The Alpha Trader
THE UKRAINE-RUSSIA CONFLICT - WHAT IT MEANS FOR THIS MALAYSIAN STOCK?
TheAlphaTrader
Publish date: Sat, 26 Feb 2022, 09:57 AM
TheAlphaTrader
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With over 20 years of trading experience in financial markets, this blog is intended to share with fellow traders how I identify good trade setups from a combination of fundamental, technical and situational considerations
A lot has been written in recent days as we watched in disbelief of a then impending, and now happening invasion of Ukraine by Russia. Commodity prices have gone ballistic on supply disruptions worries as Ukraine and Russia are major producers of many of the key commodities in the world.
Much attention has been focussed on crude oil, even though Russia only accounts for 10 percent of global output for crude oil. It was a frantic day for commodities trading on Thursday 24 February, where we saw WTI crude trading above USD100 per barrel for the first time since 2014.
By the close of trading on that day, most of the commodities prices had retraced significantly and most had closed way off the day highs (WTI crude settled at USD92.10) with the exception of wheat which still closed near the daily limit up price of 5%. So why was wheat the best performer on Thursday?
Wheat production in Russia and Ukraine account for almost 25% of the world output. Therefore, any potential disruptions will have a huge impact on prices. Furthermore, the major ports in Ukraine, where 90% of grain exports are shipped by sea, have been closed.
Apart from wheat, Russia is also one of the top producers of fertilizer in the world. Along with wheat, fertilizer will have the greatest price impact as a result of the war in Ukraine. While there are no futures market for fertilizer, market reports have shown that it had already been rising to its highest levels since 2014 (as much at 400% in 2021 alone in the USA), prior to the Ukraine incursion. It has even prompted the USA Secretary of Agriculture, Tom Vilsack, to voice his concern on fertilizer prices to spike even higher and remain elevated as a result of the invasion. (https://www.agriculture.com/news/business/vilsack-fertilizer-prices-are-biggest-worry-for-farmers-after-russian-invasion)
Now, the question is how do we capitalise on the rising trend in fertilizer prices on the home front?
HEXTAR INDUSTRIES BHD (HEXIND: 0161)
As highlighted in our previous post, HEXIND is a very good proxy to the fertilizer industry. It derives almost 70% of its revenue from the fertilizer business. In its recent quarterly report released in January 2022, saw a huge spike in profits by 800% increase QoQ. Assuming that the price of fertilizers likely to remain high in the near future, this will bode very well for HEXIND in the next financial quarters. HEXIND share price is currently up 78% from a year ago.
Another positive point for HEXIND is that most of its products are sold to the palmoil industry. The recent exponential moves in crude palm oil prices to new all-time highs will be a boon for HEXIND as the demand will remain robust despite the high fertilizer prices.
Another company that has benefitted handsomely from the surge in fertilizer prices is Ancom Bhd. The share price is up a whopping 225% from a year ago. Ancom is quite well reviewed by stock analysts and already known to the investing community, while HEXIND has yet to be covered by any mainstream investment houses, therefore its potential upside is as a proxy to the fertilzer play remains largely uncovered.
TECHNICAL PICTURE
The previous post on 9 November 2021 highlighted HEXIND at the time when it was trading at around the RM0.175 level. The downtrend line was broken on 3 February 2022 after the price broke above RM0.28 convincingly. The price has moved nicely along since the start of year 2022, reaching a high of RM0.325 on 11 February. It has since retraced to test the RM0.24 long term support level, which has held firm. It is likely tracing out its next motive move and could be targetting a new high if it breaks the RM0.325 level convincingly.
DATUK EDDIE ONG IS THE MAN WITH A PLAN
Datuk Eddie Ong is a man with the Midas touch when it comes to stock movement. After concluding his big play in Complete Logistics recently, which saw the price moving up 130% in the last year, a lot of market speculation is rife on what will be Datuk Eddie Ong’s next move.
To recap, the huge rights issue exercise undertaken last year saw Datuk Eddie Ong become the single biggest shareholder in HEXIND with he and his family collectively owning 47%. With the name change from SCH Bhd to HEXIND (to reflect the Hextar brand name), could also signal that he has big plans for this company. Given the right fundamentals being aligned, this could be the huge catalyst for HEXIND to really shine.
CONCLUSION
It is difficult to predict how long (or short) the conflict between Ukraine-Russia will last. One thing is for certain, is that the supply disruption to commodities will take a while to return to normalcy.
