood that a downtrend could be beginning is quite possible. That being said.  If we consider RM 2,104 support point as a test for the breakdown, the market could be consolidating for a break higher with RM 2,193 as the bottom.

At any rate, we should probably see sub RM 2,200 prices at least once more.

6 percent GST

In the next year, the Malaysian government plans to issue GST at 6 percent.  I have several thoughts on this new tax.

It seems that Malaysia is entering some economic difficulty stemming from poor revenues towards the end of the year.  Generally both consumers and companies are cutting back.  I'm actually surprised that this is the case for Malaysian consumption because like many others, I've done a lot of durable goods purchasing over this year in anticipation that if I didn't buy the big ticket items, I would have to pay 6 percent more next year.

We should expect to see economic weakness NEXT YEAR.  Not this year.  Unless the next few months see an explosion of goods purchased, it's almost guaranteed we will hit an economic slowdown next year.  We haven't had the GST implemented and already the economy is having difficulty.

The 6 percent is actually extremely high.  Malaysia should rethink their rate.  Singapore introduced a 4 percent GST their very first year of implementation and only after some years of the tax regime, moved GST to six percent.

Next year will be tough slogging for many Malaysians.  Any income tax reduction from the government to offset GST won't make up for the increased cost of living most will face.  

Air Asia X, whats going on?

From the Edge:

KUALA LUMPUR: AirAsia X Bhd fell as much as 6.7% to emerge among the most actively traded stocks as investors reacted to a report by The Edge Financial Daily on the airlines financial constraints. The Edge Financial Daily, quoting sources, reported yesterday that the long-haul low-cost carrier faced difficulties in paying staff wages.

Describing the unprecedented payment issue as a temporary setback, the management of AirAsia X blamed the payment delay to the late arrival of incoming funds. It was also reported that Tan Sri Tony Fernandes, AirAsia Bhd co-founder and group chief executive officer, was planning to play a more active role in AirAsia X. 

AirAsia X reported some nasty losses.  I see a lot of finger pointing.  But what is really wrong?  Are they pricing wrongly, is their strategy not working?  It seems no one really knows.

I think the problem is really simple.  It actually starts from my own personal experience with the airline.  I flew on AirAsia X to Sydney and back to Kuala Lumpur from Melbourne.  The plane was quite full.  The experience I felt was decent, although the food was the worst I ever had on an airline.  No problem because it's also the cheapest flight I ever took to and from Australia.

The flight attendants are an upgrade over the regular AirAsia flight attendants.  But still not as professional as Singapore airlines.  Their business model is quite solid.

But there is one thing I felt mad about.  one:  the flight I had originally wanted to take was cancelled and I was moved to the following time slot.  The exact same thing happened for the flight back from Australia.  This not only disrupted my schedule, but also my relatives who were dropping me off at the airport.  But, I'm thinking it's usual for airlines to do this as my brother had the same problem with his Cathay Pacific flight to Malaysia.

After seeing the AirAsiaX losses, I didn't think the cancelled flight was a usual occurrence.  It's apparent that AirAsiaX had expanded too fast and too aggressively, adding capacity even though the demand was not yet there, hence the cancelled flights.

I don't have a strong conclusion, but perhaps the flight industry is due for some hard times.  I don't really see a way for AirAsiaX to claw its way out of this mess, especially if they have obligations to purchase new aircraft.  Deferring those obligations will cost a bomb.

POS Malaysia, technical Analysis

POS Malaysia is another government linked company, but has the enviable position of the most low cost provider of package delivery services in Malaysia.  With oil touching new lows, what are we to discern about POS Malaysia?





The postal service would actually stand to benefit from low oil prices in a perfect world.  But will the low oil prices carry through to profits realistically?  The answer is  no.  This is due to subsidized prices of petrol.  In fact, as petrol prices have decreased around the world, Malaysia's petrol price remains high.  Unless there is a price drop, POS Malaysia seems like in no man's land.

For now, the market seems to be trying for an uptrend, but it's not certain yet.  The market in my opinion will likely come back.  It will find it tough slogging at highs set a couple years ago, especially given the severity of resistance.

