Real quick before I get into my next steps of my FX Journey, id like to say thank you to all the people who commented on my last post! All of the tips I got were really eye-opening and introduced me to different parts of FX trading that I didn't even know existed. So thank you so much, and I hope to get more interesting feedback from you guys in the future! Also Im going to probably change my writing frequency from daily to biweekly. I think writing about every little trade is not going to be as beneficial to me as writing about my overall progress at certain points throughout the week. submitted by
I started this trading day out by learning up on order flow. A whole bunch of you guys suggested really interesting youtubers to watch, and I started with Mr. pip's series on order flow. After I finished up watching a few of his videos, I started to tweak my trading plan so that I could get in some chart time. I changed currency pair from EUUSD to the AUD/USD, the time frame from the 4 hour to the 1 hour, and my indicators from RSI, Stochastic, 2 SMAs and ADX to ATR, RSI, and Ichimoku Kinko Hyo. I also added a little fundamental analysis in my trading plan because I think that I am being far too reliant on my indicators. I planned to check the economic calendar and determine the general trend of the currency pairs that are strongly correlated to the AUD/USD before I began my chart analysis. In addition to all of my analysis, I tried to practice using the techniques I learned in Mr. Pip's videos and analyze the order flow of the chart. Even if my analysis of order flow is wrong, as long as I am getting practice I am learning.
Eventhough I planned to use today to back-test indicators and find a solid new plan, I did not have enough time. I ended up getting on my demo account really late in the day, and started to force myself to enter a trade. Destructive habits like this could lead into some massive issues when I eventually get into live trading. To combat this harmful attitude specifically, I will restrict myself to trading on certain parts of the day (for example session overlaps, news releases, and earlier in the day). Despite this mistake I still continued with my trading strategy. I calculated all the currency correlations for AUS/USD using the past weeks economic data, and set my indicators in place. After checking the overall trend of the most strongly correlated pairs (Positive: EUUSD, GPB/USD, Negative: USD/CAD, USD/JPY) I started to analyze the order flow. All the correlated currencies, except for EUUSD, indicated that the AUD/USD would fall, while my order flow analysis indicated the opposite. Seeing as though I am extremely new to order flow, I dismissed this analysis, and ended up forcing a trade on the AUD/USD going short when my indicators seemed to line up correctly. I learned from last time that I should not alter or close my trade purely based on emotion, and to just wait till the market hits my stop loss or take profit. I included a trailing stop loss of 60 pips this time, but I have no evidence to base that number range on. The trade is currently open and I am down about 30 pips.
Although I am not labeling this trade as a loser yet, I can definitely see a lot of holes in my trading strategy. The most obvious mistake in my eyes right now is my use of indicators. Currently all my trades are purely based on what my indicators say, and since I do not have any back-tested data to support the credibility of my indicators, it feels a lot like strategic gambling. Another issue is that I feel far too reliant on indicators alone. I think that if I can find ways to include various types of analysis efficiently and evenly in my trading plan I will become a much more skillful and well-rounded trader. In order to combat these two issues I will begin forming various types of trading strategies this weekend and back-test them all extensively. I also plan on researching more on price action, order flow, and Naked Forex.
Once again any and all feedback is welcome. I am just beginning Forex, but it had been a huge passion of mine and I don't plan on stopping anytime soon.
https://preview.redd.it/gp18bjnlabr41.jpg?width=768&format=pjpg&auto=webp&s=6054e7f52e8d52da403016139ae43e0e799abf15 Download PDF of this article here: https://docdro.id/6eLgUPo
In light of the recent fall in oil prices due to the Saudi-Russian dispute and dampening demand for oil due to the lockdowns implemented globally, O&G stocks have taken a severe beating, falling approximately 50% from their highs at the beginning of the year. Not spared from this onslaught is Hibiscus Petroleum Berhad (Hibiscus), a listed oil and gas (O&G) exploration and production (E&P) company.
Why invest in O&G stocks in this particularly uncertain period? For one, valuations of these stocks have fallen to multi-year lows, bringing the potential ROI on these stocks to attractive levels. Oil prices are cyclical, and are bound to return to the mean given a sufficiently long time horizon. The trick is to find those companies who can survive through this downturn and emerge into “normal” profitability once oil prices rebound.
In this article, I will explore the upsides and downsides of investing in Hibiscus. I will do my best to cater this report to newcomers to the O&G industry – rather than address exclusively experts and veterans of the O&G sector. As an equity analyst, I aim to provide a view on the company primarily, and will generally refrain from providing macro views on oil or opinions about secular trends of the sector. I hope you enjoy reading it!
Stock code: 5199.KL
Stock name: Hibiscus Petroleum Berhad
Financial information and financial reports: https://www.malaysiastock.biz/Corporate-Infomation.aspx?securityCode=5199
Company website: https://www.hibiscuspetroleum.com/
Hibiscus Petroleum Berhad (5199.KL) is an oil and gas (O&G) upstream exploration and production (E&P) company located in Malaysia. As an E&P company, their business can be basically described as:
· looking for oil,
· drawing it out of the ground, and
· selling it on global oil markets.
This means Hibiscus’s profits are particularly exposed to fluctuating oil prices. With oil prices falling to sub-$30 from about $60 at the beginning of the year, Hibiscus’s stock price has also fallen by about 50% YTD – from around RM 1.00 to RM 0.45 (as of 5 April 2020). https://preview.redd.it/3dqc4jraabr41.png?width=641&format=png&auto=webp&s=7ba0e8614c4e9d781edfc670016a874b90560684 https://preview.redd.it/lvdkrf0cabr41.png?width=356&format=png&auto=webp&s=46f250a713887b06986932fa475dc59c7c28582e
While the company is domiciled in Malaysia, its two main oil producing fields are located in both Malaysia and the UK. The Malaysian oil field is commonly referred to as the North Sabah
field, while the UK oil field is commonly referred to as the Anasuria
oil field. Hibiscus has licenses to other oil fields in different parts of the world, notably the Marigold/Sunflower
oil fields in the UK and the VIC cluster
in Australia, but its revenues and profits mainly stem from the former two oil producing fields.
Given that it’s a small player and has only two primary producing oil fields, it’s not surprising that Hibiscus sells its oil to a concentrated pool of customers, with 2 of them representing 80% of its revenues (i.e. Petronas and BP). Fortunately, both these customers are oil supermajors, and are unlikely to default on their obligations despite low oil prices.
At RM 0.45 per share, the market capitalization is RM 714.7m and it has a trailing PE ratio of about 5x. It doesn’t carry any debt, and it hasn’t paid a dividend in its listing history. The MD, Mr. Kenneth Gerard Pereira, owns about 10% of the company’s outstanding shares.
Reserves (Total recoverable oil) & Production (bbl/day)
To begin analyzing the company, it’s necessary to understand a little of the industry jargon. We’ll start with Reserves and Production.
