I invest in this company since it was trading at RM 0.425 and called it a hi-risk hi-return investment. There share price growth >120% when trading @ RM1 (2 June) and i still yet to find reasons to sell it. The share price of KNM is predictable cause it is, indirectly parallel to the crude oil price.
Why hi-risk? There have been concern of the failure of the group, this is due to the uncertainties of global outlook. Most economist especially the well-know "Dr. Doom" Nouriel Roubini predicted the economy recovery will not come sooner than 2010 and when it comes, it will come in a slow pace. The recent acquisition of Borsig make KNM bear a big loan repayment and the job-on-hand can not be last long if there are no new order. Thus the risk of failure was there. However, the future is clearer now, seems there are enough economical data to show that the worst is over and the crude oil(CO) price has doubled from $32.80 low.
Why hi-return? Why KNM?
The People : Ir Lee Swee Eng, MD of KNM.
He has been working in the O&G service provider field since he graduated in '79. With 30 years of experience in the field, I'd say he is an expert on this industry. Holding 23.4% stake and he has been buying the share of KNM during the falling of share price in 2008. This is a healthy sign that tell that he take his biz seriously. ( This is an important factors cause some MD acquire a company jz wanna make it look handsome and sell it out later at a better price, but other are trying to acquire as many stake as possible cause they are confident to make their business better and have a passion of owning their own biz.) I'll be meeting him in the coming AGM to get to know more about him.
Vision with action + opportunities
To be a top 5 global manufacturer of process equipment of the oil, gas, petrochemicals, minerals processing and energy industries. Since listed in '03, the group has been actively doing JV and M&A to expand the biz. Successfully, after adding the RM1.67bil-Borsig to the group bringing the total asset to 4.4bil, KNM has biz all around the world (except Africa and the two poles). The after tax-profit grow from 0.11 bil to 1.81 bil in 5 years (04-08) or double annually. This skyrocketing-growth is due KNM has listed on the right time and has catch the wind of the raising of CO price since 2003. The group has insisted on growing their biz even though a challenging time ahead, and is believed will go even further until they achieve their vision.
To conclude, by leveraging on the geographical-advantages and its position in the industry, KNM will surely growth exponentially, again if the economy outlook is recovering, which'll drives the CO price to test USD 100 level again.
Crude Oil Supply & Demand
Jim Roger, the founder of "Rogers International Commodity Index" (RICI) and co-founder of Quantum Fund with George Soros (the one blamed for causing the '97 Asian Financial Crisis) is bullish with commodity. He say with evidence the commodity is a better investment asset that equity, when the equity market turn bearish, commodity is still have more upside to go. When the market recover, commodity is the 1st to recover. The RICI is an index which the index based on a selection of commodities, from Crude oil to coffee bean, with difference weightage. Crude oil is the commodity weight the most in RICI, which has a 21% weightage to the RICI.
It's undeniable that there is only one direction that the international oil supply can go-downward. No matter you like it or not, the petroleum reserve on earth is decreasing and it is decreasing in an shocking rate, and extraction is going to be more and more difficult. On the demand site, it is highly depend on the global economy, which go ups and downs. But the general direction is still upward. This means, the global economy is growing, manufacturing and construction is mushrooming in all around the world(especially china, the second biggest oil consumption country). The oil demand is, again u-want-or-dun-want, is increasing. Some may ask can the alternative energy replace the oil? Yes, i wish so. Alternative energy is still i baby stage, with a lot of countries still not willing to put much money on developing this overly long-term solution. The Dubai prefer to put the petrol-money in tourism, building up the unbuildable, rather than developing alternative energy. The biofuel extracted from corn have been thought to be a alternative to oil demand, but has created food crisis and carbon emission problem.
To conclude, oil is king. It is essential to invest in O&G companies unless you say investment is only for you to kill time. Invest in O&G service providers is as good as invest in O&G companies. Since the O&G companies require the service provider to work for them in developing new oil-ring and other oil-related equipment like transmitting and processing. I choose KNM as she is the leader of this industry in Malaysia. Many people staring at the one-way up share price will definitely doubt how much the share price can go after increasing 200% from the 32.5 sen low on March.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” - Warren Buffett
KNM is definitely a wonderful company as i mentioned above, and has more upside to go. Is the price fair? The recent 11 recommendations of target price(TP) range from RM 0.90(TA) to RM 1.29 (RHB). Thus trading at RM 1.00 is definitely a fair price. But I'm not here to tell the reader how much it worth, and suggest to sell when the price hit RM1.29. But I'm here to say that KNM can go beyond that, especially if there are sign of new orders. The valuation of KNM is not based on what the stockbroking tell you (the TP was RM 0.30 on March from one report), the valuation on KNM is based on the economy climate. Never trying to sell KNM off unless the group make silly management mistake or you predict the crude oil price has peak and no way to go but downward (which mayb until the next financial crisis)
"While most of my friends cry, i smile when the oil/petro price increase. Because i'm owing O&G company, the gain because of oil is well-enough to cover my petrol expense for several years"
yes i support your view...KNM is a must buy stock of thee year....
ReplyDeleteWhat a BULLSHITTER you really are.
ReplyDeleteSHAME on you and your blantant ramping.