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 LUXCHEM (5143) LUXCHEM CORP BHD - A HOLISTIC ANALYSIS OF “LUXCHEM” – MOST UNDERVALUED STOCK WITH A FAIR VALUE OF RM1.34: [PART 1/6] THE CHEAPNESS & REASON ((by THINKING-MAN))

“THE STOCK MARKET IS SOMETIMES RATIONAL, SOMETIMES IRRATIONAL. RATIONAL is when the share price goes uptrend or downtrend according to the company’s performance and growth - its intrinsic, true value and potentiality. The share price reflects a fair price and represents the company’s situation. The price is FAIRLY VALUED. IRRATIONAL is when share price does not go in line with its performance and growth. The share price is skewed, unfair and biased towards one side – not reflecting the company’s true situation. The price goes lower or higher than its intrinsic value. The price is either UNDERVALUED or OVERVALUED! These are the scenarios for irrational market. We all have been there..........”                                                 (by THINKING-MAN)

Topglove, Hartalega, Supermax, Kossan, Comfort, Ruberex, Careplus, HLT, LKL, Prolexus, etc. all have increased MANY, MANY TIMES due to their wonderful profits, however, LUXCHEM is still yet to increase and STILL VERY CHEAP AND UNDERVALUED despite reporting GOOD and HIGH PROFITS FOR THE PREVIOUS QUARTER! It is still not appreciated though it is a STABLE, RELIABLE company with ALL PROFITS IN THE REPORTED QUARTERLY RESULTS FOR THESE 10 YEARS – never have losses! What a GREAT company!!!

This is a comprehensive analysis of LUXCHEM – a company that involves in selling glove chemicals to glove companies which include Topglove, Hartalega and a number of other well-known glove companies. As we have known, glove companies have been making huge supernormal profits for many months and would still do so at the moment - and this increases LUXCHEM’s profit. This report provides a holistic analysis to investors to uncover the company’s current standing. THERE ARE 6 PARTS IN THIS ANALYSIS. Each part will be sent in different time to address each specific area. It will cover a number of issues dealing with the current situation, financial analysis, expectations, prospects and share price position. The full contents of this analysis are shown below.

CONTENTS

PART 1 – OVERVIEW, THE CASE OF CHEAPNESS AND ITS REASON

(1)        LUXCHEM IS STILL CHEAP AND UNDERVALUED? IF IT IS UNDERVALUED, WHY IS IT THAT THE PRICE DOESN’T RISE MUCH AFTER THE QR RELEASE? CAN YOU EXPLAIN?

((EVENTS IN RELATION TO LUXCHEM AND GLOVE-RELATED STOCKS))

(2)        HOW ABOUT TECHNICAL ANALYSIS OF LUXCHEM?

((TECHNICAL ANALYSIS INSIGHTS AND THE SITUATION))

PART 2 – VERY GOOD, WONDERFUL AND ENCOURAGING FINANCIAL REPORT/METRICS

(3)        WELL THEN, WHAT IS THE PROFITABILITY OF LUXCHEM? WHAT IS THE EVIDENCE? CAN YOU SHOW ME THE PROFITS GAINED BY LUXCHEM?  THE PROVEN RESULT FROM THE LATEST FINANCIAL REPORT?

((PROVEN PROFITABILITY AND GROWTH – FROM INCOME STATEMENT))

(4)        IS THE COMPANY STABLE IN TERM OF ITS BALANCE SHEET - ASSETS AND LIABILITIES?

((ASSETS, LIABILITIES AND EQUITIES IN GOOD STANDING – FROM BALANCE SHEET))

(5)        DOES THE COMPANY HAVE ENOUGH “CASH FLOWS” DESPITE HAVING SUPERNORMAL PROFITS?

((VERY HIGH, GOOD CASH FLOWS – FROM CASH FLOWS STATEMENT)

PART 3 – VACCINE, A GOOD FRIEND OF GLOVES??? WALKING HAND-IN-HAND???

(6)        HOW ABOUT VACCINES? WOULD THE RELEASE OF VACCINES DECREASE GLOVE DEMAND, WHICH IN TURN WOULD DECREASE GLOVES’ COMPANIES PROFIT, AND SUBSEQUENTLY DECREASE LUXCHEM’S PROFIT?

((IT IS “GLOVES USED TOGETHER WITH VACCINES” – NOT “GLOVES VS. VACCINES!”))

