Fortune favours the prepared mind

Speculators, traders and even investors who do not have any strategies playing the stock market are likely to have a hard time trying to make money. 

If you have been in the market for some time and find that you have not made any money, it’s time for you to think hard why you have not been lucky so far. Is it because luck has been against you or because you have failed to plan well? Many people blame luck when they failed, but when they succeed, they say there are smart and skilful. This is human ego.

There may be some truth that some people are born lucky. If you relied on your luck to succeed, you are likely to fail because luck favours the prepared mind.  

The worst thing that can happen to a novice is for him to make a lot of money immediately he enters the market because of a tip or because of luck. This is called the winner’s curse. Very often the early winnings are the prelude to disastrous losses. Easy money leads you to become greedy and careless. Very soon you will realise that easy money is not easily made. If you bet what you can afford to lose, things may not be so bad, but if you borrow to bet, the result could be disastrous. 

For those who are smart, they will first find out how they can win. How many market players do this? You can’t win without having a competitive edge. 

What is a competitive edge? Experience, knowledge, wisdom, patience and discipline put together will give you the competitive edge. Do you have them?

Do you know how to identify a good company for investment or a good time to enter a trade based on technical analysis. 

Knowing fundamental and technical analysis will definitely give you an edge, simply because the majority of players in the market do not have such knowledge and skill.

The next important thing to know is to know your own traits. It is said that success in the stock market does not depend so much on your intelligence, but rather on your traits. Thomas Edison, one of the smartest men on earth failed miserably in the stock market. He said that he could calculate the movements of the stars, but he was unable to calculate the madness of man. 

Know your own traits; know how much risk you can take; know whether you can cut loss without feeling the pain of losing. Once you know who you are, then think out a strategy to suit yourself. Never do anything without a strategy. 

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The Internet of Things (IoT)

The IoT will reshape the world. It will change our lifestyle dramatically. The most emphasised word nowadays is: Smart.

Smart phones have been around for a few years. Smart cars that are driverless, more efficient and safer than conventional cars will soon be a common sight.  

A smart plane embedded with sensors will signal you when certain parts need to be upgraded and changed for the plane to remain safe and efficient.  

A bridge embedded with sensors will warn you when it is overloaded. Doors open for you when you are near them. Alarm bells ring when intruders force open your doors. All smart utensils will operate smartly. 

Gartner Inc., predicts that by 2020, some 26 billion devices will be connected to the internet. Thus you can easily figure out the importance of sensors and semiconductor chips. 

Which companies are going to benefit? IQGroup, KESM, MPI, Unisem, MMSV, Penta and Inari are some of them. Presently, my interest is in the first two which have strong balance sheets and growth in earnings.

If you are interested in these two counters, visit my blog: www.blisswise.blogspot.my to read about them. And if you are interested to join my Super Telegram Group, use the link below:

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IQ Group (LEDs, Sensors & Connectivity)

IQ Group Holdings Berhad is a Malaysia-based company principally involved in investment holding and providing management services. The Company's operating segments include investment holding (includes management services); manufacturing of passive infrared detectors, motion sensor light controllers, wireless video communication devices, door bells, home security system, lighting fixtures and plastic products; trading of security lighting systems, passive infrared detectors and motion sensor light controllers, and development, design, manufacture, sale and distribution of light emitting diode (LED) Luminaires and the manufacture of light engines for use in luminaires. The Company has operations in Malaysia, Japan, British Virgin Islands and People's Republic of China (PRC). The Company's subsidiaries include IQ Group Sdn. Bhd., IQ Japan Co., Ltd., IQ Industries Limited, IQ Group (Dongguan) Ltd. and SILQ (Malaysia) Sdn. Bhd. (Source FT.com)

For the fiscal year ended March 31, 2016, the IQ Group’s metrics are as follows:

Revenue: RM190m

Net income: RM20.86

EPS: 23.7 sen

Share Capital: 88m; Par Value RM1 per share

Dividend 10 sen

ROA: 12.60%

ROE: 16.26%

ROI: 15.86%

Book value per share: RM1.55

Current Ratio: 4.37

Quick Ratio: 3.22

Borrowings: Zero

Cash and bank balances: RM48m or 54 sen per share

Lasted traded price RM2.04 as at 3.8.2016

The above metrics show that this stock is safe and undervalued with a good dividend yield.