But, there is a silver lining.  At RM 3.30 the breakout was so good, that would be a great area to buy at.  At RM 3 a share, POS Malaysia would be a great buy.  For breakout traders, another 6 months of trade above the RM 3.30 mark a more confident breakout buy.  At this point, it's too soon to say whether this will continue higher.

Another nugget of wisdom from Kobe Bryant

I've posted earlier about some of the qualities I admire of Kobe Bryant.  Remember, even his coach said he surpassed the all time great Michael Jordan in terms of work ethic.  

Here's another quote that will find you helping out in your job, investment decisions, or whatever you want to achieve.  Not only help out, but help you to Excel at the activity.  

Young was the Lakers' star last season while Bryant was sidelined, at least in terms of braggadocio (talking trash).  He may have met his match in this year's Bryant.

"He playfully does it, but then, I kind of take it to another level," Bryant said. "When you're tired, it's very easy to kind of go through the motions.  Somebody talking to you, you have no choice but to try and perform"

Nick Young is one of LA Lakers brightest stars.  In order to keep performing at the level he wants to Nick to play at, he talks trash to him.  In other words, challenges him buy poking him with a few personal attacks.

Sometimes, the office, work, or investing gets a little dull and boring after some time.  It's easy to just slack off, take a nap, surf the internet, or distract yourself.  How do you keep the team and you performing at a high level?  You or other workmates can challenge each other, have other people motivate you by poking and prodding you when you are tired and unmotivated to step up your commitment.

 This is the power of teamwork.  Your partners in the activity want the activity to be a success, but it's not necessarily partners = buddies.  These partners will have to challenge you even on a personal level in order to keep performance of the group at a high level.  When the going gets rough, you and your partners will know in order to get the necessary performance out of each other, some feelings might be hurt.

Of course, everything in moderation, too over the top criticism can cause permanent damage in relationships.  But rest assured personal attacks at strategic moments can go a long way to make the activity a success.

1MDB: what to do about its Penang land venture

1MDB has a huge amount of property on Penang Island, some 234 acres.  This is roughly 10 million square feet of land.  On paper, it looks like it's worth a lot, but in reality, as long as Penang is in opposition hands, its worth a lot less.  1MDB probably will have to take a write down.

I don't really see any way for them and the state government to come to a conclusion.  To realize top value for this land, the coming election will have to favor BN for penang.   This isn't going to happen for the next 20 years judging by the 90 some percentage for the opposition in the previous election.

FCPO and FKLI/KLCI technical update

Lets take a look at the technical picture for the KLCI.  We have actually entered into a downtrend, but it remains to be seen whether the downtrend will materialize due to the strong support areas the trend is materializing into.  I still imagine the market is ranged at this point. between 1800 and 1850.

The FCPO market is still in a slightly bullish mode, but faces a lot of headwinds as staying above RM 2,250 seems to be difficult.  This was the prior breakout point that failed.  But at this point, there doesn't seem to be any particular direction.

The Nikkei: breakout or fakeout

Much has been made about the Nikkei reaching highs not seen in years.  Japan has expanded its QE program unexpectedly and the Japanese government pension fund has also more than doubled its equity allocation to 25% from 12%.  Is this enough stimulus to push the Nikkei to an uptrend for the next decade?

We can see the Nikkei is above the high of around 16400 set in December of last year.  What is the correct answer?  In this case, the answer is we're not sure yet.  It certainly has the potential.  But we will need multiple attempts to reach 16400 in order to discern if this is a breakout or not.  If the market stays well above 17000, It probably will reach higher levels for the next few years.  I'm guessing we will not know until next year.

In the mean time, sit tight and relax, Nikkei watchers.  

BAT Malaysia technical analysis

I've been talking about BAT Malaysia a few times before.  It should do alright in spite of tax hikes.

Now, lets take a look at the technical picture of BAT Malaysia.  The chart is relatively simple to analyze.  There is one huge consolidation period and a breakout in 2012.  The breakout at RM 52 per share has been tried 3 times since the beginning of the red trend line in 2012.  All three times it has seen ready buyers to come in.

It's on an uptrend for sure.