In general, there are three types of categories for a company’s recoverable oil volumes – Reserves, Contingent Resources and Prospective Resources
are those oil fields which are “commercial”, which is defined as below: As defined by the SPE PRMS, Reserves are “… quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions.” Therefore, Reserves must be discovered (by drilling, recoverable (with current technology), remaining in the subsurface (at the effective date of the evaluation) and “commercial” based on the development project proposed.) Note that Reserves are associated with development projects. To be considered as “commercial”, there must be a firm intention to proceed with the project in a reasonable time frame (typically 5 years, and such intention must be based upon all of the following criteria:) - A reasonable assessment of the future economics of the development project meeting defined investment and operating criteria; - A reasonable expectation that there will be a market for all or at least the expected sales quantities of production required to justify development; - Evidence that the necessary production and transportation facilities are available or can be made available; and - Evidence that legal, contractual, environmental and other social and economic concerns will allow for the actual implementation of the recovery project being evaluated. Contingent Resources
and Prospective Resources
are further defined as below: - Contingent Resources: potentially recoverable volumes associated with a development plan that targets discovered volumes but is not (yet commercial (as defined above); and) - Prospective Resources: potentially recoverable volumes associated with a development plan that targets as yet undiscovered volumes.
In the industry lingo, we generally refer to Reserves
as ‘P’ and Contingent Resources
as ‘C’. These ‘P’ and ‘C’ resources can be further categorized into 1P/2P/3P resources and 1C/2C/3C resources, each referring to a low/medium/high estimate of the company’s potential recoverable oil volumes: - Low/1C/1P estimate: there should be reasonable certainty that volumes actually recovered will equal or exceed the estimate; - Best/2C/2P estimate: there should be an equal likelihood of the actual volumes of petroleum being larger or smaller than the estimate; and - High/3C/3P estimate: there is a low probability that the estimate will be exceeded.
Hence in the E&P industry, it is easy to see why most investors and analysts refer to the 2P estimate as the best estimate for a company’s actual recoverable oil volumes. This is because 2P reserves (‘2P’ referring to ‘Proved and Probable’) are a middle estimate of the recoverable oil volumes legally recognized as “commercial”.
However, there’s nothing stopping you from including 2C resources (riskier) or utilizing 1P resources (conservative) as your estimate for total recoverable oil volumes, depending on your risk appetite. In this instance, the company has provided a snapshot of its 2P and 2C resources in its analyst presentation: https://preview.redd.it/o8qejdyc8br41.png?width=710&format=png&auto=webp&s=b3ab9be8f83badf0206adc982feda3a558d43e78
Basically, what the company is saying here is that by 2021, it will have classified as 2P reserves at least 23.7 million bbl from its Anasuria field and 20.5 million bbl from its North Sabah field – for total 2P reserves of 44.2 million bbl
(we are ignoring the Australian VIC cluster as it is only estimated to reach first oil by 2022).
Furthermore, the company is stating that they have discovered (but not yet legally classified as “commercial”) a further 71 million bbl of oil from both the Anasuria and North Sabah fields, as well as the Marigold/Sunflower fields. If we include these 2C resources, the total potential recoverable oil volumes could exceed 100 million bbl.
In this report, we shall explore all valuation scenarios giving consideration to both 2P and 2C resources. https://preview.redd.it/gk54qplf8br41.png?width=489&format=png&auto=webp&s=c905b7a6328432218b5b9dfd53cc9ef1390bd604
The company further targets a 2021 production rate of 20,000 bbl (LTM: 8,000 bbl), which includes 5,000 bbl from its Anasuria field (LTM: 2,500 bbl) and 7,000 bbl from its North Sabah field (LTM: 5,300 bbl).
This is a substantial increase in forecasted production from both existing and prospective oil fields. If it materializes, annual production rate could be as high as 7,300 mmbbl, and 2021 revenues (given FY20 USD/bbl of $60) could exceed RM 1.5 billion (FY20: RM 988 million).
However, this targeted forecast is quite a stretch from current production levels. Nevertheless, we shall consider all provided information in estimating a valuation for Hibiscus.
To understand Hibiscus’s oil production capacity and forecast its revenues and profits, we need to have a better appreciation of the performance of its two main cash-generating assets – the North Sabah field and the Anasuria field.
North Sabah oil field https://preview.redd.it/62nssexj8br41.png?width=1003&format=png&auto=webp&s=cd78f86d51165fb9a93015e49496f7f98dad64dd
Hibiscus owns a 50% interest in the North Sabah field together with its partner Petronas, and has production rights over the field up to year 2040. The asset contains 4 oil fields, namely the St Joseph field, South Furious field, SF 30 field and Barton field.
For the sake of brevity, we shall not delve deep into the operational aspects of the fields or the contractual nature of its production sharing contract (PSC). We’ll just focus on the factors which relate to its financial performance. These are:
· Average uptime
· Total oil sold
· Average realized oil price
· Average OPEX per bbl
With regards to average uptime, we can see that the company maintains relative high facility availability, exceeding 90% uptime in all quarters of the LTM with exception of Jul-Sep 2019. The dip in average uptime was due to production enhancement projects and maintenance activities undertaken to improve the production capacity of the St Joseph and SF30 oil fields.
Hence, we can conclude that management has a good handle on operational performance. It also implies that there is little room for further improvement in production resulting from increased uptime.
As North Sabah is under a production sharing contract (PSC), there is a distinction between gross oil production
and net oil production
. The former relates to total oil drawn out of the ground, whereas the latter refers to Hibiscus’s share of oil production after taxes, royalties and expenses are accounted for. In this case, we want to pay attention to net
oil production, not gross
We can arrive at Hibiscus’s total oil sold
for the last twelve months (LTM) by adding up the total oil sold
for each of the last 4 quarters. Summing up the figures yields total oil sold for the LTM of approximately 2,075,305 bbl
Then, we can arrive at an average realized oil price
over the LTM by averaging the average realized oil price
for the last 4 quarters, giving us an average realized oil price
over the LTM of USD 68.57/bbl
. We can do the same for average OPEX per bbl
, giving us an average OPEX per bbl
over the LTM of USD 13.23/bbl
Thus, we can sum up the above financial performance of the North Sabah field with the following figures:
· Total oil sold: 2,075,305 bbl
· Average realized oil price: USD 68.57/bbl
· Average OPEX per bbl: USD 13.23/bbl
Anasuria oil field https://preview.redd.it/586u4kfo8br41.png?width=1038&format=png&auto=webp&s=7580fc7f7df7e948754d025745a5cf47d4393c0f
Doing the same exercise as above for the Anasuria field, we arrive at the following financial performance for the Anasuria field:
· Total oil sold: 1,073,304 bbl
· Average realized oil price: USD 63.57/bbl
· Average OPEX per bbl: USD 23.22/bbl
As gas production is relatively immaterial, and to be conservative, we shall only consider the crude oil production from the Anasuria field in forecasting revenues.
