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Friday, December 09, 2016

BAuto: Earnings Slid Further

Results Update

For QE31/10/2016, BAuto's net profit dropped 25% q-o-q or 42% y-o-y to RM31 million while revenue decreased by 4% q-o-q or 13% y-o-y to RM473 million. Group revenue dropped q-o-q by RM20.4 million or 4.1% to RM473.2 million largely due to lower sales volume recorded by the Malaysian operations as domestic sale was impacted by weak consumer sentiment and competitors' heavy discounting promotion. However, this was mitigated by better sales performance from the Philippine operations. In line with lower revenue, compressed profit margin and lower profit contribution from associated, the Group pre-tax profit dropped q-o-q by RM12.2 million or 20.8% to RM58.6 million.


Table: BAuto's last 8 quarters' financial performance


Graph: BAuto's last 18 quarters' financial performance

Valuation

BAuto (closed at RM2.06 at end of the morning session) has a fair PER of 14 times (based on last 4 quarters' EPS of 14.4 sen). BAuto paid good dividend, with an attractive dividend yield of  8.7%. This means that BAuto is fully valued but it may still hold some appeal due to its high dividend yield.

[Note: Berjaya Auto Bhd (BJAuto) has been renamed Bermaz Auto Bhd (BAuto).]

Technical Outlook

Since it peaked in June 2015, BAuto has been searching for a new and more sustainable uptrend line. Its current uptrend line, S-S3 has just been violated. It will soon be testing the horizontal line at RM2.00. We will see whether this support will last for long. If not, the stock may go to the next support at the horizontal line at RM1.80.


Chart: BAuto's weekly chart as at Dec 9, 2016_3.30 (Source: Share Investors)

Conclusion

Based on weaker financial performance, poor consumer sentiment and mildly negative technical outlook, I revise the rating for BAuto from a HOLD to a REDUCE. 

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Thursday, December 08, 2016

AMBANK: Waiting For The Tide To Turn

Background

AMMB Holdings Berhad or also known as AMBANK is a financial services group in Malaysia whose core businesses are retail banking, wholesale banking, islamic banking, and life and general insurance.


Historical Financial Performance

From the graph below, we can see that AMBANK enjoyed strong growth after the Global Financial Crisis ended in 2009. Its earning peaked in 2015.


Graph 1: AMBANK's last 10 years' Financial Performance

The decline in earnings could have bottomed. The past 6 months' results shows a slight uptick!


Graph 2: AMBANK's Financial Performance for the last 10 half-years

Recent Financial Result

Looking at the table below, we can see that the last 2 quarters' earnings (QE30/9/2016 & QE30/6/2016) are better than the earnings from the immediate preceding quarters (QE31/3/2016 & QE31/12/2015). There is a good chance that the earnings would continue to improve going forward.


Table: AMBANK's last 8 quarterly result


Graph 3: AMBANK's last 12 quarterly result

Valuation

AMBANK (closed at RM4.18 yesterday) is now trading at a PER of 10x (based on last 4 quarters' EPS of 41.72 sen). At this PER, AMBANK is deemed fairly valued.

Technical Outlook

AMBANK has lost about 50% of its 2013 high of RM8.00 to its recent low of RM4.00. It is now trading not very far from the support of its long-term uptrend line at RM3.50. In fact, the stock has strong support from the cluster of horizontal lines between RM4.00-4.50.


Chart 1: AMBANK's monthly chart as at Dec 8, 2016_10.30 (Source: ShareInvestor)

The weekly chart shows AMBANK had been hoovering around the RM4.20 level for more than a year. Due to poor sentiment, it broke thru that support and tested the support at the horizontal line at RM4.00. It even broke the RM4.00 mark briefly in late October before recovery. The pattern (ABCD) we see is similar to a falling wedge where a breakout to the upside at RM4.30 could signal the end of its 3 years' bear run. Watch out for that!


Chart 2: AMBANK's weekly chart as at Dec 8, 2016_10.30 (Source: ShareInvestor)
 
Conclusion

Based on possible recovery in earning and fair valuation, AMBANK could be a good stock to consider for a recovery play. However it must be noted that the stock is still in a downtrend and recovery would only begin if it can convincingly break above the RM4.30 mark.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Astro: Earning Improved

Results Update

For QE31/10/2016, Astro's net profit rose 20% q-o-q or 42% y-o-y to RM151 million while revenue was relatively unchanged - down 0.3% q-o-q or up 3.6% y-o-y- at RM1.424 billion.