History has shown that when any huge crisis unfolds, a major investing theme always emerges. When the Covid 19 pandemic unravelled, the stock markets were crashing globally. It took almost 2 weeks before the markets realised that the glove makers would be a huge winner from the pandemic and prices actually ran up for another 6 months before topping out in Aug 2021.
Sometimes, the market takes time to digest what is in front of them before the consensus is reached and moving on to the next bullish move. To the sharp eyed investors, their job is to position themselves before this happens in earnest. Could this be the start of a raging bull move for HEXIND? Based on the information in front of us, this could be “Tiger-ific” year for HEXIND shareholders.
Disclaimer: This blog is created for sharing of trading ideas only. It is not in any way or form meant to be an inducement or recommendation to buy or sell any stocks. Consult your financial consultant before making any financial investments.
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Discussions
1 person likes this. Showing 25 of 25 comments
Did you do a thorough check if Hexind and Ancom are in fertilizer business?? Pls do so before you post .
As far as I know , Hexind is a small trading outfit for industrial chemicals, nothing to do with fertilizer. For Ancom, it core business is Agricultural chemical eg herbicide, insecticide etc. Ancom benefited a lot from one herbicide that they manufacture and the product price has surged considerably.
2022-02-27 16:44
The real direct beneficiaries are palm oil , oil & gas Upstream producers. Aluminium and steel companies will also benefit to some extent
2022-02-27 16:46
hey John I read the annual report and it's correct. You are are always promoting cpo only and thats ok. But this article is not for you to promote your agenda
2022-02-27 17:02
China so far not helping Russia evade Western sanctions-U.S. official
https://www.ibtimes.com/china-so-far-not-helping-russia-evade-western-sanctions-us-official-3415677
Some of that trade is conducted in China's yuan currency, which could technically fall outside of sanctions aimed at cutting Russia off from transactions in U.S. dollars, euros, sterling and other major currencies.
But Chinese banks that do business with Russian banks and other entities hit with full blocking sanctions and put on the Treasury's "specially designated nationals" list could face sanctions themselves and loss of access to the U.S. financial system.
The official said that if China were to help Russia evade U.S. sanctions, "it really would be an unfortunate signal for China's vision of the world," and give "tacit or explicit accommodation to Russia's invasion of a sovereign country in the heart of Europe."
"It would do profound damage to its reputation in Europe, but really across the world," the official said of China.
2022-02-27 17:13
Pokerpro88,
I suppose you are a big investor in Hexind. I had no intention to spoil your soup. I am just sharing information that i personally know in a public forum befitting to the title of the blog . So, what are you so angry about ?
Hexind was renamed from SCH Group bhd in 2021. In 2018, in a corporate exercise, PK fertilizers was injected into the group , I supposed is was for the intention of boosting turnover only. You must go to check what's SCH core business and expertise prior to 2018.
Let's talk about fertilizer !. In FY2020 and 2021, fertilizer sales was only $81 mil compared to $7.0 - 7.5 bil market size in Malaysia. Its market share is a tiny 1.1% that the market don,t even noticed it is a fertilizer player.
Let's look at financial numbers :
FY2021 EPS was 0.68 sen , PAT margin 1.6%
FY2019 EPS was 2.4 sen , PAT margin 4.7%
FY2018 EPS was 1.02 sen , PAT margin 4.1%
EPS and PAT margin decline substantially in FY2021.
In 2021, fertilizer prices were HIGHER between 50 to 100% compared to previous years. Let me ask you a simple question : Did the company make more money in FY2021 when fertilizer prices rocketed ? Clearly NO! Then, what makes you think that the company will benefit from further price increase due to Ukraine-russian war ?
I only share things that I know very well including plantation business. Can you tell me what have I shared about plantation that do not hold water ? I share my knowledge in plantation since 2020 and isn't all what i share come true ?
Don't be blind and lose the little money you have.
2022-02-27 19:19
Ukraine and Russia export 75% of sunflower seed oil and being bread basket of Europe will see corn and wheat price spike
now Ukraine farmers are running away and Agriculture export from Russia got boycott
Canola oil of Canada already failed due to drought
In Brazil north too much rain impact soybean harvest while Brazil Parana suffered from drought
Malaysia recently experienced a 100 year flood even plus lack of Fruit harvester for palm oil reduced production
All these events will converge and make palm oil go up in the Once a Century Super Bull Run time
Expect palm oil stocks to go up 300% to Rm1,000%
2022-02-27 19:43
Haha nowadays many KYY wannable, just look at the cover story and did not even read the content before come up with all the half past six promotion articles. No wonder 90% of investors are actually lossing money in stock market.