Valuation (Method 1)
Putting the figures from both oil fields together, we get the following data: https://preview.redd.it/7y6064dq8br41.png?width=700&format=png&auto=webp&s=2a4120563a011cf61fc6090e1cd5932602599dc2
Given that we have determined LTM EBITDA of RM 632m
, the next step would be to subtract ITDA (interest, tax, depreciation & amortization) from it to obtain estimated LTM Net Profit. Using FY2020’s ITDA of approximately RM 318m as a guideline, we arrive at an estimated LTM Net Profit of RM 314m
(FY20: 230m). Given the current market capitalization of RM 714.7m, this implies a trailing LTM PE of 2.3x.
Performing a sensitivity analysis given different oil prices, we arrive at the following net profit table for the company under different oil price scenarios, assuming oil production rate and ITDA remain constant: https://preview.redd.it/xixge5sr8br41.png?width=433&format=png&auto=webp&s=288a00f6e5088d01936f0217ae7798d2cfcf11f2
From the above exercise, it becomes apparent that Hibiscus has a breakeven oil price of about USD 41.8863/bbl
, and has a lot of operating leverage
given the exponential rate of increase in its Net Profit with each consequent increase in oil prices.
Considering that the oil production rate (EBITDA) is likely to increase faster than ITDA’s proportion to revenues (fixed costs), at an implied PE of 4.33x
, it seems likely that an investment in Hibiscus will be profitable over the next 10 years (with the assumption that oil prices will revert to the mean in the long-term).
Valuation (Method 2)
Of course, there are a lot of assumptions behind the above method of valuation. Hence, it would be prudent to perform multiple methods of valuation and compare the figures to one another.
As opposed to the profit/loss assessment in Valuation (Method 1), another way of performing a valuation would be to estimate its balance sheet value, i.e. total revenues from 2P Reserves, and assign a reasonable margin to it. https://preview.redd.it/o2eiss6u8br41.png?width=710&format=png&auto=webp&s=03960cce698d9cedb076f3d5f571b3c59d908fa8
From the above, we understand that Hibiscus’s 2P reserves
from the North Sabah and Anasuria fields alone
are approximately 44.2 mmbbl
(we ignore contribution from Australia’s VIC cluster as it hasn’t been developed yet).
Doing a similar sensitivity analysis of different oil prices as above, we arrive at the following estimated total revenues and accumulated net profit: https://preview.redd.it/h8hubrmw8br41.png?width=450&format=png&auto=webp&s=6d23f0f9c3dafda89e758b815072ba335467f33e
Let’s assume that the above average of RM 9.68 billion in total realizable revenues from current 2P reserves holds true. If we assign a conservative Net Profit margin of 15% (FY20: 23%; past 5 years average: 16%), we arrive at estimated accumulated Net Profit from 2P Reserves of RM 1.452 billion
. Given the current market capitalization of RM 714 million, we might be able to say that the equity is worth about twice the current share price.
However, it is understandable that some readers might feel that the figures used in the above estimate (e.g. net profit margin of 15%) were randomly plucked from the sky. So how do we reconcile them with figures from the financial statements? Fortunately, there appears to be a way to do just that. Intangible Assets
I refer you to a figure in the financial statements which provides a shortcut to the valuation of 2P Reserves. This is the carrying value of Intangible Assets
on the Balance Sheet.
As of 2QFY21, that amount was RM 1,468,860,000 (i.e. RM 1.468 billion
Quite coincidentally, one might observe that this figure is dangerously close to the estimated accumulated Net Profit from 2P Reserves
of RM 1.452 billion
we calculated earlier. But why would this amount matter at all?
To answer that, I refer you to the notes of the Annual Report FY20 (AR20). On page 148 of the AR20, we find the following two paragraphs: E&E assets comprise of rights and concession and conventional studies. Following the acquisition of a concession right to explore a licensed area, the costs incurred such as geological and geophysical surveys, drilling, commercial appraisal costs and other directly attributable costs of exploration and appraisal including technical and administrative costs, are capitalised as conventional studies, presented as intangible assets. E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an E&E asset may exceed its recoverable amount. The Group will allocate E&E assets to cash generating unit (“CGU”s or groups of CGUs for the purpose of assessing such assets for impairment. Each CGU or group of units to which an E&E asset is allocated will not be larger than an operating segment as disclosed in Note 39 to the financial statements.)
Hence, we can determine that firstly, the intangible asset value represents capitalized costs of acquisition of the oil fields, including technical exploration costs and costs of acquiring the relevant licenses. Secondly, an impairment review will be carried out when “the carrying amount of an E&E asset may exceed its recoverable amount”, with E&E assets being allocated to “cash generating units” (CGU) for the purposes of assessment.
On page 169 of the AR20, we find the following: Carrying amounts of the Group’s intangible assets, oil and gas assets and FPSO are reviewed for possible impairment annually including any indicators of impairment. For the purpose of assessing impairment, assets are grouped at the lowest level CGUs for which there is a separately identifiable cash flow available. These CGUs are based on operating areas, represented by the 2011 North Sabah EOR PSC (“North Sabah”, the Anasuria Cluster, the Marigold and Sunflower fields, the VIC/P57 exploration permit (“VIC/P57”) and the VIC/L31 production license (“VIC/L31”).)
So apparently, the CGUs that have been assigned refer to the respective oil producing fields, two of which include the North Sabah field and the Anasuria field. In order to perform the impairment review, estimates of future cash flow will be made by management to assess the “recoverable amount” (as described above), subject to assumptions and an appropriate discount rate.
Hence, what we can gather up to now is that management will estimate future recoverable cash flows
from a CGU (i.e. the North Sabah and Anasuria oil fields), compare that to their carrying value
, and perform an impairment if their future recoverable cash flows
are less than their carrying value
. In other words, if estimated accumulated profits from the North Sabah and Anasuria oil fields are less than their carrying value, an impairment is required.
So where do we find the carrying values for the North Sabah and Anasuria oil fields? Further down on page 184 in the AR20, we see the following: Included in rights and concession are the carrying amounts of producing field licenses in the Anasuria Cluster amounting to RM668,211,518 (2018: RM687,664,530, producing field licenses in North Sabah amounting to RM471,031,008 (2018: RM414,333,116))
Hence, we can determine that the carrying values for the North Sabah and Anasuria oil fields are RM 471m and RM 668m respectively. But where do we find the future recoverable cash flows of the fields as estimated by management, and what are the assumptions used in that calculation?
