There are two potential superstock this week. You can read on my post on Sino-Global Shipping America Ltd here . The second superstock of ...

Weekly Superstock Scan 18 Sep 2017 - 22 Sep 2017: Fanhua Inc (FANH)

There are two potential superstock this week. You can read on my post on Sino-Global Shipping America Ltd here.

The second superstock of the week is Fanhua Inc (FANH). FANH is an independent online-to-offline financial services provider in China.




FANH operates in three segments:
  • Life Insurance
  • Property and Casualty Insurance
  • Claims Adjusting Services
FANH distributes a range of insurance products underwritten by domestic and foreign insurance companies operating in China to individual and institutional customers.

Technical



FANH had a very long flat base. Since July 2016, FANH has been trading between $7.70 and $9.70 except for the occasional one day spikes. Last week, price broke strongly above the range and above the $10 big round number to close at $10.49. The volume for the week was 670 thousand shares, slightly more than two times its average trading volume.

There was no news or announcement from the company last week. There was some news of Morgan Stanley raising stakes in FANH, but that is unlikely to be a strong catalyst for the spike in price.

Fundamental



Including the current quarter, FANH reported 3 consecutive quarters of year on year EPS growth.

Revamp of P&C Insurance

The fierce competition in the P&C insurance market has led to erosion of margins. In Q1 FY2017, FANH's operating income for the segment is close to zero. As regulations increase and competition intensifies, the segment may be a loss making one.

FANH decided to relinquish all the noncore and low-margin P&C channel business, which account for nearly half of the segment. 

FANH is also looking at completely revamping the business model, from a commission spread model to a new model of earning profits through platform management fee and technology service fee. FANH is looking at leveraging on its existing CNpad App to be a matchmaker between the demand side and supply side of the P&C insurance business. 

In the conference call, the CEO has likened the business model as the 'Taobao' of the insurance industry. This appears to be the trend this days we the other superstock this week, SINO is also going the same route. 

The expected outcome will be a smaller revenue, but more than offset by a much higher margin, turning the segment profitable again.

Ramping up of Sales Force

FANH is expanding its sales force rapidly to grow the life insurance business. Year-on-year, FANH increased the sales force by 117% to 328,000, with a target of 400,000 agents by the end of the year.

Over 20% of the new life insurance premiums during 2Q FY2017 was contributed by the new sales agents. Taking into account the per capita productivity may decline at the very beginning with new sales agents, as more training are provided the the sales agents, their sales productivity will increase and lead to more sales of life insurance.

With this strategy, the revenue contribution from life insurance increase rapidly to 58.2% from 19.2% a year ago.

Development of Online Platforms

Other than increasing its offline presence by having more agents, FANH has also achieved success in building its online presence. Its various online platforms - CNpad App, Baoxian.com and eHuzhu have all seen increase in the number of active users and a larger amount of insurance are transacted through these platforms.




Matrices
- Relatively small float of 33.3 million shares, but an even smaller average volume of 64 thousand shares. Float approximately 515 times its average daily trading volume.
o FANH is trading at 14 times its trailing twelve months EPS. Using the annualised EPS from the latest quarter, we are looking at a very low P/E of 8.2.


Risk Factors/ Things I do not like


  • New Regulations - In the past year, China Insurance Regulatory Commission (CIRC) issued new rules to tighten supervision and steer the insurance industry back to its focus on protectional oriented insurance products. As a result, many popular insurance products were forced off the shelves. Should the rules be tightened again in the future, FANH's profitability will be affected.




This weekend is a hectic weekend with the Singapore Grand Prix. Lots of fun, excitement and concerts, but that also mean less time to resear...

Weekly Superstock Scan 18 Sep 2017 - 22 Sep 2017: Sino-Global Shipping America, Ltd (SINO)

This weekend is a hectic weekend with the Singapore Grand Prix. Lots of fun, excitement and concerts, but that also mean less time to research and blog on the potential superstocks.

This week I have two potential superstocks, which is fantastic news since it translate to more opportunities. With my busy schedule, it will be a test of efficiency and prioritisation for me. (You can read on the other superstock of the week - Fanhua Ltd here)




The first potential superstock of the week will be Sino-Global Shipping America, Ltd (SINO). Despite its name, it is not a shipping stock, even though it used to be one. The restructured SINO now operates in three segments:
  • Inland Transport Management Services: SINO provided solutions to control potential commodities losses during the transportation process.
  • Freight Logistic Services: Provides services such as cargo forwarding, trucking and customs declaration and filing. 
  • Container Trucking Services: provides trucking services in the PRC and US
It has two dormant segments - Shipping Agency and Shipping & Chartering Services, which SINO suspended due to negative industry outlook.


