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Yongnam: Smart money is accumulating.

Wednesday, February 22, 2012

OBV is used to detect distribution and accumulation activities. This, in itself, might not be very useful apart from providing material for a chit chat over tea. Looking at OBV together with price movement, however, could be rewarding.

A simple technical analysis suggests that smart money is accumulating shares of Yongnam.

Look at how the OBV has been gradually rising although its share price has been forming lower highs since early October 2010. An upward sloping OBV coupled with a weakening share price suggests that smart money is accumulating. Mind you, accumulation could go on for a long time as seen in this case.

However, there is support and buying on weakness could be rewarding as we could see prices going higher in time.

I have done some FA on Yongnam and its numbers have been improving over the years. Margins have been improving while gearing has been reducing.

Yongnam has carved a niche for itself in the construction industry and concentrates its efforts mainly in the infrastructure sector which continues to see major expenditure by regional governments.

What Yongnam does has a high barrier to entry and it is also probably the biggest in the game it plays. Yongnam seems to have an advantage and consistently gaining new contracts gives this claim credibility.

Visit Yongnam's website: here.


Try Harder said...

I read recently some where that the CEO is being probe by CAD. Do you see a concern here?

AK71 said...

Hi Try Harder,

A few years ago, I was convinced that BrightWorld would do very well with China turning on the credit to cushion its economy from the financial crisis. I got in at under 20c.

Then, CAD decided to investigate the company's directors. I got cold feet and sold. Quite a substantial amount too. See where it is now? CAD \*$%^#&@!

CAD is investigating Yongnam's CEO for possible insider trading or involvement in one. It has no bearing on the company's business per se. If the CEO is found guilty, perhaps, he would be slapped with a fine. Nothing drastic.

la papillion said...

Hi AK,

Hmm, interested in yongnam? I'm invested a long time ago...

AK71 said...

Hi LP,

Still vested? Any insights? ;)

la papillion said...


No longer vested. That was a few years ago. I think yongnam is one of the better construction companies. They do quite a bit of steel (only they can do it), if I didn't recall wrongly. I kind of avoid construction companies these days because of the cyclical nature and tough margins.

But what do I know right? haha

AK71 said...

Hi LP,

I know very little about construction companies. I have some shares in Hock Lian Seng and that is because of FA done by Master Cheng.

The more I read about Yongnam, the more I like it. It is also much stronger now than two years ago and it has certain competitive advantages. Heavy spending in infrastructure projects by regional governments could make cyclical considerations weaker.

Ray said...

"CAD \*$%^#&@!"


AK71 said...

Hi Ray,

I lost out on a 5 figure gain. Sigh. Pardon my French. Hehehe... A lesson for me. ;)

Ray said...

Hi AK,

Oh dear, so sorry to hear that.
i also have been losing abit (3 figures only but still.. in a bull rally for heaven's sake!)
Don't know why every stock when I buy, it falls then when I sell it rise.
I think Mr Market don't like me... :(

Anyway back to Yongnam. Did a little research myself. The figures indeed look good but liquidity seems to be an issue though.

AK71 said...

Hi Ray,

We have to try our best to know Mr. Market a bit better each day, temperamental though he may be. Mr. Market is never personal. Perverse, perhaps. ;p

When I bought Old Chang Kee shares some time back, a reader warned me about the lack of liquidity too. I think Yongnam looks much better in comparison. ;)

Old Chang Kee: Initiated a long position at 26c.

Howard said...

As i mentioned in another post, here's a engineering/construction company listed in Malaysia.

Nature of business look somewhat similar to Yongnam, and it is based in Sabah/Sarawak, which has plenty of room to grow. But margin is trending downwards.

AK71 said...

Hi Howyuan,

I am always concerned when I see margins reducing. It suggests that it is a business that has little competitive advantage or is unable to limit the impact of negative externalities.

Both Yongnam and Hock Lian Seng have seen margins improved despite difficult conditions. I am hopeful that this will continue as both companies have certain competitive advantages.

AhJohn said...

I think its competitiveness is only for it to maintain profit, but hard to grow in a predictable continuous speed. In short, it will make money, but stock price is difficult to rise a lot. So only attractive when highly undervalued or dividend yield is high.

AhJohn said...

target at below 0.20?

AK71 said...

Hi Ah John,

Value is what is seen in the books while price is a function of sentiments mostly.

Of course, we would like to buy something that is undervalued and at the current price, is Yongnam undervalued? It would depend on our valuation metrics.

Personally, I think Yongnam offers fairly good value at 24.5c per share which is where I see technical support as well.

If 24.5c should give, we could see 22c next. 20c? Why not? There is no accounting for sentiments. ;)

If it should hit 20c, I would definitely buy many more shares. :)

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