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Thursday, April 28, 2016

Tienwah: Weaker Earnings on Lower Sales

Result Update

For QE31/3/2016, Tienwah's net profit dropped 52% q-o-q but rose 168% y-o-y to RM5.6 million while revenue declined by 15% q-o-q or 6% y-o-y to RM82 million. Tienwah's PBT dropped q-o-q mainly due to lower sales & the absence of a one-off gain of RM2.1 million on disposal of 50% in TVP. Sales dropped due to changes in pricing of some products to a major customer and the impact of TVP's operation being de-consolidated from 31//12/2015 as a subsidiary to a JV entity. This was partially offset by sales to a new multinational tobacco company customer.


Table: Tienwah's last 8 quarterly results
 
Despite the sharp drop in Tienwah's top-line - due to the 2 reasons given above - I believe that this level is likely to be maintained and earnings could possibly rebound a bit.


Chart 1: Tienwah's last 37 quarterly results

Valuation

Tienwah (closed at RM2.37 yesterday) is trading at a trailing PE of 6.1 times (based on the last 4 quarters' EPS 38.86 sen). If the one-off improvement due to depreciation reduction (a result of change in useful life duration amounted to RM2.1 million, booked in in QE30/9/2015) and the gain of RM2.1 million on disposal of 50% of TVP (in QE31/3/2016), the rolling EPS would drop to 34.5 sen & the trailing PER would rise to 6.9 times. At these multiples, Tienwah's valuation is deemed fairly attractive.

Technical Outlook

Tienwah is trading very near to the horizontal line of RM2.30. If it can surpass the downtrend line, RR at RM2.50, it may begin its next upleg.


Chart 2: Tienwah's weekly chart as at Apr 27, 2016( (Source: Share Investors)

From the monthly chart below, we can see that Tienwah is in an upward channel, with resistance at RM3.00 & support at RM1.70. The stock is not likely to test either resistance or support anytime soon. Its immediate support is the above horizontal line at RM2.30 which happens to be the area where 10-month SMA & 20 & 30-month EMA lines converged. This maybe a good entry level for the stock.

 
Chart 3: Tienwah's monthly chart as at Apr 27, 2016((Source: ShareInvestors) 

Conclusion

Based on improved financial performance and fairly attractive valuation, Tienwah is a good stock for long-term investment.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Tienwah.

Wednesday, April 27, 2016

BAT: Paying The Price of High Duties

Result Update

For QE31/3/2016, BAT's net profit dropped by 24% q-o-q or 6% y-o-y to RM196 million while revenue dropped by 9% q-o-q or 12% y-o-y to RM1.06 billion. Revenue declined 19.9% (or RM253 million) and Gross Profit declined 21.9% (or RM99 million) due to 34.0% -reduction in sales volume following  the  November  2015  steep  excise  increase.  Despite a drop in Operating Expenses, driven mainly by timing of administrative expenses, the huge drop in sales meant that operating overhead was "under-recovered". This led to a drop in Profit from Operations and Profit before Tax of 28.2% (or RM92  million) and 28.8%  (or RM94  million) respectively.


Table: BAT's last 8 quarterly results


Chart 1: BAT's last 36 quarterly results

Putting 4Q2015 in perspective

The sharp drop in revenue which began in QE31/12/2015 continued. That is the result of the unexpectedly jump in excise duties (off-budget!!). I had earlier expected the domestic sales is expected to recover in the next few quarters but the opposite has happened. This is partly due to the easy availability of illegal cigarettes as well as the difficult time affecting Malaysians of all walks of life.

Due to this challenging operating environment, BAT has announced its plan to restructure its business, which I reproduce below:  

Restructuring of Business Operations: On 17th March 2016, the Group announced that it will be restructuring its business operations by sourcing tobacco products for its domestic market from other BAT factories regionally and would cease its manufacturing operations located at Virginia Park, Jalan University, 46200, Petaling Jaya, Selangor. The winding down of factory operations will be carried out in stages and targeted to complete by the 2nd half of 2017.