The management of the group is full of confidence for the group. Appended below is the Chairman’s statement: 

Corporate Developments 

Another exciting year for IQ-group! Despite the global uncertainty and volatility of market conditions, the repeated strong performance in FY15/16 illustrates the robust position IQ-group currently enjoys. Our signi cant emphasis on R&D drives considerable new product development with related results maintaining 

strong support from our established and developing customer base. 

IQ-group’s revised vision statement (as below) sums up our unrelenting ambition which is enthusiastically supported by the developing strategies within the business. 

“To achieve global market disruption as we detect, illuminate and announce your arrival via shockingly exciting solutions!” 

ere is no doubt that we are in exciting times. ‘LEDs’, ‘sensors’ and ‘connectivity’ are buzz words which are often central to discussions as the world progresses increasingly towards connected devices and ultimately to ‘the internet of things’. IQ-group is undoubtedly well positioned as we bring our reputation, expertise and innovation in these 

areas to the market place. 

In the past year we have continued to invest in people, signi cantly bolstering our breadth and depth of capabilities and so we look forward to the future with con dence and anticipation. 

Financial Overview 

e Group continued to maintain strong nancial performance, delivering a very similar result to last years’ record performance. For the nancial year ended 31 March 2016, the Group achieved a revenue of RM190 million, a slight decrease of 2% as compared to the previous year’s revenue of RM194 million whilst still being able to maintain pro t attributable to the equity holders of RM21million for nancial year ended 31 March 2016. 

e Group has maintained a healthy statement of nancial position with zero gearing. As at 31 March 2016, the net assets of the Group stood at RM137 million with a net cash and bank balances of RM48 million (or RM0.54 per share). 

Future Prospects 

IQ-group is blessed with valued customer relationships and many developing opportunities. As a business, IQ-group has increasing self- belief and ambition. With the clear growth based strategies in place, we remain motivated and con dent regarding the prospects ahead of us. 

Appreciation 

On behalf of the Board of Directors, I again wish to thank each and every member of the IQ-group team for their commitment and tireless e orts which have resulted in another encouraging year end result. 

My sincere appreciation also goes to my colleagues on the Board for their valued and appreciated participation over the past one year. 

Chen, Wen-Chin also known as Kent Chen 

Chairman 

Investment is never without risk. You are fully responsible for your own action.

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KESM, the burn-in Specialist

KESM is principally involved in specialized electronic manufacturing activities. More specifically, the company is engaged in providing burn-in services. The company has business dealings with virtually all the American semiconductor manufacturers.

For the 9 months ended April 30, 2016, KESM’s EPS shot up to 52.7 sen. This is an improvement of 244.44% over the corresponding period of the previous year when its EPS = 15.30 sen.

In the past 2 years, the 4th quarter was better than any other quarter of the year. Based on this fact, the 4th quarter for the fiscal year 31.7.16 should not be lower than 17.6 sen per share. Thus earnings for the full year are likely to be not less that 70.3 sen per share. 

According to its filings with Bursa, KESM has following metrics and key ratios as at 30.4.16: 

Paid-up capital: RM40.015 m. Par value: RM1

Market Cap: RM240.45 (Last traded price: RM5.59)

NTA: RM6.52 per share

Current Assets: RM197.72 m

Current Liabilities: RM63.57

Current Ratio: 3.11

Quick Ratio: 2.956

Cash & short-term investment: RM112.50

Total loans: RM44.66

With a strong balance sheet and good growth in earnings, KESM should deserve a PE of not less than 10. Should the full year’s earnings be not less than 70.3 sen per share, the fair value of KESM should be no less than RM7.30 per share. (This is my opinion. You may have yours.)

