How Retailers can Perform Analysis: Plastic Packaging and Commodity (Steel & Aluminium)

Even though we are merely retailers, we should be a knowledgable one. 

Who says that retailers are destined to lose money in the share market? Well, for me, i never believe in those myths... The more people agrees to the fact, the more eager i want to prove them wrong. In fact, i think that there are no right or wrong in the market, only INVESTMENT DECISIONS matter... And along the time, our investment decisions will be proven.

How do we make our investment decisions? Based on guts feeling? Based on rumours and speculations? Based on facts and figures? Based on research? Even though i m a retailer, but i am myself's fund manager. I manage my own fund and i invest based on facts and figures. Pareto Law says that, 20% are winning money while the 80% are losing money to those 20%. If we want to win in the stock market, we should stop becoming the 80% and turn into 20%. 

We often see the stock analysts' reports. Their reports are very detailed and some even have chances to visit the CEO or the chairman of the listed companies. They have all the sophisticated software or tool to calculate and compare the financial information. Their news are always the most up to date. But for us, as retailers, we only have the chances to meet the bosses in the AGM and pose them our burning questions. Whenever a news was released, the retailers are the always the last one to know, the stock had been speculated before and that is the only time retailers went in. Ended up, retailers lose money.

Here i would like to stress that retailers can also perform the stock analysis, as professional as those stock analysts. Do not be discouraged even though we are retailers. This should not stop our passion towards investing. Whatever the stock analysts can do, we can do it like them too, we can emulate their analysis method, thus reduce our investment risks. Now let me share my experience and analysis method on how retailers can perform analysis.

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 Commodity (Steel & Aluminium)

We saw rallies in steel and aluminium stocks on 9 August 2017. Steel and aluminium are closely related as they are main contributors for construction sector. Dragonhead for steel, ANNJOO rised up more than 5%, and also prompting some other steel stocks such as PRESTAR (+4%), MYCRON (+6%), MASTEEL (+8%) and other steel counters.

ANNJOO Daily Chart

After sideway and supported at around 38.2% of Fibonacci for 1.5 months, ANNJOO rises up and challenge the next resistance of 3.23. Notice the volume, ANNJOO closes at zone one with high volume.

When we look at the fundamental global news, China is expecting to have lower supply, thus provokes the rise of steel prices and eventually triggers our steel counters to rise also[1].

The Edge: Steel counters rally on expectations of lower supply by China[1]

The Star: China shuts 42.4 million tonnes of steel capacity in H117[2]

China also shuts down a few steel factories, leading to 42.4 million tonnes of steel cut in the global market[2]. When the demand is still there, but the supply is low, that is where the price will go up. In the long term, it will definitely benefit the steel counters. Not only ANNJOO, a lot of steel counters will benefit from this.

Coming back to aluminium. The aluminium price is hovering around 1870 and 1962. And now, it had broken the 2,000 mark. From the technical chart view, this is a very beautiful breakout. In my benchmark, if it can stays above the support of 1960 for more than 5 days, we can consider it to be a strong support.

Aluminium Price [5]

And the dragonhead for aluminium counters, PMETAL, yesterday rose up more than 10%, closing at all time high of 3.27 with high volume. And PMETAL had triggered other aluminium counters, such as ARANK (+6%), LBALUM (+7%), ALCOM (+5%)

PMETAL Daily Chart

I wrote about an aluminium stock, ARANK on 30 March 2017, you can also click here ARANK's A-RANKed Mission[3] and ARANK - Post Q3 2017 Result[4]. ARANK had been sideway since beginning of the year. supporting at 1.02 and resistance at 1.21. Whenever it touches 1.21, it never breaks the resistance. The next resistance will be 1.15, as there is a gap due to unsatisfactory QR.

ARANK Daily Chart

If you look back at my reasonings and my facts written in my blog, to summarize, i will still continue to hold ARANK, due to:
A) Global Aluminium Price: Price heading north
B) Donald Trump - Make America Great Again, more facilities to be built, triggering the aluminium price.
C) China vs Pollution - China to curb the pollution seriously
D) Peer Comparison: If PMETAL continue to go up, ARANK will be following.
E) The QR of ARANK - Q1, Q2, Q3 is lower but will spike up in Q4, hope the trend continues. However, be mindful of LBALUM's Q4 result. Its Q4 net profit decreased by 76.4% mainly due to underprovision of deferred taxation. I am not sure whether this will happen to ARANK or not.