For me, I'm not sure what strategy the tobacco companies could come up for revenue growth to warrant the uptrend.  Perhaps they may pursue a strategy of bringing in a wide variety of brands just like Carlsberg and Tiger did.  The beer companies have brought in a wide variety of brands:  Asahi, Paulaner, Hoegarden, etc and saw their revenue stream take off.  Tobacco could do the same by bringing in speciality cigar or cigarette producers with unique and interesting tastes.

Of course I don't really smoke, and don't really have knowledge, so I'd have to defer to more expert people on the subject.

FCPO and FKLI/KLCi technical update

The KLCI market is doing average in performance. It hasn't been as strong as US or Japan, but it's not incredibly weak either.  Had it been extremely weak, it probably would not have reached 1850.

I imagine it will retest 1810, the prior breakout point.  Support will be around 1800.  If news is bad, it could break down much lower, but given light economic data at the end of the year, this isn't likely.  If the market manages to stay above 1805, then I think it is bullish and will go higher for a long time, but if we come down past 1800, The market is still anyone's game.  It could go either way.

The FCPO market rebounded near the breakout point, at RM 2,200, but it is not looking so rosy.  A retest of RM 2,300 will be likely.  But we can see the breakout failed to stay above RM 2,250 and fell all the way to RM 2,200 ,which was the point I was watching for continued strength.  I imagine RM 2,300 will be tested once again in the next week or so, then try and reverse to RM 2,250, If it happens to break down below as I foresee it, watchout!

My super long term buy point on CPO will be in the RM 1,600 area, but we need something disastrous for that to happen.

Maybank issues a positive BAT report, remember you heard it here first.

Maybank issued a report on BAT, issuing positive guidance, from The Edge:

As a gauge cigarette prices jumped 18% to 21% when the excise duty was raised by 14% in September 2013 and year-to-date (YTD) industry volumes (to September 2014) have contracted 7%. 

We now assume larger 10% contraction (down 5% previously) in industry volumes for 2015 (down 6% for 2014). 

Our forecasts are unchanged, having already imputed the respective variables. 

Overall, we expect a net positive impact on BAT’s earnings from this recent price hike, for it would mitigate some of the cost pressures amid falling export volumes.

Tax increases are generally positive if the company can raise prices.  If price rises aren't done, then it is a net negative for the company.

Something interesting, BAT did try to hike prices of cigarettes earlier, but were not able to do so.  We could interpret this a few ways, collusion among the top players are poor in Malaysia, and/or BAT doesn't have the power to move prices, or they aren't as efficient as the other producers.

If they were testing the market, it was poorly conceived.  There might be some hard times brewing at the cigarette industry.

Pitfalls of investing in a turnaround, May Bulk Carrier

The background for this post originated from me wanting to write an article about a the turn around possibilities for Malaysian Bulk Carrier.  But I can't be sure about a recommendation after reading more into the industry.

A lot of investors love to catch the bottom of a downturn.  The profits of investing at the bottom and selling at the top is tremendous.  If there was one industry that might be ripe for a turn around, it would be shipping.  But of course, a lot of analysts and funds called it a turn around play and it's been in the garbage for the last few years.

The dry bulk shipping industry seems like it fits the definition of a text book turn around perfectly.  In 2013, the industry has been in the doldrums with the 4th largest bankruptcy in  US history being from a shipper.  In 2014, 2 of the top 10 bankruptcies were in dry bulk shipping.  Investors have been salivating at a turn around like this for quite some time.  In the world of high priced equities, people want to put their money somewhere that is undervalued. 

Here are three major reasons why a turnaround might not be so easy for shipping: 

1.  Turnarounds happen when there is severe under capacity compared to overcapacity.  Over the last few years, the shipping industry has built a lot of capacity.  I'm not sure if all the capacity has been wrung from the system.  Bankruptcy does not automatically mean capacity destruction.  Are companies in the industry scrapping or mothballing their ships?  Seeing how the price of iron has plummeted, it doesn't make sense for ship makers to scrap their ships,  scrap metal prices aren't so hot, so I'm not certain that the industry has wrung the over capacity out. 

If the companies have been mothballing their ships like I suspect, then it would be a rather simple process to bring them to operational status.  Hence probably why shipping rates haven't taken off like a rocket, and thus holding profits in the industry back.  Unfortunately I haven't the time to do the large amount of research required in this area so I'm only speculating.

