KYY

ATS is an exception to my stock selection rule

Koon Yew Yin 15 Nov 2020

After my long experience in equity investing, I have formulated my stock selection golden rule. The company must report 2 consecutive quarters of increasing profit before I start to buy it. 

Mr Ooi Teck Bee has his golden rule for stock selection.  Before he considers to buy any stock it must satisfy his  (FA & TA) fundamental and technical analysis. In the case of ATS, its price chart is very bullish but it has not reported profit yet. 

Successful investors

All successful investors must not be so rigid and not flexible. They must have some imagination, foresight and willing to take some calculated investment risk. Now is the best time to buy before the company reports actual profit. When ATS starts to report profit from its glove sales, its share price should be much higher. You cannot imagine the share price of a medical glove manufacturer selling below Rm 1.00.  

But in the case of ATS, I started buying it before I can see any actual profit. There is an old English saying “exception proves the rule”. If there is no exception there is no rule. If there is a rule there must be an exception. ATS is an exception to my stock selection golden rule. 

ATS Factory Visit on 13th November 2020

All visitors could see the glove factory construction is near completion. The factory will start to produce medical glove next month. All visitors were given the following keynotes:

Profit Valuation 

Based on company estimation of $180Mil profit before tax, after tax will be $150Mil, total issued Shares = 3,253Mil

EPS would be 4.6 cents. Based on P/E 15 my immediate target price is 70 sen. If based on P/E 20 the target price will be 92 sen. 

Discovery of Vaccines

Many world-famous pharmaceutical companies are at various stages of the discovery of vaccines to overcome the Covid 19 virus. Many scientists predicted the vaccine will be available soon. To be effective in stopping the spread of the virus, at least 70% of the population of the world required to be vaccinated. It will take a long time to produce so much of vaccines. In fact, to vaccinate so many people, a lot more medical workers will be required and all of them have to wear medical gloves to do the injections. As a result, the demand for medical gloves will continue to increase. 

Unfortunately, there are many short-sighted investors who are afraid that the discovery of the vaccine would reduce the demand for medical glove, sold their holdings and miss this golden opportunity to make more profit.