The restructuring is in line with the Group’s efforts towards realising a new and more sustainable business model, amidst an increasingly challenging business environment. The higher excise environment has ultimately led to the sharp rise in illegal cigarettes and significantly lower legal sales volumes resulting in rising cigarette production costs. The restructuring will enable the Group to sharpen its commercial capabilities whilst optimising the supply chain and transactional activities to ensure that the Group remains a competitive consumer-focused market leader.

The winding down of the factory operations will affect approximately 230 employees and they will be provided with a benefit package as well as the option to undergo a career-transition programme. The equipment and machinery currently used for factory operations is intended to be sold to related parties within BAT group of entities.

The land upon which the factory operations are located will be disposed of by the Group by way of a public tender exercise. An independent real estate agent has been appointed by the Group to act for and on behalf of the Group to deal with all matters relating to the proposed disposal of the land. The public tender exercise is scheduled to complete on or about May 2016. An announcement in relation to the proposed disposal of land will be made after the sale and purchase agreement for the land is signed. Shareholders’ approval on the disposal will be sought in accordance with the Main Market Listing Requirement of Bursa Malaysia Securities Berhad.

I have posted earlier that this restructuring plan should be positive for the stock in the long run. Until then, investors will have to live with lower earnings for the next few quarters.
 
Valuation

BAT (closed at RM54.50 yesterday) is now trading at a PE of 18.4 times (based on the last 4 quarters' EPS of 295 sen). BAT paid out a dividend of RM2.89 for the last 4 quarters; thus giving a Dividend Yield of 5.3%. At these PER & DY, BAT is deemed fairly attractive.

Technical Outlook

At the current price of RM54.50, BAT has broken below the support from its long-term uptrend line, SS at RM55.00. Unless this breakdown is reversed quickly, BAT may continue to slide to its next support from the psychological RM50.00 mark.


Chart 3: BAT's daily chart as at April 26, 2016 (Source: ShareInvestor)

Conclusion

Despite the poorer financial performance, BAT is still a good stock for long-term investment based on fair valuation. However its technical outlook has turned bearish, I would revise the rating from long-term BUY to HOLD.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, BAT.

Tuesday, April 26, 2016

1MDB In Default: Are You Surprised?

Those, who follow political development, are probably surprised that the stock market chose to react negatively on the news of 1MDB in default. After all, we lost billions of ringgit and yet there was hardly a crime in sight. Our Prime Minister has urged the nation to move on. Until now, hopeful....


From Malaysiakini

Signs of nervousness were felt last week when it was announced that 1MDB will not pay for the US$50.3 million debt payment in bonds on billions of dollars guaranteed by an Abu Dhabi state-owned sovereign wealth fund International Petroleum Investment Corporation (IPIC). USD-MYR rebounded to 3.94. Will it breach the resistance from the horizontal line at 3.95 as well as the downtrend line, RR at 4.00-4.01. We will wait & see.

 
Chart 1: USD-MYR's 4-hourly chart as at April 26, 2016_2.45pm (Source: Investing.com)

As at 3.15pm, our FBMKLCI was down 20 points. If FBMKLCI were to break below the 1690 level (breaching the support of the 20 & 30-week EMA lines), the recent market rally will likely have ended.


Chart 2: FBMKLCI's weekly chart as at April 26, 2016_2.45pm (Source: Investing.com) 

Be careful out there!

Gtronic: Opportunity In A Sharp Drop? (UPDATED)

Technical Development

Gtronic dropped 85 sen to close at RM4.44 yesterday. There is no news which may explain the price decline.


Chart 1: Gtronic's daily chart as at April 26, 2016_10.00am (Source: ShareInvestor.com)
 
Chartwise, we can see that Gtronic broke its uptrend line, SS at RM6.20-6.30 in early 2016. The immediate support is at the psychological RM4.00 mark. Below that, it may find support from the 2000 highest close of RM3.50. See Chart 2.


Chart 2: Gtronic's monthly chart as at April 26, 2016_10.00am (Source: ShareInvestor.com)
 
From the weekly chart, we can see that the stock may also find support at the horizontal line at RM3.80.


Chart 3: Gtronic's weekly chart as at April 26, 2016_10.00am (Source: ShareInvestor.com)

Recent Financial Results (UPDATED!)