2022-02-27 19:45
If I am to choose between fertilizer and palm oil, of course palm oil is better and I think it is common sense. Correct?
2022-02-27 20:03
In Malaysia who is the biggest Urea producer?
SOURCES OF NPK FERTILIZER...COMPOSITION
The sources of nitrogen used in fertilizers are many, including ammonia (NH3 ), diammonium phosphate ((NH4 ) 2HPO4 ), ammonium nitrate (NH4NO3 ), ammonium sulfate ((NH4 ) 2 SO4 ), calcium cyanamide (CaCN2 ), calcium nitrate (Ca(NO3 ) 2 ), sodium nitrate (NaNO3 ), and urea (N2H4CO). Phosphorus is generally supplied as a phosphate, such as diammonium phosphate ((NH4 ) 2HPO4 ) or calcium dihydrogen phosphate (Ca(H2 PO4 ) 2 ).
Potassium comes from potassium sulfate (K2 SO4 ) or potassium chloride (KCl), which is also called muriate of potash. The phosphorus content of a fertilizer is specified as the amount of P2O5 because this is the anhydrous form of phosphoric acid. In this sense it is the most concentrated form of phosphate, which is the form of phosphorus required by plants. The potassium content is designated in terms of K2O, which is also called potash. Potash is a component of the residue left when plant materials are incinerated. The spreading of ashes on fields is an ancient method of replenishing potassium.
Modern chemical fertilizers usually contain KCl instead, but the potassium content is still specified as the equivalent amount of potash. Potassium chloride is 52% by weight K. Potash is 83% potassium. Thus, KCl provides only about 2/3 as much potassium asthe same weight of K2O. Thus, if a fertilizer is 25% KCl by weight, its potassium rating, based on potash, would be only 16.
2022-02-27 20:45
Johnzhang First of all thank you for "looking out for the little money I have" and I see fine. I do not disagree with your numbers and analysis on cpo and hence thats why cpo stocks are already flying. I do not even own hextar but would consider buying it. My point is this forum is for sharing of info and not to run down or put down peolple's opinion
2022-02-27 20:56
Some bloggers get a bad rap on i3 not because they make bad calls or bad reports, but the mere fact of recommending a stock and doing a 180 shortly.
2022-02-27 20:59
I believe stocks go up and down for a myriad of reasons. If you are a fundamentalist and only want to make money that way, thats fine. Other'may make money from charts, thats great. Bottom line there is no "right" or "correct' stock to buy. Peace to you
2022-02-27 21:02
Pokerpro88, There is big difference between running down on people and pointing out misinformation or misleading information for the interest of general public. Hope you don’t take both the same .
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Posted by pokerpro88 > Feb 27, 2022 8:56 PM | Report Abuse
Johnzhang First of all thank you for "looking out for the little money I have" and I see fine. I do not disagree with your numbers and analysis on cpo and hence thats why cpo stocks are already flying. I do not even own hextar but would consider buying it. My point is this forum is for sharing of info and not to run down or put down peolple's opinion
2022-02-27 21:17
Well said pokerpro88....most important is making money. No right or wrong way!
2022-02-27 21:31
If you really want to make real serious money there is only one class of stocks that will outperform all others
That is palm oil shares
Palm oil for the last one year being suppressed by ib banks and the fickle media will now rise up in pent up explosive demand to make up for loss time
2022-02-27 22:41
Sslee...Why would I wanna be KYY? It is hard enough just to be myself. Btw, as a Christian I did pray for your mum after I read your article. I hope she is good and well now.
2022-02-28 08:38
it's already up over 35% since this article...wonder if it's time to take some profits...
2022-04-18 17:41
congrats to all those who bought early and saw it through till now! Not easy to have a multibagger in a ravenous bear market!
2022-10-13 16:31
with the approval of shareholders approval in the bag for Hextar Fertilizers Group, expect bigger things to come from Dato Eddie Ong!
2022-10-13 16:34
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
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Thanks a lot to this writer..I have a good start this year after following his Nov article on Hexind..I will sailang on Monday again.. hoot 9e.. Heng, Huat ah..
2022-02-26 10:11