Economy is falling. Stock market is rallying

Are we living in a world of delusion?
Most of the countries are hit by Covid-19 and are in some form of lock down.
Even some countries that opened up (the likes of China, Hong Kong and Korea), they had opened up cautiously and implemented strict restriction. 

I am not expert in medical field and I hope I am wrong too. But from my understanding, vaccines will not be available so soon and most likely we will have to live with the virus and manage the impact. 

Hence, most likely we are not going back to same economic level. Not in the next 1 to 2 years.

As of today, US cases are still running at 29k cases. Probably the curve is flattened but 29k cases per day is still extremely high. That is 870k per month. 

US unemployment rate hit 14.7%

S&P 500 once hit 2305 from 3380 (31.8% drop) but recovered to 2929 (13.3% drop from 3380)(as of 8-May) and going strong. 

This is really puzzling me. 

There is unlimited QE but QE without equivalent return (reduced economic activities due to Covid-19) will not be able to sustain the stock market. 

Ultimately, 
Stock market depends on stock price of each stock
Stock price depends on company revenue and profit 
Revenue depends on consumer spending. 
Consumer spending depends on income of each consumers.

All things happening just remind me of The Big Short  
(movie: https://www.imdb.com/title/tt1596363/)
    

The movie is based on the book The Big Short: Inside the Doomsday Machine
It is a non-fiction book by Michael Lewis about the build-up of the United States housing bubble during the 2000s.

The Big Short describes several of the main players in the creation of the credit default swap market that sought to bet against the collateralized debt obligation (CDO) bubble and thus ended up profiting from the financial crisis of 2007–08. 

(Sited from wikipedia : https://en.wikipedia.org/wiki/The_Big_Short)


My Take

This is not a buy or sell call. I still believe in value. 
If I find good value in stock, I will still buy

Green Ocean Corp - 30 Jun 2018 Qtr Report

Green Ocean Corp - 30 Jun 2018 Qtr Report

Profit turnaround



Have not study any further on this company but interestingly, the sentiment has improved.
(Was just trying out the sentiment analysis tool. Machine doesn't lie :D)


This Qtr Sentiment Analysis
"With the additional working capital raised from the private placement exercise and banking facilities for its palm kernel crushing production, the Group believes that it will be able to enhance its palm kernel crushing activities and trading activities so as to improve its revenue and profitability despite the current challenges faced in the commodities market. Nevertheless, the Group also continues to undertake initiative steps to explore and introduce new products, to trade in other palm oil products, and to explore other new business opportunities."





Prev Qtr Sentiment Analysis
"The Group has raised additional working capital from the private placement exercise and banking facilities for its palm kernel crushing production. The Group had also recently entered into a tolling contract with Palm Oleo (Klang) Sdn Bhd for sale of crude palm kernel oil. The Group believes that with the additional working capital available, and the tolling contract, the Group will be able to enhance its palm kernel crushing activities and trading activities so as to improve its revenue and profitability in future. Nevertheless, the Group also continues to undertake initiative steps to explore and introduce new products, to trade in other palm oil products, and to explore other new business opportunities."

Disclaimer:
This is not a buy or sell call.
Please read the disclaimer on the right side of the blog

What determines the earning for PETRONM?

What determine the earning for PETRONM?

Posted some simple analysis on Petron Malaysia back in Feb 2017 when it was RM5.00.
http://bullseyebursa.blogspot.sg/2017/02/petronm-what-to-expect-in-q4-2016.html

Today price is at its all time high RM 12.70. Congratulations and Well Done to all those who stay loyal to the stock until today. 154% profit!!

Q3 result is coming soon! Let's go deep and understand what really determines the earning for PETRON

As we all know, PETRON Malaysia has 2 businesses - Retail business & Refinery.

Retail Business

Many confuse the earning of PETRON or HENGYUAN (Refinery stock) with the weekly fuel retail pricing announced by Malaysia government. 

First, we have to understand the APM (Automatic pricing mechanism) introduced in Malaysia and MOPS (Mean of Platts Singapore).