In QE31/3/2016, net profit dropped 76% q-o-q or 79% y-o-y to RM3.7 million while revenue dropped 24% q-o-q or 34% y-o-y to RM59 million. The lower revenue and net profit achieved in the quarter was mainly due to lower volume loadings from some of the Group's customer as a result of reduction in end customers' demand and forex loss of RM4.8 million. However, there are reports that demand may be weak going forward due to slower demand for some electronic products, such as smartphones.


Table: Gtronic's last 8 quarterly results

The top-line and bottom-line dipped as had happened in the past 3 years.


Chart 4: Gtronic's last 36 quarterly results

Valuation

Gtronic (at RM4.21 as at 11.00am) is now trading at a PER of 15.8X (based on last 4 quarters' EPS of 25.35 sen). If its recent growth can sustain, this PER is deemed fair. DY is decent at 3.1%.

Conclusion

Based on satisfactory financial performance in the past and fairly reasonable valuation, Gtronic could be a good stock for long-term investment. As the technical outlook has turned negative, any buying should be carried out SLOWLY at the cluster for support between RM3.50 & RM4.00.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Gtronic.

SGB: Who's Looking After The Baby?

Spring Gallery Bhd ('SGB') is involved in manufacturing, sales & trading in pottery, porcelain, ceramic wares & ornaments. It has diversified into property development. Its first project will be a JV development in Kemaman, Terengganu named Southern City project. SGB recently completed a ICPS issue (with free warrants) to raise RM26.125 million for this purpose as well as to for working capital plus to service its bank loans.

I am writing on this stock because the trading of the shares & the newly-listed warrant, SGB-wa are showing unhealthy signs. Firstly, let's look at the monthly chart. The share price had rallied since April 14 from RM0.70 to the current price of RM1.30. Unless there is more exciting development in the pipeline, I doubt normal investors would go ga-ga over a company with a small project in Terengganu.


Chart 1: SGB's monthly chart as at April 26, 2016_9.30am (Source: ShareInvestor.com)
 
The unhealthy sign i referred to earlier is the divergence between SGB-wa price rally compared SGB price rally. Note the following:
1) SGB-wa seems to be moving downwards from April 19 to April 22 while SGB was moving on a upward bias.
2) SGB rallied on opening on April 25. For a good 1 hour, SGB-wa was unsure whether to follow suit.
3) In the afternoon of April 25, SGB moved sideways while SGB-wa traded downward.

To make it even more peculiar, SGB-wa has been trading deep within the money. With its exercise price of 60 sen, SGB-wa should trade at RM0.70 based on SGB price at RM1.30. Alas, SGB-wa is only trading at RM0.28-0.30.


Chart 2: SGB's 10-min chart as at April 26, 2016_9.30am (Source: ShareInvestor.com)


Chart 3: SGB-wa 10-min chart as at April 26, 2016_9.30am (Source: ShareInvestor.com)

As posted previously, if a warrant trades at a discount, it is a unhealthy sign. Given the sharp price rally in SGB, I would recommend that you avoid this stock and the warrant. If you are so lucky to have the stock and the warrant, you should take the opportunity to sell into strength.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, SGB & SGB-wa.

DLady: Quarterly Earnings At New High

Result Update

For QE31/3/2015, DLady's net profit increased by 34% q-o-q or 99% y-o-y to RM34 million while its revenue was mixed; dropped by 8% q-o-q but increased by 27% y-o-y to RM250 million. Revenue decreased by 8% q-o-q largely attributed to less selling days given the Chinese New Year festive period.  Profit before Tax increased by 33% driven by lower Cost of Goods and lower Distribution Expense.


Table 1: DLady's last 8 quarterly results


Chart 1: DLady's last 32 quarterly results

Historical Financial Results

From the 16 years' P&L accounts, we can see that there were 3 years where earnings surged. These are 2004 (when PBT surpassed the RM20-21 million mark); 2009 (when PBT surpassed the RM60-65 million mark); and possibly 2015 (when PBT surpassed the previous all-time high of RM186 million). These are highlighted in the table below (in green).

 
Table 2: DLady's last 16 years results

In the previous 2 occasions (2004 & 2009), the share price rallied strongly. Since the current breakout in earning (surpassing 2013 high), the chance of the share rallying is fairly good.


