You must know the company’s business before you invest - Koon Yew Yin
Author: Koon Yew Yin | Publish date: Sat, 1 Oct 2016, 06:03 PM
The purpose of this article is to teach you how to invest wisely. Never buy any company share if you do not know what the company is making, who are its customers and who will use its products.
As a result of the Megasteel closure announcement as published by our local newspapers, all the share prices of steel makers such as CSC Steel, Chin Well, Hiap Teck, Southern Steel, Leader Steel, Choo Bee, MIG, Mycron Steel and others have been shooting up like rockets because many people are rushing in to buy blindly indiscriminately.
But you must not invest blindly because all the companies do not make the same type of steel products and the percentage of their profit is not the same. Some might even lose money.
As I said many a time before, there are already an oversupply of houses and condominiums in every town and city in Malaysia. The sales of houses and condominiums will definitely be reduced. As a result, manufacturers of steel bars and water pipes will not be able to show increasing profit. You must remember that the current profits they announced were from previous sales. But the future profit will be reduced.
These are products from Malaysia Steel which are used for building houses and condominiums.
These are the products from Southern Steel which are used for building houses and condominiums.
These are the products from Choo Bee which are used for building houses and condominiums.
Due to the reduced property sales, the profit for Masteel, Southern Steel and Choo Bee will be reduced in future. A few may even lose money.
Many sceptics including little ah_boon who do not believe my honesty, will buy these shares to spite me. You must also remember that the Financial Analysis FA can mislead you because it is based on historical profit and it cannot tell you the future profit of the company. Moreover, the price chart is encouraging you to buy as it is up trending, making a new high and no more head resistant. Be careful, you must be smart to realise what I say.
To show you my sincerity, on 16th Sept 2016, I posted my article “Megasteel closure will benefit other steel manufacturers” in which I recommended buy on CSC Steel, when its price was Rm 1.76 per share. The share price continues to climb and it closed at Rm 1.93 yesterday. If you have followed my recommendation you would have made 10% in the last 9 trading days.
Often you see Bursa announcement that a big shareholder, Mr Gan is selling which is discouraging but I am buying it every day because I believe CSC Steel’s profit will continue to increase. It has Rm 320 million cash and it has 370 million of issued shares, equal to 86 sen per share.
Mr Gan must be a tired shareholder for so many years. If you look at the price chart, you will notice that its price had been depressed in the last several years despite the reasonably good performance of the company. Not many people would want to buy the share until the news of Megasteel closure. Mr Gan considers it a good opportunity for him to sell his large holdings. If he did not continue selling, the price would have shot through the roof. On 21th Sept. Mr Gan declared that he is no longer a substantial shareholder.
These are CSC Steel’s products:
As the title of this article, you must know the company’s business before you invest. CSC Steel’s customers are not the builders of houses and condominiums. They are the manufacturers of motor cars, fridges, computer outside covers, factory roof sheets, advertising bill boards etc.
Conclusion: Among all the companies that will benefit from the Megasteel closure, CSC Steel will benefit the most because it is largest manufacturer of CRC thin steel sheets which have a large market.
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