Watch out for the automobile downturn cycle

Automobile market is on a roll for several years but signs of a downcycle is appearing.

1) when subprime auto loans in US crumbles like the subprime mortage market years ago, expect a downturn in US auto market. Wells Fargo recognises the danger and is putting a cap on the subprime auto loans it deals in.

2) China’s slowing car sales due to slowing economy and restrictions on car sales in big cities(because of pollution and congestion concerns). According to this wall street journal article, ” But in China auto makers typically cite wholesale deliveries to dealers and not sales to end consumers.

One way of gauging just how many consumers are buying cars is to look at car-registration data. While this data is more dated, it does provide another glimpse of demand—one often not as rosy as the auto makers’ figures.

Analysis of registration data by compiled by investment research firm JL Warren Capital released over the weekend suggests 2015 got off to a slow start. Around 46,000 BMWs were registered in China in January, a decline of 4% compared with the same month last year. Mercedes-Benz was up 2% to just over 32,000 cars, according to JL Warren. Audi registrations held up better–some 65,000 cars were registered by drivers in the first month of this year, up 13%.

JL Warren analyst Junheng Li is particularly cautious on BMW. “We continue to believe that BMW has given too high a sales target for its China market and a potential dealer revolt in its fastest growing market is probable due to the unresolved tension and conflict from last year,” she said.”

March 3, 2015 at 3:58 pm Leave a comment

Is the bear market extinct?

Equity markets around the world are breaking new records. Quantitative easing by central banks is the force behind it. But a rubber band stretch to the max will break sooner or later. The bear market is not extinct and will return once earnings start to disappoint and/or black swans start to appear. When will that happen is anyone’s guess but be prepared for it is the best way to survive the next bear market.

February 26, 2015 at 4:42 pm 1 comment

Do the obvious:Cut minimum brokerage fee

A forum letter from Straits times right on the mark

“With computerisation, every transaction, whether 1,000 or one million shares, is just a transaction taking the same computer cycle to handle.

With the rapid decrease in computing costs over the years, transactional costs are drastically reduced.

When online trading was introduced, brokers really had no more excuses for charging higher fees for low-valued trades.

To compete in the global market, SGX brokers have to align their fee structure or risk losing clients.

The SGX, too, should improve its cost-effectiveness and lower the fees charged to the brokers, in tandem with today’s cheaper computing costs.

The same computer system is used in stock trading in markets like India, Malaysia and Thailand, wherein transactional values are much lower, partly by virtue of their lower currencies.

If these stock exchanges can survive, there is no reason why the SGX cannot be very profitable. This, however, requires the SGX to be truly committed to automation and productivity.

After spending hundreds of millions to purchase a system for “high-speed” trading, the low priority given to reducing retail investors’ costs makes the SGX’s call for more retail investors very hollow.”

February 12, 2015 at 3:11 pm Leave a comment

Straco’s potential competitor in Shanghai

As reported by shanghaiist, “Haichang, a leading developer and operator of theme parks in China, just obtained land-use rights for the project for around 120 million USD. The Shanghai Haichang Polar Ocean World isn’t your traditional marine theme park, according to the developer, as it “will position itself as a world-class marine life culture experience complex,” whatever that means. It will consist of an amusement park, a themed resort hotel and scores of commercial facilities. The marine park will also be home to 13 exhibition halls, four animal interaction plazas and four large cinemas (including an omnimax movie theater), among other entertainment activities…..The Shanghai Haichang Polar Ocean World is scheduled to go into operation in 2017″

January 21, 2015 at 8:51 pm Leave a comment

Is Buffett bearish on US stock market?

Warren Buffett latest decision to swap P&G shares for Duracell may signify his bearish sentiments towards US stock market since P&G is a component of Dow Jones Industrial Average. Using Buffett  recommended market capitalisation/GNP ratio as market indicator, US stock market is overvalued, Beware!

November 14, 2014 at 1:46 pm Leave a comment

Will Tiger Airways be on SGX watchlist?

Tiger Airways will most probably be announcing losses for three consecutive years judging from the keen competition among budget airlines and another rights issue. However, as SGX rules state that :”The Exchange will place an issuer on the watch-list, if it records:—

(1) pre-tax losses for the three (3) most recently completed consecutive financial years (based on the latest announced full year consolidated accounts, excluding exceptional or non-recurrent income and extraordinary items); and
(2) an average daily market capitalisation of less than $40 million over the last 120 market days on which trading was not suspended or halted.”

Tiger airways may not be put in the watchlist because its market capitalisation is higher. However, that does not mean that it shouldn’t be on investors’ watchlist as turnaround will prove to be difficult. Buffett warned investors who are thinking of investing in airlines. One joke is :”How to become a millionaire. Start as a billionaire and then buy an airline.”

October 18, 2014 at 1:55 pm Leave a comment

Manufacturing Integration Technology turnaround story

From CIMB research summary,
Disclosure:I am vested, so view will be biased.
“MIT is a small-cap semicon turnaround story. Having returned to
profitability in 1H14, it is set to continue the recovery momentum in
FY15, thanks to new order wins. We also expect dividend payment to
resume in FY14.
MIT’s earnings recovery is being
driven by the resumption of orders
from customers. Applying its
historical average forward P/BV of
0.74x to 1H14 BVPS of S$0.13, we
estimate that its share price could
re-rate to S$0.096 in this recovery
cycle. The likely catalyst is new order
wins, especially in the solar field
which will help reduce its traditional
dependence on the semicon industry.
Back to the black
MIT turned in a loss of S$6.5m in
FY13 as its customers in the
semiconductor industry held back on
their capex. However, a recovery is in
place, with the company returning to
a profit of S$0.8m in 1HFY14, driven
by a return of demand from its
semiconductor customers. The
recovery momentum is expected to
continue in 2HFY14 given the new
order wins announced.
Orders are back
MIT also scored big at the recently
concluded Semi-con Taiwan 2014
Show where it launched its new
generation of vision inspection
equipment under its Smart Flex series.
An initial order for 11 new Smart Flex
machines was received. Together with
various other orders, the company
secured S$8.2m new orders, bringing
its order book to S$34.2m from
S$18m as at 21 Feb 2014. The
outstanding orders will be recognised
in 2H14. The recovery in demand
from its semicon customer is expected
to last into FY15. A possible bonus is
the successful completion of a
significant order for solar-related
equipment from an existing customer.
This could occur over the next 12
Expect a good FY14 and
MIT’s guiding principle is to pay
dividends only if the company is
profitable. In the last earnings
recovery cycle, MIT paid 0.25 Scts in
FY10 and FY11. Dividends were
skipped in FY12 (small profit) and
FY13 (loss making). We believe
shareholders will see at least 0.25 Scts
DPS as profits recover in FY14. If the
recovery is stronger, the company
may pay a special dividend. Assuming
a DPS range of 0.25 Scts to 0.50 Scts,
the prospective dividend yield range is
3.1% to 6.3%.

Insiders just bought some more shares.

September 25, 2014 at 3:54 pm Leave a comment

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