Chart 2: DLady's 16 years' Results & monthly chart as at April 25, 2016

Valuation

DLady (closed at RM54.00 yesterday) is now trading at a PE of 22 times (based on last 4 quarters' EPS of 247 sen). At this PER, DLady is deemed fairly attractive. Its DY is fairly decent at 4.1%.

Technical Outlook

We can see that DLady broke to the upside of its trading range of RM45.00 & RM49.00 in early 2016.


Chart 2: DLady's weekly chart as at Apr 25, 2016 (Source: Tradesignum)
 
DLady is in along-term uptrend line (SS), which accelerated since 2009 (s1-s1).


Chart 2: DLady's monthly chart as at Apr 25, 2016 (Source: Share Investor)

Conclusion

Based on improved financial performance, attractive valuation & positive technical outlook, DLady is rated a BUY.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, DLady.

Friday, April 22, 2016

A half-day seminar on investing in the stock market

I will be conducting a joint seminar with ShareInvestor entitled "Introduction to Investing in the Stock Market". The seminar will cover:
  • Fundamental Analysis
  • Technical Analysis
On the fundamental analysis segment, we will look at:
  • what investment style suits you: Buffet or Graham?
  • what to look for in a cash flow statement?
  • how to invest in stocks with earning "breakout"?
The early bird price is RM299, includes a 6-month access to ShareInvestor Webpro (worth RM200). You can register using this link.

Date: 30 April 2016 (Saturday)
Time: 9:30am to 5:00pm
Venue: Level 16, Persoft Tower, 6B Persiaran Tropicana, 47410 Petaling Jaya, Selangor

AEONCR: Earnings Breakout!

Result Update

For QE28/2/2016, AEONCR's net profit rose 28% q-o-q & 23% y-o-y to RM68 million while revenue rose 5.1% q-o-q or 14.1% y-o-y to RM258 million.

PBT rose 22% y-o-y due to 14.1%-increase in revenue which resulted from 8.5%-growth in total transaction and financing volume. This led to a 27.3%-increase in financing receivables. PBT also benefited from higher other operating income (due to increase in bad debts recovered and AEON Big loyalty programme processing fee). These had more than offset higher ratio of opex to revenue of 58.3% (compared to 57.1% previously; due to higher impairment loss provision on financing receivables); higher NPL ratio of 2.75% compared to 2.14% previously and higher funding cost (though the numbers were stated).


Table: AEONCR's last 8 quarterly results

AEONCR's PBT finally broke above its quarterly high of RM76 million! This earning breakout could be as significant as the earning breakout witnessed in February 2011 (when PBT broke above the RM20 million mark). As you may recalled, AEONCR rallied from RM3.40 in April 2011 to a high of RM18.00. (Note: The original price was RM4.10 before for 1-for-5 bonus issue in 2012.)


Chart 1: AEONCR's last 35 quarterly results

Valuation

AEONCR (closed at RM12.78 today) is now trading at a PE of 8.6 times (based on last 4 quarters' EPS of 149 sen). At this PER, AEONCR is deemed fairly attractive. In addition, it pays a decent dividend with DY of 4.7% (based on last year dividend of 59.45 sen).

Technical Outlook

AEONCR broke above its intermediate downtrend line, RR at RM12.00 in March.


Chart 2: AEONCR's monthly chart as at April 21 (Source: ShareInvestor.com)

With the breakout of the downtrend line, AEONCR is likely to continue its prior uptrend. Its next resistance is from the horizontal line at RM15.00. It might revisit its all-time of RM18.00 if the earnings can sustain at the new level.


Chart 3: AEONCR's monthly chart as at April 21 (Source: ShareInvestor.com)

Conclusion

Based on satisfactory financial performance, fairly attractive valuation and still positive technical outlook, AEONCR is rated as a BUY.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, AEONCR.

Thursday, April 21, 2016

O&G: Let The Recovery Begin

Despite the confusion in the crude oil market, the chart has flashed a bullish sign, with WTIC breaking above its downtrend line. As this is still a WIP, the DMI has yet to show a clear trend direction. While weekly MACD has crossed above the MACD signal line a while back, it is still in the negative territory. With this, we can conclude that the worst is probably over; the best is yet to come; and, investors should adopt a more constructive view for the O&G sector by positioning themselves in some beaten down stocks that could ride the recovery.


