by Tony C H Goh
Monday, 19 October 2009 11:23
http://www.theedgemalaysia.com/business-news/151590-hai-o-riding-high-on-china-connection.html

KUALA LUMPUR: HAI-O ENTERPRISE BHD [], widely known as a wholesaler and retailer of Chinese herbs and medicine, is now looking at expanding its reach in the wine, liquor and liqueur business by leveraging on its strong network in China.

“Currently, wines and liquor are considered as the second-liner products carried by the retail division. But with the current market trend towards drinking of red wine in the country, we foresee huge potential,” Hai-O’s general manager Tan Kee Hock said at the third Yantai International Wine Festival in Yantai, China, recently.

Hai-O has an extensive network in China, with business dealings dating back to 1975, particularly with Changyu Pioneer Wine Co Ltd, China’s oldest vineyard, which was established in 1892 and its biggest wine producer based in the wine-producing region of Yantai, Shandong province.

“As the sole distributor of Changyu’s wines in Malaysia, we are allocating a big portion of our promotion and advertising budget to raise awareness,” said Tan, who is in charge of the Chinese medicated wines, cooking wines, healthcare food and beverages division of the company.

Among Changyu products under the sole agency rights of Hai-O are Ling Zhi Medicated Liquor, Tze Pao San Pian Chiew, Te Zhi San Pian Chiew, Changyu Cabernet Dry Red Wine, Changyu Cabernet, Gernischt Dry Red Wine and Changyu Ice Wine. 

While seeking to grow its wine and liquor business, multi-level marketing (MLM), wholesale and retailing are still the main contributors to Hai-O’s growth and revenue. It is exposed to all mainstream segments of Malaysia’s population, with the retail segment basically aimed at the Chinese, while MLM is mainly Malay-based.

For the fiscal year ended April 30, 2009 (FY09), Hai-O’s revenue increased 16% to RM435.2 million from RM373.8 million in the previous year. Net income rose 7% to RM52 million. The higher revenue reflects strengthening of the ringgit against the US dollar and the promotion of house-based products from the retail division. 

The wholesale and retail division contributed RM16.8 million to the group revenue of RM148.6 million in the first quarter ended July 31, 2009 (1QFY10), down 11.2% from RM18.9 million in the previous quarter and 16.9% or RM20.2 million in the same period last year.

But given the promising potential of the wine industry in China, Hai-O believes its strategy of leveraging on the biggest wine company in the fast-developing Asian giant is likely to pay off. Hai-O has seen its share price jumping nearly 30% over the past three weeks to RM7.02 last Friday when it added another 12 sen, with 38,600 shares done.

Yantai is the largest wine-producing region in China, accounting for around 35% or one in every three bottles of wine produced there. The wine industry in China is the world’s 10th largest grape wine producer, and the only Asian country that produces grape wine on a commercial scale.

Other major grape wine players in China include Sino-French joint venture, Dynasty Winery Ltd and China Great Wall Wine Co, Ltd. Collectively, these top three wine producers control 40% of China’s wine market. Besides Shandong, some other famous wine-producing regions are found in Fujian and Guangdong provinces.

While growth in the traditional wine consumer countries has remained flat in the last 10 years, experts estimate that China would be the world’s most active wine market with a 36% growth through 2010. Over the same period, total global wine consumption is expected to grow at only 9.15%.

Research data from British research institute ISWR/DGR showed that based on current trends, total global wine consumption will reach 100 million litres by 2010, with China  accounting for 5.58 million litres.

In a recent report on the company, RHB Research remained upbeat on Hai-O’s prospects going forward, even when there was a visible slowdown of the company’s retail and wholesale business.

This was largely due to the strong performance of its main business segment of MLM, for which the number of members has ballooned to more than 110,000 from 70,000 a year ago.

The company is well on track to surpass its internal target of 10% earnings growth in FY10. “Taking into account the robust 1QFY10 results and better-than-expected MLM sales, we raised our FY10-12 earnings forecasts by 22% to 28%,” said RHB.

“Hai-O’s attractiveness lies in its strong dividend payout policy of at least 50% of net earnings. Traditionally, the company has paid out above and beyond that amount, averaging 65% over the past five financial years.

“We project gross dividend per share for FY10 and FY11 to be at 54.5 sen and 57 sen, or a yield of 9.6% and 10%, respectively,” the research house added.

Some of the key risks include an unexpected reduction in dividend payout ratio to below 50% and the MLM division’s revenue coming in below expectations.

DANIEL WONG'S RECOMMENDATION: Maintain HOLD position.

You may have heard of the phrase "Don't put all your eggs into one basket". 

You may wonder, "How many 'baskets' should I have?" How much should you diversify your investment?

Some are led to think that it is difficult for small investors to diversify since diversification requires a lot of money. This is one of the selling points for Unit Trusts or Mutual Funds.

However, according to Dr Neoh Soon Kean in his book "Stock Market Investment in Malaysia and Singapore", based on research, it has been discovered that one requires a surprisingly small number of shares to reap the benefit of diversification. The table below shows the result of a piece of research work on the beneficial effect on diversification which Dr Neoh has carried out locally.