Fortunately, we find just that on page 185: 17 INTANGIBLE ASSETS (CONTINUED) (a Anasuria Cluster) The Directors have concluded that there is no impairment indicator for Anasuria Cluster during the current financial year. In the previous financial year, due to uncertainties in crude oil prices, the Group has assessed the recoverable amount of the intangible assets, oil and gas assets and FPSO relating to the Anasuria Cluster. The recoverable amount is determined using the FVLCTS model based on discounted cash flows (“DCF” derived from the expected cash in/outflow pattern over the production lives.) The key assumptions used to determine the recoverable amount for the Anasuria Cluster were as follows: (i Discount rate of 10%;) (ii Future cost inflation factor of 2% per annum;) (iii Oil price forecast based on the oil price forward curve from independent parties; and,) (iv Oil production profile based on the assessment by independent oil and gas reserve experts.) Based on the assessments performed, the Directors concluded that the recoverable amount calculated based on the valuation model is higher than the carrying amount. (b North Sabah) The acquisition of the North Sabah assets was completed in the previous financial year. Details of the acquisition are as disclosed in Note 15 to the financial statements. The Directors have concluded that there is no impairment indicator for North Sabah during the current financial year.
Here, we can see that the recoverable amount of the Anasuria field was estimated based on a DCF of expected future cash flows over the production life of the asset. The key assumptions used by management all seem appropriate, including a discount rate of 10% and oil price and oil production estimates based on independent assessment. From there, management concludes that the recoverable amount of the Anasuria field is higher than its carrying amount (i.e. no impairment required). Likewise, for the North Sabah field.
How do we interpret this? Basically, what management is saying is that given a 10% discount rate and independent oil price and oil production estimates, the accumulated profits (i.e. recoverable amount) from both the North Sabah and the Anasuria fields exceed their carrying amounts of RM 471m and RM 668m respectively.
In other words, according to management’s own estimates, the carrying value of the Intangible Assets of RM 1.468 billion approximates the accumulated Net Profit recoverable from 2P reserves
To conclude Valuation (Method 2)
, we arrive at the following:
| ||Our estimates ||Management estimates |
|Accumulated Net Profit from 2P Reserves ||RM 1.452 billion ||RM 1.468 billion |
By now, we have established the basic economics of Hibiscus’s business, including its revenues (i.e. oil production and oil price scenarios), costs (OPEX, ITDA), profitability (breakeven, future earnings potential) and balance sheet value (2P reserves, valuation). Moving on, we want to gain a deeper understanding of the 3 statements to anticipate any blind spots and risks. We’ll refer to the financial statements of both the FY20 annual report and the 2Q21 quarterly report in this analysis.
For the sake of brevity, I’ll only point out those line items which need extra attention, and skip over the rest. Feel free to go through the financial statements on your own to gain a better familiarity of the business. https://preview.redd.it/h689bss79br41.png?width=810&format=png&auto=webp&s=ed47fce6a5c3815dd3d4f819e31f1ce39ccf4a0b Income Statement
First, we’ll start with the Income Statement on page 135 of the AR20. Revenues
are straightforward, as we’ve discussed above. Cost of Sales
and Administrative Expenses
fall under the jurisdiction of OPEX, which we’ve also seen earlier. Other Expenses are mostly made up of Depreciation & Amortization
of RM 115m. Finance Costs
are where things start to get tricky. Why does a company which carries no debt have such huge amounts of finance costs? The reason can be found in Note 8, where it is revealed that the bulk of finance costs relate to the unwinding of discount of provision for decommissioning costs
of RM 25m (Note 32). https://preview.redd.it/4omjptbe9br41.png?width=1019&format=png&auto=webp&s=eaabfc824134063100afa62edfd36a34a680fb60
This actually refers to the expected future costs of restoring the Anasuria and North Sabah fields to their original condition once the oil reserves have been depleted. Accounting standards require the company to provide for these decommissioning costs as they are estimable
. The way the decommissioning costs are accounted for is the same as an amortized loan, where the initial carrying value is recognized as a liability and the discount rate applied is reversed each year as an expense on the Income Statement. However, these expenses are largely non-cash in nature and do not necessitate a cash outflow every year (FY20: RM 69m). Unwinding of discount on non-current other payables
of RM 12m relate to contractual payments to the North Sabah sellers. We will discuss it later. Taxation
is another tricky subject, and is even more significant than Finance Costs at RM 161m. In gist, Hibiscus is subject to the 38% PITA (Petroleum Income Tax Act) under Malaysian jurisdiction, and the 30% Petroleum tax + 10% Supplementary tax under UK jurisdiction. Of the RM 161m, RM 41m of it relates to deferred tax which originates from the difference between tax treatment and accounting treatment on capitalized assets (accelerated depreciation vs straight-line depreciation). Nonetheless, what you should take away from this is that the tax expense is a tangible expense and material to breakeven analysis.
Fortunately, tax is a variable expense, and should not materially impact the cash flow of Hibiscus in today’s low oil price environment. Note: Cash outflows for Tax Paid in FY20 was RM 97m, substantially below the RM 161m tax expense. https://preview.redd.it/1xrnwzm89br41.png?width=732&format=png&auto=webp&s=c078bc3e18d9c79d9a6fbe1187803612753f69d8 Balance Sheet
The balance sheet of Hibiscus is unexciting; I’ll just bring your attention to those line items which need additional scrutiny. I’ll use the figures in the latest 2Q21 quarterly report (2Q21) and refer to the notes in AR20 for clarity.
We’ve already discussed Intangible Assets
in the section above, so I won’t dwell on it again.
Moving on, the company has Equipment
of RM 582m, largely relating to O&G assets (e.g. the Anasuria FPSO vessel and CAPEX incurred on production enhancement projects). Restricted cash and bank balances
represent contractual obligations for decommissioning costs of the Anasuria Cluster, and are inaccessible for use in operations. Inventories
are relatively low, despite Hibiscus being an E&P company, so forex fluctuations on carrying value of inventories are relatively immaterial. Trade receivables largely relate to entitlements from Petronas and BP (both oil supermajors), and are hence quite safe from impairment. Other receivables, deposits and prepayments
are significant as they relate to security deposits placed with sellers of the oil fields acquired; these should be ignored for cash flow purposes. Note: Total cash and bank balances do not include approximately RM 105 m proceeds from the North Sabah December 2019 offtake (which was received in January 2020) Cash and bank balances
of RM 90m do not include RM 105m of proceeds from offtake received in 3Q21 (Jan 2020). Hence, the actual cash and bank balances as of 2Q21 approximate RM 200m. Liabilities
are a little more interesting. First, I’ll draw your attention to the significant Deferred tax liabilities
of RM 457m. These largely relate to the amortization of CAPEX (i.e. Equipment and capitalized E&E expenses), which is given an accelerated depreciation treatment for tax purposes.
The way this works is that the government gives Hibiscus a favorable tax treatment on capital expenditures incurred via an accelerated depreciation schedule, so that the taxable income is less than usual. However, this leads to the taxable depreciation being utilized quicker than accounting depreciation, hence the tax payable merely deferred to a later period – when the tax depreciation runs out but accounting depreciation remains. Given the capital intensive nature of the business, it is understandable why Deferred tax liabilities
are so large.
