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Hock Lian Seng: Retreating.

Friday, October 8, 2010

On 5 Oct, I mentioned that there was "strong demand and accumulation but buying momentum (was) muted by strong selling pressure at resistance (32c)" and that "I sold some of my shares at the 32c target .... Although I still see strong support at 30c where we find the rising 20dMA, 30.5c could very well be resistance turned support."

Today, Hock Lian Seng retreated and closed at 30.5c, the support provided by the 20dMA. However, the retreating price is on the back of much reduced volume and does not worry me. Could the support at 30.5c hold? With the MACD on the verge of forming a bearish crossover with the signal line, we could see share price tested further on the downside.  This is especially true when we realise that the MFI has been entrenched in overbought territory for a few sessions now. This could be corrected in future sessions.  The RSI has formed a higher high which suggests to me that the buying momentum is intact.

What would I do? Notice that the 20dMA has been guiding the price of this counter higher? See the uptrend support is in between the 20dMA and 50dMA? This would be at about 30c.  The 50dMA is at 29.5c.  I would buy more at these price levels.  For anyone who is not vested but would like to be, buying some at the 20dMA (30.5c) could be a nice hedge.

Related post:
Hock Lian Seng: Target hit.


mark said...

I reckon u didnt do a full FA on this?

AK71 said...

Hi Mark,

The FA was done in conversation with Master Cheng and Musicwhiz in LP's infamous cbox not long after its IPO. It has very strong fundamentals. Actually, there is no reason even for it to list since it does not require public funds at all.

Its price was pretty high at that time as it went CD. There is also a chance that future dividends could be higher if the management could not find any productive use for its excess cash.

Then, it went through a period of consolidation which presented an opportunity for me to get in; my lowest entry price being 26.5c.

Anything you would like to share on this one? :)

mark said...

So my question is, why list? There must be a reason. There are costs to list and many parties to account for, not forgetting the never ending stream of audits. So it cannot be just to list for fun.

As for dividends, this depends on the management? If they are like hotel grand central, where the owners and family own a large stake, they have every incentive to pay a huge amount since it ultimately means they get the cash. Another company may prefer to keep the cash in the company's safe and although they have a huge cash on hand (and in the bank) but end up doing nothing about it, which is bad for shareholders.

AK71 said...

Hi Mark,

Yup, we asked that same question. Many would go public because they need funds to expand or to pay down debts. These companies usually have viable business models but are just short of funds.

However, for this company, we concluded that being a public listed company probably gives it certain advantages which it wants as public companies are required to be more rigorous (like you have rightly pointed out)in their reporting and are perceived as being more credible.

As an investor, I made the decision to be vested as their numbers are strong and it is not overvalued. Time will tell how this would turn out, however. ;)

mark said...

Good stuff.
I would be interested to know how they plan to use their cash. Now with more cash than ever after listing I can only hope they put it into good use. Correct me if I am wrong but without a clear direction thus far, this is an FA tikam? :P

AK71 said...

Hi Mark,

I recently read that they want to be a real estate developer. That could possibly put their cash hoard to good use.

I don't think this is a FA tikam. A FA tikam would be more applicable to companies like Raffles Education where things seem to be turning around but we are not quite sure. So, still risky. ;)

With Hock Lian Seng, the fundamentals are good. So, there really isn't much guesswork or I should say that downside risk is more limited. :)

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