HAPPY NEW YEAR 2011!

 

Numbers taken from http://www.thisnext.com

Wishing everyone have a great health and wealth in 2011!

p/s: sorry for the crap design using paintbrush.

Offshore Support Vessels (OSV) - Current Outlook

As three O&G support companies Coastal Contracts, Alam Maritim and Sealink highlighted in previous post involve in Offshore Support Vessels (OSV), it is important to know more about the outlook of the OSV in general.

Below best illustrated the driving force of the demand of OSV and its current scenario.

                                                   Source: Presented at Tugs & Offshore Support Vessels (TOSV) Asia 2010,  

                                                   Kuala Lumpur, Oct 07 & 08, 2010 by Mantrana Maritime Advisory

The oversupply of OSV is still the biggest issue currently which affecting the order of new OSV and the chartering rate. Latest earning reports of Alam Maritim and Tanjung Offshore which mainly deriving their earning through chartering of OSV is disappointing. Although Coastal Contracts, with shipbuilding as their main contributor, announcing a good set of quarterly earning, there are still no announcement of new order received since 2008.

So, would you still bet on these three stocks? Or which of these three would be your best bet? Please exercise your own judgment.

Oil & Gas - Sector in Focus

Would the news below stimulate the oil & gas sector?

Prime Minister Datuk Seri Najib Tun Razak is expected to announce on Nov 30, new development projects as well as several entry point projects (EPPs), that will boost the oil, gas and energy sector.
Read more: Najib to announce ETP projects on Nov 30 http://www.btimes.com.my/Current_News/BTIMES/articles/20101125142859/Article/index_html#ixzz16IkVn500

Malaysia will soon become one of the world's four deepwater oil and gas (O&G)hubs, standing shoulder-to-shoulder with industry leaders like the United States, Brazil and Europe.
Prime Minister Datuk Seri Najib Tun Razak said the Asia-Pacific region has seen increased interest in deepwater development and Malaysia is already at the forefront of this development.
Read more: 'Malaysia to be a global deepwater O&G hub' http://www.btimes.com.my/Current_News/BTIMES/articles/20101125164710/Article/index_html#ixzz16IpJnzN7

After scanning few O&G support company, I found few companies still trade at 52 weeks low. Mind you, there are not loss making money companies but very much in profit. It maybe due to certain fundamental issue or they have been off the radar of investors. Below are the charts (copy from tradesignum.com) of the three companies with their previous earnings reported.

Coastal (Current Price: 2.31)

Alam (Current Price: 1.14)

 

 Sealink (Current Price: 0.615)

It would be too simplistic to decide based on the chart and earning but it do tell a small part of the story for you to continue researching it. Please do check on the business, management, balance sheet, Cash Flow, etc or seek the advise from your investment adviser.

 

Reinsurance?

In my 12 years of investing, I only bought two stocks related to financial or insurance industry. The reason is that I have problem understanding their financial statement.

Lately, I try to look into MNRB, a reinsurance company.

According to Investopedia, Reinsurance is the practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions.

In simpler term, reinsurance is insurance bought by the insurance company to transfer part of the risk to the other parties.

After getting to know their core business, I have to bypass this company simply because it will be much harder for me to understand their business as the formula below,

Reinsurance = Insurance x Insurance = Insurance²

For those interested to know more about this business, you can read the article on reinsurance here. 

After reflecting for a while, my problem may be due to the lack of knowledge from my part where the understanding of the technical term like ROE came into play as in my previous post.

Common sense investing

I have a great discussion with one of my analyst friend regarding my analysis of stocks. He found that my analysis is too simplistic. He mentioned that I do not take into account those ROE, CAGR, and some other fancy terms that I myself never heard of.

From my opinion, those terms is for those analyst who want their report to be more professional so that those reader will think that they are knowledgeable and trustworthy. When I analysis myself, I want it to make sense to myself and not complicated it with those terms. I need to know how much cash or assets and liabilities, how much they earn compare to their price and their previous track records. The most important thing is that I need to be comfortable with their business. I even told him that I myself prefer reading analyst from some of the bloggers than those analyst reports. At least it make more sense to me. Picking stocks is hard, why complicated it?

In the meantime, I am still looking for those terms that he mentioned. Hmm…probably non-existent as he make up himself… hehe

Lottery strike for EPIC shareholders?

