Additional capital injection & Overdued Write-Up on OpenSys

Good news, there is an additional capital injection of RM20k from my mom. Although this is getting more challenging (10% return on their capital will be RM9.755k ), I am up for it=). 

Since XC is not around for two weeks, I can spare some time to write up on OpenSys. 

OpenSys is an MSC-status company that provided solutions to financial industry. OpenSys also pioneered the design and development of a class of non-cash dispensing self-service kiosks called Efficient Service Machines (ESM) that accept deposits and payments using cash, cheques, credit and debit cards. ESMs allow banks, insurance and utility companies and government agencies to improve customer service, extend market reach and reduce operational cost. 

Financial review:
The growth that OpenSys is experiencing is exceptionally good. From the picture below, we can see that OpenSys has roughly managed to achieve the same revenue as the whole of 2014. This is largely attributed to the higher sales of Efficient Service Machine (ESM), Cash Recycling Machine (CRM) and the Business Process Outsourcing (BPO) in the FY2015 Q1. In the FY2015 Q2, the sales is almost similar to the FY2014 Q2. Lets hope that OpenSys will achieve higher sales again in Q3 =). All in all, the financial of OpenSys shows green light all over.

Pulling factors:
1)CRM
The main attraction of OpenSys is the Cash Recycling Machine (CRM). OpenSys partnered with OKI Electric Japan – the original inventor of cash recycling technology thirty-three years’ ago. 

At the moment, we have both cash deposit and ATM machine at banks. To mitigate the high cost of cash, the technology trend in recent years is to merge the separate functions of cash dispensing or cash-deposit into dual-function machines called CRM. CRMs can accept cash from depositors and dispense them to withdrawers so that the cash is essentially “recycled” – resulting in lower cost of ownership in the area of unused cash float, cash maintenance, cash handling and space rental. This means, the bank does not need to dispatch their staffs to replenish the ATM and cash deposit machines. As the banks continue to find ways to reduce their cost, CRM is fast becoming a must for them. So, expect more banks to install CRMs during recession. Besides savings of 25-30 percent in capital expenditure and operational cost, CRMs also provide better service levels to the banks’ customers because they have lower downtimes due to the automatic replenishment of cash in the machines. 

At present, the total number of cash-dispensing and cash deposit ATMs in Malaysia is approximately 15,000 units with an annual growth rate of about 5 percent. The penetration rate of CRMs currently stands at a mere 4 percent of the installed base. If the banks in Malaysia start to install CRMs

at their new branches, and trade-in their older ATMs for new CRMs due to its indisputable cost benefits, OpenSys can profit from it for the foreseeable future.

In March 2014, OpenSys secured orders for several hundred units of CRMs from two major banks in Malaysia worth over RM20 million. I suspect these banks to be Hong Leong Bank and Public Bank. Below is a list of the ATMs at respective banks:

2)BPO

Other than the CRM segment, OpenSys provides business process outsourcing (BPO) for bill payment kiosks to utility (Telekom), insurance and telecommunication companies in Malaysia. Our bill payment kiosks allow their customers to pay bills, reload prepaid cards and renew insurance premiums using cash, cheques, credit and debit cards. In return for managing the infrastructure for these organisations, OpenSys charges a fee for each payment transaction performed by their customers, resulting in steady recurring income.

3)Cheque Processing Machine

Besides that, OpenSys claims to command a hefty 85% market share in intelligent image-based cheque deposit self-service machines in Malaysia. The image-based cheque processing systems

are made up of front-end scanner devices and software applications to seamlessly capture cheque images and data and sending them to the central bank for straight-through cheque clearing and settlement. This paperless cheque clearing process that minimises the physical movement of cheques whilst converting cheques into electronic fund transfer instruments saves the banking industry hundreds of millions of ringgit per year. 

Although the cheque processing fee of 50 sen commencing 2 January 2015 is expected to reduce the cheque usage, the decline will not be significant as the business community is still very reliant on cheque as it is a time-tested payment instrument with an intrinsic audit trail and also easy to use without computer access. Even if the decline is significant, this could only mean good news to OpenSys as it would be more economical for banks to outsource the cheque processing to third parties like OpenSys. 

4)Dividend and Bonus Issue

OpenSys consistently gives semi-annual dividend payment of 5% (not dividend yield) for the past four years. This amount is not much but should be a reward for the shareholders. Recently, on 27th October, OpenSys completed a 1-for-3 Bonus Issue. The rationale for this move is to improve the trading liquidity for this stock but I suspect that there might be more things to come, for example, move to Main Board.

Risk:

1)The management is undecided on the burgeoning cash

OpenSys currently has some 5mil Fixed deposits, 7mil Short Term Investment and 9mil Cash& Bank Balances. Although having cash is good, OpenSys apparently has too much cash until the extend that they can invest it in unit trust aka short term investment. In this case, it would seem that the management has no idea on how to manage these excess cash. Thus, it would be recommended to give out more dividend to the shareholders. 

