TA Investment Portfolio For December 2017

Read about TA Investment Portfolio HERE

The TA Investment Portfolio started off with 9 stocks added in Dec 17. More stocks may be added (or even reduced) in subsequent months based on TA strengths of the stocks identified and the prevailing market conditions.

Featured Stocks:

TravelSky Technology (Uptrend)

This stock has been on an uptrend move for several years. Its recent half year earnings was hit by the absence of huge government grant. The price correction which begun since July 2017 seems like coming to an end and its TA looks strong. Can it breakout of its all time high?


Select Sector SPDR Energy ETF: XLE (Turnaround)

This ETF provides exposure to some of the largest listed oil & gas related stocks in the US market. In tandem with the oil prices, this ETF has been in a long downtrend for several years. With the recent rise in oil prices, is this ETF about to change its trend?


Tenaga (Uptrend)

Tenaga is largely a monopoly player in the Malaysia power market. Its share price has been creeping up since the announcement on the change of the dividend policy. It recently dividend payout ratio is around 50% and it is at around 4% dividend yield at current price.



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Does Technical Analysis For Timing Stock Investment Work?

Please read the Disclaimer before you proceed with the rest of the article.

This portfolio is a mock-up model to test the investment thesis of the author for illustrative and educational purposes. The stock transactions in this portfolio may or may not reflect the actual actions of the author.

Monthly TA Investment Portfolio

During bull markets, very often, one may miss out on strong uptrending stocks as the prices just get higher and higher. Waiting for lower entry price may never materialize in the short to medium term unless major business issues or black-swan events happened.

I’m creating an experimental portfolio to test the hypothesis of using Technical Analysis (“TA”) for timing entry into strong trending stocks to take advantage of the temporary price corrections or pause in momentum to get into the train wagon to invest in blue chip stocks (e.g. index component stocks) or fast growing stocks when the bullish trend resumes - TA Investing.

To keep things simple, the following criteria for forming TA Investment Portfolio will be used:

1.      Stocks were previously in uptrend or bottoming formations is forming.

2.     Blue chip stocks and growth stocks (and situational turn-around stocks may also be selected).  Blue chips and growth stocks on uptrend are selected on the premise that they are fundamentally strong stocks.

3.       Enter at breakout of temporary downtrend, resistance line or bullish formation or signals.

4.      Protect capital, keep the losses small.

(a)  Set initial entry month stop-loss level at an arbitrary 5% below entry price or major support subject to a maximum loss of 5% from entry price. Stop-loss for the subsequent month may be reset based on support/resistance levels.

(b)  Weed out weaker stocks, keep the winners, and let the winners run. If there is eminent change of trend in the general market to bearish market, some or all positions may be closed.

5.      Time frame and profit target may not be initially fixed. Exit when major bearish formations or signals are formed or signs of eminent change of trend.

6.      Transaction costs are disregarded.

Total capital: S$100,000

Amount to invest each time: S$5K
Size of portfolio: 10 – 20 stocks
Benchmark: MSCI World Index

As this method entails using TA as a primary tool to increase the probability of successfully getting vested in fundamentally strong and bullish stocks on a portfolio basis, we will try to achieve reasonably large population of transactions over time so that the Law of Large Number can be applied.

Notes:
1.       This model is intended for getting vested into both fundamentally and technically strong moving stocks and not intended for short-term trading.

2.       While outcome of the test may dependent on the author’s TA skills, the TA used are the commonly applied methods, such be trend following, indicators, support & resistance, price actions and volume. TA Scores (out of a max of 9, being the strongest) are awarded based on the author’s subjective view of strength of the TA based on those factors. It is not the intention of this exercise to dwell on the details of the TA basis at this point. Over time, rule based TA signals may be developed for consistency test.

3.       Valuation of stocks may be a factor but not the final consideration for buying the stocks.


Click LINKS below to view Monthly TA Investment Portfolio

• December 2017
• January 2018

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Stock Sniper's Portfolio For November 2017

Read about Stock Sniper's Portfolio HERE

 

Transactions For Nov 17:

There was no new transaction done in Nov 17.

News of Portfolio companies during the month:

1. Singtel:

Singtel announced its Q2 result with profit increased by 197% to S$2.9b on NetLink Trust divestment. It also decided to pay a special dividend of 3 cts.

Summary of operating results (source: The Business Times)
- Operating revenue for the quarter rose 6.9 per cent to S$4.37 billion from S$4.09 billion a year ago.
- Earnings before interest, tax, depreciation and amortisation up 5 per cent
- Underlying net profit for the quarter fell 4 per cent, impacted by Airtel, which continued to face intense price competition in India. This mainly led to a 10.6 per cent fall in associates' pre-tax earnings to S$648 million.