Chart: WTIC's weekly chart as at April 20, 2016 (Source: Stockcharts.com)

I will give here a snippet of a few research houses' preferred stocks for this sector (as reported in January to February) for your own selection:

(Areca) Wong’s bets on energy shares may already be starting to pay off. Both SapuraKencana and Malaysia Marine & Heavy Engineering Holdings Bhd. have rallied 16 percent in the past month, while UMW Oil & Gas has gained 10 percent. For more, go here.

AmResearch has a “buy” calls are for MISC, Dialog Group, Yinson Holdings and SapuraKencana Petroleum, while “hold” calls are for Alam Maritim Resources, Bumi Armada, MMHE, Petronas Gas and UMW Oil & Gas. For more, go here.

CIMB Research recommend investors to be selective. Bumi Armada is its top pick for the big caps in the upstream segment, while Uzma is its top pick for the small caps in the upstream segment. Dialog is its preferred pick in the midstream and downstream segment. For more, go here.

All the best to your stock selection!

PBBank: Earnings Dipped Slightly

Result Update

For QE31/3/2016, PBBank's net profit dropped 18% q-o-q but rose 5% y-o-y to RM1.23 billion while revenue increased by 2% q-o-q or 10% y-o-y to RM5.04 billion. Profits dropped q-o-q is mainly due loan  impairment allowances of RM67.5 million in the current quarter as compared to the net writeback of loan impairment allowances of RM104.3 million in the preceding quarter.


Table: PBBank's last 8 quarterly results

From the chart below, we can see that PBBank's top-line and bottom-line have been rising but profit margins have been slipping.


Chart 1: PBBank's last 41 quarterly results

Valuation

PBBank (closed at RM19.02 yesterday) is now trading at a PE of 14.3 times (based on last 4 quarters' EPS of 133 sen). At this PE multiple, PBBank is deemed fairly attractive. It pays a decent dividend yield of 3%.

Technical Outlook

PBBank is still in a long-term uptrend line, with support at RM18.20-18.40.


Chart 2: PBBank's monthly chart as at Apr 20, 2016 (Source: ShareInvestor.com)

PBBank broke above its intermediate downtrend line, RR at RM18.80-19.00 in early April. This breakout could lead to further rise in the share price.


Chart 2: PBBank's weekly chart as at Apr 20, 2016 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance, reasonable valuation & positive technical outlook, PBBank is still a good stock for long-term investment.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, PBBank

Wednesday, April 20, 2016

Some Calls That Didn't Work Out

The last 2-3 weeks saw mixed result for my stock calls. Poor stock calls are not desirable and cannot be avoided completely. When I made a call which did not work out, I feel bad for my customers and my readers. Some readers would make sure I get the message, such as this one:



I have taken another look at 2 recent calls that did not pan out. The first one is HSL which is the largest construction company in Sarawak. HSL was expected to secure many contracts for the construction of the Pan Borneo Highway. After it  secured 2 packages from that highway project, the share price rallied to what I thought was a breakout level: the psychological RM2.00. When the breakout happened, I thought it would be the start of its next upleg. Besides price action, the MACD crossed above MACD signal line. Alas, the stock failed to stay above the breakout level and has since dropped back to the 10, 20 & 30-week SMA lines at RM1.90. I think this cluster of support would hold and the stock will probably stage a recovery from here.

Looking back, one could argue that this timid stock had an earlier upside breakout of its downward channel at RM1.95 in January. The good news of its securing 2 big contracts was just enough to push the price up to its 2013 high of RM2.15. At that point, its gun-shy shareholders quickly seized the opportunity to take profit?!!


Chart 1: HSL's weekly chart as at Apr 19, 2016 (Source: ShareInvestor.com)

Next, Sasbadi. This promising educational stock broke above the strong resistance from the horizontal line at RM1.40. The upside breakout of the resistance, which checked the rise of Sasbadi 4 times in the past 9 months, could well be the flag-off for the continuation of its prior uptrend! Well, it didn't happen. On hindsight, one can argue that the poor volume was a sign that follow-through could be a problem.


