Monday, December 22, 2014

QT Vascular – an overlooked potential health care play?

In one of the articles by Channelnewsasia dated 18 Dec 2014, it was reported that the general healthcare sector has performed well this year and prospects likely remain bright next year. The healthcare index, as measured by the SGX Healthcare Index, registered a year to date return of approximately 9-10% vs the 2% from STI. Factors such as the aging demographics and rising demand for quality healthcare etc. continue to bode well for the overall healthcare sector.

One of the stocks which has underperformed on a year to date basis is QT Vascular. Average analyst target is $0.665. Its price chart seems to be in the midst of a base formation, hence I decide to take a closer look in this stock.

Description of QT Vascular

QT Vascular’s value proposition to its customers is that’s its products (i.e. balloon catheters) are less invasive for the treatment of vascular disease without the use of permanent implants (stents). QT Vascular manufactures and sells two types of balloon catheters. They are used to treat either peripheral artery diseases or coronary artery diseases. The catheters are marketed under the Glider and Chocolate brands.

Readers can refer to the company website http://www.qtvascular.com/ for more information.

Investment merits

Industry prospects remain sanguine

According to QT Vascular’s prospectus, the market size for peripheral vascular devices is estimated to grow at a compound annual growth rate of 7.1% from US$4.8b in 2011 to US$7.8b in 2018. The coronary market is arguably larger than the peripheral market. With the aging population and change in healthcare coverage and amount spent etc, these factors are likely to underpin the demand for QT Vascular’s products.

4QFY14F results may be strong

4QFY14F results are likely to be buoyed by the ramp up of GliderXtreme PTA products in Asia as new shipment orders of Glider products from China and Japan in 4Q14 are expected to contribute to top-line growth. Secondly, QT Vascular announced on 15 Oct 2014 that it has signed distribution agreements for the sales of its Chocolate PTA® balloon catheter in Italy, Austria, Turkey, and Australia. This should bode well for its results in 4QFY14F and beyond. Thirdly, QT Vascular’s existing products, such as Chocolate PTA continue to grow as a result of a 300% year on year increase in U.S. hospital accounts.

Approvals from regulators provide another catalyst

Firstly, QT Vascular has applied for CE marking approval for its Drug Coated Chocolate Touch in Jul 2014. This approval, if obtained, is expected to be in the next 12 – 18 months. Secondly, QT Vascular may also secure the approvals for its Chocolate PTA from China CFDA and Japan Shonin in 2015. Such approvals, if materialise, bode well for QT Vascular. See Table 1 for its product portfolio and approvals.

Table 1: Product portfolio and approvals

Possible takeover target

In QT Vascular’s industry, it is a norm where established medical companies acquire smaller groups for their new and upcoming products. With reference to Table 2, QT Vascular has more products than the other firms which were acquired in the past four years. It is noteworthy that CVingenuity and Lutonix have not generated any revenue at the time of their takeover. As QT Vascular progresses on their products development and sales, it is likely that it may be able to command a higher valuation due to lower business risk and better earnings visibility.

Table 2: Peers who have been sold in the past few years

Source: Company

In addition, I will like to highlight QT Vascular’s CEO Eitan Konstantino’s past work experiences (See Table 3). Among his career history, he was the Founder & President, AngioScore, Inc and CEO & COO, Advanced Stent Technologies which were both acquired. Thus, this may a sign of his inclination to develop the company and subsequently sell it off. Nevertheless, I hasten to add that this is just my own personal (gut feel) observation.  

Table 3: QT Vascular’s CEO Eitan’s past work history

Source: Company


Stepping up on investor communication

According to a CIMB 18 Nov 14 report, it was reported that management is aware that investors require timely information so that they can track the company’s performance better. Management will be making more timely updates to keep investors apprised of the company’s development.

Notwithstanding the above, there are multiple risks that readers have to be aware of. For a comprehensive list of the risk factors, readers can refer to pg 37 of QT Vascular’s prospectus. Below are just some risks (out of the many risks) which I highlight for your reference.

Risks


Loss making company since 2010

QT Vascular has been making losses since 2010 and it is likely that FY2015F may still be loss making. In an interview with the Edge in Sep 2014, management pointed out that company is focused on spending on research and development (“R&D”) so as to build up its pipeline of products. Management believes that such spending increases the intrinsic value of the company over time. In addition, management mentioned that QT Vascular can become profitable quickly if they reduce their R&D expenses and focus on distribution.