Its revenue dropped y-o-y due to a decrease in subscription and home-shopping of RM5.7 million and RM11.9 million respectively, which offset by an increase in advertising and other revenue RM1.8 million and RM11.6 million respectively.

EBITDA margin increased by 3.1% y-o-y mainly due to lower content costs, particularly EURO 2016 in the preceding quarter and lower impairment of receivables. Net profit increased y-o-y mainly due to an increase in EBITDA of RM42.7 million, lower net finance costs by RM12.1 million due to lower unrealized forex loss arising from unhedged finance lease liability of RM5.6 million and unhedged vendor financing of RM2.3 million. The increase was offset by impairment of investment in associate of RM15.1 million and higher tax expense of RM15.4 million. RM34.6 million  and  lower  net  finance cost by RM18.7 million. 


Table: Astro's last 8 quarterly results


Graph: Astro's last 21 quarterly results

Valuation

Astro (closed at RM2.65 yesterday) is now trading at a trailing PE of 20.2 times (based on last 4 quarters' EPS of 13.11 sen). At this PER, Astro is fairly valued. However, Astro paid out dividend quarterly which amounted to 12.75 sen for the last 4 quarters; giving the stock a decent DY of  4.8%.

Technical Outlook

Astro dropped back below its long-term downtrend line, now at RM2.80. The downtrend has gathered momentum, with ADX rising steeply. With Stochastic oversold, a relief rally can set in but it would probably be capped at the downtrend line at RM2.80.


 Chart: Astro's weekly chart as at Dec 7, 2016 (Source: ShareInvestor.com)

Conclusion

Based on improved financial performance and fair valuation, Astro's rating remains a HOLD. If Astro can break above its downtrend line at RM2.80, the rating can be revised to a Long-Term BUY.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

GHLSYS: Earnings Growth Slowed

Result Update

For QE30/9/2016, GHLSYS's net profit rose 3-fold y-o-y to RM4.7 million on the back of a 16%-crease in revenue to RM60 million. Compared to the immediate preceding quarter last year, GHLSYS's net profit dropped dropped marginally by less than 0.2% on the back of a 3%-decline in revenue.  GHLSYS's revenue rose y-o-y primarily driven by increase in the Transaction Payment Acquisition, Shared Services and Solutions Services divisions of 14.1%, 27.6% and 82.3%. Net profit margins during this quarter improved due to improved operating margins; lower interest expenses; and a more normalized tax rate as compared to QE30/9/2015.


Table: GHLSYS's last 8 quarters' P&L


Graph : GHLSYS's las16 quarters' P&L

Valuation

GHLSYS (closed at RM0.81 yesterday) is now trading at a PER of 31x (based on last 4 quarters' adjusted EPS of 2.60 sen). Based on its earning CAGR of 65% over the past 3 years, GHLSYS's PEG ratio is only 0.5x. As such, GHLSYS is deemed fairly attractive as a growth stock. For more on GHLSYS, check out my earlier post.

Technical Outlook

GHLSYS is now consolidating at the horizontal line of RM0.80. If it can break above the downtrend line, RR at RM0.90, it will continue with its prior uptrend. The main concern is that the support at RM0.80 may be violated, in which case it may drop to the next support at RM0.70.
 

Chart: GHLSYS's monthly chart as at Dec 7, 2016 (Source: ShareInvestor)
 
Conclusion

Based on satisfactory financial performance and attractive valuation as a growth stock, GHLSYS is rated a good stock for long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Wednesday, December 07, 2016

Innity: Earnings Breaking To New High!

Background

Innity is involved in the provision of online advertising solutions.Its tagline is Right Audience, Real Engagement (or, RARE). [Note: You may check out my first post on this stock.]



Result Update

For QE30/9/2016, Innity's net profit rose 94% q-o-q or 121% y-o-y to RM2.9 million while revenue rose 13% q-o-q or 38% y-o-y to RM26 million. Revenue grew y-o-y due to higher revenue from all the segments, except Indonesia segment. PBT increased y-o-y due to higher revenue and higher product margin achieved. To get a real sense of how well Innity is doing, I strongly recommend that you read Item B.1 Review of Performance on Page 6 of the latest Notes to the Account.


