1230-1250

That has been my buying entry target levels for a few weeks now, and its coming very soon. Naturally now that I post it, many will want me to justify my call. Well, its my opinion and market reading. I mentioned 1250 in Seng's chatbox a couple of weeks ago, and nobody said anything bearish. Now we can hear 1100 or even 1000 being predicted. It has a lot to do with reading investors' behaviour and sentiment. You don't want to sell at 1400, not at 1350 but at 1250 you really want to sell. That's good enough for me. You cannot really justify buying levels, everyone has one. If you map earnings growth two years out vis-a-vis interest rates less dividend yields, the market is already attractive at 1320, but I still did not see enough bearish calls. Now I am beginning to, and it looks ripe. The additional sums being forecast needed to be written off by banks and mortgage lenders (approximately another US$100bn) has worked its way into share prices somewhat. I see 11,750 as very decent entry levels for Dow stocks.

The current wave down is only slightly related to elections, I mean there are no elections in other markets but they are falling also. There may be some foreign selling ahead of the uncertainty of elections this weekend, but its more overall bad sentiment for stocks in general. I see opposition gaining good ground this time, 22 to maybe 35 or 40 seats. Is that bad or good, who cares. Markets will rebound whatever the result as long as BN is in power. Hope that the stronger preference for opposition will lead to more self-introspection by BN. One can only hope.

Reassessing CPO

Supply Side
a) CPO stocks in Malaysia for January 2008 was 1.88m tonnes compared to December's 1.68m tonnes. However, it was interesting to note that some of it was due to Indonesian exporters keeping their CPO in Malaysia owing to the recent hike in export tax in Indonesia.
b) CPO production for first half 2008 relative to second half of 2008 is expected to be 48:52 compared to last year's figure of 44:56. That loosely translated meant that supply in 1H2008 will be a bit stronger. The weaker second half of 2008 may also indicate that current strong CPO prices may be sustainable right till the end of 2008.
c) The inventory levels for corn and soybean in the US is unlikely to increase thus resulting in a prolonged mismatch between demand and supply, favouring CPO. The demand and supply there should take at least 4 years to adjust.
d) The Indonesian Government said that it would increase export tax on CPO to 15% if CPO price exceeds US$1,100/tonne or RM3,553/tonne. Current tax rate on CPO exports is 10%. This again favours Malaysian exporters.The increased export tax rate would affect Wilmar International Ltd and Indofood Agri-Resources, which are among the largest plantation companies in Indonesia. Sime Darby and KLK would be affected. There is minimal impact on IOI Corporation as the group is only starting to develop palm oil on its newly acquired landbank this year.

Demand Side
a) European governments may be revising down their target of using 5.75% biofuel in the transportation sector by 2010. Even now, the utilisation rate of biodiesel plants in Germany is less than 30% owing to the high feedstock cost. However, that is similar for all biodiesel operators and does not represent a genuine demand factor in the long term. Biodiesel demand acts as a support only when CPO prices goes lower.
b) There is a shortage in edible oils still in China, exacerbated by heavy snowstorms which have affected 3.26m hectares or almost 50% of the winter rapeseed acreage. China should be stepping up its demand for palm oilowing to the shortage of vegetable oils.
c) For oleochemical industry which uses palm kernel oil (which has also risen in tandem with CPO prices), there is resistance in demand with fatty acids at current high prices. However, recent IOI Corp's results still showed better margins and higherdemand from sales of fatty acids.
d) Palm oil exports to USA are also expected to climb on the back of a potential change in the chocolate production standards and health benefits of palm oil.Growing biofuel usage in USA supported by legislation and subsidies would also exacerbate the shortage of corn and soybean oil, which would benefit palm oil.China and USA accounted for 25% and 7% of Malaysia's palm oil exports in January 2008 respectively.

The outlook is clear and the current CPO price above RM4,000 is not likely to be the high for 2008. Investors seem to be anticipating a drop back to RM3,500 very soon, which is not likely. It is also easy to leave out those with "issues" (denoted in green). There has been a disconnect in plantations share prices, maybe affected somewhat by sluggish market sentiment. Best for exposure besides IOI Corp should be IJM Plantations (RM4.10) and TH Plantations (RM3.26).

Manipulated Counters?

Finally, a real scoop from The Edge: The fall from grace of UK-registered financial institution, Global Trader Europe Ltd, has had a far-reaching impact on certain Malaysian stocks and sparked off investigations of possible manipulation of these counters, sources said. It is understood that at least nine companies on Bursa Malaysia have been adversely impacted by “forced selling” of stocks that are pledged to Global Trader in return for a leveraged line of credit. The heavy selldown of these stocks is said to have caused the authorities to start investigation on possible manipulation. Towards this end, several brokers have been quizzed by the authorities.