(7)        WHAT IS THE POTENTIAL GROWTH AND FUTURE SCENARIO OF LUXCHEM?

((POSSIBLE GROWING, MAINTAINING PROFIT DUE TO CONTINUOUS INCREASE IN GLOVE DEMAND BY NEXT YEAR))

PART 4 – “CASH COW,” CHEAP, HIGHER RATE THAN BANK FD

(8)        CAN YOU SHOW ME LUXCHEM’S CASH VALUATION? VACCINES’ RELEASE WOULD STILL REQUIRE HIGH DEMAND OF GLOVES – AS WELL AS GLOVE CHEMICALS (CONTINUOUS GROWTH). THEN, IS LUXCHEM STABLE - “A CASH COW” IN RUNNING ITS BUSINESS? IS LUXCHEM TRULY CONCRETE, ENRICHING AND STILL “CHEAP?” IS ITS FREE CASH FLOW (FCF) BETTER THAN BANK’S FIXED DEPOSIT (FD)?

((CASH VALUATION - CASH COW, “CHEAPNESS,” AND BETTER THAN FIXED DEPOSIT))

PART 5 – MUCH UNDERVALUED, CHEAP TO ITS INTRINSIC VALUE – WITH HIGH MOS

(9)        WHAT IS THE FAIR PRICE (VALUE) OF LUXCHEM? AGAIN, HOW CHEAP IS ITS SHARE PRICE IN COMPARISON WITH OTHER HEALTHCARE, GLOVE-RELATED STOCKS? WHAT IS THE INTRINSIC VALUE (IV) AND MARGIN OF SAFETY (MOS) OF LUXCHEM?

((INTRINSIC VALUE/FAIR PRICE – “CHEAPNESS” OF CURRENT PRICE & MARGIN OF SAFETY))

(10)      HOW DO YOU COMPARE AND EVALUATE LUXCHEM IN SIMPLE TERM AND UNDERSTANDING?

((A STORY OF BAGS FOR SIMPLE UNDERSTANDING OF LUXCHEM))

PART 6 – THE OVERALL CONCLUSION

(11)      WHAT YOU HAVE WRITTEN IS UNDERSTOOD, HOWEVER ARE THERE ANY INSIDERS TRADING OF THIS STOCK? ANY PURCHASES OF SHARES BY THE MAJOR SHAREHOLDERS SO THAT I AM MORE CONVINCED?

((INSIDERS TRADING OF LUXCHEM STOCK OF 6,652,700 SHARES – 18 TRANSACTIONS))

(12)      WHAT IS THE CONCLUSION YOU CAN MAKE REGARDING LUXCHEM?

((LUXCHEM, A GOOD BARGAIN – STILL CHEAP, UNDERVALUED WITH HIGH MARGIN OF SAFETY))

PART 1 – OVERVIEW, THE CASE OF CHEAPNESS AND ITS REASON

(A GOOD OPPORTUNITY TO CONSIDER)

THIS IS PART 1 OF 6. LUXCHEM, as known by most people, is selling glove-related chemicals to major glove-making companies. The Big 4 glove companies and some others are customers of LUXCHEM. And its products (glove-related chemicals) are fully booked and ordered throughout the next year due to increasing demand of gloves throughout the whole world due to Covid-19. Most healthcare, PPE, glove-related stocks have gone through HIGH SURGE AND INCREASE in share prices due to their INCREASING PROFITS.

            We all know that stock prices of Topglove, Hartalega, Supermax, Kossan, Comfort, Ruberex, Careplus, HLT, LKL, Prolexus, etc. have increased in line with their increased earnings/profits. LUXCHEM achieved a HIGH PROFIT GROWTH RATE OF 86.90% – ALMOST DOUBLED ITS PROFITS COMPARED TO THE PREVIOUS QUARTER. However, LUXCHEM share price is still wandering, lingering and trampling around like before QR release and it is very much UNDERVALUED!!! So, IT IS STILL CHEAP AT THE MOMENT!!!! There are some other stocks which would involve in glove business in the future, however at the moment, the profit (from potential glove business) is not yet realized. Despite of this, stock price also spiked – like MahSing and AT.