Table: Innity's last 8 quarters' P&L

More importantly, you should note that Innity has an earning breakout last quarter. I define earning breakout as a quarterly earning that surpasses previous quarterly earning. In the past, I have noted stocks with earning breakouts and they had generally continued to report rising earning going forward. Consequently, these stocks enjoyed higher share prices. Innity may join this list of outperforming stocks.


Graph 1: Innity's last 34 quarters' P&L

Valuation

Innity (closed at RM0.67 yesterday) is now trading at a PER of 18.3x (based on last 4 quarters' adjusted EPS of 3.66 sen). Based on CAGR of 70% over the past 3 years, PEG ratio is still comfortably well below 1x. As such, Innity is very attractive for a growth stock. However, Innity has a serious problem with liquidity; it can be not traded on a quiet day!!

Technical Outlook

Innity seems to be in an upward channel, with support at RM0.35 & resistance at RM0.75.


Chart: Innity's monthly chart as at Dec 5, 2016 (Source: ShareInvestor)
 
Conclusion


Based on good financial performance, attractive valuation & relatively positive technical outlook, Innity is a good stock for long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Axiata: Coping With Labour Pain?

Result Update

For QE30/9/2016, Axiata's net profit rose 36% q-o-q but dropped 71% y-o-y to RM257 million while revenue rose 3% q-o-q or 8% y-o-y to RM5.46 billion.


Table 1: Axiata's last 8 quarters' P&L

If you looked at the profits of Axiata, you will see 2 trends; firstly, Axiata has taken quite a beating over the past 3 quarters, only to stabilize in QE30/9/2016. The improved q-o-q result was attributed to "steady operational performance, particularly from the Group’s South Asia Operating Companies (OpCos) namely Ncell1, Dialog and Robi" plus "lower Depreciation and Amortisation (D&A) and net finance cost, as well as lower forex losses".


Graph 1: Axiata's last 39 quarters' P&L

The second trend is that its profits have been flattish for a long period (FY2011-2014) despite rising Operating Revenue. This is due to 3 rising expense items, namely Depreciation, Impairment & Staff Costs; and Other Costs. These 3 rising items have more than offset the decline in Domestic Inconnect & International Overpayment- leading to a stagnant bottom-line. (See the table & graph below, which show 5 years' of the first 9 months results.) In my opinion, the reason for these rising expenses is due to the expansion in some of the developing markets that Axiata group is operating in. When these operations reached their critical mass, the profit should begin to roll in. This is a case of labour pain- pain today and joy tomorrow!
 

Table 2: Axiata's last 5 years' first 9 months' P&L
 

Graph 2: Axiata's last 5 years' first 9 quarters' P&L

Valuation

Axiata (closed at RM4.30 yesterday) is now trading at a PER of 30x (based on last 4 quarters' adjusted EPS of 14.50 sen). This makes Axiata less attractive compared to MAxis or Digi which have a PER of about 22-23x. But things may change...
   
Technical Outlook

Axiata is deeply oversold, with potential relief rally insight. In fact, its MACD has crossed above its MACD signal line- thus predicting a possible rebound. This rebound will face immediate resistance at the horizontal line at RM4.50 and beyond that at the next horizontal line at RM5.00. If the relief rally fizzled out, it may retest its recent low. If the test of the low is successful, we may then see a recovery for this stock.


Chart 1 Axiata's daily chart as at Dec 7, 2016_10.45 (Source: ShareInvestor)


Chart 2: Axiata's weekly chart as at Dec 7, 2016_10.45 (Source: ShareInvestor)
 

Chart 3 Axiata's monthly chart as at Dec 7, 2016_10.45 (Source: ShareInvestor)
 
Conclusion

Based on technical consideration, Axiata could be a good stock to consider for a recovery play. However, it should be noted that its valuation is not attractive as its earning has buffeted by rising costs in growing its many operating units. There is only tentative signs of a bottom - no sign of recovery yet - thus warranting only a very small exposure at best to this stock. Good luck!

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Tuesday, December 06, 2016

N2N: Riding The Fintech Train

Background

N2N is in the provision of trading and analytics solutions mainly to local stock broking firms and banks. It is the provider of the TCPro brand of trading terminals used by 70% of the investment banks and stockbroking firms in Malaysia. It's currently operating in 3 other ASEAN countries, such as Singapore, Indonesia and the Philippines. It plans to expand into Hong Kong, Australia and Japan in the next 3 years.  

