Shortlist For Shorting Stocks (Updated)

Well this was posted back in June 2011, which in itself was an update from December 2010. Almost 6 months now, KNM is now 97 sen which meant that it lost more than 50% (so how, Simon, where are the back stoppers ... just a shoutout to one of the commentators). Of course if taken with the original posting, the stock would be considered decimated from the RM2.89 level when i first wrote the shorting post.


Green Packet is more resilient. Its now at 59 sen, meaning it lost just 21%.


Would these two still be worth shorting at current level? Even if they were worth shorting, are they still the best stocks to short from the whole of Bursa?



The answers is Yes and Yes. Green Packet is more an Angry Bird stock, you have to keep hitting the walls, and the walls are creaking and moving ... you sometimes have to wait for the egg to explode for the thing to crumble.

Friday, June 03, 2011

I think this was posted last year 29 December. KNM closed yesterday at RM2.01. Green Packet closed at 0.75. GPacket is doing very well price wise, we'll see, we'll see... Anyways, some friends visited a recent exhibition in KL where KNM had a booth. The picture may tell a wonderful story of the company ... (click for larger image to read the inscriptions).

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29 December 2010

Unfortunately, we don't get to short stocks in Malaysia, and in many markets actually. When we think of shorting stocks, it is very easy to pick the highly speculative ones with zero fundamentals. Its a no brainer to lump stocks such as Maxbiz, Compugates or Tejari and the likes to the category of stocks to short. In fact, if you try to short these stocks, they will come back to bite you as they are highly speculative and share prices could double or triple for no reason if they "manage" the stock price well enough.


A genuine stock shorting process involves company that is running on supposedly good fundamentals, but you do not think that that is the case in reality. Some will ask, why even talk about them and make enemies. I think its pathetic to only talk about good stocks. Sometimes its good to have an opinion of stocks you do not like.

However, to save myself, I will not elaborate on why I think they are my favourite stocks to short, but let me assure you that I stand behind my views 100%. I will check back on their respective share prices every 3 months and see how they fare. I think both are excellent stocks to short on a 1-2 year time horizon.

The stocks on my list that no one wants to be in:

KNM ($2.89)

Green Packet ($0.71)

I am sure plenty will differ in their views, and thats what makes a good liquid market place, there are always buyers and sellers. If you go long, please rub it in my nose 3,6,9,12 months down the road if they continue to perform well. I will accept the dressing down gleefully.



NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Looking Back On Returns

For the first quarter of 2009 I don't think I recommended to look at any one stock as I was not convinced of a rally or a substantive run. The good thing about blogging is that your views are all there to be examined, scrutinsed and criticised ... but it also allows you to reflect and note how your views evolve. Like a diary, the most notable postings started around April 24 this year (can go and check). Its fun to look at how things have turned out, bearing in mind that my assertion that stocks I like should have at least a 30% upside within 6 months, so far so good. If I can get a batting average of 65%, I am happy. There are not many runs in a year for a market like Malaysia, once its there, you have to seize the day and then exit when things are looking dowdy. Usually you can count on 2 runs a year lasting anywhere from 4 -15 weeks each time. Bull markets do not make us smarter, it makes picking winners easier.

FBM 100 Gainers and Losers In August 2009
Top 20 Gainers TR
IJM LAND BHD 23.13%
MULTI-PURPOSE 20.93%
SARAWAK OIL PALMS 18.57%
PROTON HOLDINGS BHD 12.13%
SUNWAY CITY BHD 11.51%
TITAN CHEMICALS CORP BHD 11.32%
MAH SING GROUP BHD 9.78%
BOUSTEAD HEAVY INDUSTRIES CO 9.66%
LINGKARAN TRANS KOTA HLDGS 7.57%
AXIATA GROUP BERHAD 7.14%
SELANGOR PROPERTIES BERHAD 7.14%
AEON CO (M) BHD 6.67% UBG BHD -4.94%
KUALA LUMPUR KEPONG BHD 6.40%
TAN CHONG MOTOR HOLDINGS BHD 5.95%
EON CAPITAL BHD 5.60%
AFFIN HOLDINGS BERHAD 5.56%
GUINNESS ANCHOR BHD 5.48%
AMMB HOLDINGS BHD 4.78%
PETRONAS DAGANGAN BHD 4.78%
PPB GROUP BERHAD 4.63%

Source: Bloomberg Note: TRs (total returns), CG (capital gain) & DY (div yield)