Apparently, the market wasn't too impressed by the results, and particularly the low amount of special dividend declared, being less than a quarter of the total proceeds of S$2.3b from Netlink Trust IPO. Singtel had stated that it would like to retain remaining the proceeds for investments. The share price initially dropped from almost the high of S$3.78 prior to results announcements to a low of S$3.66, before closing the month at S$3.76.

2. Goldpac:

There is no new announcement from the Exchange during Nov. However, Goldpac did announce its Smart Card shipments for the first Three Quarters in Oct which I had inadvertently missed:

- Smart Card Shipments: year-to-date growth of 8.6% to 135.59m
- Credit Card business: growth of 30%

Based on my own estimations and tabulations above, the growth of Goldpac's quarterly IC card shipments has continued into Q3, albeit at a slower pace compared to Q2. 


3. Hopefluent:

While there is no corporate news from Hopefluent, but there were quite abit of insiders' activities announced in Nov 17.

Non-executive Director, Mo Tian Quan had recorded his first sales of shares in Oct 17 since his last purchase through China-Net Holding (Soufun) of 700K shares at average price of HK$2.183 in 1st Dec 2016. Strangely, while these sales transactions were done in Oct 17, they were only recorded with the HKEx on 13th Nov 17. In total, Mr Mo sold 812K shares at an average price of HK$3.7252.

Is this share sales is a cause of concern?

In my opinion, it's a matter of time that Mr Mo would have to decide what to do with his investments in Hopefluent. As mentioned in my initial posting HERE, there have not been any apparent progress in the cooperation between Hopefluent and Soufun since its strategic investment in 2014. Mr Mo also had not been attending Hopefluent Board Meetings for the past two years according to the annual reports.

On the other hand, the Founders and Executive Directors recorded a total purchases of 2,496K shares at an average price of HK$3.5496 in Nov17.


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Stock Sniper's Portfolio For October 2017

 

Read about Stock Sniper's Portfolio HERE

 

Transactions For Oct 17:

1. Singtel: Added into the portfolio in line with the objective of generative passive income from investments. Uninvested cash balance reduced to near 60% of the portfolio.

Reasons for purchase:
- From the desktop review HERE, it appears that Singtel has the best financial ability among the three Singapore telcos to ride out the rough patches from the increasing local competitions. Also, based on the financial ratios, Singtel has the best ability to sustain its current dividend payout. At this price, the dividend yield is expected to be 4.5%.

Review of other investments:

1. Goldpac:

- There is no new announcement from the Exchange during the period.

- However, on the corporate side, Goldpac did announce that it provided to the China Merchants Bank, an exclusive "Blockbuster " King of Glory co-branded credit card which looks quite cool.

- Still Trading at around 2x ex-cash PE. Valuation HERE



2. Hopefluent:

- Executive Chairman, Mr Fu bought a further 500,000 shares at an average price of HK$3.7195 during the month.

- Property related stocks took some beating during the month as there were news that property sales in China dropped for the first time in more than two-and-half years in September and housing starts slowed sharply.

- The PRC leadership also announced during the 19th Party Congress in October that it would be curbing speculative demands in the property market with tightening measures to cool down the housing prices further and so that housing can be within the reach of the masses.

- Are these developments a cause of concern for Hopefluent?

When the investment decision was first made with this analysis, it had already been expected that the property cooling measures would impact the number of transactions in the short term. Hence, these developments should not come as a surprise. In fact, having a stable property price and enhancing affordability to the masses would improve the demand over long term. The new land releases by the government would also increase the supply of new properties that the property companies and its agents can sell. Hopefluent does not take the risk of property, it just earns from broking property transactions.

- With a strong balance sheet, Hopefluent should have no problem to tide it through. There is still high MOS with net cash/share. See valuation HERE

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Opportunities in China's Waste Water Sector

In the previous article HERE, we provided an overview of the China's Water and Waste Water situation. In this article, we will look at the potential opportunities in the WWT and WWT related segments.

 

RHB (Apr, 2017) has categorized the waste water segment into:

WWT: Waste Water Treatment
HWT: Hazardous Waste Treatment
Sludge Treatment (by product of WWT)
WTE: Waste to energy (by product of WWT is used to generate electricity)

According to Uob Kayhian (Jan, 2017), the WWT market is quite mature in bigger cities. The WWT industry in counties has developed faster than expected in the 12th FYP period, with the treatment ratio reaching 85%, exceeded its target of 70% in 2015. However, the ratio is still low in towns. The 12th FYP targeted a 30% treatment ratio and the 13th FYP targets to aggressively raise the ratio to 70%. In less developed regions, such as the central and west regions, the ratio should reach 50%. Therefore, going forward, Uob Kayhian thinks that the WWT will focus on towns and villages, which are now lagging behind in terms of treatment ratio.