The table shows how the standard deviation (a measure of variability) of an investment portfolio decreases as the number of shares in the portfolio increases for a particular period in time (1983). It shows that with an 8-stock portfolio, 87% of the beneficial effect of a 32-stock portfolio has been achieved. With a 16-stock portfolio, 94% of the total risk reduction possible is attained. Thus, it is obvious that it is not necessary to have a very large number of shares in order to achieve a great deal of the total possible benefit from diversification. In fact, after 8 shares, the benefit of diversification increases only slowly. One requires a further increase of 24 shares just to get an additional reduction of 0.5 % in variability. Thus, for a typical small investor, diversification means a portfolio of 8-10 shares which is not beyond the capability of many small investors. (Info taken from Stock Market Investment in Malaysia and Singapore by Neoh Soon Kean)

Article taken from http://www.fool.com/investing/international/2009/09/25/how-i-timed-the-market.aspx


By Tim Hanson

September 25, 2009
 
Keep good records in case you get sued or audited -- or if you just hope to learn from past experiences. It’s for that last reason (and, frankly, the second ... curse you, IRS!) that I keep meticulous records of my investments.

And so I found myself looking back over my recent transaction history. I wanted to see what I had done since October 2007 -- the beginning of what became a historic market downturn -- and what that behavior revealed about my state of mind during that tumultuous time ... and what we can learn from it.

So let’s take a trip back in time ...

October 2007 to May 2008
This was, for lack of a better term, the beginning of the end, but it was a fairly benign beginning. While the market was down 20% over this 8-month period, it was business as usual in my portfolio, with two or three buys per month into companies such as 3M (NYSE: MMM) and Starbucks (Nasdaq: SBUX) that I not only thought were compelling values, but also believed had the financial strength to survive a coming downturn.

And while I thought at the time that I was a rational master of my emotions, it’s more likely I was just getting duped by my amygdala. As Jason Zweig writes in Your Money and Your Brain, “Because the amygdala [the reflexive part of your brain] is so attuned to big changes, a sudden drop in the market tends to be more upsetting than a longer, slower decline.”

Either way, I'd say I handled the slow decline from October 2007 to May 2008 fairly well.

June 2008 to July 2008
Fast-forward two months, however, and the market began to test my mettle. I followed up a sharp near-10% decline in the market with a flurry of activity. But rather than sell in fear, I went aggressively long -- making 13 purchases of volatile international stocks such as Philip Morris (NYSE: PM) and China Fire & Security (Nasdaq: CFSG) that I believed had been unfairly oversold. Although it looked savvy at first as the market briefly perked up in August, this was a mistake.

It was not a mistake of fear, however, but rather one of greed. And while Zweig suggests that investors tend to get caught up in upward momentum, sending more and more money into the market as stock prices rise, I, as a conditioned value investor, got greedy just as prices dropped sharply -- and ignored the data suggesting it could well get worse.

It did.

August 2008 to January 2009
The market declined 35%, creating what may end up being one of history’s great buying opportunities, and yet I couldn’t make more than a few buys here and there because I had used up my excess powder prematurely in July.

Thus, rather than being in a position to take advantage of this mega-drop, I was fully invested amid historic downside volatility. This led to some sleepless nights and some tough decisions in early February.

February 2009
If investing success is buying low and selling high, then failure is the opposite. And yet there I was in early February unloading stocks such as Whole Foods (Nasdaq: WFMI) and Sotheby’s (NYSE: BID) at 50% discounts to where I’d bought them.

Why? First, I was in too deep. My episode of greed in July had caused me to invest more money in stocks that I felt comfortable with. Thus, as the market continued to drop, I was unable to stay unemotional.

Second, I fell victim to recency bias. As Zweig writes, "The more recently [an event] occurred . . . the more probable its recurrence will seem." Put those two facts together and you can understand why my brain was pushing me to take some money out of the stock market.

Fortunately, I wasn’t totally shell-shocked. I only moved out a little -- enough to restore an analytical mindset. Further, rather than keep those sums 100% in cash, I put some in high-yield bonds, which were also distressed and which have not wholly missed out on the recent rebound (though they have not done as well as equities).

At the end of the day, these were defensive moves made out of fear, moves that depressed my returns. And while it frustrates me that I fell into one of investing’s psychological traps, I did end up realizing a benefit.

March 2009 to present
With investor equilibrium restored, it was back to business as usual in my portfolio with two or three purchases per month. And just as the market began to turn in March, I purchased shares of a speculative -- but, I believed, highly undervalued -- Chinese company called Yongye International (Nasdaq: YONG).

At the time it traded over-the-counter and did not yet have a CFO or any independent directors on its board. The stock, however, was dirt cheap at $1.70 per share.

Now, if I hadn’t rebalanced my portfolio in February, I don’t think I would have had the gumption to purchase this stock. But I was back in my comfort zone, and I was able to pull the trigger.

I’m glad I did. Yongye has since added a number of qualified individuals to its management team and listed on the Nasdaq. Further, our Global Gains team visited Yongye in China in June to get a better handle on the business -- after which we called it out as a top pick to our Global Gains members.