Looking Back

April 24 - Confirmation of A Bull Run For Bursa
April 24 - Stocks & Sectors I Like As CI Breaches 1,000 (Property: SP Setia, UEM Land, even Talam, Sunway City, even MK Land. Financials: AMMB, EON Cap). ... safe to say that these property and financial picks outperformed the market substantially ... so far
April 27 - Talam Coming Out Of PN17 0.08 ... had a good run for a while even at 0.14 or 0.15 at some point I believe, still the run should come when its officially out of PN17
April 28 - MK Land Is Pretty Oversold 0.28 ... now at 0.40 but went as high as 0.47, we got our 30% or more
May 1 - Sell In May & Go Away " History repeats itself for a reason, because they do, people never learn and they keep repeating their actions and decisions time in time out. This is the same posting I did 4 years back in May 2006, and repeated this in May 2008, so for all intents and purposes, I should also repost this for May 2009. Personally, I don't think this May-August will be a down period."
May 5 - Stock Picks For A Nice Trade ... these were ok performers, not spectacular, its for a quick trade, if it works good, if not, get out...
SAAG long up to 0.29
Sapuracrest long up to 1.24
IOI Corp long up to 4.50
Kulim-WB long up to 3.32
Kulim long up to 6.00
May 7 - Go Long On The Brokers .. these were good runs, TA went to 1.27 (now 1.20), Affin went to 2.04 (now 1.88), ECM went to 0.78 (now 0.63), HDBS went to 1.75 (now 1.58), Kenanga went to 0.75 (now 0.65), OSK went to 1.58 (now 1.39)
TA long up to 1.03
TA-WB long up to 0.06
Affin long up to 1.77
Affin-WC up to 0.14
ECM long up to 0.66
HDBS long up to 1.45
Kenanga up to 0.68
OSK long up to 1.38
May 29 - Why I Like Pelikan 0.98 ... possibly the best call so far, now still at 1.52, we got our 30% here
June 4 - A Timely Look At B-Land & B-Toto 3.26 / 4.74 .. both did well, especially B-Land
June 11 - Tanjong, This One Can Buy & Hold 13.00 ... now at 15.82, up 21% so far, a bit more to go to get our 30%
June 11 - Whoops! There It Is (GenM) 2.90 ... now at 2.79, not good, I would cut now ..
June 23 - I Like Green Packet At Current Levels 0.70 ... very good entry levels at 0.70, now share price still at 0.705 but I get 1 right and 1 warrant basically FREE for every 2 shares, great return, easily way past 30%
July 13 - Market Commentary - "I don't like many stocks now as I think markets do look tired, but if you point a gun to my head to force me to buy one stock to hold till rest of they year, I would probably say E&O" 1.04 ...if anybody read this closely, they would have made a bundle, went ballistic today to a high of 1.52
July 17 - Why I Would Buy Astro Now 3.62 .. 3.43 now, news did not filter out as I had hoped, wishy washy developments, sell
July 24 - Why I Am Keen On MPHB Now 1.58 ... 2.11 now, we got 33%, enough
August 4 - Why I Like DRB Hicom 1.13 ... went towards 1.30 but fizzled out, still very keen on this, can hold on
August 12 - Why I Like IJM Land 1.81 ... went to 2.05, now at 1.98, will wait for my 30%
August 21 - Why I Like Bumi-Commerce Bank 10.30 ...recent call...
August 27 - Why I Like QL Resources 3.34 ...recent call ...

The above were views on stocks and sectors that I like, not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

p/s photo: Fiona Xie

I Like Green Packet At Current Levels

Besides spotting good shares, the entry levels are important as well, especially when you talk about a momentum driven market like Malaysia. When the trend is negative, most shares get driven down as well, thus providing better entry levels for stocks with good prospects. I like Green Packet quite a bit. Its certainly one of the more innovative among the small companies. Investing in smaller companies brings forth a lot more risks (search for "small caps" in my blog), hence I will more than often shy away from them.

Why I like Green Packet... its the wifi/broadband market. The market in Malaysia for wifi/bb is still fragmented and offers a lot of opportunities thanks to the pathetic offering and service by the main players. Even izzit has managed to take substantial ground off the established telcos. Green Packet guided that its WiMax subscriber base has grown at a tremendous pace and already reached 50,000 by end of May. This represents a 5-folds improvement from 9,500 at end 2008.

Its 52 week high-low is RM2.51-0.60. I would be keen at levels below 70 sen. As I mentioned before, my yardstick remains a potential 30%-50% upside within 6 months. It won't be making a profit this year, but in this business, I see them ratcheting up subscribers to go past the critical mass levels by end of this year, which is where the value is.