“It is not known how many more companies have shares pledged with Global Trader, which had been actively dishing out lines of credit to Malaysian investors last year,” said a source. Shareholders of the affected companies are said to have pledged their shares to Global Trader’s office in Bangkok. Following the liquidity crunch faced by its parent company in the UK, the administrators scrutinised the accounts of its clients, especially in its Bangkok branch. It sold the pledged shares and other assets of accounts that had a margin shortfall.

This in turn triggered a massive forced selling of the stocks that were pledged. Companies affected are said to have included:

H-Displays
Ygl Convergence
My EG Services
Reliance Pacific
Aturmaju Resources
Liqua Health Corp
Cymao Holdings
Axis Incorporation

The most noticeable casualty is H-Displays, a Mesdaq-listed company which saw some RM270 million of its market capitalisation wiped out in three days. Last Monday, the stock was trading at RM1.57 and had a market capitalisation of RM329.7 million. Last Friday, it closed at 29 sen, with a market capitalisation of RM60.9 million. A check on H-Displays’ annual report shows that Hitech Ventures Pte Ltd, the controlling shareholder of H-Displays with some 51.2% equity, had pledged about 13 million of its 107.6 million shares.

It is understood that Merrill Lynch, which had been hired to assist Global Trader in its asset recovery process, had been involved with the sell order. My EG Services meanwhile, tumbled some 22% over the past two weeks, shedding close to RM67 million in market capitalisation.
Yet another Mesdaq-listed company, Ygl Convergence lost 69% in market capitalisation through last week, after its price fell from 57 sen on Monday down to 17.5 sen last Friday.

Global Trader was placed under special administrators in mid-February after one of its clients defaulted on a margin call, which resulted in Global Trader having a deficiency in its capital requirements.

Switch Off The Lights When You Leave

Transmile Group Bhd went deeper into the red in the fourth quarter to December 31 2007 from losses incurred through bad debt expenses, aircraft depreciation and impairment charges. The air cargo operator's net loss widened to RM179.4 million from a loss of RM24.9 million in the previous corresponding period. Transmile said its net loss included a provision for doubtful debts of RM69.7 million and an additional depreciation of aircraft of RM18.4 million. Impairment loss in parts and components totalled RM51.6 million. Revenue, meanwhile, dropped 21 per cent to RM172.2 million from RM218.6 million in the year-ago quarter.

Transmile attributed the revenue decline to the cancellation of unprofitable routes and certain flights. For the full year, net loss widened to RM279.6 million, four times the RM63.8 million reported in 2006. Revenue declined 16 per cent to RM616.2 million from RM731.3 million a year ago.

Comment:
Does the realistically-revised business model stacks up? Let's look at the cost side. Let's leave the provisioning for doubtful debts aside as that is a legacy problem. It is likely that it wouldn't be profitable in 2008 even, earliest will be 2009 and even then the figure is not going to be great as they have been cutting routes in order to redo the business model.

Hence, the way to invest is to look at RNAV which is RM4.73 end-2007. A safety margin of of RM500m (RM279 in 2007) in losses will whack the figure down to RM1.284bn - RM500m = RM784m / 271.5m = RM2.88. That is provided the company turns profitable in 2009. The share price now at RM1.80 basically assumes a market cap of RM488m. That literally assumes an additional RM500m in losses in addition to 2007's RM279m losses. That is unlikely to happen. Hence buyers below RM2.00 would have some margin of comfort. Even so, on projected revenue of just RM150m x 4 = RM600m, and assuming a generous net margin of 10% = RM60m in net profit when business finally turns around or a net EPS of just 22 sen.

Hence even at RM2.00 on a good case scenario in 2009 we are looking at a PER of 9x 2009. It looks like an OK bet below RM2.00 but certainly there are much better options around. Even if things turn around, its unlikely to make a lot of money within the next 3-4 years. For starters, Evergreen Fibreboard is cheaper and has an excellent business model, highly profitable, margins in the 30% range, pays a great dividend yield of 6%... why bother in trying to bottom-fish among the hapless and helpless.

Update On Evergreen Fibreboard

Not content to leave my doubts alone over Evergreen's share price following my post, I have dug and searched and asked around for information. Managed to talk to a couple of people who are close to the company (analyst/ fund manager) and came away better informed. It seems that the sell down was part and parcel of the over-riding sell down on timber related stocks, and many were apparently in single digit PER as well. That could very well been from the housing slowdown in the US.