Share moratorium

QT Vascular’s share moratorium ended in late Oct 2014 where the pre ipo investors, which own 77.4m shares, can sell a maximum of 50% of their shareholding. According to QT Vascular’s prospectus pg 76, these pre-ipo investors can sell the balance of their shares (if they wish) around 2Q2015. QT Vascular has dropped about 21% from $0.355 on 3 Nov to $0.280 on 19 Dec. It is likely that at least some of the pre-ipo investors have exited during this period.

Not familiar with QT Vascular’s products

I hasten to add that I am not fully familiar with QT Vascular’s products and the scientific data from trials which support the usage of its products.

Failure to obtain regulatory approval & / or obtain market acceptance

There is no guarantee that QT Vascular’s upcoming products will be able to obtain regulatory approval (e.g. FDA, CE Mark approval etc). Furthermore, after obtaining approval, market acceptance is not a done deal as QT Vascular will need to convince the hospitals and distributors to buy its products.

Limited operating history

QT Vascular has a limited operating history and does not have long-term data regarding the safety and efficacy of their products. Positive results from earlier trials may be negated by regulatory authorities or by later stage clinical trials.

Technical outlook

Based on Chart 1, the prevailing medium term trend for QT Vascular is down as depicted by the red line. However, for the past three weeks, QT Vascular seems to be in the midst of a base formation. A bullish double bottom formation will be formed if it can break the neckline at $0.295 with volume expansion. Measured technical target price is likely to be around $0.325. This formation is invalidated if it breaks $0.265 with volume expansion.  



Supports: $0.275 / 0.265

Resistances: $0.295 / 0.315

Chart 1: QT Vascular chart may be in the midst of base formation


Source: CIMB chart as of 19 Dec 14

Conclusion

QT Vascular seems to be a promising company with exciting products. Approvals from regulators, improved 4QFY14F and FY15F results and improved investor communication etc are likely to be some of the factors for re-rating. However, it is noteworthy that the lack of operating history, its loss making results since 2010, share moratorium and market acceptance are some of the factors to watch out for.

P.S: This is just an introduction to QT Vascular. Readers are encouraged to visit QT Vascular’s website http://www.qtvascular.com/ and refer to the analyst reports for more information.


Lastly, readers can email me at crclk@yahoo.com.sg for my pdf writeup, complete with charts and tables which i am unable to post here due to technical constraints.

Disclaimer
The information contained herein is the writer's personal opinion and provided to you for information only, and is not intended to, or nor will it create/induce the creation of any binding legal relations. The information or opinions provided herein do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or invest in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein are suitable for you. The writer will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials appended herein. The information and/or materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.

Monday, December 8, 2014

Hi-P – a proxy to Apple and Xiaomi?

Hi-P recently caught my attention as it has been conducting several share buybacks in the past one month. Secondly, Hi-P’s chart formed a bullish double bottom formation with the breakout of the neckline at $0.690 on 24 Nov. Thirdly, Apple’s (Hi-P’s customer) market capitalisation hit US$700b on 25 Nov 2014 on optimism over iPhone 6 sales and new Apple products. Fourthly, an article dated 7 Nov 2014 on Financial Times reportedly cited that Xiaomi (Hi-P’s customer) is seeking to raise US$1.5 billion in new capital at a valuation set to exceed US$40 billion.  The above factors prompted me to take a closer look into Hi-P.

Description of Hi-P

Hi-P is an integrated contract manufacturer to customers in mobile phones, tablets, household & personal care appliances. It has 14 manufacturing plants globally located across five locations in China (Shanghai, Chengdu, Tianjin, Xiamen and Suzhou), and in Poland, Singapore and Thailand.

Readers can refer to the company website http://www.hi-p.com/ for more information.

Investment merits

4QFY14F results may be strong

Hi-P 3QFY14 net profit was S$10.8m, up 243% from S$3.1m a year ago. However, due to their weak 1HFY14, 9MFY14 registered a net loss of S$4.5m. Analysts are expecting that Hi-P’s FY14F net profit would be around S$12.3m – 12.5m. This suggested a strong turnaround in 4QFY14F net profit to be around S$17.0m, up 57% quarter on quarter (“qoq”).