            LUXCHEM already increased its ASP of its glove chemicals by 100%, and already reported HIGHEST NET PROFIT SINCE 5 YEARS AGO! THE NET PROFIT IS HUGELY RM14,169,000 – WITH AN INCREASE OF 86.90% COMPARED TO THE PREVIOUS QUARTER. However, due to uncertainties and unfavourable general market sentiment within the weeks of its QR result, this glove-related stock has been ignored for the most part. At this moment, the price is still CHEAP, LOW, UNDERVALUED and with HIGH MARGIN OF SAFETY (all these will be shown step-by-step later). It seems the market overlooks this stock – AND EXACTLY DUE TO THIS, the share price is VERY ATTRACTIVE AT THE CURRENT PRICE! The PRICE RANGE IS AROUND RM0.79-0.82 THESE FEW DAYS – JUST LIKE BEFORE ITS QR RELEASE, THOUGH IT DID INCREASE TO RM0.96 CENTS FOR  SHORT TIME (AFTER QR) BEFORE RETRACTED DUE TO GLOBAL UNCERTAINTIES.

            HOWEVER, you might have asked, “WHAT IS SO WONDERFUL ABOUT LUXCHEM??? You might have many questions to ask and clarify!!! Here are the QUESTIONS YOU MIGHT WISH TO FIND OUT AND CLARIFY!           

(1)        LUXCHEM IS STILL CHEAP AND UNDERVALUED? IF IT IS UNDERVALUED, WHY IS IT THAT THE PRICE DOESN’T RISE MUCH AFTER THE QR RELEASE? CAN YOU EXPLAIN?

((EVENTS IN RELATION TO LUXCHEM AND GLOVE-RELATED STOCKS))

Well, the answer is simple. When QR was released, the price did increase from around 0.87 to 0.96. However, do bear in mind that the OVERALL MARKET SENTIMENT AT THAT TIME WAS NO GOOD DUE TO POLITICAL UNCERTAINTIES, BOTH LOCALLY AND INTERNATIONALLY. Therefore, the good result of QR is not FULLY REFLECTED AND PRICED IN at that time (the market) – EVEN UNTIL NOW. You will also REALIZE THAT WHEN HARTALEGA AND SUPERMAX released their AMAZING QR RESULTS WEEKS AGO, their share prices were EXPECTED TO GO UP CONSISTENTLY WITH THE HUGE EARNINGS, however it DIDN’T FULLY MATERIALIZE (only some slight increases) – due to uncertainties too. REMEMBER, the market sentiment was no good at that time and most share prices declined. Now that the DUST HAS SETTLED, the market sentiment should gradually come back and improve. It might take some time. Of course, people are now worried about vaccine releases which they believe will affect gloves demand, but wait, this will be dealt and explained later.

Even until NOW, LUXCHEM is still AMONG THE CHEAPEST AND MOST UNDERVALUED STOCK! LUXCHEM should steadily increase over the time in line with its almost DOUBLE PROFITS. It is ONLY A MATTER OF TIME WHEN IT SHOULD PROBABLY INCREASE!

            You need to understand this! Mr. Market is a crazy guy! Sometimes a share price is already too high (peaking), but the price still increases, going even higher than before – this is surely overvalued! But there is a danger if you buy share like this since it might go down to its fair price later on. Sometimes, Mr. Market is his rational, normal, usual self and the share price goes according to its fair value. Other times, Mr. Market is irrational when a good share is not appreciated and realized. This is what happens to LUXCHEM due to market sentiment as explained earlier. Mr. Market is still undecided though the price for LUXCHEM is truly undervalued.

(2)        HOW ABOUT TECHNICAL ANALYSIS OF LUXCHEM?

((TECHNICAL ANALYSIS INSIGHTS AND THE SITUATION))

Well, technical analysis needs much explanation, however, we are not going to talk about the different technical methods - chart models, names, indicators, etc. There is a reason for it. And as you can see, to observe a stock is either on an uptrend or a downtrend – we have to look at the amount of shares buying/selling activities, and also its price level in the market. We look at the momentum – this is “momentum investing” – in buying or selling of shares. “Momentum investing” is definitely useful and “share momentum” serves as a background information of the market behaviour, however this momentum can sometimes be genuine, authentic – at times, it might be artificial.

           To understand momentum investing, there are various technical analysis (TA) methods which are very informative - serving as guideline to provide possibilities that a share price is likely to increase (bullish) or decrease (bearish). Among these indicators are Simple Moving Average (SMA), Exponential Moving Average (EMA), Moving Average Convergence Divergence (MACD), Stochastic Oscillator (SO), Relative Strength Index (RSI), Parabolic SAR (Stop and Reversal), etc. No doubt all these methods are very popular and beneficial to investors. They give general ideas when to buy or sell. However, one should also note that all these indicators are only guides, instruments or tools - it is not 100% perfect.  

          To clarify, the usual general rule (for these indicators) is that if the share price moves above the indicator line (a reference line calculated by the method) or is having a breakout (above its resistance), it is a signal to buy – since it is believed the share price will go higher. If the share price moves below the indicator line, then it is a signal to sell – since the share price is likely to go lower.

          However, at times, these do not happen and their use might backfire. For example, when the share price goes higher than the indicator line (e.g. SMA) or there is a breakout, a person will buy the shares since he believes the price will spike (uptrend - this is a “buy” signal). Nevertheless, not long after he buys the shares, the price surprisingly starts to decrease all the way, crossing below the SMA line. He sells his shares to cut-loss. He should not have bought the shares earlier due to the breakout “buy” signal. THIS MEANS THAT NOT ALL BREAKOUTS WILL LEAD TO SURGE IN SHARE PRICE. AFTER BREAKOUT, PRICE MIGHT EVEN PLUNGE OR GO DOWNTREND – THIS IS A BASE PATTERN FAILURE (FALSE BREAKOUT)! Similarly, when the share price goes lower than the RSI line (there is a downtrend), the person will sell his shares since he believes the price will decrease (this is a “sell” signal). Again, as soon as he sells his shares, the price suddenly increases all the way, crossing above the RSI line. He regrets selling his shares too early. He should have sold his shares at a later time.

          Well, that is why these technical indicators are only guideline – of course, they are really useful and can help people to make money, nevertheless, they are not something absolute which work all the time. They can help to a certain extent, but an investor also needs to weigh in OTHER FACTORS when buying or selling, not merely looking at technical analysis. Please don’t misunderstand or misinterpret what is said here, we are not against technical analysis – we do look at these indicators to understand the behaviour of shares in the market. And they do provide some very good, valuable insights into buying-selling behaviours of shares. What we are trying to say here is that they serve as guideline – they are not fool-proof. LOOKING AT TECHNICAL CHARTS ALONE IS NOT ENOUGH! And also different people might interpret differently on buy/sell signal if they are given the same set of data of these technical indicators. Those who always make money by using technical analysis are those who are well-experienced, and they combine fundamental analysis in their share investing. The success of use of technical analysis depends on the person’s overall experiences, skills and sharp mentality. Two persons with the same knowledge would produce different results in their investing due to their varied sharpness, alertness, quick-mindedness in using technical analysis as well as fundamental analysis. Technical analysis is definitely beneficial and helpful, however we need to see the bigger, wider picture of a particular share we would wish to invest. Technical analysis – LOOKING AT CHARTS WITH VARIOUS PATTERNS is sometimes very TRICKY AND UNPREDICTABLE.

          But again, using all these technical indicators to see the share volumes traded means one thing - to buy and sell shares depends on peoples’ interest – in short, “the momentum.” We want to catch stock before they fly up high. Having said this, a stock/share can have momentum for months, weeks or even a few days’ time. Momentum is good as it signals a share to be popular – it helps to push up or down a share price! However, this momentum – whether uptrend or downtrend can CHANGE ANYTIME WITHOUT WARNING! There could be a sudden reverse of trend or price movement! Momentum is important, however if a person wants to invest – it must be CHEAP, OTHERWISE YOU RISK BUYING AN EXPENSIVE, OVERVALUED SHARE that is going to go downhill after UPTRENDING FOR SOMETIME! The main risk in buying an “uptrend momentum stock/share” is that if you buy too late and the price is already peaking, you RISK LOSING HUGE MONEY IF THE TREND SUDDENLY REVERSES AND GOES DOWNHILL! But if you buy a good stock while it is still CHEAP, your risk of losing money is very much, much less!   

          In the end, you still have to come back to the FUNDAMENTAL, CHEAPNESS, POTENTIAL GROWTH, STABILITY, CONSISTENCY and LESS RISKINESS of the company you are buying and its ABILITY TO MAINTAIN PROFITS if you were to invest in a good company.

          People talk about “momentum” when it comes to investing - and rightly so. However, many people just look at the momentum and that’s all – they put a full-stop here. They never ask, “WHERE DOES THIS MOMENTUM COME FROM?” In technical analysis, people only look at technical charts - if got momentum they buy, if got no momentum, they don’t buy. They forgot to look at the fundamental values of a company (regardless of whether it has momentum at the time). Surely for a good and stable company, the momentum will come at the right time even if there is less momentum for the time being (due to uncertainties) – which makes it much cheap and undervalued – as in the case of LUXCHEM!

          WHERE DOES THE MOMENTUM COME FROM? To make things short, THE BUYING/SELLING PATTERN is actually CREATED BY MARKET SENTIMENT AND HUMAN PERCEPTIONS OF THE STOCK! Market sentiment is influenced by many POSITIVE or NEGATIVE factors such as NEWS (EITHER REAL OR FAKE), FINANCIAL REPORTS, RECOMMENDATIONS, PROMOTIONS, DOMESTIC/GLOBAL SOCIO-ECONOMY, POLITICS, POLICIES, ETC. WHICH AFFECT INVESTORS’ REASONING, PSYCHOLOGY, STRATEGY, UNDERSTANDING, MENTALITY, AND BELIEF SYSTEM! ALL THESE ARE TRANSLATED INTO TRADING OF STOCKS. And the share market is usually quite sensitive to positivity or negativity – either for valid or invalid reason.

          Therefore, momentum in stock/share – either up-trending or down-trending is DIRECTLY INFLUENCED BY BUYING AND SELLING BEHAVIOURS DUE TO ALL THESE FACTORS! MOMENTUM IN SHARE BUYING AND/OR SELLING CAN BE INITIATED, CREATED, GENERATED, PRODUCED, TRIGGERED OR STIMULATED! To rephrase in more suiting words:

“MOMENTUM INVESTING is something ALIVE, DYNAMIC AND FLEXIBLE – IT IS NOT FIXED, RIGID OR STATIC!”

          With this, MOMENTUM IN BUYING AND SELLING SHARES COME AND GO! Just because a share has LESS MOMENTUM doesn’t mean that it will stick like that forever. Just because a share has MORE MOMENTUM doesn’t mean that it will always have high momentum! It might stop having momentum.

          With all the internal or external factors absorbed by the investors, they act in the stock market – creating momentum in buying or selling. This momentum evolves from time to time – reacting either positively or negatively based on investors’ confidence. Therefore, buying and selling of shares can be RATIONAL OR IRRATIONAL. Investors in one country might think differently from investors in another country. This could be due to their educational background, peer influence, level of critical thinking, thinking pattern, etc. At times, certain figures might also have some influences over share prices when they said something.

           Momentum is important for an up-trending stock in order to make money, but we have to make sure the share we buy is still cheap – much lower than or near its fair price. Momentum will come later when the market realizes its cheapness. Definitely different stocks have different levels of momentum – which at times, makes them interesting to look at. LUXCHEM DOES HAVE MOMENTUM IN ITS OWN LEVEL, SOMETIMES HIGHER, SOMETIMES LOWER – THOUGH THE MOMENTUM IS YET TO REACH ITS PEAK, AND STILL MUCH LESS COMPARED TO OTHER HIGH-MOMENTUM HEALTHCARE, PPE OR GLOVE-RELATED STOCKS – since the market is slow to appreciate it.

           And because momentum can be triggered when someone sparks it or realizes the share’s FULL POTENTIAL, one should grab the opportunity when the share is selling cheap.

DISCLAIMER: Please read and understand this disclaimer. This article is written upon observations and it is intended to be a SHARING – for informational and educational purpose only. The intention is to share knowledge with you all. None of what is written here is to influence your decision to buy or sell shares. REMEMBER, IT IS NOT A BUY CALL, IT IS ALSO NOT A SELL CALL. This article is from one’s point of view – consisting of various opinions. You are welcome to read this article, however you need to do your own research first before buying or selling any shares. You should be aware that you buy or sell shares at your own responsibility and risk. This article doesn’t recommend any buy or sell call decision in shares. Share market investment comes with risk, and no one can guarantee everything. It is only a sharing. AS ALWAYS, you need to do your own diligent and prudent research before investing. To buy or sell any shares ENTIRELY DEPENDS on your own decision, judgment and choice. You make your own call either to buy or sell.

https://klse.i3investor.com/blogs/thinkingmanblog/2020-12-08-story-h1537475894-A_HOLISTIC_ANALYSIS_OF_LUXCHEM_MOST_UNDERVALUED_STOCK_WITH_A_FAIR_VALUE.jsp

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