Thoughts

Stock watchlist

Dear Readers

It’s almost the end of June. What an interesting month on Bursa. Market volatility started warming up after the Trump-Comey scandal; another Watergate in the making which will unlikely result in an impeachment.

After that, the market got hit when the Feds decided to hike interest rate. Even though this was expected, the effects of such rate hike has dented the mood on Bursa. There is a likelihood that foreign funds may decrease their exposure in the Malaysian equity market.

However, let’s not be swayed by things which are out of our control. Remember, the Malaysian economy is doing fine and if you are investing in a company with good fundamentals, there is nothing which you should be concerned about.

This brings up to the purpose of this write-up. There are companies which are fundamentally sound but are suffering minor hiccups every now and then either because their earnings are below market’s expectation, their businesses are affected by external factors i.e. hike in prices of commodities, purely market sentiment or a combination of all or any of the said factors. Yet nothing has changed, at the core of their businesses, which warrants concerns.

cropped-derivative-analysis

Today, we will look into 4 companies which have fallen out of favour by the market in recent time. This is not a recommendation, or anything of that sort, to be acted upon. Treat this write-up as an idea and rely on your own research.

  1. Maxis. From a high of RM6.60 in May and to a low of RM5.60; that translates to a 17% discount on Maxis Bhd’s share price. Partly to be blamed is a tighter competitive environment between the telcos, caused by price wars, and Maxis’ more recent private placement of newly issued 300 million shares which raised about RM1.66 billion. The fund raising will be used to pare down its borrowings. This of course raised the concern of share dilution which in turn affected its share price.
  2. BjFood. Berjaya Food Bhd posted its maiden loss in its last quarterly report for the first time ever since it went public. Earnings were dragged by the closures of non-performing Kenny Rogers Roasters (“KRR“) restaurants which resulted in an impairment to its earnings. Its Starbucks business remains the only growth impetus. This can be seen from its top line growth (revenue) which grew at a stupendous rate of about 9% from FY2016 to FY2017 notwithstanding the drag from KRR. BjFood share price looks enticing @ about RM1.55 from a high of RM1.90 in May 2017. That is a 22% drop. I reckon that the company will be more profitable if it runs a pure Starbucks business. However until that day comes, expect earnings to be unexciting. Regardless of the setbacks, Vincent Tan was not perturbed from accumulating about 4.6 million shares since 29 May 2017. For more information about the company, please refer to my analysis of BjFood.
  3. Malakoff. Malakoff Corporation Bhd is like a bleeding hemorrhoid that never stops bleeding. Malakoff’s share price has decided to take a plunge to an all time low of about RM1.06. Having gathered more information about Malakoff, I do not expect its share price to rebound above its listing price of RM1.80 anytime soon due to worries of its future earnings (lower tariff on extended power purchase agreement) and the outage which plagued its newest coal-fired flagship plant,  in Tanjung Bin,  from March to May 2017. On the plus side, it paid out about 7 cents of dividend in FY2015 and FY2016. If things play out the same in the current FY2017, you can’t really complaint about a 6.6% dividend yield @ RM1.06. Keep a watchful eyes of its next quarterly report to absorb and gauge the risk associated with Malakoff’s business. For more information about the company, please refer to my analysis of Malakoff.
  4. SEM. 7-Eleven Malaysia Holdings Bhd, like its related company, BjFood, by virtue of common substantial shareholders, is also feeling the heat. Its shares has gradually been beaten down to the current RM1.40 since the start of the year. This is synonymous with a decrease in earnings caused by higher overheads namely store expansion and an increase in employees’ wages and rents. The company also blames logistical reasons for the slow sale in February and March 2017. Further, shareholders did not view the company’s proposed issuance of 616.69 million new warrants in a positive light. Because of that the said proposal was scrapped earlier this month. On the plus side, Vincent Tan has been accumulating about 24 million shares since end of April 2017.
Disclosure

I do not own shares in any of the companies listed above.

Reference:
  1. http://www.thestar.com.my/business/business-news/2017/06/19/maxis-suspended-ahead-of-corporate-news/
  2. https://www.nst.com.my/business/2017/06/250667/maxis-private-placement-shares-priced-rm552-rm166-billion-raised
  3. http://www.thesundaily.my/news/2017/06/21/maxis-shares-fall-news-private-placement-exercise
  4. http://www.theedgemarkets.com/article/maxis-raises-rm166b-oversubscribed-private-placement
  5. http://www.theborneopost.com/2017/03/18/starbucks-expansion-to-alleviate-bjfoods-cost-margin-pressure/
  6. https://cdn1.i3investor.com/my/files/dfgs88n/2017/06/14/1506076963–1498835816.pdf
  7. http://www.thestar.com.my/business/business-news/2017/06/24/challenging-times-for-malakoff/
  8. https://cdn1.i3investor.com/my/files/dfgs88n/2017/05/24/1506016511-602355912.pdf
  9. http://www.thestar.com.my/business/business-news/2017/06/01/7eleven-malaysia-scraps-rights-issue/
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