Riding the coattails of Apple and Xiaomi

Although the smart phone industry is challenging where product life cycles are short, the entire industry is growing. According to Strategy Analytics, a total of 320.4m smartphones were shipped in 3Q2014, up 27% on a year on year comparison. Out of these 320.4m smartphones, Apple and Xiaomi shipped a total of 57.3m smartphones, up 47% from last year. This is likely to benefit Hi-P to some extent.

In addition, Hi-P is one of the two approved suppliers for the stainless steel body frame for Xiaomi’s Mi4. According to UOB Kayhian writeup on 4 Dec, Hi-P’s production yield for Xiaomi’s Mi4 has increased from 20-30% to the current yield of more than 60%. The successful ramp up is likely to gradually reverse the operating loss from manufacture of the stainless steel body frame for Xiaomi’s Mi4. Furthermore, it is likely to open more doors to new customers and business opportunities.

Other customers also gaining traction

Russian President Vladimir Putin gave China’s President Xi Jinping a dual-screen YotaPhone 2. What is significant is that Hi-P is the original design manufacturer (ODM) of YotaPhone 1 & YotaPhone 2. YotaPhone 2 was officially launched on 3 Dec in London. YotaPhone 2 will also be scheduled for launch in China & other Asian countries (in early 2015) and in 20 European countries by end 2015. If YotaPhone gains traction, this is likely to be another growth driver for Hi-P.

Share buybacks at increasingly higher prices

Hi-P has been doing several share buybacks since last month. Based on Table 1 below, total shares accumulated since last month amounted to 903,000 shares at an average price of $0.691 (including fees). The latest three purchases occurred in the last two weeks with average prices ranging from $0.702 – 0.714.



Table 1: Hi-P’s share buybacks since Nov 2014


Date
No of shares
Amt (S$)
*Ave Px (S$)
3-Dec-14
100,000
71,170
0.712
1-Dec-14
241,000
169,129
0.702
27-Nov-14
316,000
225,526
0.714
19-Nov-14
138,000
90,061
0.653
17-Nov-14
108,000
67,912
0.629





903,000
623,798
0.691
Source: SGX, Ernest’s compilations

Investment risks

Competition

Contract manufacturing industry is an industry with stiff competition where competitors compete on scale and cost. Hi-P has to constantly upgrade their manufacturing capabilities and increase efficiency and production yield in order to stay ahead of competition.

Smartphone industry - Fast changing industry

The smartphone industry is ever changing and customers’ preferences may change abruptly. Research In Motion’s (“RIM”) Blackberry smartphones was a case in point. It was very popular in mid / late 2000s before customers change their preferences to other smartphones. At that time, RIM comprised of around 25% of Hi-P’s revenue and as a result, Hi-P was affected by the dwindling demand for RIM’s blackberry smartphones.

Dependence on key customers / industries

In terms of revenue contribution, the smartphone segment contributed about 50-60% of Hi-P’s overall revenue for the past three years. Any adverse changes in the smartphone segment, especially to their large customers, will be negative to Hi-P.

Production yield for Xiaomi Mi-4 is key

According to UOB Kayhian writeup on 4 Dec, Hi-P’s production yield for Xiaomi’s Mi4 has increased from 20-30% to the current yield of more than 60% which is probably at or near breakeven levels for Hi-P. In order for Hi-P to register strong profits in 2015F, Hi-P has to increase the production yield further.

There are also other risks such as raw material cost or manufacturing costs which may crimp Hi-P’s margins. In addition, based on Chart 1 below, it is evident that Hi-P’s share price is pretty volatile and may not be applicable to everybody.

Technical outlook

Based on Chart 1, Hi-P seemed to have formed a bullish double bottom formation with the breakout of the neckline at $0.690 on 24 Nov. Measured technical target price was S$0.765 which was attained on 4 Dec. All the EMAs (21D, 50D, 100D & 200D) are trending higher with 21D EMA forming golden crosses with the rest. Although there seems to be some profit taking at this time, the overall chart outlook seems bullish.

Supports: $0.690 – 0.700 / 0.680

Resistances: $0.720 / 0.760-0.765



Chart 1: Hi-P chart looks bullish after the double bottom formation, coupled with golden crosses (not able to attach here)


Source: CIMB chart as of 5 Dec 14

Conclusion

Hi-P seems to be on the verge of a turnaround, fuelled by the popularity of Apple and Xiaomi products. Analysts are pretty positive on Hi-P’s 4QFY14F results. Successful delivery of a good set of results in 4QFY14F and bullish guidance in FY15F are likely to be the factors for re-rating. However, it is noteworthy that the fast changing industry, Hi-P’s dependence on key customers, stiff competition and production yield for Xiaomi Mi4 are factors to watch out for.