Chart 2: Sasbadi's weekly chart as at Apr 19, 2016 (Source: ShareInvestor.com)

Looking at these calls reminded me of a conversation I had with one of my businessman clients many years ago. He told me that he didn't like to have bad debts. Who does?! He said, the only sure way of not having bad debts is to be super-cautious. However, when you are super-cautious, you lose business. As a businessman, you never want to lose good business. So instead of comparing bad debts with not having any bad debt, you should weigh the cost of bad debts against the cost of business foregone. The same may well apply to stock trading.

To the above reader wrote in, I like to say thank you for the opportunity to explain my predicament.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, HSL & Sasbadi.

Kianjoo: Proposed Business Sale Cancelled!

Latest Corporate Development

Last Friday, Kianjoo announced the cancellation of its proposed business sale to Aspire Insight Sdn Bhd (go here for the Bursa announcement and here for the Star newspaper report). For those who have been following Kianjoo saga for the past 15-20 years, we all breathed a sigh of relief.

Kianjoo has always been a financially healthy company with profitable performance. Its financial performance and share price performance over the past 10 years could have better if not for the See family quarrel which was finally resolved when the controlling stake was sold off to Canone. With a more focused management team, investors were looking to Kianjoo's return to its heyday again. That dream was cut short by the earlier proposed business sale, which has now been cancelled. 

Investors would once again have the opportunity to invest in this stock; a stock that holds a long & rich history. 

Result Update

For QE31/12/2015, Kianjoo's net profit dropped by 47% q-o-q or 34% y-o-y to RM23 million while revenue increased by 13% q-o-q or 31% y-o-y to RM460 million. PBT dropped due to forex losses incurred of RM4.3 mil as compared to forex gain of RM35.1 mil in QE30/9/2015. Revenue rose q-o-q due to increased demand from customers in the FMCG segment due to the pre-festive season production need. (Note: The QE31/12/2015 was announced on March 14, 2016.)


Table 1: Kianjoo's last 8 quarterly results


Chart 1: Kianjoo's last 36 quarterly results
[Note: P&L diagram displays chronological order from left to right.]
 
Valuation

Kianjoo (closed at RM3.26 yesterday) is now trading at a PE of 11 times (based on last 4 quarters' EPS of 29.6 sen). At this multiple, Kianjoo is deemed attractively valued. However, its FY2015 earnings were boosted by forex gain of RM35.3 million. If this exceptional gain were excluded, its EPS would be lowered to 21.6 sen while its PER would be pushed up to 15 times. At this adjusted PER, Kianjoo is deemed fairly valued.

Technical Outlook

Kianjoo is in an "uptrend" line with support at RM3.10. Resistance will be at RM3.40.


Chart 2: Kianjoo's monthly chart as at April 19, 2016 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance, reasonable valuation & positive technical outlook, Kianjoo is a good stock to consider for long-term investment.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Kianjoo.

Takaful: Earnings Inched Up

Results Update

For QE31/3/2016, Takaful's net profit increased by 28% q-o-q to RM47 million while revenue rose 57% q-o-q to RM633 million. Revenue increased by 12.6% y-o-y mainly attributable to higher sales generated by Family & General Takaful business. Family Takaful rose from RM237 million to RM289 million from higher sales of Family Takaful mortgage-related products. General Takaful revenue rose marginally due to higher business from commercial classes. Its profit after before zakat and taxation was hardly changed due to lower tax expenses which offset decline in surplus transfer from Family Takaful business (due to lower realized gain from disposal of investment) & from General Takaful business (due to lower net investment income).


Table: Takaful's last 8 quarters' results

From the Chart 1 below, we can see that the revenue is on the uptrend. Profit margin rose steadily over the past 4 quarters which helped to stabilized the profit numbers.


Chart 1: Takaful's last 39 quarters' results

Valuation

Takaful closed at RM4.07 yesterday. This means that Takaful is now trading at a PE of 21 times (based on the last 4 quarters' EPS of 19.2 sen). At this PE multiple, Takaful is deemed fully valued.

Technical Outlook

The stock has been in an uptrend in the past 4 years. However its movement has been sideways for the past 9 months after the share split of 1-to-5. The breakout in in March failed and the share price is again within the range of RM3.70-4.20.