After the bonus issue, I have decided to add another 30000 units of OpenSys at RM0.305. Other than that, I have also averaged up on AirAsia by adding another 3000 units at RM1.48. After these transactions Huat Fund looks like this:

Second Annual Review FY2015

Today Huat Fund turns two. Fortunately, Huat Fund has been able to achieve the minimum return rate of 10% for the second consecutive year.

At the end of the first year FY2014, Huat Fund's fund size was RM84k due to a market correction at that time. Lesson learnt from that episode is to keep calm during the correction and do not follow the selling crowd. During FY2015, Huat Fund duly recovered and the current fund size is RM119k.


For FY2015, Huat Fund has return of RM35k, equivalent to a 41.6% return rate. The current paper gain is RM12k. This time round, the all the stocks in the portfolio are in the green with Inari being the main contributor.

 FY2015 proved to be an active year for me as there are opportunities abound in volatile times like this. Being active is not necessarily good as I would have pocketed another RM10k if I had not sold the stocks in March this year. The total realized stock profit and stock dividend are RM14k and RM2.3k respectively. Below is a summary of the realized stock profits for this year. Note that Westport has been sold (I did not write an update on that).

For the year ahead, I would expect USD-MYR exchange rate to recover to sub-RM4.00 because ringgit is undervalued at the current rate.

Globally, China is clearly slowing down and the world is still looking for the next source of growth. We can expect a stagnant market in the next 12 months.

Meanwhile in Malaysia, more banks(CIMB, RHB and Affin) are doing VSS at the moment in an effort to reduce their cost. Companies in other fields are doing the same as well. The outlook for local market is gloomy as people will spend less and feel that their ringgit is "smaller". The property sector will remain subdued. We can expect more rebates =). For the next Financial Year, I will focus on stocks that can withstand cost cutting measures and also recession. In fact, I have already have one such stock in Huat Fund right now. Make a guess!

Risk-taking Opportunities

The Bursa Megasale is still ongoing and I have decided to participate in it, mainly because I see some short term opportunities as some stocks are trading below their 52 weeks high. During this week, I have added additional 20000units of Opensys @ RM0.33 [patience - the review is still underway =) ], 3000 units of AirAsia @ RM0.96 and 20000 units of Hovid @ RM0.43.

 Bear in mind that these buys are classified as tactical asset allocation, which means that this is a short term strategy. Huat Fund looks like this after these transactions:

Ongoing Bursa MegaSale

Sorry guys, I am still unable to provide an update on Opensys. At the moment, I have a very special project XC. 

However, due to the ongoing MegaSale on Bursa, I have added 20000 units of Opensys. In the meantime, I am collecting some investing ideas as in stocks to research so that the cash in Huat Fund can be put to work soon.

In addition, I have also added 2000 units of Westport into Huat Fund. This is purely for short term purpose since I noticed that this stock had fluctuate between RM3.90 and RM4.60 for the past few months. 

Huat Fund looks like this now:

New addition - Opensys

Just a short update to Huat Fund: Huat Fund has a new member as of today! It is Opensys. I bought 10000 units @ RM0.38 today.

Since I am quite busy recently with the workplace projects, I will only provide the write up on Opensys on weekend. Huat Fund looks like this as of today:

I am back

Phew. The exam is finally over. The normal life resumes! Hopefully I can recoup some of the investment in the CFA course soon =).

The downtrend that I anticipated has finally began. Well, I must admit I sold my stocks abit too early. I could have easily pocket 5k more if I am still holding them. As of last Friday, the Bursa FBM KLCI30 has reached 1745. The local market is currently besieged by the IMDB scandal and the political uncertainty. Luckily, our GLCs have received their directives to invest locally. Otherwise, we would have experienced some serious plunge.

With that in mind, I will start look for some gems to insert into Huat Fund. Feel free to give any suggestions=). Huat Fund looks like this as of today:

Adopting wait and see approach

During my CFA class last weekend, my lecturer of the day Mr O shared with us his view of the current outlook for Malaysia. I sort of agree with him that the next 12 months will not be good for Malaysia because:

1) Fitch is planning to downgrade the credit rating of Malaysia from A- to BBB. This would cause the Malaysia Government Bond 's yield to spike above 5%. This coupled with a high foreign bondholding would mean that the yield might spike further and ringgit will fall further if some foreign funds decide to exit in exodus. See you at 4.00?

2) GST is not a April fool's joke. With the implementation of GST, the consumer mood will deteriorate. The country's GDP will be affected as well based on the experience in Japan and Singapore. Lets hope Malaysia will not experience technical recession at the end of the year.

3) The Kelantan flood repair bill has not come in yet. Nobody knows as of now the extent of the destructions brought by the worst flood in some time. The government will have to foot the repair bill soon. 

