Margin for Single Counter Financing - Expensive Yet People Still Using It. Why?

Dear Readers,

This article is meant to share on Margin Financing for Single Counter. It is not an encouragement / promotion for readers to invest using SMF.

Generally in Malaysia, the interest rate for Single Counter SMF ranges from 7% to 9%. The rollover fee is about 1% per quarter.
If your relationship (your business status) with the bank is good, you may get it around 7% plus 0.5% rollover fees per quarter. End up to be around 9% per annum all in.

If my holding cost is so high, why I am still using it? My dividend income definitely can't cover the cost of fund! Why still borrow and invest? Those who borrow have their objectives to be met. Let's look at some of it.

1. During IPO Listing
Certain parties would like to support the share price. Not all are IPOs are eligible for Green Shoe Option. For those who are RM500m and below for market capitalization post IPO and certain investors are aware the company is without a Green Shoe Option, they might need a plan. This investor group would like to see the share price to increase.
Assuming IPO price RM1, post listing down to RM0.80, your SMF will comes in handy.

2. To meet Corporate Exercise Objective
Company announcement follow by Private Placement, Right Issues and follow by Free Warrants to entice you to subscribe for the Rights. Insufficient monies to subscribe the Rights, the Margin just fit the bill. Short term financing, getting the loan, exercise the rights, sell the warrants, pay back the bank for Margin expenses.

3. Pending some contracts / awards / business announcement
Certain parties might receive the rumors that the company 'will be awarded' or 'will be posting good financial results'. They use the Margin to collect more shares before announcement.

4. House the Shares before selling to 3rd party
Certain investors will use it to house the shares and place it to 3rd party afterwords.
Eg. Fund House, Institutional Investors and Corporate Clients looking to buy a bulk for the listed shares.

5. Short Term Cash Rolling
The shares owner can pledge the shares to the bank and get a Short Term Loan for rolling purposes.
Bank will give a 'Hair Cut' generally 50% of your pledged shares value and gives you cash to settle your other business needs.

That is why you see, Single Counter Financing Account is for meeting your short term objectives with an EXIT PLAN. You can't keep using the Margin Account Forever without an Exit Plan.

For general retailers like us, we might not me having this Single Counter Financing Issue. Hope you have more understanding on usage of SMF after this.

Happy Trading !

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Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for illustration purposes.

Regards,

Humble Pie

Matrix Concept Holdings Bhd - Looking Forward for Free Warrants & Dividends

Dear Readers,

Matrix - Price traded at high of 3.33 @ 22nd May 2015. Since then retraced to RM 3.05 (8.5%)

4 Quarters 2014 EPS -

Q1 2014 EPS = 12. 8
Q2 2014 EPS = 14
Q3 2014 EPS = 10.5
Q4 2014 EPS = 12.4

Total 2014 EPS= 49.7
Let's assume I am using current price to divide 2014 's EPS = Price 3.05/49.7 = P/E = 6.13 (personal forecast).

1st Quarter 2015 EPS - 25.2 (can't use it for calculation)

FYI, I am not using Matrix's 1Q 2015 EPS to do assumption due to the one off higher contribution from industrial land sales and higher billings from property development before GST.

Let's assume the balance 3 Quarterly Reports from Matrix earnings are the lowest in 2014 which is Q3 @ 10.5.
Q1 2015 @ 25.2 + 10.5 + 10.5 +10.5 = EPS of 56.7
Price = 3.05 / 56.7 = P/E = 5x

The good thing is the Management Team has reaffirmed the Dividend Payout of 40%. I am using let's say 0.20 to pay out for the 2015's dividend is work out to be 6.5%. I am looking for the Bonus Issue and Free Warrants of 1/6 shares held.
 

As the management already paid 4 cents last week, I am expecting another 16 cents balance for 2015's dividend which work out to be around 5%.

As the property sector is not looking this year, the decision is up to you. One thing I like about this company is the Big Boss Dato' Lee donated 5m shares to Chung Wah High School in PD post IPO.

If the man is willingly share his success and wealth with those who are in need, I believe in his Prudent Management and Leadership.


 Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for illustration purposes.

Regards,

Humble Pie

UEMS @ RM1 - Buying on GOOD SUPPORT!

Market has not been good to UEMS for the past few months.

Why?

77% of her land bank are at Johor, challenging property market outlook, removal from MSCI Malaysia Index.

The most important:

When she Pull Out / Cancellation of MOU with China Chinamall on 27 May in a development in Nusajaya Johor, she is being hit badly.

After the announcement, the share price dropped from 1.11 to 1.03. It was hovering there since. Lowest was 1.01 closed.

What attracted me to look at this counter is not her Good FA.

(latest Q1 2015 EPS = 1.17, annualized is 1.17 X 4 = 4.68: P/E = 1.01/4.68 = 21x)

Look at another graph as below:

Whenever it touches 0.995 at it's low, it bounce back and closed above RM1.