2.  New technology.  There is none in shipping that so far has made the cost of operations much lower.  Materials still are the same.  Ships aren't that more efficient from a 10 years ago.  Lower costs to shipping will bring new opportunities for profit and revenue growth.  Other markets will now consider using the industry if it means lower shipping rates than before whereas they wouldn't have in the past.

For example, the airline industry is booming because of new planes which are 20 percent more fuel efficient.  This is huge.  Air lines will be able to lower their prices even more and reach a new breed of customer they haven't reached before.  I don't see anything of this sort in shipping.  Nothing revolutionary has happened.

3.  Current economic environment.  The current environment of low interest rates isn't conducive to capacity reduction.  Excess supply of bulk ships can be kept on stand by as interest rates are incredibly low.  Companies and traders have low interest rates supporting them, so they will wait it out as long as they can raise money from loans and investors.

Given some of the major reasons I've listed, I'm inclined to stay away from the shipping industry until scrap metal prices or interest rates make it more reasonable to strip capacity from the system.  But given how there is an abundance of metal, particularly iron, I'm not foreseeing this happening any time soon.

Long term technical outlook for FKLI, and the stock market and updates to FCPO.

The FKLI is one of the more difficult charts to plot trend lines for and interpret, My interpretation is that the uptrend is still in tact, set back in 2011.  But is losing steam especially with the current short term up trend over the last few days  fizziling out.

Given the weakness in oil price, I believe Malaysia might not be as attractive an investment destination as it once was due to the country basing its budget on higher price oil.  With all those dividends from Petronas used to fund the budget federal, There could be a shortfall.

But, the country also gains on subsidy savings, so perhaps it's not so bad.  The weakness in the ringgit tends to lead me to think Malaysia will be hurting more from lower oil prices than subsidy savings though.

If we are to consider the FKLI as an uptrend market, yes, the uptrend is still in tact.  But I actually think that we might hit down towards the 1400-1600 area some time in the future.  We certainly have the catalyst with lower oil prices.  If the market is able to come down, the next test of the trend line near 1780 could be a massive failure.

The trendline at 1770 in October is running at an increasing rate of about 8 points per month for those wanting to predict where the trend line will run in the near future.

Short term Outlook

Palm oil did an about face to the downside, pretty much at the area which i mentioned last week, the July breakdown point.  The resistance zone just took the uptrend and smacked it on its head.  Support is at RM2,220



The FKLI looks to be ending the upward movement after 3-4 red days.  Usually uptrends have just one down day followed by reversals higher.  This uptrend looks dead.  When we zoom in on the micro trends, we have two areas, the lower box and the middle box as possible support points.

1MDB more news

Fresh from The Edge:

KUALA LUMPUR: 1Malaysia Development Bhd (1MDB), which previous financial year’s earnings was boosted by property revaluation gains, slipped into the red with net loss of RM665.36 million for the year ended March 31, 2014. 

The electronic filing does not reveal the factors that have dragged the government’s investment fund into the massive losses of over RM660 million. 

Last year (FY2013), 1MDB would have posted RM1.85 billion losses if not for RM2.7 billion worth of property revaluation gains. Its debt stood at just over RM36 billion as at end-March 2013

Not much to say here.  Probably some of those losses is due to payment to Goldman Sachs.  LOL.

I don't know how 1MDB can really be defended.  I do remember reading Najib saying that this is a professional company with professional managers with track records.  Defending this is like trying to get off a sinking ship.  It now looks like another PKFZ in the making. 

BAT cigarette price hike

BAT is one of those stocks which is time tested and recession proof.  People will still buy cigarettes, and are fairly loyal to their brand.  But at what price?   At first loyalty for the product is fine, but eventually some time down the road people will look for a cheaper alternative.  Brand to brand, BAT has a stable of loyal cigarette consumers.

But how about legal to illegal cigarettes?  The growth of illegal cigarettes is astounding, but I think analysts put too much emphasis on the dire straits of the industry in its war against illicit cigarettes.  Most of the cigarettes are imported from lower tax countries such as Indonesia.  The neighbouring countries will also eventually raise their cigarette tax eventually along with places in Asia.  In fact, almost all the "low" tax regions have raised their taxes in October.