For FY2007, Evergreen's net profit increased by 98.2% from RM59.8 million to RM118.5 million, while its turnover has increased by 38.5% from RM528 million to RM732 million. Its trading at less than 6x current year's earnings and only 4.5x next year's earnings. Medium density fibreboard prices has risen from an average of US$260 pcm to US$305 in 2007, and the trend is firm to flat this year. Maybe the weaker USD is creating some pressure on margins as 85% of revenue are priced in USD. Economic slowdown in US and Japan could be a negative for the company. Rising methanol, oil, freight costs and bunker fuel costs all add up. At current share price, the company is likely to pay 7.5 sen in dividend in FY08 and 9.0 sen in FY09, which translates into a very attractive dividend yield of 5.5% and 6.6% respectively.

While I am not keen to hold any kind of stocks in general, Evergreen could be an exception with those kind of yields. The owners apparently wanted to buy more shares, which I would strongly object to using company share buybacks. The best solution I can give them is to announce loudly the previous year's dividends and the projected dividend for 2008. The yield figures would speak for themselves. 6% yield is nothing to sneeze at. Having found a better comfort level (nothing sinister within the company), Evergreen will be back in my buy list.. Instead of an outright buy, its becoming a long term buy. Still a buy nonetheless, and there are not many making my list of late.

A Hairy Proposition

Well, the feedback has been positive to very positive. Another 3 of my friends now swear by the treatment below. Hence I thought it might be useful to repost the hair thingee. Some of the feedback I got was that the initial two-three weeks will see tiny hair strands trying to grow and generally will fall off even quicker. They noticed significantly more hair growth towards the second month and now has more hair growth, especially from the crown area and the front side. By the third month, they all concur that their scalp got slightly itchy but at the same time saw significant new hair growth as well. Maybe old hair were trying to come out of their follicles ... lol. I did notice the improvements in my friends. Wish I could get a cut of the royalties...

PROSCAR is indicated for the treatment of symptomatic benign prostatic hyperplasia (BPH) in men with an enlarged prostate to improve symptoms; reduce the risk of acute urinary retention (AUR); and reduce the risk of the need for surgery, including transurethral resection of the prostate (TURP) and prostatectomy. Proscar is manufactured by Merck. Similar to the discovery of Viagra (which was an unexplained side-effect as well) ..., they found the side effects of using Proscar was unexplained hair growth. Proscar comes in 5mg tablets, but their own study showed that you only need 1mg to reverse the effects for hair regrowth. Merck cleverly created new 1mg Proscar tablets and called them Propecia. The only difference is buying Proscar, you only need to cut up the tablet into 4, as that would be a lot cheaper than buying Propecia.

Apparently, there is little side effects for taking Proscar for men even if the hair thing doesn't work as it will also act as defence for future prostate problems - killing two birds with one tablet. How it works: countering male pattern baldness ( androgenetic alopecia ). Finasteride acts in the body to significantly lower levels of dihydrotestosterone ( DHT ) by inhibiting the type 2 5 Alpha Reductase enzyme which is responsible for the conversion of testosterone into DHT. High amounts of DHT contribute to prostate enlargement as well as hair loss in individuals with a genetic pre-disposition to it.

Proscar side-effects study:

http://www.rxlist.com/cgi/generic/finas_ad.htm

Propecia has been approved for treating hair loss back in 1997, and has met with varying degrees of success. Proscar and Propecia are not new. However, the key appears to be using it in combination with a few other things.

The latest small scale study using Minoxidil and Finastride:

http://www.regrowth.com/hairloss-remedy/remox/promox-study.cfm

Don't be a miser, use the 5% Minoxidil (Head Way, I believe) formula and not the 2% formula. Then supplement it with the necessary multivitamin & mineral supplement called Crowning Glory ( I know, its tacky) which contains the essential multi vitamins necessary for hair growth. Finally, supplement that with Saw Palmetto, best for absorption is the brand under Prime ProGuard. For better overall effect, use only Pregaine, clear gel shampoo. As a last ditch measure, rub your nails together for a few minutes every day - that's the yoga way, apparently.

Package Deal (btw RM450-500)

Proscar / Propecia (1mg/day is sufficient)

Minoxidil 5% ( twice daily on scalp)

Daily CG Multivitamin (Vitahealth)

Twice Daily Saw Palmetto capsules

Pregaine shampoo

p/s Serious Warning: Proscar and Propecia cannot and should not be taken by women . PROSCAR is not indicated for use in pediatric patients or women. Exposure Of Women — Risk To Male Fetus: Women should not handle crushed or broken PROSCAR tablets when they are pregnant or may potentially be pregnant because of the possibility of absorption of finasteride and the subsequent potential risk to a male fetus. PROSCAR tablets are coated and will prevent contact with the active ingredient during normal handling, provided that the tablets have not been broken or crushed. Consult your pharmacist before taking the above medication.