Total 3x it touched 0.995. I am not a fan of UEMS looking at current property market outlook, but I am interested to nibble when it touches RM1 and do a little of swing trade. It reminds me of Bumi Armada few months back. =). Too big to drop below RM1 perhaps?

If this trick does not work, remember your stop loss/cut loss position. THIS TRADING COMES WITH RISK !

As there is no TA or FA to support this trading methodology.

Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for illustration purposes.

Regards,

Humble Pie

End of June 2015: Window Dressing Season !

What a good start for the week! Market goes up 11 points but Foreigners net sell is RM 163m.

What exactly happen? In Bolehland, as usual during end of every quarter, especially End of June/Dec of every year, guess what will happen? Report Card Day! The invisible hand is always there to make things look good.

Regardless of Market Good or Bad, making money or losing money, REPORT CARD MUST LOOK GOOD! Strategy for this week until end of June is simple:

Choose the BIG CAP counters from the largest 30. The larger the merrier. There is a good chance you will get a good Raya Angpau.

Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for illustration purposes.

Regards,

Humble Pie

Focus Lumber - High Dividend & Beneficiary of Strong USD

As posted in Malaysia Invest Coach FB page:

Bought 2k @ RM 1.34. Why we like Focus Lumber?

Q1 2014 EPS : 3.96
Q2 2014 EPS : 3.44
Q3 2014 EPS : 3.21
Q4 2014 EPS : 4.92

Total Rolling 4 Quarter EPS for 2014 = 15.53
P/E = 1.34 / 15.53 = 8.63x (comfortable zone)

Let's see for the 1st Quarter 2015:

Q1 2015 EPS : 3.22

Assuming FL Berhad able to maintain the EPS just like Q1 2015 for the next 3Q:

3.22 X 4 (annualized) = 12.88
Forward P/E = 1.34/12.88  = 10.4x (still at comfortable zone)

Looking at the current MYR vs USD situation, personally we believe the earnings should not be weaken as 98% of their total revenue is for export market. 67% of revenue comes from US.

What attracted us is their dividend yield of 5.97% for year 2014. Dividend has been quite consistent given for the past 4 years. Guts feeling telling me that for 2015, the dividend yield should be around the same like 2014. It would be a good stock to keep under my portfolio.

Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for illustration purposes.

Regards,

Humble Pie

Bearish Market - What's Next? Watch Out on Your Share Margin Financing Account - How to Make Friend or Foe with SMF

Dear Readers,

Market has not been kind to us for the last 2 months. Few of our followers is asking what do I think will happen next? Sorry, my crystal ball is not working. But I know when market is bearish, you gotta check on your Margin Financing Account.

A lot of traders / investors abuse the usage of SMF that makes them lost in the stocks trading.

Let me share the info on how most professional investors use SMF to leverage in their trading portfolio VS retailers who abuse the usage the SMF Account that leads to their Financial  Disaster.

Basically SMF is a FLEXIBLE LOAN WITHOUT MATURITY DATE for you to use it to leverage it for your trading. Why I called it FLEXIBLE? It is because you borrow the loan without the need to pay the the principle in your monthly installment. You pay for the Accrued Interest every month.

The best part is, the SMF has no maturity, you can use it perpetually (expect when the stock hits some financial disaster / bad Annual or Quarterly reporting that leads the stocks to be capped at certain price or maybe non margin able at all)

What went wrong with those who are using SMF till it went bust?

Generally we use LOAN / MARGIN when we do have an investment which carries the return higher than the cost. That's why we borrow and leverage on the loan:

Case Study:

1st Year Cost of Holding a Stock      2nd Year
Interest               : 4.85%                    4.85%
Facility Fee        : 0.50%                    0
Brokerage          : 0.42%                    0
Stamping            : 0.10%                   0
Bursa Clearing   : 0.03%                   0
Misc Fee / Cost  : 0.10%                   0.10%

(Rollover fee has been revised to 0 due to market competitiveness except for Single Counter Financing)

Total                    6.00%                    4.95%

How to use it THE RIGHT WAY !

Eg:

RM 1m Margin Facility = Cost is 6% for the first year.
We ACCUMULATE around 40% to 60% (400k to 600k) of the Margin Limit. Why?

Things goes wrong when you have RM1m limit and generally retailers 'FULLY UTILIZED' the limit. When market turn south, a drop of 5% will trigger Margin Call and another drop of 5% will trigger Force Selling. Sorry GAME OVER.

When I accumulate let's say 50% of my Approved Limit of RM1m, market turn south and % of  Margin Financing Limit will balloon, it WILL LIKELY NOT TRIGGER THE MARGIN CALL AND FORCE SELLING. Furthermore, with market turn bearish, the balance capacity I have in Margin Account, I may consider to accumulate more stocks! Stock Price goes down, dividend yield goes up.

But But But, what kind of stocks normally we buy? We only pick the stocks that are ABLE TO GENERATE CONSISTENT DIVIDENDS THAT BEAT THE FINANCE COST.