Further, Uob Kayhian reported that the treatment of sludge, which is mainly the byproduct from WWT, has been largely overlooked in the past five years. So far, most of the sludge is buried after dewatering. However, this is not a good solution as all the pollutant content still exists, suggesting high possibility of a second round of pollution to soil and rivers. Over the next few years, the government would focus on the conversion of sludge into other useful materials, depending on the type of sludge. Hence, there are opportunities in the sludge treatment area.

Overview of Hazardous Waste Situation

The Hazardous Waste Management industry in China is engaged in the collection, storage, utilization, and disposal of hazardous waste. According to ResearchInChina, China is a big producer of industrial hazardous waste, which arise from electronic circuit board production, oil & gas and chemical production processes. It was estimated that China produced 40 million tons of industrial hazardous waste in 2013, representing an increase of 15.4 % over the previous year. By 2016, China will create 70 million tons of hazardous waste. However, as of 2013, Chinese licensed companies could only treat 50 %-60% of hazardous waste. With the country attaches more importance to environmental issues, laws and regulations are enforced more and more stringently, the utilization and disposal rates of hazardous waste will be to some extent raised, and the hazardous waste treatment industry will embrace huge potentials.

The Ministry of Environmental Protection (MEP), National Development and Reform Commission (NDRC), and Ministry of Public Security (MPS) jointly released the National List of Hazardous Waste (2016 edition), effective 1 August 2016.

The updated List reclassifies hazardous waste into 46 categories. Out of the 479 items on the List, 117 are newly added.

While there are hundreds of enterprises in Beijing, Jiangsu, Zhejiang, Guangdong, Henan, and Tianjin that engage in the front line of hazardous waste treatment, most of the capacities are idle due to scarce policy support of the local government and low efficiency of garbage collection (ReportsmReports, 2014). Companies with government support in the collection of the hazardous waste will have huge growth opportunity in this area.

Technology Barrier

Compared to municipal waste water, it is more difficult to treat industrial wastewater as its chemical composition is more complex. As industrial wastewater is often toxic, the wastewater treatment system must be designed to largely remove or substantially reduce the concentration of these effluents to an acceptable level as required under environmental protection and public health laws and regulations.

Sludge is the by-product resulting from wastewater treatment and contains a large amount of nitrogen, phosphorus, potassium and organic ingredients as well as toxic and harmful components such as dioxins. Sludge treatment is a complicated process. Only less than 30% of wastewater treatment plants in cities in China can properly compress, stabilize and dehydrate sludge. According to the data collected by Ernst & Young in 2013, over 56% of wastewater treatment plants do not have stabilization treatment and nearly 49% do not have a dehydration process. Only operators with industrial solid waste certificates under the operation certificate of environmental pollution treatment facility are allowed to conduct sludge treatment business.

Hazardous waste treatment requires the most advanced technology and specified treatment process is required for each type of waste.

Overall Assessment of Waste Water & Hazardous Waste Sector:

Source: Stock Sniper

Competition

The Water & WWT industry is a highly competitive and fragmented market in China. The main players are the State-Owned- Enterprises (e.g. Beijing Enterprises Water, Beijing Capital, Shanghai Industrial, Tianjin Capital Environment) and local private companies (China Water, Kangda, Sound Group) as well as a number of international environmental services companies (Suez Environement, Veolia Environment).

However, foreign companies are increasingly finding it difficult to compete with the local companies in the WWT, except for segments that requires more advanced technology.

The WWT companies compete on financial strengths, project execution capability, research and development capability, understanding of the local governmental landscape, quality and price of wastewater treatment and industrial water supply services, brand reputation, marketing and customer services.

The wastewater treatment industry is capital intensive. It is generally easier for medium to large players with good financial strength to win bids for wastewater treatment projects, as they are able to afford the start-up cost and can obtain financing from banks or the government more easily.

In municipal wastewater projects, relationships with the local government play a vital role in winning the tender as well as in subsequent operations. A good relationship with the local government often enables a player to better understand the government’s requirements, and hence a higher chance to win the contract.

In 2017, up to May, there are two new IPOs, namely Luzhou Xinlu Water Group and Kunming Dianchi Water Treat which were listed in HKSE.

Summary of Business Scope of Listed Companies Operating in Water and WWT

   Source: Stock Sniper

¹Engineering, Procurement and Construction (EPC) service provision to 3^rd party as part of its core business)

Comparison of WWT Companies Listed in SGX, SSE & HKEx

Data Source: Morningstar, Annual reports

Coming soon... Next, we will be looking at a few of the listed companies above operating in the China's Waste Water Sector.. Click HERE To Subscribe For New Updates by Email

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