So how about the price hike of RM 1.50 a pack.  This is quite a large hike, but it is rather in line with previous rate hikes.  It's not the largest we've seen.  I expect BAT to actually reap rewards as they raise prices with  higher profit margins.  Lower revenue is a given, but shareholder returns are still viable on margins.

The right investing attitude, just like Kobe Bryant

If you are like me, it doesn't matter what you do, whether it would be sports, starting a business, scientific research, studying, or investing. The right attitude is important.

In terms of work ethics, one of the people I draw inspiration and drive is from Kobe Bryant.  How good is he?  His coach, said his work ethics even went past Michael Jordan, the all time legendary basketball player who has no match.

So, here is the secret sauce:  Phil Jackson quotes:

He pushes himself beyond what's reasonable

That is it!

Of course it there could be more.  But he constantly challenges himself and others around him by doing more than seems reasonable.  At his age, the average NBA player has long since retired and he is the only one still around and performing at an all-star level.

Next time you set yourself a goal, make it reasonable, then go beyond that 150%.  That is how you push yourself to beyond what is reasonable and find success in life.  If the average person does 3 practice exams, you do 5 exams for what you study.

That is what it means to excel at what you do.


Is it repeatable with someone else?  you bet your ass.

Ever heard of Klay Thompson?  neither did I until he got a huge contract extension.  Kobe quoted:

“It was late at night, and I went to the gym and lifted weights. I was in there by myself. I thought I was.”
Kobe on Klay: “I judge a player by that type of stuff.”

I went on to read more about Klay Thompson.  It so happens that Kobe was Klay's Idol when he was growing up and seems to have the same work ethic.  So it is repeatable and time tested.  

Klay recently got a 72 million dollar contract for playing in Golden State and he's only 23.

Palm Oil and KLCI market update

The Palm oil market is in a clear uptrend, but will hit resistance near the breakout point back in July. The trend line break upward had been tested a few weeks ago.  It is likely the resistance point in July will stop the upward trend, so be aware.

Untested breakout points have a high chance of reversing markets.  We can see very clearly , the break out from the downtrend to an uptrend was clearly tested  when the market came down to RM 2,120 a few weeks ago.  So now we have a test of the RM 2,340 area, the break down point set in July.




The KLCI hit its first day in an uptrend, although the move up was less than convincing.  Sellers may decide to take some profits here.
T

Woe is the packaging industry Can One, Bright Packaging.

A couple of stocks, has surprised me when I heard about their sharp increases in stock prices.  One is Can One, another is Bright Packaging.  They are both in the containment of business goods, or packaging.  I give credit to these companies as they have done well and increased revenues and dividends for their share holders.

But here in lies the problem.  For me these companies represent a good story.  The packaging industry is driven by the boom in demand for consumer goods across Asia.  People can easily pickup their product, an aluminium can, candy bar, or glass container,  and say "I'm invested in this, I know their product."

But do they really know it?  Aluminium isn't exactly a product that can only be made in Malaysia, so the lowest cost can be done elsewhere, same with packaging material.  If the profits are this good, it is expected competition will come in shortly.

Is the making of cans really done at the lowest cost in Malaysia?  Maybe, but it's easily replicable.  Kian Joo started off using former staff of Can One.  I also doubt it can't be done for a lower price and neighbouring Vietnam or Thailand.

The final icing on the cake is the ridiculous valuations.  It is a capital intensive business, so low price to Free cash flow multiples are needed.  Six times is good, but trading at 30x free cash flow for this type of business is insane.  Even at the current 16x free cash flow is overvaluing it.

Higher Natural Gas rates benefits Gas Malaysia

The government seems poised to list more companies that will benefit from subsidy rationalization.  Gas Malaysia, a recently listed company looks to capitalize as gas prices rise.  From my understanding, the company doesn't carry any inventory and is just the mode of transportation for the gas.

This is good as they do not bear any commodity risk on the balance sheet.  They also have a monopoly which is another plus factor to this stock.

For me, the market is in an uptrend still with the trend line at RM 3.40 not yet broken convincingly.  Of course my favourite area to buy this stock would be near RM 2.50 area.  But that is wishful thinking.

