Pos Malaysia: Does it have an Economic Moat over the other competitors?

Economic Moat is a competitive advantage that one company has over other companies in the same industry; this term was coined by Warren Buffett, a renowned investor, and executive at Berkshire Hathaway. The wider the moat, the larger and more sustainable the competitive advantage of a firm. By having a well-known brand name, pricing power and a large portion of market demand, a company with a wide moat possesses characteristics that act as barriers against other companies wanting to enter into the industry.

Read more: Economic Moat Definition | Investopedia http://www.investopedia.com/terms/e/economicmoat.asp#ixzz4d4EgLcqx 

To learn how Economic Moat can give a competitive advantage to a company, I would like to make an example as below:

There are five companies that produce lemonade juice - company A, B, C, D and E. All companies have the same quality and pricing and each of them has a fair share of the market. But company A has realized that it can save 30% of expenditure costs if they can buy the lemons every month instead of every week due to discounts if they buy in larger quantities. 

Company A can then reduces its production costs by 30% and consequently can reduce their price by 30% compared to the other companies. Company A then enjoys increased sales compared to the other 4 companies which saw their sales shrinking.

After 1 year, company B, C, D, and E too buy their lemons every month and enjoy discounts of 30%. They can reduce production cost by 30% and decided to reduce their lemonades price too. And now each of the companies has the same price and in terms of competitive edge, they are on the same level. Now all companies are back to square one in terms of competitive edge.

Company A then decided to find a way to lead again and to have a better competitive edge against its competitors. They then developed a new technology to squeeze out juice 30% more from the lemons compared to using the previous technology. They patented their designs and use this technology to reduce production costs by 30%. As company A has proprietary rights to the new designs, the other 4 companies cannot use the new designs and consequently cannot use the new technology to squeeze out more juice from their lemons.

So, now company A can reduce a further 30% discount on their lemonade and now lead back again on a competitive edge over the others, which they enjoy for several years because of this new technology. This is called Economic Moat, the term which was first coined by Warren Buffet.

So now the question is, does POS Malaysia has what it takes to have a competitive edge over its competitors? Does it have an Economic Moat that can beat its competitors in Malaysia? Can their services be upgraded to the level that surpassed the quality provided by other companies involved in logistics and freight forwarding services?

It is important that now Jack Ma, the founder of alibaba.com is coming to Malaysia to set up the new Digital Free Trade Zone (DFTZ) near LCCT, where there will be a large growth in the logistics and forwarding sector, POS Malaysia should tap this huge market to expand its business operations.

As we can see, people are realizing the impact of Jack Ma venturing into this kind of business in Malaysia, they can see that there are great potentials for buying shares of companies that are involved in logistics and forwarding services. Companies such as POS Malaysia, Gdex, Tiong Nam Logistics, Tasco and others are seeing their share prices going up at a faster rate than before. 

POS Malaysia shares as at 31st March 2017 close

  

KPS is pulling down fast: That is why I need to trust my instincts

KPS (5843) is Kumpulan Perangsang Selangor Berhad, a company that is linked to SPLASH, a consortium that is formed to supply water in Selangor. Now it raises many questions due to accusations leveled by the then ex MB of Selangor towards the current MB about the unfavorable deal for the state government.

This things affect shares performance of KPS and the bad news that comes quite  often is not good for the company's image. That is why I treated this company with caution even though the FA shows the company accounts and performance were not too bad. Just take a look at the company's profile and performances as at 31/03/2017. Please follow the link as below:

http://www.malaysiastock.biz/Corporate-Infomation.aspx?securityCode=5843

So, when a trader mentioned on 21/03/2017 about the potential of buying the shares of this company, I took it with a pinch of salt. But I decided to study the price chart anyway to see how people would be seduced to buy the shares and later regret it, Take a look at the chart as below:

KPS daily chart at 9:57am on 31/03/2017.

On 21/03/2017 the shares opened at 1.490 and closed at 1.670. The high was 1.74. The price increase to the high of 25 sen was unusually big for a company like KPS. This was an increase of 16.7% in a day which was unusual for KPS. So this was regarded as something new, and people saw this as an opportunity to jump into the bandwagon to profit quickly. But I sensed that it was a trap. So I just leaved the counter and looked elsewhere but today I decided to have a peek. I realized that my instinct was right and just now at 2:53pm the price went as low as 1.35. And to add further to the misfortunes, the trading volume is going down too. Looking at the chart, the pulling down would continue further next week.

Imagine people who had bought during the frenzy would have knock their heads to the wall. However all was not lost if they've decided to keep the shares until the time came for them to at least break even, But judging from the price movements so far, I think it would take time. If they've decided to dispose their shares, the losses would not be colossal anyway. But I hope they would be patient and wait a little longer. You know, patience is a virtue and is much needed in this kind of trades.

So trust your instincts and don't be impulsive and greedy. Let your sound judgement control your decisions whether to buy or sell.

Additional note: 

This is known as blow-off top as mentioned in the article at www.guppytraders.com. It is an interesting phenomenon.

The blow-off top is a buying climax. It develops as the end of a prolonged uptrend. It signals a change in the nature of the trend and shows a buying frenzy. It has three features. 

The first is a dramatic increase in volume. This is a clear and unambiguous volume spike
The second is a dramatic increase in price. This is a bubble in price. The price activity near the volume spike is fast, and rises well above the previous trend behaviour. It may also include a substantial increase in the intraday volatility of price.
The third is the failure to hold the highs of the day. The blow-off top gaps above the previous days close, and may even rise higher in the first hour of trading. However the rise is defeated with steady selling. The close is well below the open and the close is near the low of the day. Often the range of the price bar is significantly larger than any preceding days.
The fast rise and its failure, shows that buyers have disappeared from the market. Sellers have to offer at lower and lower prices to achieve an exit. The close near the low of the day confirms buying and momentum exhaustion. The surge in volume is created by sellers as they become desperate to get out of the stock. The volumes urge does not come from buyers.