Thai Rak Thai

Now we now why the Thai baht had been so strong for so long despite the political turbulence. Thailand will scrap its capital controls on foreign inflows from Monday, a policy shift that could lead to a wave of new investment flows but strengthen the baht still further.

Tarisa Watanagase, the Bank of Thailand (BoT) governor, announced the change yesterday as ''appropriate'' as the economy had begun to improve from the fourth quarter of last year. The announcement came after the government transferred four state department chiefs in a week.

Ms Tarisa denied speculation that the scrapping of the 30% rule was made due to government pressure. The removal of the rule was a key promise by the People Power party and other parties in last year's election campaign. The Thai government plans to unveil a new stimulus programme next week would also help raise confidence in the economy, while a decline in the trade surplus and rising investment abroad had also led to a greater balance in capital flows.

Last Monday, the National Economic and Social Development Board surprised the financial markets by announcing that economic growth picked up to 5.7% year-on-year in the fourth quarter and to 4.7% for the whole of 2007. Finance Minister Surapong Suebwonglee echoed the sentiment, saying that public confidence in the economy had improved in recent months. He said the cabinet on Tuesday would review an economic stimulus programme that would help boost investor and consumer confidence further. The programme is expected to include tax breaks for individuals and companies, as well as incentives aimed at boosting the property market and other sectors.

The Finance Ministry yesterday also announced various measures to help ease the impact on the currency following the lifting of the capital control, including plans to float new public savings bonds and 30-year infrastructure bonds and policies to facilitate state and private sector investment in foreign securities. The 30% reserve rule, implemented on Dec 18, 2006, was one of the more controversial policies enacted under the Surayud Chulanont government. The rule, which was aimed at curbing speculative inflows and baht appreciation, was widely criticised by foreign investors and led to the largest one-day loss in the history of the local stock market the day after it was announced.

The central bank has since relaxed the 30% capital reserve requirement, although it remains for investments in the bond market and property funds. The baht, which traded at 31.5 to the dollar yesterday, its strongest since the 1997 crisis, has risen steadily in recent months in anticipation of a policy change.

The central bank had also imposed administrative measures to curb baht speculation by restricting transactions with no underlying trade or investment purpose. Just to compare with the ringgit: the ringgit has already appreciated gradually vs the USD over the last 18 months, even so, the ringgit has not been able to keep up with the strong baht. The move will only strengthen the baht further, damn, there goes my Bangkok trip. Abolition of capital controls is needed to resume mega-projects which require foreign investment. Meanwhile, the central bank insisted it would not cut the policy interest rate, though the Thai rate is higher than the US and makes Thailand attractive for capital inflows, which would strengthen the baht.

The market earlier believed the revocation would come with a deep policy interest-rate cut of at least 100 basis points from the current 3.25 per cent. The bank said the managed-float exchange rate was suitable, because it was flexible and dealt with global volatility, an important factor that is closely monitored.

Thailand's economy grew 4.8% last year. Economists say business confidence is reviving under the new, pro-business government. Thailand's imports in January, for instance, rose 40% compared with the same month last year. Its January trade surplus narrowed to US$170 million, compared with more than US$612 million in January 2007.

Thaksin, a billionaire populist who styled himself as Thailand's chief-executive prime minister before running afoul of the country's powerful military, strongly criticized Ms. Tarisa's capital controls from his self-imposed exile. Finance Minister Surapong Suebwonglee, a close associate of Thaksin, told reporters that the government will urge state agencies and businesses to convert their foreign debt into local currencies, effectively buying dollars and checking the baht's upward momentum. State enterprises and agencies currently have foreign-currency debts worth US$3 billion.

Despite the new signals coming from policy makers in Bangkok, political risk continues to hang over the Thai market. Thaksin's return has deepened concerns that a simmering conflict between the armed forces and the billionaire's supporters for long-term control of the country will continue to fester. On Tuesday, Thailand's election commission ruled that one of Mr. Thaksin's close associates was guilty of electoral fraud. If Thailand's Supreme Court upholds that decision, it could lead to the dissolution of the pro-Thaksin People Power Party, the nucleus of the new government.

Never underestimate Thaksin's hidden-hand. The feel-good removal of capital controls coincided with his return. Probably to foster the feel-good environment to link with his appearance - shrewd and clever. Dollar for dollar, the Malaysian economy is in a lot better shape than Thailand, hence the stronger baht will certainly bring forth some issues. Stocks will fly, however exporters will have to deal with tighter margins. Property prices will also fly, attracting bubble conditions again. I hope they remember 1997. Only this time around, the neighbours won't be joining the after-party.