Yongye now trades for more than $8 per share. I don’t write this to gloat or cherry-pick, but rather to highlight the importance of having -- at all times -- a balanced portfolio that allows you to make decisions untainted by emotion.

The takeaways
That’s my story, but there are three key takeaways for you as well. Here they are:

1. Never go all in.
I acted too soon in July, and that reduced my flexibility, as well as my ability to remain unemotional going forward.

2. Add money to the market on a regular basis.
Despite all of the research I’d read and all of the contacts I have, I was unable to anticipate the market’s near-term moves. I would have saved myself a lot of stress if I had stuck to regular buys of great companies at great prices.

3. Diversification matters.
Whether it’s stocks or bonds, domestic or foreign stocks, or small caps or large caps, the defense that diversification provides truly does provide peace of mind in times of crisis. Not only does it help you lose less money as the market’s falling, but it can also allow you to stay unemotional and analytical -- enabling you to take advantage of incredible opportunities such as Yongye whenever they present themselves.

(8 years Historical Chart)

Company Background

The Top Glove group was established in Malaysia in 1991 and is principally involved in the manufacturing, trading, and exporting of latex examination, medical/surgical, clean room, nitrile, vinyl, polyethylene (PE), high risk and household gloves. True to its name, the group is the world's largest rubber glove manufacturer, supplying about  24% of the global market.

The group was listed in KLSE's Second Board in 2001 and a year later it was transferred to the Main Board. The group acquired 60.1% equity interest in Medi-Flex Ltd (a company listed on SGX-SESDAQ) in 2007. Currently, the group has 17 glove factories (13 in Malaysia, 2 in Thailand and 2 in China) with a production capacity of 31.5 billion pieces of gloves a year. The groups exports to 180 countries worlwide, including USA, Europe and the Far East (Japan, Hong Kong and Taiwan).

The group also has upstream production with 2 plants in Hadyai, manufacturing concentrated latex and block rubber products. These 2 latex concentrated plants are able to produce 90,000 tonnes of wet latex a year and is contributing about 80% of its in-house latex concentrate consumption.

The group recently reported a 55.5% y-o-y rise in earnings to RM168.1m, on the back of 11.2% rise in revenue for FY09. As there is increasing awareness of safety and hygiene among consumers coupled with Top Glove's aggresive capacity expansion, the group is expected to continue producing good earnings growth over the next few years. Also, rubber glove business is considered a recession proof business, particularly those of latex examination and medical/surgical gloves.

Fundamentals

ROE: 19.9%

Average EPS Growth Rate: 30.3%

D/E: 0.31

Gross Profit Margin: 16.52%

Average P/E: 15.2

Dividend Yield: 3%

Fair Value: RM 8.49

Current Price: RM 8.23

Recommendation: BUY

Fair Value: RM 1.79

Current Price: RM 1.84

Recommendation: HOLD

I just came to realise recently that I've miscalculated the Fair Value for Coastal Contracts, which should be RM 1.79 and not RM 2.12. This is because of my miscalculation of the current EPS which is RM 0.2748 now.

I'm sorry for my mistake. For those who have bought this share based on my previous recommendation, I would recommend that you continue to hold it because I expect this share to move up its price to at least RM 2.60 by end of this year or next year. If you have extra cash, you may also want to buy some more of this share below RM1.79 to average down your cost.

Refer to previous write-up here for more info about this company. 

I just realised that there was a technical problem with the link for Email Subscription on the top right corner of my blog. =P

I just fixed it and now you can subscribe to the updates of this blog via email :-)

If you have any comments or questions, you're welcome to post it here.

Thank you.

-Daniel Wong

Imagine if you have a Money Tree planted in your backyard. Each time you need money, you can just go to your Money Tree and pluck out some money, just like plucking fruits. Sounds like a fantasy story?

In reality, you can grow your own Money Tree. How? Read on..

By just saving $200 a month, you would have $2,400 in a year.

Then you invest this money by buying shares in companies which gives you a minimum Return on Investment (ROI) of 20% per annum.

As you keep saving $200 a month and invest them by buying companies'
shares, you are literally 'watering' the money tree to let it grow.

Investing your money by buying companies' shares is an interesting way to let your money work hard for you.

Also, you need patience because patience is virtue.

And guess how big your money tree would grow?

Just by saving $200 a month and invest them in shares which gives you a minimun ROI of 20% p.a., in 24 years, you will have about $1,000,000 in your account (the number of zeros are correct, your eyes are not playing tricks on you).

This is if your ROI is 20% p.a. What if your ROI is 30% p.a.? Then it will take only 18 years for you to have $1 million in your account.
 
What if the ROI is 50% p.a.? Then it will take 12 years plus :-)

Whenever you need money for your Christmas shopping, Chinese New Year shopping, Hari Raya shopping or Deepavali shopping, or to buy your favourite 'toy' or send your children to college, you just go to your Money Tree and 'pluck some money', that is, sell off some of your shares or spend your fruits of dividends.

But most important of all, give some to charity as well. Giving away something of your own to make someone else happy is the answer to life's happiness.

Money does not grow on trees, but you can surely grow a money tree. 

                             -Daniel Wong