Last month, it announced plan to acquire AFE Solutions Ltd from its 2 shareholders, Reuters International Holdings S.A.R.L. and Systex Capital Group Inc for USD20.6 million. The acquisition of AFE would enable N2N to have a strong presence in the provision of financial data & trading solution in Hong Kong, Macau & Vietnam. For more, go here.



Historical Financial Performance

N2N's financial performance has been on a steady rise after the Global Financial Crisis.


Graph 1: N2N's last 10 years' P&L

Recent Financial Result

For QE30/9/2016, N2N's net profit rose 18% q-o-q or 71% y-o-y to RM3.4 million while its revenue was mixed - down 1.5% q-o-q but up 5.7% y-o-y - to RM10.5 million. The improved bottom-line was mainly due to the fair value changes on the financial assets at fair value through profit or loss.


Table: N2N's last 8 quarters' P&L


Graph 2: N2N's last 12 quarters' P&L

Latest Financial Position

N2N's financial position is very strong. As at 30/9/2016, it has net cash, FDs & financial assets totaling RM101 million (or, 21 sen per share). This gave the group a current ratio of 18x and a gearing ratio of less than 0.1x.

Valuation

N2N (closed at RM0.78 yesterday) is now trading at a PER of 33x (based on last 4 quarters' EPS of 2.4 sen). If the net cash is deducted from the share price, its PER would be reduced to 24x. Based on earning CAGR of 28% over the past 3 years, its PEG ratio is 0.86x. This means its valuation is acceptable.

Technical Outlook

N2N is resting on its "arching" uptrend line support of RM0.75.


Chart: N2N's monthly chart as at Dec 5, 2016 (Source: ShareInvestor)

Conclusion

Based on good financial performance, strong financial position, fairly attractive valuation & still positive technical outlook, N2N could be a good stock for long-term investment.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

USD-MYR Outlook as at December 6, 2016

Last Friday, the ringgit closed at RM4.45 against the dollar in the domestic market while it closed at RM4.44 in the offshore market. The reason is the traders were closing the positions in the offshore market and taking positions in the onshore market, where Bank Negara is the main supplier of US dollars and effectively the market maker for the US dollar-ringgit trades.

As the main supplier of US dollars, Bank Negara may run short of US dollars. To increase the supply, Bank Negara has issued a new ruling requiring exporters to convert 75% of their new export proceeds to the ringgit. Previously, exporters can keep their proceed in US dollar if they take the view that the ringgit will depreciate against the dollar.

To incentivize the exporters, Bank Negara has announced a fairly attractive deposit rate as well as allowing these exporters to go into active and free hedging for their foreign currency requirements of up to six months. Are these moves enough to reduce the volatility of the ringgit – thus leading to its eventual recovery. In my opinion, these moves have a high chance of success. Here's why!

The price of any security, commodity or currency is a function of supply and demand. If the demand of USD (to repatriate investment fund or to pay for import) increases vis-a-via MYR, the equilibrium will only to reach if the price of USD increases in term of MYR. This is aggravated by a contraction in the supply of USD as investment fund stops coming to Malaysia as well as our exporters stop converting their USD to MYR. By forcing the exporters to convert their USD proceed to MYR, we have an increased supply of USD.

The other reason is technical consideration. Firstly, USD-MYR is now facing strong resistance from the horizontal line at 4.45-4.50. This is the September 2015 high which capped the rise of USD-MYR in January 2016 and may do the same again today.  


Chart 1: USD-MYR's weekly chart as at Dec 6, 2016_11.45am (Source: Investing.com

In fact, if you look at the daily chart, MACD has just crossed below the MACD signal line. This is a bearish signal that alerts us of a possible trend reversal.


Chart 2: USD-MYR's daily chart as at Dec 6, 2016_11.45am (Source: Investing.com

Secondly, USD index which appeared to be breaking to the upside of its trading range of 92.5-100.25, seems to be faltering. Yesterday, USD index dropped back into the range. This would lead to weakness in USD index for the weeks ahead unless it can quickly recover back above the 100.25 level.


Chart 3: USD index's weekly chart as at Dec 5, 2016 (Source: Stockchart.com)

Based on tentative weakness in USD index, USD-MYR and measures taken by Bank Negara, I believe that the ringgit could recover in the next few weeks and the eventual recovery of the ringgit would lead to the recovery of our stock market.