Historically, small-cap stocks with strong balance sheets, have performed better than most big-cap stocks. In Malaysia, a stock with a market cap of RM500 million is considered a small-cap stock. 

Since the end of 2015, demand for smart phones, i-pads, tablets and computers have slowed down. However, the internet of things (IoT) are envisaged to pick up going into the 2nd half of 2016. The automotive sector is the likely leader in this respect as car manufacturers compete against one other to produce smarter cars.

To produce smarter cars, more and more newly innovated chips are indispensable. And thus the demand for burn-in and testing services will increase by leaps and bounds. This is where KESM will benefit the most as the company’s growth engine is in the testing of semiconductor chips.

KESM is well prepared.  In 2014, it completed its final phase in its development program mainly for these services. Its plans for 2016 and beyond are in place according to its CEO, Samuel Lim in the 2015 annual report. 

I am bullish on this stock. I had recommended the stock as a buy when it was at RM5 recently.

Investment is never without risk. Please do your own research before buying. 

Remember, you always buy at your own risk. 

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Plan with wisdom Be wise

Value for money you must insist

• Insist in buying stocks that have a strong balance sheet, good dividend yields and a good business modal. The current ratio must not be less than 1. It must be net cash positive as well.)

Buying in a downtrend you must resist

• Don’t buy in a downtrend. Prices move in trends. A trend in motion is assumed to continue. So remember, buy only in an uptrend, not in a downtrend. Wait for a downtrend to end before you buy.

The trend is your friend

• You must not go against the trend of the market. Never swim against the current.

Follow it to the very end

• A trend can continue for a few days, a few weeks or even a few years. As long as the trend is up, you must stay with it. Many people make the mistake of selling early in an uptrend. They did not capitalise on the trend. As a result they missed the major part of the profit. This is many people’s mistake. Don’t make it yours. 

Holding on to a falling stock is unwise

• A stock that is in a downtrend is likely to fall lower. Especially for traders, they must quickly cut loss. Never turn a trade into an investment.

Cut your losses quickly is advised

• An early loss is the best loss. So sell quickly in a downtrend.

Never kill a golden goose when you have one

• When you have a good stock, hold on to it. Don’t sell for a small profit. Keep it for the long term.

Never sell prematurely, let it run for once

• Never sell early in an uptrend. Hold on until the trend ends.

Undervalued unpopular stocks are never a fancy

• Many undervalued stocks are not in demand as they are ill-liquid. Many people do not know them because analysts do not highlight them. 

Glamour stocks are the choice normally

• Majority of market participants are small time traders. They usually follow the herd without knowing what they are buying. Their mentality is: When many people are chasing a stock, it must be a good stock. So, I might as well follow.

Join the crowd, enjoy the ride if you wish

• If you want to have fun and excitement, go ahead, enjoy yourself and participate in the buying and selling.

Be careful though, lest you fall out and vanish

• When you join the crowd, be careful, as you are likely to lose all your money

The market is most tempting at the top

• At the last stage of a bull market, news is good; prices move up every trading day. People rush in to buy. You see many of your friends making fast money. In such a scenario, the market is very tempting as easy money seems easily made.

Lock in your profits before volume has a good drop

• When the market is in euphoric mood, volume transacted is very high. This is the time to sell and take your profit. When the market reverses, volume will drop very fast. So don’t wait for volume to retreat before you sell.

Sell your stocks when you love them most

• When your shares are highly priced and greatly overvalued, you will love them most. Because of the high price, that would be the best time to sell.

Take your money and let the deal be close

• Sell to take profits, and call it a day

Buy when volume traded is at its lowest 

• When volume traded is lowest, prices are normally very low as well. So, you should buy when volume is very low. 

The market will then be at its dullest

• When volume is lowest, the market is dull and boring. People will shy away from it.