Technical 



Since May this year, SINO has been trading at a relatively tight range from $2.70 to $3.60. Last week price broke strongly above the range and closed at $3.75. The volume of the week was around its average trading volume.

There was no news released last week. The cause of the surge is most likely the upcoming earnings release that may happen on Monday or Tuesday.

Previous Superstock

November 2016 was a month to remember for micro-cap traders. It was when shipping stocks skyrocketed led by DRYS. SINO, again I emphasise is not a shipping stock, benefited for a brief moment then. Till today, traders are still group SINO with DRYS, ESEA, GLBS and other shipping stocks when there is a change in the shipping industry outlook.

Being a previous superstock, most traders are still keeping this ticker in their watchlist and will notice the strong spike last week. Many of them might have taken action or are looking to buy or short the upcoming week, creating very volatile movements.


Fundamental


I was prepared to trade SINO based on technical alone, on account that it was a previous superstock. I was pleasantly surprised to find out that SINO has a very solid fundamentals. 

Including the current quarter, SINO recorded 4 consecutive quarters of EPS growth. More importantly, it was a turnaround for the company following its transformation. Not only did SINO record positive EPS for the last four quarters, the EPS was growing exponentially from quarter to quarter.

Transformation of Company

In FY2016, SINO suspended its ship management shipping business and in December 2015, SINO suspended its shipping and chartering services business. 

Simultaneously, SINO developed new revenue streams from new segments. In January 2016, SINO formed a new subsidiary company,  Sino-Global Shipping LA Inc., to provide freight logistic services.


In 2017, it formed a new joint venture company, ACH Trucking Center, with Jetta Global to provide short-haul trucking transportation and freight logistics services to customers located in the New York and New Jersey areas.

Also, since the second quarter of fiscal year 2017, SINO has provided container trucking services in the PRC, and began providing related services in the U.S. in the third quarter of fiscal year 2017. 

These are new segments with lower revenues but far higher profit margins, and less vulnerability to external conditions. Other benefits of the transformation include a more diverse client base and geographical area.

Short Haul Container Truck Services Platform

In December 2016, SINO completed development of a full-service logistics platform that leverages the Internet to solve the bottleneck problem of door-to-door transportation between the U.S and China. Using the portal, shippers can connect with independent trucking organizations. SINO's role will be to manage the portal and will receive a steady fee income from providing the connection. As the CEO described in the shareholder's letter, it is similar to  'ride-sharing applications'.



SINO is in the process of building a mobile based logistics application for short-haul trucking in the US ports to manage the 25 million containers moving between U.S and China each year.

Stream of Contract Wins and Partnerships

In the past couple of years, SINO has formed partnership with many major shipping partners including COSCO Logistics, COSCO Qingdao, COSCO Xinyang, COSFRE Beijing, Shandong Hi-Speed Group, Sinotrans Guangxi, Yaxin International and Tianjin Zhiyuan Investment Group.

For the partnership with COSCO and Sinotrans, it is related to the platform described earlier.SINO will receive a percentage of the total amount of each transportation fee for the arrangement of inland transportation services. It is encouraging for SINO to have big players onboard soon after the launch of the platform and it will give other shippers and transport operators more confidence to use the platform.

Easy Earnings Comparison

In Q4 FY2016, the EPS is quite low at $0.02. With the transformation of SINO, income is more predictable now are we are likely to see a very good year-on-year growth in EPS for the upcoming release. It will be a nice headline that can drive the stock price to a higher height.

Matrices
- Very small float of 6 million shares. The average volume is only 120 thousand shares, but with a small capitalisation, a volume spike may be multiples of the float, and we have seen that a few times in the past 2 years. 
- Low P/E of 10.7 times trailing 12 months EPS. For SINO the P/E based on annualised last quarter EPS might be more appropriate. Based on Q3 FY2017 EPS of $0.14, we are looking at a P/E of just 6.7.

Risk Factors/ Things I do not like

  • Lack of volume - For the spike in price last week, the volume was fairly mild considering the strength of the spike.
  • Overhead resistance - Price has failed to break above $4 for the past year, with price just under $4 this time round, price may bounce off the $4 level with a good set of earnings.
  • Commodity risk - A number of SINO's customer are dealing with commodities, especially in the Inland Transportation Management Services segment. If there is lower volume of commodities transported, SINO's financials will be affected.

I was about to blog on ValueMax, a Singapore company engaged in pawnbroking and secured moneylending services. The stock has a nice breakout...

Weekly Superstock Scan 11 Sep 2017 - 15 Sep 2017: Nil

I was about to blog on ValueMax, a Singapore company engaged in pawnbroking and secured moneylending services. The stock has a nice breakout and many consecutive quarters of year-on-year EPS growth. It was only when I look at the daily chart that I found that there are many days with no or minimal volume of stocks traded. It will be very difficult to enter or exit the stock without much slippage.