P.S: This is just an introduction to Hi-P. Readers are encouraged to visit Hi-P’s website http://www.hi-p.com/ and refer to the analyst reports for more information.

Disclaimer

The information contained herein is the writer's personal opinion and provided to you for information only, and is not intended to, or nor will it create/induce the creation of any binding legal relations. The information or opinions provided herein do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or invest in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein are suitable for you. The writer will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials appended herein. The information and/or materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.

Monday, October 13, 2014

Vallianz – An emerging OSV play

The first time that I came into direct contact with Vallianz Holdings (“Vallianz”) was in early Aug 2014 where Mr Ling Yong Wah, Executive Director of Vallianz did a presentation at CIMB Securities. My first impression of him was pretty positive as he went to great lengths to explain his company’s business and prospects. He was also candid and shared with us some of the potential investors’ concerns about his company. A week later, I met him on a 1-1 chat over coffee on his company to understand more about the company and also to clarify some of my queries.

Vallianz has fallen approximately 32% from its intraday high of $0.135 on 22 Aug 2014 to $0.092 on 13 Oct 2014. With the sharp decline in its share price, it seems to be time to take a closer look in this stock.

Description

Vallianz is a provider of offshore support vessels (“OSV”) and integrated offshore marine solutions to the oil and gas industry. They own a young fleet of over 29 offshore support vessels with an average fleet age of 2.3 years. Their fleet comprises of 19 anchor handling tugs (“AHTs”), six platform supply vessels (“PSVs”), two towing tugs and two other vessels. They cover markets in Asia Pacific, the Middle East and Latin America with their headquarters in Singapore.

Vallianz is listed on the SGX Catalist with a market capitalization of S$281m as of 13 Oct 2014. Please visit their website  http://www.vallianzholdings.com/corporate-profile.html# for more information.

Investment merits

Industry dynamics seem positive

Industry dynamics seem positive for Vallianz. Firstly, amid the delivery of new rigs in 2014 & 2015, the supply of rigs is expected to increase. This is likely to underpin demand for OSVs. Based on Figure 1 below, the OSV – rig ratio is likely to decline to 4.25x in 2015 (lower than that of 2013) and may decline to below 4x beyond 2015.

Figure 1: OSV – rig ratio


Secondly, according to Tidewater and Gulfmark, customers are placing more emphasis on younger vessels as these vessels typically have higher specifications such as dynamic positioning technology and better fuel efficiency. Based on Figure 2 below, more than 25% of the OSV fleet is more than 25 years old and likely to be less competitive vis-à-vis OSV owners with younger fleet. It is noteworthy that the average age of Vallianz’s fleet is about 2.3 years old. This compares favourably with the global average of about 11 years for AHTS and 18 years for PSVs. Furthermore, according to Vallianz, 17 out of 19 of their AHTs and all their six PSVs have dynamic positioning technology, which is increasing a pre-requisite for most offshore projects.

Figure 2: Age of OSV fleet


With reference to Figure 2 above and Figure 3 below, although there is an overbuilding of OSVs prior to 2008 where the AHTs and PSVs order book to fleet soared above 30%, this ratio has dropped to an average 8% for AHTs and 27% for PSVs. It is noteworthy that all of Vallianz’s vessels are below 7,999 BHP where the order book to fleet ratio is around 5%.

Figure 3: AHTs order book to fleet ratio

Vallianz’s order book of US$494m stretches to 2018 provides visibility

As of 30 Jun 2014, Vallianz has an order book of US$494m and is tendering for projects valued at around US$1.2b. According to the company, around 50% of the order book is likely to be recognized in 2HFY14F and FY15F. (See Figure 4 below)



Figure 4: Vallianz’s order book

Source: Company

Vallianz has executed several noteworthy initiatives in 2014

Firstly, Vallianz announced on 12 Apr 2014 that they have entered into a collaboration arrangement with a first class Chinese shipyard to build Vallianz – designed vessels. Vallianz has the right of refusal for up to 200 vessels. This is a strategic step to manage their asset base and fleet renewal.