Apparently the subsidy rationalization for natural gas has underperformed the Government's promises.  The market was expecting stronger hikes, and that has disappointed investors.  Nevertheless, the company has a clear path for revenue growth through government rate hikes.  That can't be said for a lot of other companies slugging it out in the business world.

The 1MDB IPO Hoo hah! and IGB REIT

I just thought I'd comment about the 1MDB IPO.  It does seem this administration is hell bent on successful government IPOs.  Looking at Felda, looking at a whole host of government IPOs, almost all have been successful trading at a premium to IPO price by about 5 percent.

I have no doubt that this 1MDB will be a successful IPO as it is laden with lucrative government contracts, including some from Tenaga.  As much as I've liked Tenaga for its tariff rationalization, and revenue upside, these "deals" with no negotiation just make me want to hurl and throw Tenaga out the window.

IGB REIT is an absolute gem of an REIT.  If there was one REIT in town that I would be confident in owning that will withstand the next decade or two, it would be Midvalley shopping center.  It is easily the best shopping center in KL.  The car park is consistently full at 1 pm on the weekend.  Not only that, It's location is much more appealing than any other shopping center in Kuala Lumpur.

In a recession IGB REIT would hardly get dinged with all of the hungry mall shoppers and it generally falls into a reasonable price range.  This is a recession proof property that any long term investor would be comfortable having.

Unfortunately, I did not realize the stock dipped earlier in the year.  That would have been a nice pick up at those prices.  Sometimes missed opportunities are sad.  :(

FCPO and FKLI looking at the charts

We can see FCPO has pretty definitively broken to the upside.  I'm not surprised given all the analyst's bullishness, the seasonal tendency of making a bottom in the quarter 3.  I suppose the main thesis of the current bull run is whether or not crushers have stopped crushing soybeans to soymeal.

If they have, due to lethargic demand for meats,  Then palm oil upside will be there.  If not, then watch out, palm oil could come down as fast as it comes up.  But for now, the trend is higher.

FKLI is still ranging, although it looks like a bull run the last few days.  We can't be sure its trending up as the Trade Directional Index is still recovering.  The indicator hasn't reached the midpoint yet.  But It's pretty safe to say the current downtrend is over given the upward strength.

Live from POTS 2014 Palm Oil Conference Day 2

8:30 am: The Americas and Europe workshop.  South America is producing a lot of palm oil and the trend in oils is growing, although soy oil does seem to have the upper hand.

Russia imports most of its palm oil from Indonesia.  I'm surprised why Malaysia doesn't have a bigger market share in this region given its development of the industry here.  Seems like there is import tax on palm oil, but 20 metric tons on more, the import tax is zero.  A bigger bulk shipment gets zero tax.

Price difference between sunflower and cpo, usually has to be 70 usd per tonne or more as it influences price in order for exporters to be in the money.  Sunflower oil has large production by Russia and Ukraine

F corp group controls the port where palm oil is imported into Russia, in the Black Sea.

9:30 am: Ukraine does more exports of sunflower as Russia uses most of its sunflower oil for domestic consumption.   Sunflower and palm oil spreads can get wide as far as 300 usd per tonne.  Apparently that is where to make some money as the spread gets large.

Indonesia palm oil apparently is cheaper in the international market as market share from Malaysia is decreasing.   Despite weakness in Ukraine and Russian currency, the price per tonne of sunflower oil is still increasing.  It's especially good as Ukraine and Russian currency has dropped some 50 and 80 pct respectively.

Russia's and Ukraine's currency drop is quite drastic.  It will probably have a reduction in the country's demand. 

9:45 am: Unilever takes up 2-3 percent of palm oil production.  The way they monitor RSPO accountability is using real time satellite data to detect hotspots along with the mills that are nearby.  Seems like a reasonable way to help keep suppliers honest, and cost effective.  But critics can probably poke holes in some of the robustness of the processes of pin pointing the culprit of deforestation.

10:00 am:  Palm oil in Europe seems to have a negative perception in Norway and France.  They seem to be more concerned about the deforestation than the health issues.  Maybe palm oil should be renamed palm seed oil.  Apparently some people in Europe think palm oil comes from chopping trees down and making oil from the chopped trees.