Investors should buy low and sell high

• Investors are people with lots of idle money to buy. So they can afford to buy and wait for good times to sell

Traders should buy high and sell higher

• Traders are people who want to see fast money. When the market is at the bottom, you will not know for how long it will be there. So it is better for them not to buy until the market picks up. 

Someday, you will know what I mean

• One of these days, you will understand why investors should buy low and sell high, while traders should buy higher and sell higher.

By then, you are a stock market dean

• Once you know the interpretation, you have become an expert of the stock market.

The above poem was written many years ago under the heading Stock Market Wisdom. I hope with this interpretation, people will understand it better.

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Elliot Wave / Ron Wheeler

For people who are interested in TA (Technical Analysis) this video is interesting and useful. Don't fail to see it. You are advised to see and listen to it more than once.

https://www.youtube.com/watch?v=konvREHelj4

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FLBHD (5197)

FLBHD is a small-cap stock with a paid-up capital of RM51.6 ml as at 31.12.2015. Its par value per share is 50 sen. Its principal activities are the manufacturing and sale of plywood, veneer and laminated veneer lumber and investment holding. 

The company was listed on 28.4.2011 in the main board. The earnings of the company are as follows: 

Year 2011 : EPS 14.15 sen; 2012 : 11.24 sen; 2013 : 14.66 sen; 2014 : 15.53 sen; 2015 : 30.74 sen. 

Comparing the EPS of 2015 to that of 2011, earnings have more than doubled. This is excellent growth.

As at 30.12.2015, its current assets total RM121.563 ml of which RM57.819 ml is cash. Total liabilities amount to only RM12.715 ml of which current liabilities amount to RM9,699. The Current Ratio stands at 12.53!!!

The company has no borrowings. Its cash alone is enough to cover total liabilities by 4.547 times!!! Is there another company listed in Bursa with such a strong cash position? Please let me know if you know of one.

In respect of dividends paid, there are as follows: 2011: 6 sen; 2012: 6 sen; 2013: 8 sen; 2014: 8 sen & 2015: 15 sen. Thus dividend growth is excellent as well. With so much cash in the banks, the company should have no problem maintaining its dividend payments. Although the company does not have a dividend policy, we can see that it usually pays out about 50% of its earnings as dividends. This is good for those who love dividends.

I understand that the company does not have concession in any timberland. I called the inter-relation officer to find out how the company sources its raw materials, especially timber logs and glue. Unfortunately he refused to tell me about this, saying that was the secret of the company.

The new minimum wages commence on July 1, 2016. This will have an impact on the production cost of plywood. To mitigate this, the company will modernise and automate the manufacturing facilities of the group. This should not be a problem as the company has lots of cash to implement this intention.

The company exports 92% of its products, the bulk of which (76%) goes to US and the rest to other countries, mainly Taiwan & Korea. The value of the US$ has a great impact on the bottom line of the group. The more it appreciates against the Ringgit, the more the group will benefit. The reverse is the other way round. So, keep an eye on the exchange rates.

One of the things I like about this company is that it is environmentally friendly. Its mill is the first Malaysian plywood mill that is certified as a CARB Certified Manufacturer in 2008 by Professional Service Industries, Inc.  The company was also awarded with the JAS certification by the Ministry of Agriculture, Forestry and Fisheries of Japan in 2009 as a proven qualified plywood manufacturer. These certifications certify that the groups’ products are of high quality, and goes a long way to enhance customers’ confidence. 

In additions to the above awards, the company was accredited as a certified Lacey Compliant Wood Products Manufacturer by Benchmark International, LLC (BMH) under the BMH Lacey Compliance  Verification (LCV) Program. This means that its timber logs are confirmed to be sourced legally. 

I like to use the metric, ROACE (Return On Average Capital Employed) to appraise the competency of the management. The higher this is, the better. Using the figures in its balance sheet as at 31.12.2015 and 31.12.2014,  FLBHD’s ROACE is 25.67% which is deemed to be on the high side. 