GKENT make or break

I have been following Gkent since last week. Last week I bought 2 lots at 3.70 and sold it at 3.89 for some small profit.

Today morning at 9:30am I am thinking of my decision at what price I am going to bid. 3.80 or 3.85?

At the moment the daily period price is consolidating for a week and I believed the price will go up soon. But at what price do I want to buy? As I am writing now the Sell is at 3.86 while the Buy is at 3.84. I believed the price will go down nearing 3.80 but I'm not too sure... I don't mind buying at 3.85 actually.

Yes, at 9:39 the Sell has gone down to 3.84. I think there is a some people who are trying to sell their shares fairly quickly. Panic? Not sure.

But actually I am a bit worried about this share. Since 1st Dec 2016 at the Support Level 1, the price has gone beyond Resistance Breakout which was formed during consolidation period of 6th Jan until end of Jan 2017 at 3.05 and now 3 months later, the price stands at about 3.85. This is about 29% price appreciation. The momentum makes me nervous. Anytime soon there will be a pullback price.The price hike is too dramatic for my liking and the kind of trade that I try to avoid.

Just now, in between writing this article I managed to buy 1 lot at 3.85 with the intention of buying 1 more at 3.80 for a price averaging of 3.825. Now the Sell price is 3.88 and buying 3.87 at 9:58am. 3 sen appreciation during those few minutes.....

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My first day of trading at Bursa Malaysia

On 23 March 2017 was my first day of my entry into shares trading at Bursa Malaysia. about 2 weeks prior to that, I had studied intensively about shares trading especially on technical and fundamental analysis of a few shares that I had targeted to buy when the time was right. I set my buy after careful study to minimize risks and to maximize profits.

Please bear in mind this was a real trade, meaning I had used real money and not a paper/demo trade. This was considered against trade wisdom because for a newbie like me, it was better to paper trade for a few weeks or better still for a few months before trading with real money. However, I felt a little bit of confidence because a few years back, I had some experience in Forex trading which was more volatile in terms of price fluctuations than shares trading and definitely would bankrupt you faster if you were not careful. Forex trading shares almost the same kind of technical analysis and uses the same indicators as the ones used in shares trading. In a way I felt that I was not in an unfamiliar territory. To cut a long story shot, I had lost a few K of the Ringgit but the experience I received was so valuable for later use in shares trading.

So here goes, my first few trades of shares, 3 lots for each shares. I chose RHB Investment Bank as my broker and the platform I used was RHB TradeSmart.

Later, the following day on 24/3/2017 I bought 1 lot of Air Asia.

Out of the 4 companies, only Ranhill was a bad choice after I realized it the day after. This was realized after I read about Ranhill in lowyat.net forums of the Stocks Exchange sections which gave bad historical impression of the company. Traders who felt that the company had a bad history would be compelled to dispose off the shares of the company and those that contemplate to buy would not buy upon knowing the bad history. I thought I had made a hasty or impulsive decision to buy Ranhill shares, so the shares must go. 

I had already pledge to buy on the basis of a very strong fundamental attributes of the company and satisfied with the technical analysis before making the decisions to place the bid to buy. I was not happy with the way I had started the trade and something must be done to remedy this. Overall, if I sold all the shares, I would profit a tiny sum but at least it would make me happy and would try to adjust my strategy later.

Finally, after some deliberation, I had decided to sell all the shares and to rethink back my strategy. My broker staff was surprised when she noticed that I had sold all my shares despite losing on the Ranhill shares. She immediately Whatsapp me to inquire why I had sold all the shares. I had nothing to reply except to tell her that I had to rethink back my approach to buying shares and needed a new start.There was some peace in my mind when I let go all the shares. It was like letting off some unwanted baggage on my shoulder.

Three of the shares, Inari, Air Asia and Gkent would later see the prices up a bit at the expense of less profit gains for me but what was important was the lessons that I had learned and of course the tiny profits that I had received. Inari price was just nice when I placed the order to sell at 2.08, up 12 sen from 1.96. Today on 30th March, the price is hovering lower at 2.04 to 2.05.

You would be curious how much profits that I took for the first 2 days of trading at Bursa Malaysia? Hahaha....the amount was just RM282.35, enough for a month petrol on a tight budget. Not bad for an ikan bilis like me who were just starting with this new stuff . See you again in my later posts.

1st Project: Making a new work bench

The 1st project in making a work bench size 2ft x 4ft, I had decided not to use any single nail or screw, instead I had chosen to use mortise and tenon joints which was more difficult and time consuming.

File finish to a tenon to the required dimensions.

I used tools such as handsaw, jig saw, chisels, mallet, wood file, clampers and sand paper. Next was to make the mortise with the same dimensions as the tenon. The size was marked by tape. Two 10mm holes were drilled to allow the jig saw blade entry inside the wood. A relief passage was cut to allow the blade to maneuver along the straight line of the tape. The relief passage was created by moving the jigsaw blade to and from each of the holes until near the side of tape.

A wood was clamped together during drilling to ensure nice clean holes. If not, the bottom side of the wood holes would tear at the edges, consequently the appearance would be bad.

Making a mortise

Mortise

The above was the lower legs mortise of the work bench. Next was to joint all the parts together.

The joints were fastened with glue

To add strength to the joints, I used dowel pins.

Dowel pin size 9mm diameter

Frame assembly.

When all the parts were joined together, it was time to put on the 1in x 8in wood planks on top. I applied glue to the bottom of the wood planks.

Clamps were used to ensure tight fit during glue curing.

Ta da! The job was finished!

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