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I went straightaway to i3investor this morning to read the news there. On the right-hand side of the blog, the “Top 5 Articles” stared straight into my eyes.
Hengyuan: A Blessing in Disguise - Koon Yew Yin Koon Yew Yin's Blog
Hengyuan - No Doom For 2018 Financialpedia
Hengyuan plunges another 15%, may revisit next support level gossip news
HENGYUAN created infamous HISTORY never seen before ! {PureBULL Strategy} KLSE MARKET STRATEGY
This has shown that Hengyuan (HY) continues to be the hottest stock in i3investor, far ahead of any other stock. Kudos to Hengyuan. This has also shown that articles, whatever and however a certain investor write, continues to be the top article in i3investor, far ahead of any article by any other writer, combined.  Kudos to the continuing sharing of that famous writer.
Being human, I also have this FOLO mentality. Seeing that, I can’t help myself to join in the fun.

In the third article above, Louis Low of Hong Leong Investment Bank said,
"The price has breached below the psychological support of RM10 and may revisit its next support of RM8.60."
Can’t comment much on this article as I do not have much knowledge about it. All I know HY share price has actually broke below RM8.60 yesterday, and I guess many shareholders following this advice would have sold off at around RM8.60. It just closed at RM9.22 today on 8th March 2018. I am sure the “support” and “resistance” levels have changed. It is very hard for me to invest based on a moving target which changes numerous times within a day, as in the case of HY. I would have no time to play golf or have a cuppa coffee with friends as I would have to stare at the computer, all day long.

For the fourth article above, the author just plucked a figure from the sky; a target price of RM6.00 for HY. I guess the writer must be practising some kind of Voodoo! I don’t know anything about black magic, and hence can’t comment anything on it.

The incredible share price movement of HY
The fifth article above discussed the fast and furious share price movement of HY recently, and that it created history in Bursa. The share price movement of HY indeed has been very interesting. I have been contemplating to write a follow-up article to discuss about how not to be “killed” in the stock market after my last article three weeks ago, titled “The “Killers” and the “Slaughtered lambs” in the stock market” in the link below,
Figure 1 below shows the share price movement of HY for the last one year.
The share price of HY rose steadily from RM2.00 in less than one year ago to its intraday peak of more than RM19 at the beginning of January 2018, for a gain of 850% in a year! It also could drop from RM19 to RM12, for a loss of 37%, and from RM15 to RM8.20, for a loss of 45%, both within a few days.
A year ago, there was little discussions about HY in i3investor until its share price rose to about RM8.00 in August last year, when the activities in the HY thread heightened.
Figure 1: Historical share price movement of Hengyuan

There were a number of tailwinds for the business of HY, among them,
  1. Rise of crude oil price resulting in
    1. Rising margin of refining works, widening of crack spread
    2. Gain in inventories, due to the First-in-first-out (FIFO) inventories accounting, a non-cash item which can be a big number for HY
  2. Increased demand following unplanned production outages caused by the hurricane in Gulf of Mexico, and a fire incidence in a world-scale European refinery.
  3. Tax credits in the previous quarters, and hence higher bottom line.
  4. Gain in foreign exchange

Note the above are all one-time-off items which are unlikely to repeat. In fact, they may reverse, for example drop in crude oil price resulting in inventories loss, huge capital expenses, reverse in foreign exchange rate, exhaustion of tax credit etc.
I know a group of FA investors who have capitalized the above and started to invest in HY when it was trading at a few Ringgit a piece. Many of them are savvy investors who were aware of the tailwinds above and could carry out analysis on their own and were right in the outcome. Many have made a “killing” investing in HY when it was cheap.
I also read about a BS speculator who had bought loads of HY at a few Ringgit a piece. With the collaboration of some other FA investors and also momentum players and writing articles after articles singing the song that HY was the stock of the century, and for long-term, and with all the euphoria, the share price of HY shot up like a “missile” from RM8.00 to RM19.00 within two months. Even at its peak price, articles after articles were published to help retail investors to make money, to buy HY shares. Anyone who had sold HY shares, even at RM17 somewhere in January was branded as foolish.
Only very few humble investors who can control their emotion of fear to think logically, would dare to admit their mistake and buy back at higher prices.”  
The music never stopped and everybody was making lorry loads of profit, and laughing to the banks, everybody, including monkeys.
Finally, trees don’t grow to sky. Even with the fantastic results published recently, the share price of HY plunged to a low of about RM8.20 yesterday. There was blood all over the street.
Here came the top article for a few days in i3investor, the first article above, and the most “inspiring”, “motivating” and “glorious” one, “Hengyuan, a blessing in disguise” from someone who has consistently making huge amount of money from the stock market, in months.