Going by the track record of this company, I have full confidence that it will continue to grow well. I give a 5-star rating to the management.  

The chart below shows that the stock hit a bottom on 17.8.15 at RM1.22, and then moved up to RM3.09 on 11.1.2016. It is now undergoing a correction phase. The last done price is RM2.23. Should it drift lower, the support levels are: RM2.08 and 2.02 while its immediate resistance is RM2.37. 

Action to take: Buy at support and also when it decisively crossed RM2.37.

This is my opinion. Whatever action you take, you do so at your own risk absolutely.

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MMSV Current Year Prospects

MMSV current year prospect extracted from Bursa Announcement:

Despite the soft demand experienced from the smart devices sector in the past few months, the Directors foresee ample rooms for expansion in the Group’s market shares for other LED related industry especially the 

automotive sector. Besides, talks about smart devices’ manufacturers coming out with new products for their end consumers are expected to materialise. 

MMSV FYE 31.12.15; Shares Issued 163 ml at 10 sen each.

Essential statistics and metrics as at 31.9.2015:

3Q result EPS 1.33 Vs 2.88 senPYCQ) poor showing

Non-current assets: RM9.698

Current assets: RM34.219 ml

Total equity: RM35.050

Total non-current liabilities: RM8.391 ml

Current ratio: 4.078

Cash & near cash: RM18.460

Total liabilities: RM8.867 ml

Bank borrowings: zero

High cash position, high current ratio, and no borrowings show that this stock is fundamentally sound and solid.

Since its 3rd quarterly report on 24.11.15, there were company buy-backs & insiders buying in the stocks as well. (For details, check Bursa Announcement)

The company will announce 4Q result within the next few days. I believe

the result will be a better than that of the 3rd Qtr.

Strong US$ is good for the stock.

Chart shows a weak uptrend with little volume traded. Resistance is likely to be at 58.5 sen and 61.5 sen. If 61.5 sen is decisively breached, the stock is likely to trend higher. 

Our world is moving towards automation and LED lightings which are the core businesses of the company. Please do your own research, and buy at your own risk. 

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2016 New Year Greetings

https://www.youtube.com/watch?v=BHrv4v-N9y8

Wishing all my readers a Happy and Prosperous New Year of the fire monkey 2016

Scenario of Stock Market Euphoria

Scenario of Stock Market Euphoria

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria / Sir John Templeton

The last stage of a bull market is euphoric. It is important to know the scenario of such a market so as not to be deluded by the madness of the crowd.

In an euphoric market, optimism is at its extreme. Price-rise is an expectation. Newbies come in drove to open accounts with broker firms. More and more housewives get involved. Shoe-shine boys, ice-creme sellers and poor farmers will also be talking about the market. By then the market is a hive of activity.

The public flocks to the boardroom every trading day. Financial news is good. Price advances are spectacular and frequently made head lines in local newspapers. The dogs and cats (low-price stocks of no investment value) are whirled up, but big blues refuse to rise further. Volume continues to rise and speculation is on the rampage. In every corner of the town people are talking and boasting of their gains in the stock market. 

Stocks will be trading and very high PE and low-dividend yield. Every tip you get is a good tip; everyone is an expert as prices continue to move up day after day. 

Boardrooms in broker firms are crowded as soon as the market opens. All seats available will be fully occupied; people will be standing here and there.

IPOs (initial public offerings) become more often, and most are oversubscribed by close to a hundred times. 

The craziest thing is that warrants can be higher than the mother shares. People simply throw cautious to the wind, become illogical and mad! Then you hear someone says, “this time is different). 

The truth is that, like all bull markets, this too will pass. It will not be unlike any other bull markets. If you are lucky to see such a scenario, be wise enough to sell everything, and sell short if you are allowed. Remember what the great investor Warren Buffet said, “Be fearful when others are greedy.” 