I like their coverage, I like their aggressive marketing plan, I like the way their sales units interfaced with potential customers. I like the attitude of the sales force that work for the company. I get a strong sense that they are making good penetration, and that every potential client that walks by has a very good sign up rate and closure rate.

Management guided that in February and March 2009, the sign up for Wimax has seen an aggressive growth, clocking in as high as 500 subscribers per day but slowed since then. In May 2009, it was hovering between 300-350 subscribers per day. I like the pricing plans they have. I like that the modems can be free or be paid in installments.

The group has secured more than 400 sites currently and target to increase coverage sites to 700 by the end of 2009 to cater for up to 250,000 subscribers. Management said barring any delay, the deployment of coverage sites can hit 800 by year end as it has two turnkey vendors - Alcatel-Lucent and China's ZTE Corp to deploy the sites. Green Packet already rolled its services in Klang Valley, Johor Baru, Alor Setar, Penang, Kuantan, Kuala Terengganu and Ipoh. The company plans to extend services by penetrating into another seven states, including Melaka, Negeri Sembilan, Pahang, Terengganu, Kelantan and Perlis.

P1 also formed a partnership with Sunway Group last year, a
collaboration known as Wireless@Sunway, to be the preferred
technology  partner for broadband connectivity and communications
requirements in the Sunway township. P1 completed deployment of
the first phase of the Wireless@Sunway project, providing wireless
broadband Internet access to more than 80 per cent of Sunway
home and business users, students and visitors, thus making Bandar
Sunway the first integrated wireless broadband-enabled township in
the country.

Kuala Lumpur City Hall and the Malaysian Communications and
Multimedia Commission also picked P1 to set up the WiFi-WiMAX
KL Wireless Metropolitan Project (Wireless@KL). The
Wireless@KL network currently offers more than 100,000 users
free wireless broadband access in Kuala Lumpur.

China and India markets are not going to yield much to Green Packet's bottomline anytime soon. Let's look beyond that for now. The company has already delisted its associate company, GMO Limited from the Alternative Investment Market (AIM) of the London Stock Exchange in May. The cost savings from the listing fee is approximately USD300,000 per annum. Now that is sensible.

The prospects for the company does not come without investments cost. Capex YTD amounted to RM250mn and the group is committed to spend another RM230mn by the next two year to complete its Phase1 and Phase 2 Wimax implementation plan to cover 40% of the population. Green Packet's total capex could reach RM1bn over the next four years. The group has RM200mn cash as at 31 May 2009 and will have to raise funds. Fund raising is not necessarily a bad thing, and I quite like the business model. The company has issued three private placements and raised about RM300mn since its IPO in 2005. Currently, Green Packet is proposing a rights issue of 208.3mn shares of 50sen/share together with 208.3 free detachable new warrants on the basis of 1 rights share and 1 warrant for every 2 existing ordinary shares held. The company expects to raise between RM98.8mn and RM104.2mn for its Wimax network. I would be supportive of subscribing to the rights and warrants.

Given the market's euphoria over YTL-e solutions RM2.5bn investment in wifi/bb, I favour Green Packet's P1 head start anytime man.


p/s photos: Han Ye Seul

Mesdaq IPOs - Meltdown & Reasons

Used to be, investors would jump in with all they have whenever there was a subscription for new IPOs. Back in the early 90s till the financial implosion in 97, most IPOs were recording opening day gains of at least 30%, and usually a lot more than that. Even during the dreary post financial crisis days, one can still get decent gains on most IPOs. For the past 3 years, Mesdaq IPOs started shakily, but thanks to new listings such as Symphony House (now transferred to the Main Board) and the huge (but sedentary YTL-e), investors got more comfortable with Mesdaq stocks. As long as one can make money, people will come in droves. Sensing an opportunity, syndicates got involved quickly. The authorities basically practiced a hands-off approach as the rise in Mesdaq activity bodes well for future listings and viability of Mesdaq.

This is good for most concerned as entrepreneurs get to cash out (well, some or most of it, if they play it smart). VCs and angel investors got to really cash out big time, thus propelling interest for the VCs to fund more start-ups.