Chart 2: Takaful's monthly chart as at Apr 18, 2016 (Source: ShareInvestor)


Chart 3: Takaful's weekly chart as at Apr 18, 2016 (Source: ShareInvestor)

 Conclusion

Despite high valuation & unexciting technical outlook, I would rate Takaful a HOLD due to its steady earnings growth.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Takaful.

Tuesday, April 19, 2016

Canone: When suitors come calling... (UPDATED)

Latest Corporate Development

There is an article in the Star newspaper yesterday entitled “KWAP in tie-up with Can-One” where the gist is as follows:
(i)     “KWAP confirmed that it is the final stages of completing an acquisition of a 30% stake in Can-One's wholly-owned dairy manufacturing business, F&B Nutrition Sdn Bhd.”
(ii)     “The Board of KWAP has approved in principle the purchase”
(iii)    “KWAP is expected to pay RM280mil for the stake in F&B Nutrition.”
(iv)     “Kamaruzaman said that the deal would entail some conditions for F&B Nutrition to meet and this in turn could result in KWAP owning up to a 40% stake in the company.”

This announcement caught Canone by surprise. The company then made its announcement to Bursa (here) which include this statement:
Can-One Berhad has made due and diligent inquiry (sic) with its directors, major shareholders and all such other persons reasonably familiar with the matter and wishes to clarify that Can-One has been approached by a number of parties (including Kumpulan Wang Persaraan (Diperbadankan)) expressing interest to acquire equity interest in F&B Nutrition Sdn Bhd.
Notwithstanding the denial of knowledge by the company of the negotiation (this being a company's affair, not a shareholder's affair), the deal will likely go through. After all, the buyer seems to be very eager and the price seems to be fairly handsome from the seller's perspective. 

Finally, this potential deal comes in the nick of time after the cancellation of the sale of business by its associate, Kianjoo to Aspire Insight Sdn Bhd. With the fund raised from the sale of 30%-stake in F&B Nutrition, the financial position of Canone would improve. This may have caused its management to signal its withdrawal of support for the Kianjoo's sale of business; causing the collapse of that deal.

Valuing Canone

The 2 main assets of Canone are:
  • 100% in F&B Nutrition (valued at RM840 million)
  • 32.9% in Kianjoo (market value at RM473 million)
Assuming that the long-term borrowings of RM270 million are used to finance the acquisition of Kianjoo while the short-term borrowings are used for working capital by its own tin manufacturing (not related to Kianjoo's operation) and F&B Nutrition, the value of the company (based on the 2 main assets) is about RM1043 million [RM840 million + RM473 million - RM270 million]. The net assets value per share will be about RM5.43 10.86 [RM1043 million divided by 192 96 million shares issued]. At the current price of RM4.06, the stock is trading at a discount of 25% to its NAV. If we discount that by 50%, the fair value of the stock is about RM5.43.

Results Update

In QE31/12/2015, Canone's net profit dropped 49% q-o-q or 47% y-o-y to RM14 million while revenue dropped by 3% q-o-q or 5% y-o-y to RM236 million. Revenue dropped q-o-q due lower sales of general cans division (due to lower demand for jerry cans) and lower revenue from food products division (due to lower demand for sweetened creamer). Lower sales of food product plus higher material consumption & higher operating expenses led to a drop in PBT for the latter division. Despite lower revenue, general cans division recorded higher PBT due to better contribution by tin cans & lower losses in flexi packaging.


Table: Canone's last 8 quarterly results


Chart 1: Canone's last 36 quarterly P&L results
[Note: P&L diagram displays chronological order from left to right.]

Technical Outlook

Canone's share price is in a tentative intermediate uptrend line, SS with support at RM3.80. It has broken above its medium-term downtrend line, RR at RM3.90 in early April.


Chart 2: Canone's daily chart as at April 18, 2016 (Source: ShareInvestor.com)
 
Canone is in an irregular long-term upward channel.
  

Chart 3: Canone's daily chart as at April 18, 2016 (Source: ShareInvestor.com)

Conclusion

Based on satisfactory financial performance, attractive valuation & potential windfall from a possible sale of a 30%-stake in F&B Nutrition, Canone could be a good stock for trading BUY.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Canone.