Friday, December 02, 2016

Supermx: Earnings Recovered Somewhat

Result Update

For QE30/9/2016, Supermx's net profit rose 188% q-o-q to RM19.5 million on the back of a 1%-crease in revenue RM269 million. Compared to the corresponding quarter last year, net profit dropped 49% while revenue declined 13%.

Profit before tax dropped y-o-y due to increased minimum wages and further rationalization of natural gas subsidy. The Group has also incurred additional costs for its contact lens division particularly in terms of advertising and promotion expenses. On the other hand, raw material cost was mixed with nitrile cost down 13.3% y-o-y while natural rubber latex cost went up 5.1%.

While profit before tax dropped q-o-q, net profit rose q-o-q due to higher tax charges in the immediate preceding quarter due to additional tax paid amounting to RM7.7 million in respect of previous years’ assessments (YA2007, 2009-2011); and provision for deferred tax.


Table: Supermx's last 8 quarters' P&L

I have tabulated the pre-tax profit and net profit for first 9-month period for the past 10 years. Over the past 4 years, we can see that pre-tax profit and net profit began to diverge because effective tax rate has gone up. In fact in 2016, the effective tax rate soared to 40%. This was due to the reason given above. With the absence of prior year tax charge, net profit should recover for Supermx.



Chart 1: Supermx's las10 years' first 9 months P&L


Chart 2: Supermx's last 27 quarters' P&L

Valuation

Supermx (closed at RM2.18 yesterday) is now trading at a PER of 17.5x (based on last 4 quarters' adjusted EPS of 12.49 sen). At this PER, Supermx is deemed fairly valued.

Technical Outlook

Supermx is moving within a large band between RM1.90 & RM3.30. A breakout above RM3.30 or a breakdown below RM1.90 would point the way forward for the stock.

Chart 3: Supermx's monthly chart as at Dec 1, 2016 (Source: ShareInvestor)
 
Conclusion

Based on poor financial performance and neutral technical outlook, I revised my rating for Supermx from a BUY to a HOLD.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

RGB: Earnings Continued To Rise

Result Update

For QE30/9/2016, RGB's net profit rose 34% q-o-q or 63% y-o-y to RM9.3 million while revenue rose 63% q-o-q or 19% y-o-y to RM95 million. Revenue increased q-o-q due to higher revenue from Sales & Marketing (SSM) division while revenue from Technical Support & Management (TSM) division was unchanged. PBT rose q-o-q due to higher profit from SSM division (an increase of RM3 million) which more than offset the drop in PBT for TSM division (of RM0.4 million) as well as forex losses of RM0.9 million.


Table: RGB's last 8 quarters' P&L


Chart 1: RGB's last 13 quarters' P&L

Valuation

RGB (closed at RM0.235 yesterday) is now trading at a PER of 12x (based on last 4 quarters' adjusted EPS of 2 sen). Based on CAGR of 25% over the past 2 years, PEG ratio is still comfortably below 1x. At this PER & PEG ratio, RGB is deemed attractively valued.
  
Technical Outlook

RGB broke above its saucer bottom at RM0.20. After a strong rally to RM0.27, RGB may be due for a bit of correction. As long as it stays above RM0.20, the stock has a chance to go higher.


Chart 2: RGB's monthly chart as at Nov 30, 2016 (Source: ShareInvestor)
 

Chart 2: RGB's daily chart as at Dec 1, 2016 (Source: ShareInvestor)
 
Conclusion

Based on good financial performance, attractive valuation and positive technical outlook, RGB is rated a BUY.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Thursday, December 01, 2016

SAM: Earnings Plummeted

Result Update

For QE30/9/2016, SAM's net profit dropped 43% q-o-q or 68% y-o-y to RM5.6 million while revenue dropped 4% q-o-q or 28% y-o-y to RM122 million. Revenue dropped q-o-q as its three business segments reported lower revenue. Revenue from the Equipment Manufacturing segment was lower by RM32.8million as a result of weaker demand from customers. Revenue from the Aerospace segment decreased by RM14 million due to the weakening demand for air cargo and the reduction in the production rate for A380 aircraft. Revenue for the Precision Engineering segment also decreased by RM0.2 million during the quarter. Coupled with new projects start-up cost and unfavorable foreign exchange movement, its profit before tax dropped from RM10.8 million to RM7.9 million .


