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Theme: Cash Is King: Hock Lian Seng Holdings Ltd

Writer's picture: Tian Khean NgTian Khean Ng

Updated: Dec 20, 2024

Singapore Exchange

Ticker Symbol: SGX J2T

Currency: Singapore Dollar

Data as of 13 December 2024

Theme fundamentals:

•             Cash/Total Capital: 107.0%

•             Current Ratio: 4.21%

•             Total Debt/Total Capital: 0.0%

•             Return on Assets:11.1%

•             Levered Free Cash Flow margin: 11.0%

Brief Insight

Many “Cash Is King” stocks are undervalued and show a downward trend despite their very good cash flow and position.  Most investors are Momentum players and not Mean Reversion players.  This is because it is easier to predict Momentum than Mean reversion.  Therefore, “Cash Is King” stocks are often overlooked or not keyed in as criteria for screening. However, value players stand to gain the most by being in the opposite direction of the market when in time to come, sheer fundamentals of cash and balance sheet of such stocks eventually cause their share prices to rise. And  Hock Lian Seng Holdings Limited is an example.

In such cases, Support is a call to buy in, and not a call to cut loss. Resistance is a call to take profit or re-allocate portfolio position.


1-20 steps ahead forecast trend

For a theme like Cash Is King, the 1-20 steps ahead forecast trend are not relevant. These are slow-moving, sometimes illiquid stocks, meant for buy-and-hold. Eventually, the cash flow factor will surface and exert itself, and investors will pile in. So a downward trend for the next 20 days is not a concern. Besides, HLS has a very low Beta o 0.24. That means, systemic market volatility will have very little impact.

Support, Resistance and Risk

Support at 5% Quantile: 45.20

Resistance at 95% Quantile: 51.78

Independence Test: (Durbin-Watson Test): 0.89

The very wide range of the 75% band (Grey area) gives a wide trading band between Support and Resistance.  This helps to mitigate the poor results of the Durbin-Watson Test. The Durbin-Watson Test (DWT) is commonly used to detect the presence of autocorrelation in the residuals of a regression model. A DWT value of 0.89 suggests strong positive autocorrelation.

Key Implications

  1. Presence of Positive Autocorrelation:

    • A DWT value significantly below 2 indicates residuals are not independent and exhibit positive autocorrelation. This suggests that past residuals strongly influence current residuals.

  2. Impact on Model Reliability:

    • Positive autocorrelation implies that the assumption of independent errors is violated. This can lead to underestimated standard errors and overstated significance levels of regression coefficients, undermining the reliability of statistical inferences and predictions



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