I set my goals at longer terms, so hence, i am not fluctuated by the buoyancy of the chart. Hopefully all these factors will continue to lead ARANK to go up. As retailers, we can try to relate the global news impact to the aluminium prices, and next how the news provokes the dragonhead and subsequently the other counters.

Plastic Packaging

Recently 2 plastic packaging counters had released their QR, namely SLP (4 Aug) and also DAIBOCI (9 Aug). Net proft for SLP dropped 58% yoy while DAIBOCI suffered 17% drop yoy in net profit[6][7]. When i look at their reports, i found 2 factors, and i believe that these 2 reasons will also drag down the profit for other plastic packaging, such as TOMYPAK, TGUAN and BPPLAS. In fact some counters already experienced profit taking activities.

The 2 factors that i extracted from SLP and DAIBOCI QR are:
1. Higher raw material prices - plastic resin
2. Stronger MYR - unfavourable for export counters for SLP only

Extract from SLP's QR

Extract from DAIBOCI's QR

Both agreed to the increase in raw material cost, plastic resin. I tried to look for the plastic resin chart in the internet, but i could not find a reliable one. Thus, if raw material prices increases, it will impact the  COGS (Cost of Good Sales) in the income statement, and net profit will be dragged down. 

If we look at the charts,

SLP Daily Chart

After the QR being announced on 4 August (Friday), SLP share price plunged on 7 August (Monday) and another gapped down, but then it is now hammering up. Short term profit taking or cut loss activities happen for inpatient investors, but it goes up after the market digested the news because there are still high demands for plastic packaging in the long term. Hence i believe the same will happen to DAIBOCI today.

DAIBOCI Daily Chart

DAIBOCI will fall and supported at Fibonacci 23.6%, which is at 2.05. If it falls below 2.05, then it will be a good chance to collect. But bear in mind that for these sort of counters, it is for long term. Not for short term investors. If you agree with me about their prospect, then it will be good to hold.

Let's look at the counters that already anticipated the drop in QR and profit taking had already happens. BPPLAS.

BPPLAS Daily Chart

BPPLAS already say bye as the share price closed at Zone 3 with relatively higher volume. The next support will be at 1.30. And come back to my dear TOMYPAK.

TOMYPAK Daily Chart

After the bonus issue and share split, TOMYPAK had been going sideways around 0.97 and 1.07. 0.97 will be a support, aligned with a gap up and also Fibonacci's 23.6%. Well, if for me, if the QR is announced and TOMYPAK dropped again, it will be a good opportunity for me to collect. I previously wrote about TOMYPAK. You can click here to view it, TOMYPAK - TOMY Packs His Right Path[8]. 

I set my goals at longer terms, so hence, i am not fluctuated by the buoyancy of the chart. Any dip in share price means a good chance to collect, only if we are looking at long terms. As retailers, we relate to the performance from the peer industry and grasp the possible reasons embedded in the QR. 

Half full, half empty water

A glass of half full, half empty. How you define it, both are also right. Half full, half empty. Its our perception on how we see it. Our analysis will further enhance our belief in it.

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Any queries, please do not hesitate to contact me, 016-246 7867.

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Let's Ride the Wind and Gainvest

Gainvestor 10sai

10 August 2017

7.27am

Sources:
[1]: http://www.theedgemarkets.com/article/steel-counters-rally-amid-rise-chinese-steel-prices-expectations-lower-supply
[2]: http://www.thestar.com.my/business/business-news/2017/07/31/china-shut-424-million-tonnes-of-steel-capacity-in-the-first-half/
[3]: http://gainvestor10sai.blogspot.my/2017/03/aranks-ranked-mission.html
[4]: http://gainvestor10sai.blogspot.my/2017/06/arank-post-q3-2017-result.html
[5]: https://www.investing.com/commodities/aluminum-advanced-chart
[6]: SLP Q217: http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=196757&name=EA_FR_ATTACHMENTS
[7]: DAIBOCI Q217: http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=196779&name=EA_FR_ATTACHMENTS
[8]: http://gainvestor10sai.blogspot.my/2016/03/tomypak-tomy-packs-his-right-path.html

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