4) The oil price will probably linger at 50USD level for the next one to two years at least. Although Malaysia has become a net oil importer according to the government, we still depend a lot on oil revenue. In 2014, the government receive at least RM 60 billion from Petronas. Other than that, due to the capex cut, there are less projects for the downstream and upstream companies in Malaysia. Hopefully these companies can stay profitable in the mean time.

Based on the few points above, I have decided to sell 

- all 40000 units of Hovid @ RM 0.43

- some 8500 units of Inari @ RM 3.33 

- all 1500 units of Inari - WB @ RM 1.47

- all 3000 units of Westport @ RM 3.70.  

*I have actually forgotten to sell Jaya Tiasa. It will be done tomorrow.(Update: JTiasa has been sold as planned @ RM 1.70 each

So Huat Fund looks like this today:

Cashing in on Pestech too

On Thursday, Pestech has finally risen above RM5.00 for the first time after the share split in 2014. During the CFA class, I have learnt about some technical indicators and so I have tried to use them on Pestech:

First technical indicator I used is the Moving Average Converge Divergence (MACD). According to Investopedia, MACD is a trend-following momentum indicator that shows the relationship between two exponential moving averages (EMA) of prices. EMA is simply the weighted average closing price of the last few trading days that gives more weight/emphasis to the latest data. MACD is calculated by subtracting the 26-day EMA from the 12-day EMA. Then we use a 9-day EMA of the MACD, called the "signal line" as a trigger for buy and sell signals. In the area highlighted by blue circle chart below, the MACD line crosses and rises above the signal line, meaning it is a bullish sign. On 28th February 2015 (red circle), the MACD is still above the signal line and thus Pestech still in bullish mode.

Second indicator I used is the Relative Strength Indicator (RSI). According to Investopedia, RSI is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. RSI ranges from 0 to 100. Once RSI hits 70, it is considered overbought and the asset is likely to experience some pullback. In the case of Pestech, it was in overbought mode in the last two trading days (26th and 27th February) as highlighted by the red circle below. However, if the RSI drops below 30, then it is technically oversold and will likely to rise.

The two technical indicators indicate that Pestech is still in bullish mode and thus likely to have some more upside. However, the cautious me decided to exit while the market is still bullish and the Pestech volume is still high. So I sold my 1000 units of Pestech @ RM4.96, earning 22% Holding Period Return (HPR). The two transactions in 2015 so far:  

After this transaction, Huat Fund looks like this:

Cashing in on SKPetro

The market volume is quite good for the past few trading days. So I decided to take profit on SKPetro and sold my 2000 units at RM2.85. Earning 25.92% or RM1.2k in less than two months is not too shabby huh. In my opinion, there will be more chances to earn short term cash like this in the coming months due to the volatility in the market. Lets not forget that GST is on the horizon.

GST itself is actually a good thing as Malaysia has got a very huge shadow economy. In order to tax this shadow economy, GST is the best choice. You pay when you consume. There is no running away from it. And it is harder to evade tax too with the computerized system. I reckon, people will push forward their big ticket purchases and this will leave a huge lull in the economy after the GST. Retail and property will be hardest hit. Then stocks like Padini will be worth considering. So cash could come handy then. From now on, I will build up my cash holding and invest in dividend stocks whenever possible.

Huat Fund looks like this after this transaction:

Wa si CFA Candidate

Certified Financial Analyst (CFA) is a program that I found out a few years ago and I have always wanted to study it. Finally I got the chance to enroll in a part time workshop locally after returning to Malaysia and I am proud to say that I am a candidate for the level 1 exam in June this year.

CFA emphasizes a lot on the ethical investing. For example, the interest of clients always come first and we should take the last bite of any cherries. As a matter of fact, as a candidate or Charterholder of CFA, I am not allowed to give guaranteed returns for that is not realistic in the real world and thus considered not ethical.

Therefore, the objective of Huat Fund will have to be altered. Previously, I guarantee a 10% annual return on Huat Fund. Now, I will try my best to achieve a 10% annual return on Huat Fund.

Meanwhile, a little update on Huat Fund. Paper gain increases as the market improved over the last few weeks. Bulk of the gains come from Inari. SK Petro is almost near my 30% target and Hovid is finally showing some sign of life after hibernating for the past half a year. I suspect the renewed interest in Hovid is due to the fall in ringgit as most of it's export products are priced in USD. Heck, even Pestech and QL have broken even. Jaya Tiasa remains the problem child. Huat Fund looks like this today:

Oil Price update

Oil price just dipped below 50USD barrier today. It would be interesting to see how far it will drop further. My guess will be not much more and a upwards correction will be forthcoming soon. Although I firmly believe that oil price rise back to probably 70-80USD level, I am not holding SKPetro for long. I am looking at 30% profit at most.

Today Inari finally went ex-right. The day has finally arrived. Hopefully the market will stay good until it reached RHB's target price of RM3.41 .

In the meantime, Huat Fund swings back into paper gain zone: