WEEK 46 10 NOVEMBER 2019: IMPT ANALYSIS ON CNMC GOLDMINE & GOLD

Disclaimer: All information shared is solely for learning purpose and it does not constitute to a buy/sell call.

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We are now in the season of financial reporting where most of the listed companies would be announcing their quarterly results along with the guidance on what is the outlook by the end of the year.

 

In this week’s article, we would expand the focus on Gold and 1 x Gold mining company. Gold is predominantly the “safe heaven” go to asset whenever there are risks/market uncertainties.

The main drivers of gold prices are:

  1. Actual Demand – i.e. Gold Reserves by Government, market consumption
  2. Strength of USD – As Gold is denominated in USD, it is highly correlated with the movement of USD
  3. Market uncertainties – i.e. Trade War, Protests, Brexit, Trump Tweets etc.
  4. Interest rates – Gold would generally do a lot better in a situations where interest rates are low.

 

  1. Actual Demand: (Up trend)

From the statistics below, we can see increasing holding of gold reserves by Russia, China, India, Turkey & UK.

US have been holding a larger reserve of gold (however insignificant compared to its debt), France have been decreasing the holding over longer period.

Russia:


source: tradingeconomics.com

China:


source: tradingeconomics.com

France:


source: tradingeconomics.com

India:


source: tradingeconomics.com

US:

source: tradingeconomics.com

UK:

source: tradingeconomics.com

Turkey:

source: tradingeconomics.com

 

2. Strength of USD: (consolidation)

From the latest charts of DXY (Dollar Basket) & USD JPY, we can see that at the immediate term, USD is strengthening (i.e. chart bouncing off support, stoch, RSI, MACD, AO are all heading towards the over bought region in the chart below).

However, on a bigger picture, we can see that USD is on a consolidation phase where there is a possibility of strong resistance ahead (i.e once all the TA indicators reaches highly over bought region, sellers would come in to resist USD from going up).

 

 

3. Market Uncertainties (lesser tension, but still uncertain):

Trade War – We can see that while tension are somewhat starting to ease from both US and China, market remained highly volatile due to confusion over the clear direction of trade war in the longer run. Market have moved up upon news of a “tariff roll back” only to backtrack and gave up the gains when the news of “Trump says he has not agreed to roll back tariffs on China”. Do trade with caution as the random wigsaw would be very costly if you happen to be in the wrong direction.

Brexit – With the deadlock on Brexit continuing the next upcoming date to look out for would be 12 Dec (UK General elections)

Hong Kong Protests – The impact of the prolonged Protests in Hong Kong is starting to be felt in different ways (i.e. Listed companies posting losses/declined HK based revenue, local HK companies reliant on tourist to survive are showing signs of distress and some have already started to wind up). If this continues, Banks with large HK exposure would potentially be impacted due to loans given out going bad.

 

4. Interest rate (expected to remain the same in Dec):

With the Fed announcing cutting of interest rates by 25 basis points 2 weeks ago, market is currently pricing in a no further rate cut by end of the year. We can see that while interest yield have gone up slightly in the recent 1 week, the down trend remained in tact.

 

 

 

 

 

Updates on Gold:

  1. Key Support of 1,480~1,485 have been broken due to the immediate spike in USD
  2. Gold is currently sitting on the next level support of 1,458 range.
  3. Should the support be broken, it would be likely for Gold to re-test 150MA at 1,420~1,425 range
  4. Going by the TA, we would expect gold to be further oversold next week where good risk to reward trade opportunity would be present for the Bull.

 

 

 

Detailed analysis of CNMC Goldmine. Note: CNMC would be releasing their latest Qtr results on 12th Nov 2019.

Analysis would be split into 3 parts, Qualitative Fundamental Analysis, Quantitative Fundamental Analysis & Technical Analysis.

 

Qualitative Fundamental Analysis:

  1. Large scale mining License obtained from Malaysia govt until 2030+
  2. Transited from surface mining to both surface & underground mining in 2018
  3. Situated in the right time to capitalize the opportunity of gold bull
  4. Inorganic expansion. CNMC has acquired Pulai in 2017 whereby exploration and testing would generally take 3 years to be completed. Potential growth in 2020 onward
  5. Alternative revenue stream from Zinc and lead expected in 2020

 

Quantitative Fundamental Analysis:

  1. Instead of analyzing Profitability year on year or quarter on quarter, we have done a historical rolling 12 month analysis on the key profitability items along with the expectations of latest Q3 results which CNMC would be releasing on 12th Nov.
  2. From the analytical chart, we can see that Rolling 12 months Revenue, Gross profit, Earnings before Interest and Tax and Net income are all on a steady increasing trend since Mar 2018. Share price have however only started to react positively from Mar 2019.
  3. In addition, we can see a good amount of time lag for share price to fully represent the intrinsic value of the company. This in turn would give us good opportunities to accumulate and profit when the share price is reflective of the company’s intrinsic value.
  4. Tax exemption status – CNMC was under Malaysia’s Pioneer Status Incentive Scheme which have expired in Jun 2018. Potential Tax credit is possible should an approval be given to CNMC to extend the Pioneer status. Tax expense for the past 12 months have been recorded as US 3.1 M whereby upside potential could be there.
  5. Cash-flow from Operations have been positive since 2013
  6. Current ratio is healthy at 2.3x
  7. Positive point of being net debt free
  8. Total rolling 12 months Compounded Annual Growth Rate (CAGR) since Mar 2018 remained strong: Revenue 17%, Gross Profit 19%, Net income 25%)

Conclusion from FA – Bullish

Note: 2019 Sep Rolling 12 months is basis estimation where actual may differ

 

 

Technical Analysis:

  1. Good level of Support formed at 0.245-0.255 – Monday would be a good litmus test of support for CNMC due to Friday’s Gold sell off
  2. Immediate term resistance to break 0.28. Once 0.28 resistance is broken, it would be likely for CNMC to move up further.
  3. Stoch, RSI, MACD, AO, chart pattern are indicating that the Stock is still far from overbought region. (i.e. Good risk to reward trade for Bull).

Conclusion from TA – Bullish

 

 

 

 

 

Stay safe, stay alert and NEVER over trade in any circumstances. Lets learn and enjoy the journey together!

 

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Ernest Koh

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