Getting Ready for a Colourful 2017
As you’re reading this article, chances are, you’re still in the midst of celebrating Chinese New Year (CNY). With this, let me wish you a prosperous and fruitful 2017!
So, what can we expect in the year of fire Rooster? If 2016 was full of uncertainties, 2017 will not be less of it. Obviously, how the US President Donald Trump fares in the first 100 days in the White House will be closely watched. Additionally, there is a high expectation that the US Federal Reserve will raise the interest rate. Furthermore, elections that will be held in several European countries would induce more fear of ‘anti-EU’.
On the home front, the upcoming 14th general election could add volatilities and opportunities to the local stock market. Early January this year, we’ve seen signs of a pre-rally of CNY. Firstly, since 5th January 2017, the KLCI has stood above the MA200 line. Secondly, the daily trading volume has gone higher than the average VMA40 line since the last few days of 2016, with more gainers beating losers. While the Ringgit has fallen below 4.4 against the USD since November 2016, the CPO price has broken above RM3000 (per ton) psychological level. These two indicators have put export-oriented and plantation companies in the limelight again.
With the pros and cons’ present, it’d be interesting to a look at our portfolio:
On 13th January 2017, we’ve made a paper gain of 78% since the inception of our portfolio in November 2015. On the contrary, KLCI suffered a 1% loss over the same period.
The substantial paper gain in our portfolio has stood us in good stead for portfolio growth. In our case, we’ve added two companies:
On January 2017, we bought 40000 shares of Pesona at 0.6. There are two rationales behind this:
As a small-cap contractor, Pesona’s outstanding book order has increased to RM2.3 billion, which is the highest ever. This provides strong earning visibility to the company for the next three years.
The company is venturing into their first concession, which includes maintenance of student hostels at UNIMAP. The concession is expected to generate recurring PAT of RM10 million for the next 20 years. This positive development would also help mitigate the cyclical risks in the construction sector.
Pohuat announced its Q4 results on 22nd December 2016, with earnings of RM19 million (or EPS 8.9 sen) on the revenue of RM152 million. This is the best quarterly result ever for both profits and revenue. We expect the prospect for Pohuat to be bright due to a couple of reasons:
Pohuat will be leveraging from the booming US housing market, strong economy and lower tax, which implies higher purchasing power of Americans. It’s also the beneficiary of the stronger USD.
Its Vietnam operations achieved record quarterly revenue and profits due to higher shipping volume and added capacity.
Pohuat purchased a warehouse in Australia in December 2016 for A$4.25 million. It’s a sign of growing as the company is tapping into the Australian market.
If Pohuat is doing well, its warrant is likely to follow. Considering Pohuat-Wb’s long due maturity date (in October 2020) and lower premium (less than 5%), we bought 20000 shares of Pohuat-Wb at 0.78 on 29th December 2016.
The investment amount for the two companies is RM39600. At the meantime, we’ve received RM625 dividend from Superlon (2.5 sen/share). That leaves us with cash level of RM21775.
While 2017 is an interesting year with lots of unknown, it’s the uncertainties that create the opportunities. Let’s embrace the New Year and move forward with caution and optimism.
Binyuen is the founder of BY Enrich Resources and the author of ‘Life beyond the Comfort Zone’ and ‘Profit from Share Investment’. His books are available in major bookstores in Malaysia, Singapore or online http://www.teybinyuen.com/profitfromshareinvestment