Secondly, Vallianz announced on 22 Sep 2014 that they were acquiring a Singapore incorporated Jetlee Shipbuilding and Engineering Pte Ltd so as to establish their own marine base for docking and maintenance operations. According to the company, this should result in cost savings and enhance operational efficiencies. The purchase of Jetlee would be settled by issuance of 143.3m Vallianz shares at an issue price of $0.138 per share. It is noteworthy that the issue price of $0.138 was at a 24% premium to Vallianz’s volume weighted average price (“VWAP”) of $0.1116 per share. The owners of Jetlee Group are industry veterans and comprise of Mr Chan Kwan Bian (co-founder of Labroy Marine), Mr Teo Guo Ping (previously working at Pan-United Corp) and Mr Ng Chee Keong (founder of Jetlee through a joint venture with Pan-United Marine Limited.) As the consideration will be entirely settled via Vallianz shares, priced at a significant premium to the current price (then), it is likely that the Jetlee owners are confident in Vallianz’s business and growth prospects.

Thirdly, Vallianz announced on 30 Sep 2014 that they are acquiring OER Holdings Pte Ltd, a provider of manpower services to the offshore industry for US$27.7m. OER Holdings’ 2013 earnings before interest, tax, depreciation and amortization (“EBITDA”) was around US$5.6m. Thus, it was priced at approximately 5x 2013 EBITDA. According to management, this acquisition not only brings an additional source of revenue and income but is likely to open doors to new customers and geographical market, especially in Asia. It is noteworthy that this acquisition would also be settled solely by the issuance of 250m shares at an issue price of $0.140 per share. This is at a 27% premium to Vallianz VWAP of $0.1101 per share which undermines OER Holdings’ confidence in Vallianz.

All of the above initiatives seem to be part of Vallianz strategic move to grow its business over the medium to long term.

As with any company, there are noteworthy points to consider



Risks

Possibility of a delay in fleet expansion

As of 30 Jun 2014, Vallianz plans to increase their fleet by 72% to 50 vessels by end 2016.  Their current vessels are built by 3rd party shipyards. Any delay by the shipyards to deliver the vessels to Vallianz may have an adverse impact on Vallianz.

Contracts cancellation is possible in dire circumstances

Some investors fear that if the oil prices continue its decline, charter contracts may be cancelled. Despite Vallianz’s long term charter contracts, their customers are allowed to give a one month notice to Vallianz before they cancel their charter contracts. However, this practice is an industry norm for all players. A noteworthy point to note is that Vallianz’s vessels operate in shallow water, hence oil price may have to tumble below US$40 before their customers decide it is not worthwhile to continue drilling for oil.

Order book replenishment

Since the company’s announcement on 12 Apr 2014 that they were bidding for US$1.2b worth of contracts, they have only announced one Latin America contract worth US$82m on 15 May 2014. I understand from management that the contract award for some of their contracts is typically in 4Q which may explain the hiatus in the contracts being awarded.

Significant gearing is a sticky point for most investors

As of 30 Jun 2014, short term and long term totaled US$508m. This is significant vs. its total equity of US$169m. Vallianz’s loans are mainly USD denominated with floating rate obligations. This naturally brings up two issues especially with the strengthening USD and talk of rising interest rate environment.

According to management, although its loans are mainly USD denominated, its assets are also USD denominated. Furthermore, both earnings and expenses are USD denominated hence there is a natural hedge to a certain extent. It reports results in USD terms too. Thus, an appreciating USD is likely to have an overall muted impact on Vallianz.

As a corollary of its large debt obligations, Vallianz, in their 1HFY14 results, posted finance costs of around US$7.5m. This is significant as compared to its 1HFY14 net profit of around US$10.1m. It is logical that if interest rate rises in the next 1-3 years, (assuming that Vallianz’s debt quantum remains unchanged), its finance costs will rise further. However, if all the above initiatives and Vallianz’s confidence in securing contracts bear fruit, Vallianz earnings and cash flow should improve over time.

Chart outlook – All time oversold

Based on Chart 1 below, Vallianz has fallen approximately 32% from its intraday high of $0.135 on 22 Aug 2014 to $0.092 on 10 Oct 2014. Both Pacific Radiance and POSH have also dropped 26% and 28% respectively during the period. Thus, the sharp drop in Vallianz may be due largely to the weakened sentiment in the OSV operators.

