Saturday, November 20, 2010

Do not too emotion in Stock Market!

Let say now you having a lump sum of fund and plan to invest in shock market.
You know market is hot for quite some time, the price of many stocks already moved up, those who bought earlier have quite significant of profit. You know currently is not best time to buy a stock as correction might come any time, it just a matter of time. Hence you wait, wait and wait for correction, hopefully can invest when stock price pull down a bit. One week, two weeks and three weeks, but there’s no pull back or correction. You can not wait any longer, as the price keep on going higher.

Finally you decide to buy now, hopefully can make a quick profit when the price go higher, maybe it will continue to go up for few weeks and take profit to sell it for quick money, buy back when it go down. This is very good idea, ya?, what’s a perfect plan. However, most of the time, you tend to buy at high price when the stock price is up and sell when the price go down, though sometime you earn some pocket money. There are many investors out there having the same idea, the clever idea but continue doing the same mistake.

When market start the down trend, everybody sell like no tomorrow. Some will just sell and hope to buy back at the lower price... panic! Some may not do anything, but feel worry to see their wealth keep on decrease in value. If this happen to you, then you could have lost the fun of investment and creating pressure yourself. Follow market’s trend will not going to make you rich!

Smart investor know that market’s movement is just the change of number, be it up or down. Serious investors are more concern about the future profit of company instead of short term price movement. Do not let the stock price control your emotion. Do not let the fear or greed control your emotion. Control of emotion need to learn from experience, meaning you need to learn from the mistake. To overcome this, I suggest investors to write down your plan before invest / buy a stock. Write down the reason why buying the stock, if you decide to sell, record down why you want to sell. Finally review the result, be it earn or lost, review the result and action plan. We can learn from our mistake by doing so, the idea is don’t let it happen again in future.

Saturday, November 6, 2010

Petronas Chemicals Group Bhd - Part 2

After compare with Dow Chemical and BASF, lets take a look the PChem financial ratio:

Profit after tax: RM2,594 million
Number of share ex IPO: 8,000 million
EPS: 32.42 cents
NTA ex IPO: RM1.97
Total Asset: RM26,824 million
Gearing almost 0 ex IPO
ROE is 16.45
ROA is 9.67
No growth story to tell, earning flag
Dividend yield: 3% if price at RM5.05

PE is 15.6 if price at RM5.05, 16x if price at RM5.20 (compare to Saudi Basic Industries PE 14x, PTT Chemical Pcl PE 20x)

What is the fair value for PChem?
Normally try not predict the price, but let assume below scenario will happen:

  • PChem with market cap of RM40 billion and become one of the top 10 on Bursa
  • PChem carry Petronas brand, to be included into FBM KLCI
  • Global stock market, especially Dow Chem and BASF continue the up trend
Should the above happen plus the GLC effect, PChem can trade up to 20x PE. However, base on volatile index from others chemical companies, the low side can trade near 12x PE. It will be somewhere between RM4.20 (not likely to happen as earning is up trend now) and RM6.20. Hence the pivot point is around RM4.90, let see how much the price give by institutional through book building on 12 Nov 2010.

Friday, November 5, 2010

Petronas Chemicals Group Bhd - Part 1

Last few weeks quite busy with one stuff, Petronas Chemicals Group Bhd (PChem), I went to visit one of their factory located at Gurun. It's huge (about 1km x 1km, see picture) and nice place, the guard ask for the I.C. to exchange with a entry pass. There are 4 to 5 building (factory) inside the area, they arrange car to drop you from one building to another.

Why visit PChem? Because they intend to list the company on Bursa Malaysia, some preparation job involved by the Investment Bank, hence follow the team.

Who is PChem? 
Do you hear about BASF Petronas Chemicals? Or Optimal Olefins (M) Sdn Bhd? Never mind, if you don't, but Petronas, everyone know in Malaysia. PChem is one of Petronas subsidiary, for purpose of listing, it combine 22 chemicals company. PChem plan to raise RM12.5 billion through IPO (biggest IPO in Malaysia history) involve issue of 2.48 billion shares. (after listing Petronas hold 69%) The price for Institutional will be fixed through book building at the range of RM4.50 to RM5.20.

What is PChem doing?
It's very technical, basically convert feedstock gases into various petrochemical derivatives and polymers - Olefins & Polymer (5.1 mtpa) *million tan/annum, and Fertilizer & Methanol. (5.6 mtpa) About 45% of revenue come from local, 15% from China, the rest export to Asia.

What's the selling points?
According to PChem, they buy feedstock from Petronas, so having advantage on cost over other players. (I doubt this point, as the past 3 years, profit was actually in down trend)
Better profit margin in rising crude oil environment, as cost remain stable. (not sure if this is true, as TITAN actually badly hurt in 2009)

What's the negative points?
Very volatile business, good years profit really good, bad years can go negative.
China is in the midst of setting up their own Petrochemical plants, meaning potentially 15% down in profit.

Sail the boat by follow direction of wind - Dow Chemical listed on NYSE, as per above chart, the price quite volatile from Jan to Sep, after Sept, it started the uptrend till now. Similar trend shown for BASF, share price now almost near 52 weeks high. If we assume all chemical companies having the similar trend, then PChem is another Malaysia Boleh! At least for next few weeks!

Asia Top 200 best company

According to Wall Street Journal, they choose the Asia top 200 companies base on cost efficiency, profitable and most respective business to face the global challenging. Below are some of the name appear: Ltd
Infosys Technologies Ltd
Samsung Electronics Co.
Apple Inc
Cathay Pacific Airway Ltd
Singapore Airlines Ltd
PT Astra International Inc.
Siam Cement PCL
Public Bank Bhd
Jollibee Foods Corp
Woolwords Ltd
Taiwan Semiconductor Manufacturing Co.

Again, Public Bank from Malaysia go into the list this year. So, you know which company to consider if market crash! Click here (Invest for Long Term)  if you know to know how much Public Bank grown in past 10 years!