We’ve discussed Provision for decommissioning costs
under the Finance Costs
section earlier. They are also quite significant at RM 266m.
Notably, the Other Payables and Accruals
are a hefty RM 431m. What do they relate to? Basically, they are contractual obligations to the sellers of the oil fields which are only payable upon oil prices reaching certain thresholds. Hence, while they are current in nature, they will only become payable when oil prices recover to previous highs, and are hence not an immediate cash outflow concern given today’s low oil prices. Cash Flow Statement
There is nothing in the cash flow statement which warrants concern.
Notably, the company generated OCF of approximately RM 500m in FY20 and RM 116m in 2Q21. It further incurred RM 330m and RM 234m of CAPEX in FY20 and 2Q21 respectively, largely owing to production enhancement projects to increase the production rate of the Anasuria and North Sabah fields, which according to management estimates are accretive to ROI. Tax paid
was RM 97m in FY20 and RM 61m in 2Q21 (tax expense: RM 161m and RM 62m respectively).
There are a few obvious and not-so-obvious risks that one should be aware of before investing in Hibiscus. We shall not consider operational risks (e.g. uptime, OPEX) as they are outside the jurisdiction of the equity analyst. Instead, we shall focus on the financial and strategic risks largely outside the control of management. The main ones are:
· Oil prices remaining subdued for long periods of time
· Fluctuation of exchange rates
· Customer concentration risk
· 2P Reserves being less than estimated
· Significant current and non-current liabilities
· Potential issuance of equity Oil prices remaining subdued
Of topmost concern in the minds of most analysts is whether Hibiscus has the wherewithal to sustain itself through this period of low oil prices (sub-$30). A quick and dirty estimate of annual cash outflow (i.e. burn rate
) assuming a $20 oil world and historical production rates is between RM 50m-70m per year
, which considering the RM 200m cash balance implies about 3-4 years of sustainability before the company runs out of cash and has to rely on external assistance for financing. Table 1: Hibiscus EBITDA at different oil price and exchange rates https://preview.redd.it/gxnekd6h9br41.png?width=670&format=png&auto=webp&s=edbfb9621a43480d11e3b49de79f61a6337b3d51
The above table shows different EBITDA scenarios (RM ‘m) given different oil prices (left column) and USD:MYR exchange rates (top row). Currently, oil prices are $27 and USD:MYR is 1:4.36.
Given conservative assumptions of average OPEX/bbl of $20 (current: $15), we can safely say that the company will be loss-making as long as oil remains at $20 or below (red). However, we can see that once oil prices hit $25, the company can tank the lower-end estimate of the annual burn rate of RM 50m (orange), while at RM $27 it can sufficiently muddle through the higher-end estimate of the annual burn rate of RM 70m (green).
Hence, we can assume that as long as the average
oil price over the next 3-4 years remains above $25, Hibiscus should come out of this fine without the need for any external financing. Customer Concentration Risk
With regards to customer concentration risk, there is not much the analyst or investor can do except to accept the risk. Fortunately, 80% of revenues can be attributed to two oil supermajors (Petronas and BP), hence the risk of default on contractual obligations and trade receivables seems to be quite diminished. 2P Reserves being less than estimated
2P Reserves being less than estimated is another risk that one should keep in mind. Fortunately, the current market cap is merely RM 714m – at half of estimated recoverable amounts of RM 1.468 billion – so there’s a decent margin of safety. In addition, there are other mitigating factors which shall be discussed in the next section (‘Opportunities’
). Significant non-current and current liabilities
The significant non-current and current liabilities have been addressed in the previous section. It has been determined that they pose no threat to immediate cash flow due to them being long-term in nature (e.g. decommissioning costs, deferred tax, etc). Hence, for the purpose of assessing going concern, their amounts should not be a cause for concern. Potential issuance of equity
Finally, we come to the possibility of external financing being required in this low oil price environment. While the company should last 3-4 years on existing cash reserves, there is always the risk of other black swan events materializing (e.g. coronavirus) or simply oil prices remaining muted for longer than 4 years.
Furthermore, management has hinted that they wish to acquire new oil assets at presently depressed prices to increase daily production rate to a targeted 20,000 bbl by end-2021. They have room to acquire debt, but they may also wish to issue equity for this purpose. Hence, the possibility of dilution to existing shareholders cannot be entirely ruled out.
However, given management’s historical track record of prioritizing ROI and optimal capital allocation, and in consideration of the fact that the MD owns 10% of outstanding shares, there is some assurance that any potential acquisitions will be accretive to EPS and therefore valuations.
As with the existence of risk, the presence of material opportunities also looms over the company. Some of them are discussed below:
· Increased Daily Oil Production Rate
· Inclusion of 2C Resources
· Future oil prices exceeding $50 and effects from coronavirus dissipating Increased Daily Oil Production Rate
The first and most obvious opportunity is the potential for increased production rate. We’ve seen in the last quarter (2Q21) that the North Sabah field increased its daily production rate by approximately 20% as a result of production enhancement projects (infill drilling), lowering OPEX/bbl as a result. To vastly oversimplify, infill drilling is the process of maximizing well density by drilling in the spaces between existing wells to improve oil production.
The same improvements are being undertaken at the Anasuria field via infill drilling, subsea debottlenecking, water injection and sidetracking of existing wells. Without boring you with industry jargon, this basically means future production rate is likely to improve going forward.
By how much can the oil production rate be improved by? Management estimates in their analyst presentation that enhancements in the Anasuria field will be able to yield 5,000 bbl/day
by 2021 (current: 2,500 bbl/day).
Similarly, improvements in the North Sabah field is expected to yield 7,000 bbl/day
by 2021 (current: 5,300 bbl/day).
This implies a total 2021 expected daily production rate from the two fields alone of 12,000 bbl/day
(current: 8,000 bbl/day). That’s a 50% increase
in yields which we haven’t factored into our valuation yet.
Furthermore, we haven’t considered any production from existing 2C resources
(e.g. Marigold/Sunflower) or any potential acquisitions which may occur in the future. By management estimates, this can potentially increase production by another 8,000 bbl/day, bringing total production to 20,000 bbl/day
While this seems like a stretch of the imagination, it pays to keep them in mind when forecasting future revenues and valuations.
Just to play around with the numbers, I’ve come up with a sensitivity analysis of possible annual EBITDA at different oil prices and daily oil production rates: Table 2: Hibiscus EBITDA at different oil price and daily oil production rates https://preview.redd.it/jnpfhr5n9br41.png?width=814&format=png&auto=webp&s=bbe4b512bc17f576d87529651140cc74cde3d159 The left column represents different oil prices while the top row represents different daily oil production rates.