Table: SAM's last 8 quarters' P&L


Chart 1: SAM's last 24 quarters' P&L

Valuation

SAM (closed at RM5.55 at the end of the morning session) is now trading at a PER of 14.6x (based on last 4 quarters' adjusted EPS of 38 sen). Based on CAGR of 45% over the past 2 years, PEG ratio is still comfortably below 1x. Provided this is not the end of its growth cycle (with the peak in late 2015), SAM valuation is deemed 'reasonable' for a growth stock.If you read the current year prospect (see below), you may come to the conclusion that the next few quarters will be challenging due to weakness in equipment manufacturing and precision engineering divisions.


From Notes to the Account (page 11)
 
Technical Outlook

SAM is in a tentative uptrend line, SS which accelerated in 2015. It made a double-top reversal at RM8.00 and is now hanging onto the support from the horizontal line at RM5.60. If this support fails, SAM will drop to the next support at the horizontal line of RM4.20 (which may happen though not in the next few months). Below that, SAM may find support at the tentative uptrend line RM3.50. I believe the stock is unlikely to test the uptrend line anytime soon unless SAM's financial performance completely collapses.


Chart 2: SAM's monthly chart as at Dec 1, 2016 (Source: ShareInvestor)
 

Chart 2: SAM's weekly chart as at Dec 1, 2016 (Source: ShareInvestor)
 
Conclusion

Based on poor financial performance and negative technical outlook, I revised my rating for SAM as a HOLD. If it breaks the support at RM5.60, you may consider reducing your position in the stock as it may slide down further.

Note:


I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

CMSB: Earnings Rolled Back In

Results Update

Yesterday, CMSB announced a very good set of result. Its net profit roared back- up more than 6-fold q-o-q but still down 10% y-o-y to RM59 millionon the back of lower revenue, which dropped 11% q-o-q or 14% y-o-y to RM356 million.


Table 1: CMSB's last 8 quarters' P&L


Graph: CMSB's last 13 quarters' P&L

The main reason for the turnaround in the performance of its 25%-owned associate, OM Materials (Sarawak) Sdn Bhd. This company, which operates a ferro silicon alloys smelter in Samalaju Industrial Park, contributed a PBT of RM8.42 million to CMSB for QE30/9/2016 as compared to a LBT of RM48.90 million for 1H2016. This profit plus increased profit from JVs, Cement & Other Divisions had more than offset decreased profit from Contruction and Construction Material Divisions.
 

Table 2: CMSB's segmental analysis for QE30/9/2016 & QE30/6/2016
 
Valuation

CMSB (closed at RM3.57 yesterday) has a PER multiple of 26.3 times (based the last 4 quarters' EPS of 13.57 sen). However, the earnings of CMSB could be significantly higher once the Pan Borneo Highway construction work goes into full swing as CMSB is the main supplier of cement in Sarawak as well as being one of the bargest suppliers of building materials in that state. This plus the turnaround in OM Materials could easily help CMSB to sustain its earnings at the same level as QE30/9/2016, if not higher than that. Assuming CMSB's FY2017 is 20% higher than the earning of QE30/9/2016, then CMSB's FY2017 EPS would be about 26 sen. Thus, CMSB would now be trading at an attractive forward PER of 14 times. (Note: CMSB was trading at RM3.69 as at 10:30am.)
 
Technical Outlook

CMSB had a scorching rally from a low of RM0.30 in 2008 to a high of RM6.00 in July 2015. Since then, the share price had dropped back to form a Head and Shoulders formation with a neckline at RM3.30. As you may know, a Head and Shoulders formation is a well-known pattern in technical analysis that tends to culminate in a reversal. The reversal is confirmed if the share price were to drop below the neckline. However, a failure to break below the neckline would convert a reversal pattern into a continuation pattern where the stock would then continue on its prior uptrend.


Chart 1: CMSB's monthly chart as at Nov 30, 2016 (Source: ShareInvestor.com)

It is debatable whether CMSB has actually completed the right "shoulder" of a Head and Shoulders formation. However, if CMSB can break above the intermediate downtrend line, RR at RM4.00, we can accept that the Head and Shoulders formation was completed and that it had changed from a possible reversal pattern to a continuation pattern. And the ensuing move would then be on the upside as the dominant trend would once again be an uptrend. Let's wait and see whether the bullish trend will emerge.
 

Chart 2: CMSB's weekly chart as at Nov 30, 2016 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance and exciting prospect, CMSB could be a good stock to ride on the construction boom as well as economic boom in Sarawak.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.