Below are 2 very good write-up
https://syukrishah.wordpress.com/2015/03/01/automatic-pricing-mechanism-apm-and-mean-of-platt-singapore-mops/
https://paultan.org/2009/02/15/how-fuel-prices-are-calculated-in-malaysia/

Simply put, 
If somehow during the 1 week period, the cost is higher than the fixed price, Gov will subsidize.
If the cost is lower than the fixed price, Gov will be tax up to 58.62 cents.
Still the price will maintain at the fixed retail price at the current time. Thus this is how the APM work.

So, dealer (Petrol Station) usually earns a fixed profit margin (around 5c to 10c per liter) of the fuel as retailer margin and operational cost are already factored in the fixed price announced. 

Hence, the price of the weekly announcement has little impact to the profit of petrol station. Instead, volume is more important for petrol station to be profitable. 

Refinery Business

For refinery, the business profitability really has nothing to do with weekly pricing or MOPS. If yes, when crude oil price was > 100 USD, all refinery companies would have a lot more profits, right?

The answer is Crack Spread
https://finance.yahoo.com/news/crack-spread-101-part-1-150706378.html

What is crack spread? It is nothing but the profit margin for each barrel refinery firm would earn..

Essentially, refiners take crude oil (which generally can’t be used in its raw form) and turn it into refined products such as gasoline, diesel, and jet fuel. The crack spread represents the price difference between the finished, refined products (which translate into refiner revenues) and the price of crude oil (one of the primary factors in refiner costs). Because commodity prices can be incredibly volatile, refiners’ margins can too.

How is the crack spread doing recently. Pretty amazing. Jun to Sep (Q3), Sep to Today (Q4) is every higher than Q1 and Q2. 

No wonder both HengYuan and Petron share price has up so much.

All time favourite question : PETRON or HENGYUAN

I would definitely prefer Petron over Hengyuan

1) net cash company thus safer, dividend and more gross profit translating to net profit

2) good track records of profit

3) my personal prejudice against company of certain nation due to number of corporate governance deficiencies cases we have seen in the past.

4) Diversity of business model : Refinery business may not be evergreen. Retail fuel business is and generally it is recession proof.

KLSE Bursa Malaysia Market PE ~ part 2

In my previous post, I have come up with the market PE for Bursa. It is 20.2. 
https://bullseyebursa.blogspot.com/2017/11/2017-11-01-klse-market-pe.html

This is calculated by summing up 925 stocks' market capitalization and divide it by all the 925 stocks' annual earnings .

20.2 represents some bullish market..

How about KLCI PE..According to this review, KLCI index stocks is about 16.5
https://secure.fundsupermart.com/main/articleFiles/Sector_Reviews/SG/en/pdf_Malaysia.pdf

However, if we remove top 30 stocks by market capitalization, guess what is the PE?
26.17! That's real bullish.

Of course, nothing to panic about if you believe in the value of the position you have.

Price is what you pay, Value is what you get. Cheers

2017-11-01 KLSE Market P/E

Market Cap (in Million)	1,826,341.05
Market Earning (in Million)	90,422.60
Market PE	20.2
Total Counter	925

IWCITY intrinsic value

IWCITY intrinsic value

The Roller Coaster IWCITY

This IWCITY is kind of interesting...I believe everyone can recollect all these UPs and DOWNs stories, quite recently we have seen all these breaking news of IWCITY

• merger with IWH
• confusion of IWH merger details (whether it includes Bandar Malaysia)
• losing on Bandar Malaysia
• And now calling off merger with IWH...

Definitely one of the favourites for all short term traders!

However, sorry for all traders, I do not have much to offer today. 
What I'm interested today is to take a step back and figure out the real value of IWCITY.

1) Asset Play - Purely based on land bank value

1052 acre landbank in Johor
1 acre = 43,560 sqft
1000 acres = 43.56 million sqft
With a conservative number - say 50 ringgit psf, 1000 acre = 2,178 million

Total shares = 840m

Per share = 2,178/840 = 2.59

If it takes 1 year to realize this value (selling out all the land bank)
Aggressive discount rate 10%
It is worth rm2.33 (2.56 / 1.1)

If it takes 2 years to realize
It is worth rm2.12 (2.33/1.11)

If it takes 3 years to realize
It is worth rm1.92 (2.12/1.11)

Note... the above is purely based on very very conservative number.
Rounding off to 1000 acre for simple calculation sake, using RM 50 per square ft price despite many land bank are very strategic including the one sold to Greenland.