AZRB to sell 21.26% of EPIC for RM111.5m

Written by Joseph Chin

Monday, 08 November 2010 18:56

KUALA LUMPUR: AHMAD ZAKI RESOURCES BHD [] (AZRB) is selling its 21.26% stake in Eastern Pacific Industrial Corporation Bhd (EPIC) for RM111.5 million cash consideration. AZRB said on Monday, Nov 8 it was selling the stake, comprising of 35.97 million shares, to Lembaga Tabung Amanah Warisan Negeri Terengganu. “The proposed disposal will result in an estimated gain on disposal of approximately RM11.5 million at group level based on the financial results as at June 30, 2010,” it said. AZRB said the proceeds from the proposed disposal would be used to repay borrowings and for working capital purposes. Source: theedgedaily.com  The price work out to be 111.5million/35.97million = RM3.10 Current price (8th Nov 2010): RM2.09

The Tricycle

 

Photo taken from tinyfarmblog.com 

To be successful in stockmarket, the understanding macroeconomic factors is very important. For a start, we should understand three key cycles that shape the market. The explaination of the three key cycles below is taken from Malaysia Investor website ( alot of excellent articles there).

Business cycle
A business cycle is essentially a recurring and fluctuating levels of economic activity that is experienced by an economy over a long duration and typically encompasses the following:

• Recovery
  - This is where the economy starts to work its way up to better financial footing after the previous recession period
• Expansion  
  - Here, there would be increasing growth in demand resulting from increased customer confidence
• Peak(also known as the economic boom)
  - This is where demand surpasses the supply of goods and services in the market, unemployment is low and almost all the production capacity is fully utilised. During this period, we will see increasing inflation rate, which will later trigger central banks to raise interest rate when an economy is deemed to be overheated.
• Contraction
  - With higher interest rate, we will start to see slow down in capital purchases and inventory build up, followed by slow down in production. This subsequently leads to increasing layoff.
  - Depending on the severity, during the contraction period, there could be just a slow down in economic activities or a recession, which is generally defined as negative economic growth for more than two consecutive quarters.
  - At the trough of this, what is typically observed are businesses restructuring and consumers clearing off debts which they accumulated earlier. After going through a consolidation period, consumers would regain their confidence and start spending. Then, the cycle begins again.

However, very much like us human beings, no two business cycles are exactly the same. Even though all cycles might go through the phases described above, the length and width of the cycles are never the same but generally, the expansion period would be more gradual and longer compare to the contraction period.
Interest rate cycle
This is a cycle that is closely related to the economic activities. A typical interest rate cycle consists of 4 stages:

• A series of rate hikes
• A period of stabilisation
• A series of rate cuts
• A period of stabilisation

Usually, when a country’s inflation rate rises due to demand-pull pressures, its central bank will raise the interest rate to fight off inflation and cool down the economy. Here, the sectors hardest hit would be banking, automotive and housing, as higher interest rates make loans more expensive. As such, consumers would cut down on purchases from these sectors resulting in the earnings of companies in these industries taking a tumble. As the effect starts to take place with the economy slowing down, the interest rate will be held steady for a while up until a stage where by the economy slow down has gone into a more serious recession. This is when central banks react to lower interest rate to boost up its country’s economic activities. After the economy recovery is in sight, the interest rates would once again, be held steady until the next cycle comes.
However, there are certain times when the above does not happen. There are instances where, even though a country’s inflation goes up high, its central bank holds on to its current interest rate as the reason for the rising inflation was more due to cost-push effect,  resulting from sharp increase in fuel price for example, rather than demand-pull pressure.
Stock market cycle
A most prominent feature of a stock market cycle is that the stock market cycle moves in tandem with the business cycle, and the former is always ahead of the latter. Why is that so? A very simple reason really - the stock market cycle reflects the overall market expectation on the business performance. Hence, when the market expects an economic boom is coming, before it actually hits, the stock market is already on its way up. The reverse happens before a recession. Therefore, if you trace a stock market cycle, you will see that its peak precedes the actual economic boom while stock market index hits the bottom before our economy goes to its trough. As such, the stock market index functions as an excellent leading indicator for the movements in a particular business cycle.
A typical stock market cycle goes through bull and bear periods. Within the bull period, it can be further classified into early bull, middle bull and late bull before reaching the peak. The same can be seen for the bear period; it consists of early bear, middle bear and late bear before hitting the bottom.

For the full articles, please go this link.

When you are not a prolific writer, what would you do? Just search around for a good article to be posted.. :)