US  concerns is more on the health issues compared to Europe.   The sustainability aspect doesn't seem to be as big a concern.  The are a net importer of vegetables.  Biodiesel use has increased but production of vegetable oil is mostly flat.  The regulatory environment isn't favorable for biodiesel with a one dollar tax credit no extended.  It seems to be in limbo.

The US apparently doesn't produce soyoil as a main product.  The production in soyoil depends on the soymeal demand for livestock.  Currently production is flat as with soymeal as livestock demand has flattened.

12:15 pm:  Africa seems like a growth opportunity but its share of palm oil imports remains small at only 1.5 million tonnes.  The middle east, including Turkey, Iran, and Iraq is more lucrative at 7.5 million tonnes, where almost all of it is imported.

12:30 pm:  China and India were talked about.  But I didn't quite get the opportunities there.  China has some problems with credit commodity traders, but it seems that is overall a small amount compared to real demand.  Bangladesh seems to import some 2 million tonnes  on its own, and criticized Malaysia on slow price quotations and pricing power.

Pakistan only imports some 20 percent of its edible oils in palm oil, so there is opportunity for growth.

Fatty acid is used in products like rubber and plastics and there is a big opportunity in those industries in China.  Palmatic acids are used mostly in household cleaning items and is an opportunity for growth.

2:35 pm:  Thomas Meilke is up from Oil World.  He says that looking at the mineral oil as a guide is a bit narrow sighted as the whole edible oil complex is huge.  He says the low is probably made in palm oil as there are other factors affecting the complex, even if mineral oil drops further.  The food consumption aspect is the main driver for price at the end of the day.

He is mentioning the same idea that soyoil production is constrained as crushers won't crush soybeans as there is little soymeal demand. 

Next issue is oilseeds.  Oilseed, namely sunflower, rapeseed, etc.  is dropping in production.  Because demand for oil is growing at 4-5 million tonnes, the actual forecast for growth this year will be at 2 million tonnes.  Putting support at these low prices.

Palm oil harvests for the end of this year and next year will likely be lower due to poor rainfall this year.    There is a lag effect to the harvests.  The current oilseed stocks are high, but is not a large portion of yearly production.  Actual oil and fat production is declining.  It seems that the stocks will be a temporary factor as it will get crushed and used up.

China demand is still fantastic and need to replenish their oil stocks.  Their demand is through the roof.  Keeping the status quo in mind for mineral oil, RM 2,200 to RM2,500 a tonne is where prices should fall within the next 12 months.

3:30 pm: Mr Benny Lee is up on a technical view of palm oil.  He noted when soyoil and palm oil spreads are small, the currency is correlated with palm oil prices more.  Prices likely bottom in 3rd quarter (aug/oct) and top out in the first quarter (feb/march).  He's looking for prices to move to RM 2,500 a tonne as long as prices do not dip past RM 2,000.

4:00 pm  Mr. Ling from Ganling sdn bhd.  New land area has slowed down since 2012.  A few reasons are environmental issues and poor agricultural land.  Indonesia is also slowing down due to a 2 year moratorium on new land for palm.  They are also facing pressures from the environmental groups.

Productivity can range from 0.5 tonnes to 5 tonnes per hectare.  Given all the land, productivity, replanting factors,  they are forecasting 77.7 mln tonnes by 2020 at a 2.7 mln tonne per year growth rate.  El nino can affect the output up to 24 months later from when the time period in question and output is affected detrimentally.

Weak El Nino doesn't seem to have a big effect on yields, but a normal El Nino drought does impact yields up to  15 percent.  Non El Nino droughts can affect yields.  The earlier drought in 2014, can affect yields in 2015.  Growth of 2.3 million tonnes in 2015 to 62 million tonnes is forecasted.  Weather is not ideal, but due to growth in land, growth in tonnes will still be positive, but slower than at ideal conditions.

5:00 pm:  James Fry from LMC International is at the podium.   Starts off with vegetable oils using Brent as a benchmark.  Brent is the floor for pricing of vegetable oils per tone.  High stocks of palm oil creates a low premium over brent crude.  Low stocks create a high premium.