Disposal of 127.92 ACRES land in plentong to Greenland itself is valued at RM 2,373,079,016 . What is the PSF of the land? 
127.92 acres = 5,572,195 sqft

RM 426 per square foot !!

Speaking of Greenland deal

2) Greenland 127.92 Acres deal (~ 13% of the landbank)

how much cash will IWCITY pocket?

Tracing back all the way to the original announcement for the details
http://www.bursamalaysia.com/market/listed-companies/company-announcements/37889

Extract from page 11 of the proposal

Upon completion of the Proposed Land Disposal, it is expected that the IWCity Group will recognise a gain of approximately RM1,204 million (after taxation) or approximately RM1.80 per ordinary share of RM0.50 each in IWCity (“Share” or “IWCity Share”). Furthermore, the Proposed Land Disposal is expected to result in a net cash inflow to IWCity Group which is intended to primarily be utilised for land improvement worth


In Summary

Price is what you pay, Value is what you get
Something for value investors to ponder about the RM1.50 offer that is coming to IWCITY shareholders. 


Disclaimer:
This is not a buy or sell call.
Please read the disclaimer on the right side of the blog

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PETRONM: What to expect in Q4 2016

PETRONM (Petron Malaysia): What to expect in Q4 2016

Petron Malaysia (PETRONM) 

1) Business background

The oil and gas industry is usually divided into three major sectors: upstream, midstream and downstream. The upstream oil sector is commonly known as the exploration and production sector which is also the one suffering when oil price drops.

PETRON is in mid/downstream business.
It sells processed petroleum product which is the main source of energy still in Malaysia/ South East Asia.
It is in a very different ball game from upstream. When oil price drops, profit margin actually increases as retail price of petroleum drop is not as huge as the crude oil. 
This can be seen as the profit picks up since Q1 2015.

2) Competition: PETRONAS DAGANGAN (PETDAG)

PETRONAS DAGANGAN (PETDAG) which is in the same industry, is trading at P/E 30, dividend yield 2.5%

It should not take long for market to realize PETRON is a better option with P/E at 9.5 today and dividend yield at 4%

3) Fundamental Valuation, Financial Analysis

Historical EPS

1Q15	2Q15	3Q15	4Q15	1Q16	2Q16	3Q16
21.05	27.18	27.47	6.02	6.15	22.79	17.22

Currently priced at 5 dollar, PETRON trailing P/E is at about 9.5. (last 4 quarters earning is 52.3 cent)
That is assuming Q4 2016 to be same as Q4 2015 which is not the case.
In Q4 2015, there was a 40-day mandatory maintenance at its Port Dickson Refinery. This is a activity mandated to perform maintenance once in several years.

PETRON hit RM 7.31 in Jan 2016 before the disappointing 4Q 15 result is released.

Perhaps investors were expecting a consistent results after posting 3 consecutive quarters of >20cents profit.

This coming quarter result Q4 2016 is a very interesting and highly anticipated quarter for PETRON as investors seek to see if PETRON can answer the below questions.

1) Can PETRON deliver 20 cents per quarter amounting to ~80 cents EPS?
There was a doubt in Q1 2016 where EPS is only 6.15 without any specific reason. Hopefully the management could exercise some form of risk management to ensure consistent of 20 cents per quarter.

2) PETRON dividend for 2015 was 20 cents. Can PETRON give more than 20c what was declared in 2015 given the strong Free Cash Flow?

If PETRON could give a good answers to the above 2 questions in the coming quarter results. PETRON would easily deserve a P/E of at least 15.

Assuming Q4 2016 EPS 20 cents. Total earning will be 66.15 cents. P/E 15 means 9.92 dollar

Disclaimer:
This is not a buy or sell call. Writer do own the shares of PETRON at the time of publishing.
Please read the disclaimer on the right side of the blog