The green column represents EBITDA at current daily production rate of 8,000 bbl/day; the orange column represents EBITDA at targeted daily production rate of 12,000 bbl/day; while the purple column represents EBITDA at maximum daily production rate of 20,000 bbl/day.
Even conservatively assuming increased estimated annual ITDA of RM 500m (FY20: RM 318m), and long-term average oil prices of $50 (FY20: $60), the estimated Net Profit and P/E ratio is potentially lucrative at daily oil production rates of 12,000 bbl/day and above. 2C Resources
Since we’re on the topic of improved daily oil production rate, it bears to pay in mind the relatively enormous potential from Hibiscus’s 2C Resources. North Sabah’s 2C Resources alone exceed 30 mmbbl; while those from the yet undiagnosed Marigold/Sunflower fields also reach 30 mmbbl. Altogether, 2C Resources exceed 70 mmbbl, which dwarfs the 44 mmbbl of 2P Reserves we have considered up to this point in our valuation estimates.
To refresh your memory, 2C Resources represents oil volumes which have been discovered but are not yet classified as “commercial”. This means that there is reasonable certainty of the oil being recoverable, as opposed to simply being in the very early stages of exploration. So, to be conservative, we will imagine that only 50% of 2C Resources
are eligible for reclassification to 2P reserves, i.e. 35 mmbbl of oil. https://preview.redd.it/mto11iz7abr41.png?width=375&format=png&auto=webp&s=e9028ab0816b3d3e25067447f2c70acd3ebfc41a
This additional 35 mmbbl of oil represents an 80% increase to existing 2P reserves. Assuming the daily oil production rate increases similarly by 80%, we will arrive at 14,400 bbl/day
of oil production. According to Table 2
above, this would yield an EBITDA of roughly RM 630m
assuming $50 oil.
Comparing that estimated EBITDA to FY20’s actual EBITDA:
| ||FY20 ||FY21 (incl. 2C) ||Difference |
|Daily oil production (bbl/day) ||8,626 ||14,400 ||+66% |
|Average oil price (USD/bbl) ||$68.57 ||$50 ||-27% |
|Average OPEX/bbl (USD) ||$16.64 ||$20 ||+20% |
|EBITDA (RM ‘m) ||632 ||630 ||- |
Hence, even conservatively assuming lower oil prices and higher OPEX/bbl (which should decrease in the presence of higher oil volumes) than last year, we get approximately the same EBITDA as FY20.
For the sake of completeness, let’s assume that Hibiscus issues twice the no. of existing shares over the next 10 years, effectively diluting shareholders by 50%. Even without accounting for the possibility of the acquisition of new oil fields, at the current market capitalization of RM 714m, the prospective P/E would be about 10x. Not too shabby. Future oil prices exceeding $50 and effects from coronavirus dissipating
Hibiscus shares have recently been hit by a one-two punch from oil prices cratering from $60 to $30, as a result of both the Saudi-Russian dispute and depressed demand for oil due to coronavirus. This has massively increased supply and at the same time hugely depressed demand for oil (due to the globally coordinated lockdowns being implemented).
Given a long enough timeframe, I fully expect OPEC+ to come to an agreement and the economic effects from the coronavirus to dissipate, allowing oil prices to rebound. As we equity investors are aware, oil prices are cyclical and are bound to recover over the next 10 years.
When it does, valuations of O&G stocks (including Hibiscus’s) are likely to improve as investors overshoot expectations and begin to forecast higher oil prices into perpetuity, as they always tend to do in good times. When that time arrives, Hibiscus’s valuations are likely to become overoptimistic as all O&G stocks tend to do during oil upcycles, resulting in valuations far exceeding reasonable estimates of future earnings. If you can hold the shares up until then, it’s likely you will make much more on your investment than what we’ve been estimating.
Wrapping up what we’ve discussed so far, we can conclude that Hibiscus’s market capitalization of RM 714m far undershoots reasonable estimates of fair value even under conservative assumptions of recoverable oil volumes and long-term average oil prices. As a value investor, I hesitate to assign a target share price, but it’s safe to say that this stock is worth at least RM 1.00 (current: RM 0.45). Risk is relatively contained and the upside far exceeds the downside. While I have no opinion on the short-term trajectory of oil prices, I can safely recommend this stock as a long-term Buy based on fundamental research.
After a relatively short time in Forex, most people will have heard of traders using the term "edge". "You have to have an edge", "I gotta protect my edge, man" and so on. What traders mean when they say this is something that gives them a calculated (in their perspective, anyway) reason to believe they should be profitable over enough trades. If this whole concept is completely new to you, read this for simplified explanation [link to add].
How do you actually get an edge, though? What does it mean? How does one goes about "finding their edge"?
I can only speak from a personal perspective on this, I am sure there are many more ways people have edges outside of what I am going to talk about. There will be people who have edges that are outside of my comprehension. They may be able to tell you some far cooler stuff, but I personally decided to focus on entering.
It is not a unique thought, I know. I never tried to trade-mark "enter well" but it is something I have paid particular attention to detail on. Not only how to get areas of the market that by default offer better risk reward (see more on this later in this post), but then how to put them on steroids was dialled in entries allowing for larger lots. Note, this is not to say "larger lots" means "risk everything in your account". You can risk exceptionally little as a percentage doing this, and still have the chance of good gains.
This has been something of a three part process for me. Here is how it has went;
Find areas where price is likely to reverse from where you can quickly know if you are wrong to get out.
This does not have to trend reversals, it is usually better to look for the ends of trend corrections, and enter for a new trend leg reversal. I worked out how to do this reasonably early, I think. Relative to what I have seen from others when they are starting up, I would say I was maybe on the upper end of the bell-curve in being able to broadly identify good support/resistance levels while still quite a newbie.
This might have worked out for me, if it was not for the fact I was really wanting to get tiny stops and would put far too much weight on just the levels I was selecting. Sometimes they were astonishingly accurate, which encouraged me to begin to put too much faith into them. Through this time, I was getting punked a lot in the markets. I would start to buy, get stopped out a few times and then just as I gave up buying, it would make a massive move upwards. This was so frustrating. This went on for a long time, with me constantly trying to make the forecasting of specific levels more accurate, which was what I thought the fix was.
This was a good first step. Although it felt hellish at the time, I can see now that getting a good general grasp of levels price may bounce from, or make significant breakouts through, is a good fundamental skill to have.
Expecting and accounting for spikes. Turning my foe to a friend.
So basically what happened is it got smacked with so many spike outs that I started to look at it as "it will be the place I think, plus a dirty spike" (me and spikes were not on speaking terms, at this point). This part there was a lot of arbitrariness. At the time I probably thought of it as "more art than science", but looking back on it I see while I was focusing on how unfair the spikes were and basically just "fuck you" selling into spikes. This was going a bit better, meh ... well, no this also kind sucked.