The price in Rotterdam usually is at a premium over cpo in Indonesia, due to shipping and export taxes.  750 usd per tonne is when taxes trigger in Indonesia and Malaysia.

He sees crude as the most important factor, and is bearish as gulf countries have revenue targets have to be met for their budges.  Output will increase with prices below 85-95 USD a barrel.

He sees palm oil around RM 2,300 a tonne, but not much more than that due to crude oil prices.

5:40 pm:  Dorab Mistry from Goodrej International.  Palm production is not as good due to February's dry weather in Malaysia and  in Indonesia, production will be affected in the middle of 2015 due to the current dry spell in Kalimantan.

Soy produced in India is having trouble making soymeal due to demand.  Imports in oils is booming due to soybean crushing problems.  Biodiesel use of vegetable oils is mandated in 80 to 90 pct of current production.  Brazil has increased their biodiesel mandate by 1 percent.

World demand will grow about 3.5 mln tonnes due to food, and 1 mln tonnes due to biodiesel.  Predicts that RM 2,500 by March as lower stock figures come in over the coming months. 

Live from POTS 2014 Palm oil Conference

I'm lucky enough to get to attend POTS (Palm Oil Trade Fair and Seminar) 2014.

9 am: We had the introduction from notable vips from the MPOC.  The  morning talks have been centered around food security, sustainable palm oil, and challenges faced by foreign NGO's that have been attacking palm oil


11 am:  MPOC Tan Sri Datuk Yusof Basiron gave a speech about how prevalent the anti lobby against palm oil is.  Although Datuk Yusof has very good points, I'd like him to address NGOs from a less critical point of view.  A question about the haze he sort of laughed off and indirectly pointed to other countries by implying that Malaysia doesn't burn forests.  I can attest just driving to the airport that there was burning in Malaysia. 

The main advantage of palm oil is the low carbon footprint compared to other crops like soy, but if all those forests are burned to produce the low carbon footprint, then what is the net affect?   Burning an entire acre of forests is a lot f carbon footprint if you ask me.  If we can address these issues, palm oil will have less enemies.

He says we don't know why they are so critical on palm oil, but to me it is obvious as the haze problem has gotten extensive news coverage year after year and affects many countries in Asia.  No doubt the haze problem every year is one of the biggest recurring environmental debacles that there seems to be no solution to.  To be fair, it is difficult to combat but I suppose if we don't act, our end overseas customers will.

1 pm:  Jose Olivero Angel Garcia talked about biodiesel in Europe.  He mainly talked about the challenges palm oil faces in Europe as biodiesel use in Europe will be limited.  Europe has mandated that biodiesel contain 10 pct of sustainable blend of alternate oils.  Palm oil's share is growing but will be limited to about 10 mil tons per year from the 6-7 million tonnes currently.

3 pm:  Abah Ofon from Standard Chartered talked about opportunities for palm oil in Africa.  He starts out with some of the population demographics in Africa and how attractive it is for palm oil.  Urbanization helps drive demand for palm oil due to convenience foods and high protein diets.  It seems even Africa has a view that palm oil is less healthy than other edible oils.  Apparently plam oil has its media work cut out for them. 

There is heavy investment in Africa in palm plantations but even with all the heavy investment, it seems its not enough to keep up with demand.  By the time the supply comes online, demand will be even greater.  Shows the power of growth in Africa!

4 pm:  Dr. Kalayana Sundram from the MPOC talks about scientifically disproving some of the misconceptions of palm oil as unhealthy.  Much of the misconception stems from saturated fat leads to higher coronary heart disease risk.  Apparently this is not so as hydrogenized fats are the culprit to higher risk of heart disease.  This is also called transfatty acid. 

Apparently the US has accepted palm oil as an alternative to transfat oils.  It is expected the rest of the world will change their perceptions.  Even coconut oil as of late has gained attention for health benefits.  Compared to palm oil, it doesn't hold a candle apparently as red palm oil is shown to reduce stroke risk. 

If you ask me, palm oil just suffers from a lack of sex appeal.  How about them coconuts?  rolls off the tongue much better than how about those palms seeds?  Palm oil just needs a little sexy in its media campaigns!