On the US front, AVH, JASO and PGTI did make the cut for the technical scan, with only AVH having consecutive quarters of EPS growth. However, the catalyst for the price breakout was a potential buyout, which is speculative in nature and not to my liking. In addition, the airline industry is hardly an industry that can produce superstocks.

It is a long weekend in the US so I do have one more day to complete my superstock scan for the week since the potential stock of the week i...

Weekly Superstock Scan 4 Sep 2017 -8 Sep 2017: Cambium Learning Group, Inc (ABCD)

It is a long weekend in the US so I do have one more day to complete my superstock scan for the week since the potential stock of the week is from the US. The potential stock of the week is Cambium Learning Group, Inc (ABCD). 






ABCD produces software and hardware packages serving students. Evidence-based solutions and expert professional services are provided to educators to raise the achievement levels of all students.

ABCD operates in three reportable segments:

  • Learning A-Z - produces online teaching materials to assist with differentiated instruction in reading, writing, and science for grades K-6.
  • ExploreLearning - Provides online math and science solutions for Grades 3-12
  • Voyager Sopris Learning - Includes Voyager Sopris Learning and Kurzweil Education brands. Voyager Sopris Learning provides research-based solutions focused on students who are 2 years or more behind grade level. Kurzweil Education helps kids with cognitive ability but not the comprehension skills to read at grade level.

Technical 



ABCD has been moving sideways for the longest time. Since 2016, ABCD spent its time trading between $4 and $5.70. Since the beginning of 2017, the range of ABCD further tighten to trade between $4.55 to $5.40.

Last week, price broke out above the range and closed at $6. It did hit a high of $6.24 before closing at $6. The volume for the week was 320 thousand shares, slightly less than two times its average trading volume.

The catalyst for the breakout was a press releasing on Voyager Sopris Learning’s REWARDS helping to break generational cycle of illiteracy in rural Gilmer County.

Fundamental



Including the current quarter, ABCD reported an astonishing 12 consecutive quarters of year on year EPS growth. This is also the sixth consecutive quarter with positive TTM EPS since its successful transformation in 2013. 

Transition to Digital Subscription Model

ABCD has transited to a digital subscription model since 2013. Resources are relocated to accelerate business development and launch of technology based subscription and products. Leaning A-Z and Explorelearning are already 100% digital subscription businesses. Voyager Sopris and Kurzeil Education is still undergoing transition.

The transition has been successful so far with bookings trending to technology-enabled products. ABCD is targeting 80% of the bookings to come from technology-enabled solution in 2017. This is accompanied by improving margins driven by technology-enabled products.


The potential turnaround of Voyager Sopris lead by LANGUAGE! Live and Velocity can also be a potential catalyst. These are new technology enabled products which can be significant contributors in the next couple of years. 

Sneak Preview of Third Quarter

In the second quarter results announcement conference, ABCD also included the results for July. ABCD explained that the third quarter accounted for 46% of its annual volume in 2016 and sales volume usually start in upwards seasonal trending in July. Bookings of Learning A-Z and ExploreLearning in July increased 15% and 24% year-on-year. Extrapolating the results, we are expecting to see a very strong third quarter.

Great Ticker

ABCD is an easy to remember ticker and are more likely to go viral.

Matrices
- Relatively small float of 13.8 million shares, but an even smaller average volume. Float approximately 365 times its average daily trading volume.
- Following the surge in price, ABCD is trading at a relatively high valuation of 19.4 times its trailing twelve months EPS


Risk Factors/ Things I do not like


  • Strong Resistance - $6 is a big round number that ABCD breached but failed to close above, resulting in a weak candle. Buyers may continue to take profit near this level and it may be hard for price to break out further.
  • Unconvincing Catalyst - Even though the timing of the press release coincide with the breakout, I am not sure if it is the real catalyst. REWARD is in no way a major product of ABCD and even with the recognition it is unlikely to have much impact on ABCD's earnings.


There is no potential superstock in the quiet week. In the US stock market, ACFC and PDLI passed the technical screen but not fundamentals. ...

Weekly Superstock Scan 28 Aug - 1 Sep 2017: Nil

There is no potential superstock in the quiet week. In the US stock market, ACFC and PDLI passed the technical screen but not fundamentals. As much as I wish that ACFC can replace ESXB in my portfolio, there is no point in forcing it.



Things are even quieter on the Singapore front. Raffles Education barely made it for the technical screen but failed on the fundamentals.

This week I will also be hitting 31, and that marks my first decade for trading. It has been a lost decade in terms of performance but definitely prepared me well for the next few decades of trading!
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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.