At this point I would sometimes get rock'n'roll star entries. This made me feel good. Very clever. I was not actually doing all that well, though. I could just sometimes get the spectacular entry I'd been on the hunt for. So there were times I felt particularly smug and clever during this time, but overall I was still losing. The real bane of this part became targeting. Once I'd got my rock'n'roll star entry, what now? It may sound like a good problem to have, but having risk set for a 5 pips stop and a trade up 25 pips with the potential to drop 100 more presents some serious problems. There is a lot of scope to make mistakes here. Also, even if you do what I would now consider to be the right thing (and clearly so), there is a lot of scope to do the right thing and end up feeling like you screwed up. This was what was getting me mostly in this time. My entries were good enough for me to cover my losses in big winning trades, but I was not managing big winning trades efficiently. On a psychological note, when I'd get these big decisions (having to be made in seconds sometimes) wrong, I would often lose my cool and any sense of actual trading rational.
This time was hard. I felt like what it must feel to be tired climbing a mountain, and find your intended route blocked. You can see the summit right there, but you lack a way to get there. You have already drained so many of your physical and mental resources to get where you are and now it is seriously time to ask yourself is it time to climb back down.
I decided to climb up. Then I fell a bunch of times. Licked my wounds. Fell again. Felt uber sorry for myself, and then finally got a grip and started to climb again.
Specific Entry Strategies
It was someone else who told me, they said something to me and it was really a very simple thing. I think others must have said the same thing to me many times also, but it flew in the face of my general idea of "I want to be selling the end of the spike for best possible entry". I won't go into the details of what it was, but it basically amounted to making me see that not having a predicable and repeatable level to set my stops and targets was preventing me from being able to create an edge, or even if I did; I could not understand what it was.
I started to notice things, that I'd literally watched 1,000s of times happen before and see them as nuisance rather than opportunity. I noticed the levels I'd pick price would often stall at them. Then quickly wick (which was why the "fuck you" selling into spikes worked from time to time). I further noticed that a lot of the times I was getting in at the optimum price (and I was getting rather good at this by now), when I was having big profitable trades come back against me and stop me out at tiny break even profits only to then trend for what would have been $$$, 80% or so of the time it seemed to reverse right off the original level,
or close enough anyway. These two things had been killing me. The spike out of my entry level and the retrace of my profits to be slight + break even stop outs (I'd panic and close them before they went bad ... or sometimes, I'd not, and they'd go bad).
I came to see that these two things I'd blamed for being the reason I was losing were actually assets to be within my scope to benefit from. If rather than doing what I was doing and getting full risk on too early, I waited to see if it wicked through, made a convincing move and then retested my original level. If it did, the wick could be my stop loss. This was tiny. This was so much better than selling into the wick and "guesstimating" the stop ... by which of course I mean "fucking it right up".
Practical Chart Examples
Let's say on this chart I has hypothetically selected the blue level as my sell level. This is obviously a great level if I can target close to the lows and get it even 40% of the time. My stops are tiny, and my reward is big.
Here is how I'd lose all my money while being fundamentally right here;
In phase one, I am selling 2 bars before the high, where there is the doji sort of candle. I am short, I have sold the top pip and I feel smug. Then I get spiked out. I sell a few other times with same results, then probably switch long to just completely trash my day.
In phase two, I am doing the same kinda thing but I am thinking I have out foxed the market by waiting and I start to sell into big candle breaking out of the doji. Here I have more chance of getting the trade, but often price just presses a bit too far with me being squeezed out at the high.
This chart does not really give a good representation of how things would work in phrase three, because I would be using smaller charts and looking for the signs of price action reversing, and then looking for the spots where I can get in tucking stops behind a close high. Essentially it is just added patience and being more tactical when it comes to entering.
You can see if the pay off for a "normal stop" risk reward trade would be a good one here (probably 1:3 or 1:4), the overall scope for massive profit potential (without massive risk) is humongous. Often this will be decreased because you have to trail up stops and price retraces, but if price trends aggressively, 1:20 sort of risk:reward trades can be found here. 1:10 are a lot more common. 1:5 are somewhat frequent.
Through dedicated study to how to enter and target from these sort of moves, I have gotten to a point where I can hit that 1:5 trade more than 20% of the time. Over long periods of time (assuming markets continue to be as they were), I should expect to break even by getting this 20% win rate, and when times are good, win rates like 40 - 50% lead to extraordinary profits, without extraordinary risks.
This is where I have carved out my edge in trading. It is largely based on the concepts of swings/trends formation, support and resistance and classic reversal patterns. All widely available to learn about. Then I put excessive hours of focus on how to turn that common knowledge into uncommon ability.
A determined person reading this, should be able to go and do that for themselves, based on the information provided here to get them started.
(Disclaimer, it took me YEARS, the roses here have thorns ...
I want to reiterate, expect this to take some time. Even with me telling you the mistakes I squandered so much time on and how to hack past them)
https://www.sosobtc.com/article/24259.html submitted by
The following is a rough/partial translation of the article "Reflections on the present situation of Bitcoin and thoughts on its future" provided in the link above
Two hurricanes swept through the landscape as the summer season trails off, instead of uprooting trees and destroying houses, it ravaged through the Bitcoin markets.
In early September, Chinese authorities made an announcement banning Initial Coin Offerings (ICO), this was shortly followed by a second official statement regarding the closures of Chinese cryptocurrencies exchanges. These two statements triggered a flurry of selling off and caused a massive upheaval in cryotocurrency markets.
This author had anticipated these actions from PBOC, and was perhaps, even an unwitting instigator (in the most minor sense possible) for the current turn of events. A few days back, this author had suggested that PBOC should just shut down Bitcoin mines and exchanges in China, thus allowing an easy way out for the central bank to abscond itself of any “supervisory responsibility” over this burgeoning industry. This would also ensure that Bitcoin markets would open to develop organically in a democratic, autonomous manner, free from constant irrational interference of the Central Bank. Nevertheless this author still found it surprising that the typically indecisive PBOC would take such a drastic action within such a short time.
In the author’s opinion, there are three main factors, and three minor factors that lead to this latest decision by PBOC. Here are the 3 main reasons: 1) The increasingly unwieldy size of the Bitcoin market
First, let’s keep a few figures in mind. 1) In 2015, based on the limited amount of information available to the public; China UnionPay the crown jewel of PBOC disclosed a profit of 3.8 billion CNY, and held 66.5 billion CNY worth of assets. 2) 220 billion CNY; stamp duty revenue generated from securities issued by CSRC.