Based on today’s close, Vallianz seems to have formed a *doji which may potentially be the start of a reversal. RSI closed at 14.6 last Fri. This is the lowest level since its trading history dating back to May 2001. The extreme oversold pressures are likely to limit any near term decline. Support is likely around $0.088 with strong support at around $0.085. Resistance is at $0.099 / 0.108 / 0.115.

*For doji to form, it is ideal but not necessary for the open and close to be the same price. In my opinion (chart interpretation is subjective), the candlestick formed on 13 Oct seems to fulfil a doji’s requirements.


Chart 1: Vallianz – all time oversold

Source: CIMB itrade as of 13 Oct 2014

Conclusion – This is just an introduction

In a nutshell, Vallianz seems to be in the right industry with bright prospects and they have executed several initiatives in 2014. If these are executed well, it should pave the way for continual growth in the medium to long term. However, it is noteworthy that contract replenishment, significant U.S. debt and finance costs, etc are some factors which readers should be aware of. If Vallianz continues to deliver on their earnings, contracts and their plans, it is likely that they may re-rate over time.

Readers who are interested should take a look at their website  http://www.vallianzholdings.com/corporate-profile.html# for more information. You can also email me at crclk@yahoo.com.sg  for the unrated analyst report on Vallianz (there is no rated report on Vallianz) and the informative industry reports. As I am not able to put in the above figures and chart, you can also drop me a note and I will forward a pdf writeup to you.






Disclaimer
The information contained herein is the writer's personal opinion and provided to you for information only, and is not intended to, or nor will it create/induce the creation of any binding legal relations. The information or opinions provided herein do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or invest in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein are suitable for you. The writer will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials appended herein. The information and/or materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.

Wednesday, October 8, 2014

Midas – all time oversold

With the recent market weakness, as per my usual practice, I will screen out oversold stocks listed on our Singapore bourse.

Here is the list of the top ten most oversold stocks using CIMB’s stock filter as of yesterday, 7 Oct.

Company
Sector
RSI <=30
Yongmao Holdings Limited
Construction / Agricultural Machinery
6.7
VGO Corp Ltd
Retail - Apparel / Accessories
8.7
Nam Lee Pressed Metal Industries Ltd
Construction - Supplies / Fixtures
10.4
Midas Holdings Ltd
Aluminum
11.9
Junma Tyre Cord Company Limited
Chemicals - Specialty
12.5
Full Apex (Holdings) Ltd
Non-Paper Containers / Packaging
13.4
Jacks International Limited
Retail - Drugs
14.8
St. James Holdings Limited
Leisure / Recreation
15.8
JES International Holdings Limited
Shipbuilding - NEC
15.9
Chew S Group Ltd
Fishing / Farming
16.7
Source: CIMB itrade 7 Oct 14

One of the stocks in the above list caught my attention. Midas is the 4th most oversold stock in the SGX by RSI level as of yesterday. It has a market capitalisation of S$402m and has dropped 25% from $0.440 on 30 Jul 14 to close $0.330 on 7 Oct 14. Part of the decline may be attributed to its weaker than expected 2QFY14 results announced on 14 Aug 14.

Against the backdrop of 25% drop in Midas’ share price, Midas is the most oversold since its IPO with a RSI of 11.9 as of last Fri. ADX closed at an unsustainable high level at 57.0, indicating that the recent sharp downtrend is likely to ease. It trades at 0.67x P / BV with NAV of $0.491. Average analyst target is $0.533.

Chart 1:  Midas dropped 25% since 30 Jul 14; all time oversold by RSI


Source: Shareinvestor chart (8 Oct 14)


Conclusion – likely to have a technical rebound

At the time of writing this, Midas is trading down half a cent to $0.325. Its RSI is even lower today at 10.7. If the general markets were to rebound, based on chart, to a certain extent, Midas is likely to participate in the technical rebound. Resistances are around $0.350 – 0.360 / $0.380. Supports are at $0.325 – 0.330 / $0.315.

P.S: Do note that the basis of this writeup is based mainly on technical analysis. It is entirely possible that there may be some fundamentally negative information on the company (which I am not aware of) that results in its persistent weakness.


Disclaimer
The information contained herein is the writer's personal opinion and provided to you for information only, and is not intended to, or nor will it create/induce the creation of any binding legal relations. The information or opinions provided herein do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or invest in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein are suitable for you. The writer will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials appended herein. The information and/or materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.