Eg: Bstead 7.75% , Hektar 7.05%

 By earning 7.75% vs Finance cost 6%, the spread is 1.75% for first year
Carry forward to 2nd year : Earning of 7.75% vs Finance Coast 4.95%, the spread goes up to 2.5% 

Why Retailers Got Burned with Margin Account?

1. Simple, they apply margin to trade Small Cap / Penny Stocks / Speculative Counters - By the way, MARGIN FACILITY MAGNIFIES YOUR WINNING PERCENTAGE AND LOSSES AS WELL. That is why it is called LEVERAGING ACCOUNT.

2. The Stocks that you buy DOES NOT GIVES YOU INCOME / DIVIDEND. Every month you need to pay the outstanding interest, if the market goes against you and you have no Income to sustain your Finance Cost, what make things goes UGLY (remember last Sept and October 2014 Market Correction? How the Margin Accounts went wrong. And ya, in case if you not aware, it is JUST A CORRECTION not a CRASH yet.)  

3.  Margin Account requires you to have a GOOD UNDERSTANDING ON STOCKS YOU HAVE AND A PRUDENT PORTFOLIO MANAGEMENT. It is NOT AN ACCOUNT FOR YOU TO PUNT THE MARKET BY GETTING HIGHER MARGIN ABLE LIMIT !
(eg, CLOSE MONITORING of: Changes of interest rates, stocks capping monitoring, market sentiment, % exposed in the each industry you are investing etc etc)

4. No EXIT PLAN - FYI, for all Margin Users, especially Single Counter Financing, we would ask WHAT IS YOUR EXIT PLAN for SMF? You could not be using the Account Forever with no plan. Although it is a LOAN WITHOUT MATURITY, but part of the Risk and Reward Game, all Leveraging Game are always with an Exit Plan. If you do not have one, SMF account is not or you.

CONCLUSION

SMF is an Account for Professional Investor with good understanding of the Risk and Reward game,
It is not as simple as just borrow more limit and punt the market. If you are thinking that is so easy, you might have a better odds going to Casino De Genting and have fun.

For professional users, with PRUDENT PORTFOLIO MANAGEMENT, it may MAGNIFIES YOUR RETURN SLIGHTLY HIGHER, By the way, all the assumption  are without inserting the potential income from CAPITAL APPRECIATION. As long as the consistent dividend income able to cover the finance cost, the capital appreciation is a BONUS. Do not be over optimistic.

Lastly, during MARKET BEARISH - Please RE LOOK into your Margin Account, do not over leverage. Just a Friendly Reminder, if you still have the room for buying limit and market goes further south, you always can buy more.

Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for illustration purposes.

Regards,

Humble Pie

Penny Stock Down And Hurt - Season 2 - The Ghost of K1, Priva, Wintoni, Krono

Dear Fellow Members,

Remember what I said before of not to touch Penny / Highly Speculative counters?

K1,

K1 latest Quarterly Report - Fundamental changed from Profit Growth to Operational Loss. As K1 is exporting mainly to Europe, their QR should be good, however the latest QR reported otherwise.
Price being punished from 0.64 to 0.34. Sad right ? Overnight your stock holding lost 50% of value.

With the latest Quarterly Report of Profit RM520k, the P/E still at 16 - its high for Small Cap company. By the way, perhaps we also overlook that its NTA is only 0.15.

Priva

Both revenue and profit drop.

May 2013 Quarterly Report - Profit RM 1.836
May 2014 Quarterly Report - Profit RM 1.276
May 2015 Quarterly Report - Profit RM 1.247

March 2015 VS May 2015 Quarterly Report
Profit RM 3.67 VS  RM 1.836 (The ghost is fierce).

The 1st QR is poor compare to 4Q 2014

Krono

Listed on 2014:

3rd Quarter 2014 Report: Profit RM 1.6m
4th Quarter 2014 Report: Profit RM 1,18m (dropped)
1st Quarter  2015 Report: Loss RM 1.1m

Mother Price 0.31 dropped to 0.245: Loss of 21%

The company main businesses comes from Singapore. With the weakening of RM and strengthen of SGD, one could wonder why it was hit with losses.

WINTONI 

This stock was being goreng up by rumors 29 May 2015. From 0.33 to 0.365. When the Report was announced, the price dropped to 0.33. Sounds like magic right?

CONCLUSION

In Shares Trading, we must make a comparison of LATEST Quarterly Report with the 2ND LATEST Quarterly Report. Very important to note and remember.

EG: 1Q 2015 Report VS 4Q 2014. - If 1Q is better most likely price will be able to maintain/goes up
                                                           If 4Q is better most likely you will see ghost


In Financial Reporting, comparison of Latest Quarterly Report must be with YOY Quarterly Report.
Means 1st Q 2014 vs 1st Q 2015.

What To Do Next?

Looking at this scenario, I would not want to touch PENNY STOCKS / SPECULATIVE COUNTERS. I value my hard earned money more. =)

Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares may be citied for illustration purposes.

Regards,

Humble Pie