Now, consider the size of the Bitcoin industry in China. China holds approximately two thirds of Bitcoin currently in circulation, ~10 million Bitcoins. Before the most recent market upheaval, Bitcoin’s value was holding steady at around 30000 CNY (4500 USD), hence according to this approximation, Bitcoin holders in China is controlling 300 billion CNY worth of a highly liquid, easily transacted wealth that is not subjected to regulations and jurisdiction by the Central Bank and Ministry’s of Finance. In a space of a few short years, the amount of wealth held by Chinese citizens in Bitcoin has now swelled to a very significant amount that’s on the scale of annual military spending of nations such as India and Russia (55.9 billion and 69.2 billion USD respectively, estimated Bitcoin holding in China 45 billion USD (when price was at 4500 usd)
Now that the days of exponential Chinese economic growth driven by its manufacturing industry is over, various ministries are trying all sorts of different methods to promote economic growth. However, for all their efforts to promote and cultivate a new multibillion industry, their achievements pale in comparison to the Bitcoin and cryptocurrencies industry which had slipped right under their noses and is now thriving. It is easy to conjecture that the success of this new, non-government sanctioned industry is a slap in the face for archaic and control hungry Chinese party officials.
Following the runaway success of Tencent and Alibaba, two recent multibillion companies which the Chinese State failed to put their finger in, Chinese officials are now determined to nip the Bitcoin industry in its bud before it blossoms into another non-state sanction success. This vindictive and petty type of thinking is rather typical, and to be expected of the current administration. 2）Disruption of the societal hierarchy
The social hierarchy of China is still largely determined by state-owned monopolies. The distribution of public wealth and resources like real estate, mining rights, and business permits etc. are dictated by those wielding power in state enterprises. The immense wealth generated by these essentially risk free businesses is only accessible to relatives of high-ranking officials and fellow insiders, i.e an oligarchy.
However the wealth generated from the Bitcoin industry which was essentially started by a bunch of tech enthusiasts with some old computers, a few lot of GPUs, and self taught mathematical models. This completely circumvents the typical route to wealth and riches as dictated by the state, and is a threat to the way they constructed the society to be. Hence, the Bitcoin industry must be stopped and to be made an example of.
Business owners in cahoots with state officials also resents the Bitcoin industry greatly, like how they resisted e-payment systems like Alipay, WechatPay, or e-communities such as qq and Wechat initially. These business owners are essentially power brokers, where their greatest asset lies in their ability to act as an intermediary between private enterprises and the State, if new businesses no longer require the blessing of the state to prosper, then as the unofficial toll collectors would surely be starved. 3）The inequality of wealth distribution arising from the Bitcoin industry
The frontrunners and greatest benefactors of the Chinese Bitcoin industry had been young tech enthusiasts. Typically young males in their late 20s, and as the price of Bitcoin boomed, they became a very conspicuous bunch of newly rich. These quickly drew the ire of the Chinese community, “your dad isn’t some powerful Chinese tycoon or government official, what did you do to deserve to get rich so quickly!” was the unspoken sentiment of the public. As more and more stories about the overnight success of Bitcoin mining/trading enterprises received inceased media coverage across 2016, the Chinese were driven into frenzy on this new source of wealth. One portion of the public started to throw their hats into the ring, by exploiting the fact that the public by large only possess a half-baked understanding of cryptocurrencies. These newcomers posed themselves as some sort of Bitcoin sage, and immediately started advocating all sorts of altcoins and cryptocurrencies to enrich themselves.
Another portion of the public started to horde towards these so called bitcoin sages entrusting them with their hard earned money so that they can be a part of this exciting new industry. The fact that they lost money has nothing to do with the Bitcoin industry, but is solely due to the fact that they did not educate themselves properly and allowed themselves to be taken advantage of by some unscrupulous individuals.
But the largest portion the public became increasingly envious of the success achieved by the frontrunners in the Bitcoin industry, feeling that it’s too late to join the bandwagon, and angry that all these newfound wealth had completely eluded them, they began to sound their frustration, demanding the closure and banning of the new arcane industry that they had missed out on.
In recent years, financial crisis in China had always originated from State-controlled markets such as the stock exchange, Forex or the real estate industry. As the Chinese people grew increasingly distrustful of these State-controlled industries, the self-regulated Bitcoin industry emerged as shining beacon of success. The relevant authorities took note of the public dissatisfaction with Bitcoin and decided to go with the flow, assuaging public outrage while at the same time, diverting attention away from their own failures in issues such as the unaffordable real estate prices that's currently paralyzing the young Chinese community.
The aforementioned three factors are deep rooted, and would always be a core reason for the Chinese government to stamp out Bitcoin. Here are three more minor reasons, which are more circumstantial and technical in nature: 1）The contentious hard fork leading to discord among the Bitcoin community
Ever since Bitcoin splitted into Bitcoin Core and BitcoinCash, the community has grew increasingly partisan. This animosity between the two factions had damaged Bitcoin, and some people had decided to exploit this divide. The statement from James Dimon about Bitcoin being a scam was quickly picked up by Chinese officials to clamp down on Bitcoin. The credibility of his statement is dubious, seeing that JP Morgan was just as complicit as Lehman Brother’s was during the 2008 financial crisis, and really should not be calling out other people for being a scam. However, Chinese officials quickly took his words as gospel, after all enemy of an enemy is a friend. This crackdown essentially kills of the new Bitcoin blockchain advocated by the Chinese Bitcoin community (i.e Bitcoin Cash), so in a sense the state officials are modern traitors, by siding with foreigners and their view of Bitcoin. 2）Bitcoin market is still too naïve and immature
Even before the Bitcoin hardfork was concluded, exchanges started listing tokens representing BitCoin Cash for trading. This action in particular hastens the decision by Chinese authorities to clampdown on Bitcoin. This decision is simply reckless and irrational, as it lies in complete betrayal of what Bitcoin stands for. Bitcoin is the time tested, gold standard among cryptocurrencies because every single bitcoin is forged by miners, this is what that makes Bitcoin secure and distinguishes it from the many other altcoins that currently exisits. Bitcoin is more than just a currency; it has solid proof of work backing it up. By simply listing BCC tokens before they are mined. What the exchanges are doing is no different from the central bank issuing fiat currencies, and by stepping into the domain of the central bank, Bitcoin exchanges now have painted a huge bulls eye on its back 3）Too much speculators, opportunists joining the fray
In the few weeks prior to this crackdown, i.e when Bitcoin was at its all time high. Figures in the financial world that used to jeer at Bitcoin started to change their tune. They popped out like mushrooms after rain, claiming that they too want to join this exciting new industry, be it as a miner, a day trader or to start blockchain companies. In hindsight, these are clear indicators that the Bitcoin market is overheated and is due for a correction.
Three years ago, when Bitcoin was worth around 1000 CNY, it was clearly a good, underpriced product with a clear utility and huge potential for future growth, but not a lot of people were buying it. However, now that the price had climbed all the way to 30000 CNY, people are rushing to get more of it. There was clearly a bubble, and that’s why this author started exhorting for PBOC to crackdown on Bitcoin and pop the bubble.
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