Euphoria has no time limit. It can lasts for months, weeks or even days. You must get out in time. For when the market finally reverses, the way down will be fast, furious and cruel. The majority will be hurt; they will be devastated. Don’t be one of them.

Are we anywhere near a market on euphoria? 

Fundamentally sound stocks giving 4 to 5% dividend yield are still available presently, and volume transacted daily is normal, 1 billion plus. I think we are far from there. When volume transacted daily is over a few billion units, its time to worry.

Notwithstanding the truth and opinion expressed above, stock markets are always uncertain. 

You listen to me at your own risk.

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Xinghe A Potential Dark Horse

Supreme Global Group Ltd (SGGL) is a Hong Kong registered company. It has a 91.15% subsidiary known as Henan Xinghe which manufactures and trades edible oil, mainly peanut and other blended oil. SGGL got listed in Bursa via a reverse takeover (RTO) exercise in April, 2014. 

Key West, a GN3 status company in Bursa issued 1.9 billion shares at 11.05 sen per share to take over SGGL valued at RM210m. In a private placement, it also issued 300 million shares at 20 sen per share. Shortly after the RTO, the name Key West was changed to Xinghe. 

On 29 April 2014, Xinghe debuted at 25 sen, moved up to 26 sen and closed at 22 sen. The highest it went up was 29 sen some time later before easing all the way down in a roller-coaster ride to below 7 sen.

Now at 6.5 sen, is this a good stock to buy? Is this another risky and useless China-based stock? Let us have a look at its balance sheet and earnings.

As at 30.9.15 

Paid-up capital : RM234.850m

Par Value : 10 sen per share

No. of shares issued : 2.3485b

NTA : 23 sen per share

EPS for the quarter ended 30.9.15 : 0.77 sen

Non-current assets : 37.732m

Current assets : 549.186m

Current Liabilities : 19.675m

Current Ratio : 27.91 (This is fantastic)

Cash : RM373.27m (Excellent)

Borrowings : RM29.072m

Final dividend paid on 21.9.15 : 0.2 sen

On 25.3.15, 1.17425b bonus warrants of 1 for 2 were issued. These warrants are convertible to ordinary shares at 10 sen per warrant. The expiry date is 22 March 2019.

From the above info, it can be seen that the company has a very strong balance sheet with plenty of cash and little borrowings. If it is not China-based, this stock is easily worth 50 sen a share. 

Other points to note are:

SSGL is 10% owned by the China Government. The Chinese government is very serious in dealing with corruption. So, hopefully, there won’t be any hanky panky in the company.

Henan Xinghe is one the top six edible oil producers in China. It is mainly involved in producing edible vegetable oil as well as peanut protein cake in the China market. 

It is a profitable company with ambitious plan for the future. It intends to produce peanut protein to compete with soybean protein by 2017. According to its MD, peanut protein is a better product than soybean protein. 

It uses lots of palm oil as its feedstocks, and that is the main reason why SSGL wants a listing in Bursa, according to its CEO. Its presence in Malaysia is good for the palm oil industry.

The company has a dividend policy of paying 15% of its earnings as dividends.

At the last traded price of 6.5 sen, I am of the opinion that the stock is a good buy. The stock has been crawling at the bottom for many months. To me, this is an accumulation by savvy investors.

Will this ugly duckling turn into a golden swan someday? The potential is there, but only time will tell. Best action to take is to buy some now at 6.5 sen, and watch the stock closely. Chase only when the 7 sen level is decisively breached. 

Trading or investing is never without risk. You buy at your own risk absolutely.

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My Stock Picks for 2016

I choose the following stocks for investment in 2016:

Kim Hin RM2.28

Gadang RM2.12

CBIP RM2.05

FLBHD RM2.88

SUPERLON RM2.13

UCHITEC RM1.74

I believe these 6 stocks will be much higher by end Dec 2016. They are all dividend-paying stocks with strong fundamentals.

May 2016 be a much better year than 2015, and may all my readers be blessed with good health, good luck and much prosperity for the new year. 

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