In The Edge Daily, it was reported that: "Most Mesdaq Market initial public offerings (IPOs) in 2005 were disappointing, with more than half or 26 of the 46 listings closing on Dec 30 below their offer prices. Analysts blame the disappointing performance of these Mesdaq counters on unexciting prospects, high valuations and poor market sentiment. ... On a brighter note, analysts say a handful of Mesdaq companies such as mTouche Technology Bhd and Green Packet Bhd appear to have gotten their strategies right and are moving in the right direction. ... ES Ceramics Technology Bhd was the worst performer. Its share price fell 66% to 18.5 sen as of Dec 30 from its offer price of 55 sen. Ygl Convergence Bhd is down 58% to 37.5 sen (IPO price 90 sen); ConnectCounty Holdings Bhd 60% to 13 sen (32 sen); MLabs Systems Bhd 49% to 28 sen (55 sen). EcoFuture Bhd is down 50% to 12.5 sen (25 sen) and Vitrox Corporation Bhd 28% to 43 sen (60 sen). ... However, analysts say there were several companies that bucked the trend, especially those with strong business models and growth strategy. mTouche’s share price surged 460% to RM3.36 (60 sen) while Green Packet’s jumped 270% to RM2.04 (55 sen). TMC Life Sciences Bhd is up 136% to 90 sen (38 sen) and KZen Solutions Bhd 92% to 63.5 sen (33 sen). "

The authorities have threathened to tighten listing requirements for Mesdaq companies. Since Nov 29 last year, companies now must provide a profit forecast while non-technology-based but high-growth firms must have an audited operating revenue for at least three years. My view is that the authorities should take a hands-off approach (as much as possible) as over-regulation will impede the natural forces critical for the well-being of a "good capital market". Tightening listing requirements is good as it was a too easy to list before - but we should be careful from here on as we don't want to make it so hard to list. Bearing in mind these are "growth stocks", the risks associated with them would be much higher and investors have to understand and live with it.

What the authorities should do, is to tighten where/when the owners/promoters get to sell their shares. As these are growth companies, one is listing to secure capital to fund their growth - it is not a cashing out exercise. That being the case, the owners/promoters must show as much committment to the company as the investors are willing to bear the high risk of buying their company shares. Even the current rules are too loose for owners/promoters. We first need to tighten rules that allow owners/promoters to sell their shares. We need to discourage them from a quick turnaround. I would recommend something like:
a) owners/promoters must collectively hold at least 50% of the company's outstanding shares for 4 years
b) after the first 4 years, the minimum ownership level will be lowered to 40% for another 4 years
c) owner/promoter cannot sell a single share until 12 months after its IPO, even then they can only sell no more than 5% of outstanding shares each year

That would solve part of the problem of dumping. The danger here is that if we enforce lock-ups of a large amount of shares, it will make it easier for syndicates to play havoc with them, without the need for approval/consent from owners/promoters. However, this is not the kind of problem faced by Mesdaq listings, but rather the grave under-performance of new IPOs. Let's face the facts, for every Mesdaq IPO, only a very small amount gets to the hands of the public. The bulk has been placed out to institutions, high net worth individuals or fund managers. The fact that most of them still went below their IPO price soon after tells us that even "astute financial minds" do not consider the growth prospects of most these companies to be up to scratch. If they do, they would be holding on to these shares.

So why do we have a problem with most new IPO listings. For one, it is the over-aggressiveness of merchant bankers to score new deals that the "viability" and "growth prospects" are being glossed over. I am a firm believer in free market forces, i.e. when a merchant banker brings an issue to the market, the risks transfers to the buyer of the shares. It is up to the buyer to assess the inherent risks and attractiveness of the counter. Too much hand-holding by the merchant banker,... well, you might as well ask the merchant bank to buy the shares themselves and sell it to you when the price goes up! However, we must have a stronger link and effect on merchant banks to their IPOs, so that investors know their reputation is on the line. We need the media to focus more on performances of the Mesdaq firms and the merchant banks that took them public. If there is more accountability, eventually the merchant bankers will tighten up on themselves on the listability of a firm, whether they can get long term institutional shareholders to hold the shares instead of "trading outfits", and whether they can sell the growth prospects/concepts for the stock - plus they will make more of an effort to educate and inform the public on the prospects and make-up of each company. Below are the bankers involved in the under-performers and out-performers cited in the article in The Edge Daily. You draw your own conclusions, but its pretty clear to me. Just go ahead and list the Mesdaq IPOs and their sponsors for the past 2 years and see how they have been performing.

Under-performers

YGL Convergence - K&N Kenanga
ES Ceramics - AmMerchant Bank
Connect County -AmMerchant Bank
MLabs Systems - Alliance Merchant Bank
EcoFuture - Affin Merchant Bank
Vitrox - Hwang DBS

Out-Performers

mTouche - Public Merchant Bank
KZen Solutions - Public Merchant Bank
Green Packet - OSK Merchant Bank
TMC Life Sciences - AmMerchant Bank