Compared to an eventful 2018, the first quarter of 2019 has appeared to be more peaceful. Even though there are uncertainties around the globe, volatility for the stock market has greatly subsided. With market stability, would you be wondering if it is a good time to buy? In this issue, let us see what the opportunities are.
First, let us look at the macro condition. Although economists have reckoned the global economies will slowdown in 2019, the market has factored in this expectation. Most stock market indexes at this juncture, is way above the Moving Average 50 or 200 (MA50 or MA200), indicating the midterm stability. While China’s industrial output has slowed with rising unemployment, Shanghai Composite Index has gone up 20% since 2019. In Malaysia, we can see the steel, and oil and gas sectors going up. This is related to the implementation of antidumping duty to Vietnam and China for the steel industry, and the steadily rising crude oil price plus the higher PETRONAS capex for the oil and gas sector.
With a more conducive investing atmosphere, is it good timing to accumulate quality businesses? The answer is yes if the price is right. To discuss deeper, let us look at our portfolio performance on 14th March 2019:
The portfolio has showed a gain of 215% since November 2015. While the overall portfolio remains conservative, we added two more companies as both of them has shown bright prospects.
Bought NOTION (0083)
Notion manufactures and sells precision components, tools and other related products. It consists of three segments, namely hard disk drive (HDD), automotive and engineered products, which contributes 49%, 33% and 18% to the company’s revenue, respectively. There are five reasons why I picked Notion:
Notion is in the midst of recovery after a fire incident that happened in October 2017, which had significantly affected the company’s operation throughout FY2018. However, the company has received an insurance claim of RM159 million despite a write-off of nearly RM50 million for the property, its plant, equipment and inventories.
Owing to the fire incident, Notion’s share price has fallen to RM0.59 from RM1.20. For a company that manufactures and sells products with global demand, the temporary setback has offered investors a bargain price, especially with its book value of RM1.20 per share. The recent poor quarter earnings are due to a drop in sales, weaker USD, and higher expenses in the amortisation of newly acquired machineries, which again, is temporary.
Most importantly, the company is growing. According to its FY2019 Q1 report, “There is evidence of growth recovery in HDD and automotive.” Moreover, the company expected increased orders in HDD spacers in the near future plus a strong auto-braking segment.
Furthermore, Notion has received request for quotation (RFQ) from many MNCs and have expected some of them to turn into significant orders in the coming months.
Notion has strong balance sheet. It has net cash of RM35 million, which translates into cash per share of RM0.10, which is very attractive with its current share price of RM0.59.
With this low risk but possible high return scenario, we bought 60000 shares of Notion at 0.58, amounting to an investment of RM35100.
Bought FPGROUP (5277)
FoundPac Group is involved in the design, development, manufacturing, marketing and sale of precision engineering parts, namely stiffeners, test sockets, hand lids and so on. There are at least three highlights here:
Its products are used in the test processes of integrated circuits that are used in electronic home appliances, which has a steady demand worldwide. This means its growth is likely to be sustainable.
FoundPac achieved historical high revenue in Q2 FY2019 at RM11 million. The company has hinted it would achieve strong double digit growth for FY2019.
Based on the company’s FY2019 Q2 report, it has a net cash of RM36.7 million, zero borrowing and a dividend policy of at least 30% of net profit.
We bought 120,000 shares of FoundPac at RM0.30, amounting to RM36,000 of investments.
With the above two investments, and cash brought forward and dividends of RM1650 received from JHM and Ranhill, our new cash level is now at RM45,715.
Successful investing is about buying good quality business at the right price. It also takes time, discipline and patience. Let us now follow through these companies with patience and discipline.