Happy New Year 2016

It has been a long time since I updated this blog. In the past two months, I have been trigger happy, adding some new members to Huat Fund as well as increasing holdings in Inari.

Welcome, 

Fibon, Maybank, OCK and Jaya Tiasa. 

The short rationale behind these purchases:

Fibon: This is a speculative purchase to get short term gain.

Maybank: This is a move to shift into dividend orientation, Maybank at this price is really attractive because its overseas operation is till growing yearly. Long term buy.

OCK: The company recently expended into Myanmar and will reap the rewards soon. Medium term buy.

Jaya Tiasa: This is also a short term buy to gain revenge over the earlier loss. 

Huat Fund is running low on cash after adding all these new members. It is a pity because the current China fiasco presents a good opportunity to accummulate more stocks. 

Huat Fund looks like this today:

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:

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:

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:

Averaging up - Hovid

After coverage initiation by RHB Research Team, Hovid has been on a steady uptrend. With the 20k cash injection, my hand got itchy and today I bought another 20000 units of Hovid @ RM0.43. This stock should be ripe for harvesting in a few years time.

Due to the 20k cash injection, calculation of the return rate of Huat Fund will be based on 70k instead of 50k. Thus, the return rate will be adjusted from 60% to 43.1%. The Huat Fund looks like this after this transaction:

Financial assets at 16.07.2014
	Name	Purchase Date	Purchase Price	Current Price	Unit	Current Value	P/L ex Dividend (%)	Dividend	P/L inc Dividend (%)
Cash	Hle-Broking			16725.88
	Inari	24/02/14	2.30	3.26	10000	32600	41.9	270	43.1
	Sunreit	04/10/13	1.40	1.44	5000	7200	3.1	282.75	7.1
	Cypark	22/10/13	2.17	2.75	3000	8250	26.7	147.5	28.9
	Jaya Tiasa	24/04/14	2.74	2.56	2000	5120	-6.7		-6.7
	Westport	09/05/14	2.77	2.79	1000	2790	0.8		0.8
	QL	07/07/14	3.60	3.5	3000	10500	-2.7		-2.7
	Hovid	14/04/14	0.38	0.425	40000	17000	10.5		10.5
Total Stock				83460.00	83.3	%		700.25
Total cash				16725.88	16.7	%
Total				100185.88
Capital				70000.00
Current paper gain				12562.86
Total profit including current paper gain				30185.88	43.1	%
Total dividend				889.18

Huat Fund grows - capital injection

After investing in QL last week, the cash holding in this fund was quite low and stood at about RM 5k . At the moment I do not intend to sell any stocks in the portfolio since these stocks still have quite some upsides in them. Some comments on these stocks:

Inari - this company is still growing very fast organically. The recently in Oct 2013 completed factory #5 in Penang is now almost fully utilized at 85%. The rights issue announced will be used to fund another expansion and the rights issue is at reasonable price. Will buy more to average up.

Sunreit - this company is quite undervalued due to the impending launch of renovated Putra Place. Earnings and dividend will improve once it is operational.

Cypark - the renewable energy quota for this year will be released soon. Will be interesting to see how many Megawatts this company wins.

Westport - One of the long term buys. Proxy to the economic growth of Klang Valley industries.

Jaya Tiasa - One of the long term buys. Proxy to the palm oil consumption worldwide.

Hovid - One of the long term buys. Proxy to increasing healthcare cost in Malaysia and its' export markets.

QL - New addition.

Since the cash holding in this fund is low, I decided to solicit some extra capitals and expand the fund size in order to grow it further. Starting 15th of July 2014, Sister Ying will inject RM 20k into Huat Fund with the same return rate i.e. guaranteed 10% annual return with capital protection. After this capital injection, the cash holding increases to RM 25k. This could come handy in the next few months if and when the market corrects.  

New long term entry - HoVid

Hovid is previously a company that sells herbal tea under Ho Yan Hor brand, some 70 years ago. Under the leadership of the founder's son David Ho, Hovid went into manufacturing of pharmaceutical drugs, supplements and herbal products. It has over 400 products and is a leading exporter of pharmaceutical products in Malaysia with overseas revenue accounting for more than half of it's total sales.

Hovid was previously a problematic company and was classified as a PN17 company from October 2010 to January 2012 due to the financial problems caused by it's subsidiary Carotech. After dumping Carotech, Hovid can now focus on its profitable pharmaceutical business. 

The pulling factors are:

1. The "patent cliff". This happens when patent of the blockbuster drugs from big drugs company expires and the generic drug manufacturers can now produce their own cheaper version of the drugs. In 2014 alone there are some 6 billion USD worth of drugs expiring. So there should be plenty of generic drugs in the pipeline for Hovid. As government across the globe are trying to save money, there will be ever more demands for generic drugs and hopefully some of it will come from Hovid.
2. Hovid targets to launch about 10 to 12 products annually and will focus on high demand lifestyle drugs that are essential for extended remedies such as diabetes, heart diseases and cholesterol. More importantly, lifestyle drugs provide recurring revenue. 
3. Continuous improvement of manufacturing process over the last 5 years begins to bear fruits as in lower cost and higher outputs. Manufacturing time cycle time has been reduced from 20 days to 9 days and the duration taken to produce a million units has reduced from 400 hours to 290 hours. As a result, the margins have improved.
4. Expansion plans underway. The company is now in midst of constructing a tablet and capsule plant in Perak to increase its production by 30% in Phase 2 and the plant will start contributing in FY2016. A new research and development centre in Penang to undertake in-house trial for new generic drugs and a centralised warehouse are also planned. 80% of the capital expenditure will be funded throught bank borrowings and internally generated funds. 
5. Export market. Any local company that can compete internationally is surely a well-managed company and should be supported.
6. FDA approval for Tocovid. Hovid is in the midst of pursuing approval from US Food and Drug Administration to sell its Tocovid as a drug that could comfort stroke patients. Currently, Tocovid is classified as a dietary supplement and unlike drugs, dietary supplement are legally deemed unable to assert its effectiveness in preventing or curing ailments. The potential market size for Tocovid is enormous as stroke accounts about 49% of the US population. However, this approval might take 3-5 years. So it should only be considered a bonus, when it is realized.

The financials are also show that the company is growing:

So I am in 20000 units @ RM0.34 with a long term investing horizon of 1-3 years. Ah bu Huat Fund looks like this now:

Financial assets at 18.04.2014
	Name	Purchase Date	Purchase Price	Current Price	Unit	Current Value	P/L ex Dividend (%)	Dividend	P/L inc Dividend (%)
Cash	Hle-Broking			17454,39
Stocks	OCK	27.12.13	0,78	1,28	5000	6400	63,3		63,3
	Inari	24.02.14	2,30	2,65	10000	26500	15,4		15,4
	Sunreit	04.10.13	1,40	1,34	5000	6700	-4,1	188,8	-1,4
	Cypark	22.10.13	2,17	2,92	3000	8760	34,5		34,5
	Hovid	14.04.14	0,34	0,34	20000	6800	-0,5		-0,5
Total Stock				55160,00	76,0	%
Total cash				17454,39	24,0	%
Total				72614,39
Current profit				8127,17
Total profit				22614,39	45,2	%
Total dividend				473,94