The killer

Some people are really blessed. Anything they touch, it turns to gold. Not only that, God also helps them to make use of other people’s money (OPM) to make more money, hundreds of millions. It is fantastic, and incredible.
Oh, oh, they are so good in stock picking, so rich, respect, reespect!
They are also the chosen lot, always able to buy and sell at the right time and make humongous profit and laughing all the way to the banks, all the time. In HY’s case, imagine using RM100m own money and borrow RM100m from the banks and bought 20 million shares at an average price of say RM10, and sold them at an average price of say RM18, the profit would be RM160m, in one share and within a few months! Some of them openly boast around about their prowess in this game.
GOD works in mysterious ways to help those kind hearted who needed help.”
God is really busy all the time helping everybody in all kinds of things, including making money, big money, in the stock market. God has no time to do any other thing.
This money-making prowess by using OPM is “inspiring”, and “motivating”. They always make a lot of money from OPM in the stock market. Never before they have lost any money investing in any stock. It is truly incredible. Of course, with God’s help, there are always miracles.
But wait a minute. Where has this RM160m come from? Falling from the sky?
Anyone got “killed”? Why would God want to see those poor, under-privileged and naïve got “killed”?
If you got “killed”, can you blame anybody? I don’t think so. You have to take responsibility of your own action, as they have already told you, they can ask you to buy, and you buy at your own risk, and if they want to sell, they are not obliged to tell you.
God is not going to help you as you are speculating in the stock market. God only helps those chosen speculators who would make hundreds of million in share trading profit, not you. Of course not. How much do you have to invest?
If you got “killed”. Do you want to have the same experience again in the future?
That is the gist of the second article above, “Hengyuan - No Doom For 2018”.
The writer of the above article has gone into details on the business of HY, and its valuation. It is hard to find this type of article.

Fundamental analysis of HY
As a fundamental investor, I find the second article above most informative and reliable if I were to consider investing in HY. It involves looking at its business, a real BS. It estimates its bottom line in details from its top line base on the present information and what the expected in the next one year, and translate it into earnings per share, EPS.
Base on the EPS estimated, the author has tabulated the prospective price of HY with various price-to-earnings ratio, PE as shown in the table below.

From the table above, if the market gives a PE ratio of 6, HY should worth RM14.40 to RM16.30. At RM9.22 now, there seems to be plenty of upside for HY. What if the PE is 10? Fat tat loh!
So far so good, except that the denominator used, E, is an accounting number, or accounting net profit. In this E, it is made up all kinds of stuff; foreign exchange gains due to restructuring of the foreign loans, tax saving from reinvestments, “other operating gains”, “other income”, many of them are just one-time-off and non-cash items.
Here are some explanations on the pitfall of using accounting E, and its associated PE ratio,
It would be more appropriate if the author can use a normalized EPS, i.e. to strip off all those non-cash and non-operating one-time-off items and cyclicals from the E, and not just one-year E.
What is the actual cash received? More importantly, after capital expenses, what is the future free cash flows from this business?
Financial theory postulated by John Burr Williams in his “The theory of investment value” suggests that the value of a stock is worth all the future cash flows expected to be generated by the firm, discounted by an appropriate risk-adjusted rate.
The more appropriate comparison is its price versus its value, rather than its price versus earnings.
Well, I am not saying what has done by the author is wrong, but surely there are other points to ponder about, or else HY would not be trading at RM9.22 now with a PE of less than 4.

HY is truly the hottest stock in i3investor, monopolizing the top five articles in i3investor. There were many who made money by discovering it early in a year ago by analyzing its business and the prospects, and its value. Some, but very few also made money, in fact big money, speculating and even manipulating the sentiments of the masses in its share price movement. However, money won’t drop from the sky; some win (killers) and some (those killed) will lose. It is a zero-sum game as far as its speculative share price movement recently is concerned. Many uninformed lost their pants chasing the share when it was selling at or close to its peak, many with margin financing.
There is only one person you can depend on in order not to be “killed” in the speculative stock market, that is you. You must treat buying a stock as investing in part of a business for the long haul, rather than following the greater fool theory. You must arm yourselves with the knowledge of a business, how it makes money? Is it making good money? Is the money making consistent, etc. More importantly, one must know the price versus its value.
There are many resources around to acquire this knowledge; from books, and even free from the internet. All is required is commitment, time and effort.
If you wish to steepen your learning curve, and learn it in a more structured manner, there are also service providers around. You may also contact me at the email below,
Avoid being “killed” in the stock market is more important option for your financial wellbeing, as any other option will be better.

KC Chong

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