Kian Joo has broken above its downtrend line

Background

Kian Joo is involved in the manufacture of can (both, general & aluminium can) as well as PET bottles & related plastic packaging products.

Proposed Corporate Exercise

On Sep 8, Kian Joo has announced a Bonus Issue of 1-for-5 plus a share split of 1 unit of 50-sen share into 2 units of 25-sen share. On completion of this exercise, a shareholder with 1,000 units of Kian Joo 50-sen share will end up with 2,400 units of Kian Joo 25-sen shares.

Recent Financial Results

Kian Joo reported a sharply lower net profit of RM2.8 mil for QE30/6/06. This represents a 79% drop when compared to both the net profit of the preceding quarter as well as the corresponding quarter last year. Turnover at RM154 mil is 4% higher than the preceding quarter's turnover but 6% lower than the turnover for the corresponding quarter last year.

Kian Joo attributed the poorer result to the following:

1. higher material & operating cost in the general can division, which resulted in loss of RM0.91 mil as compared to a profit of RM6.8 mil in the last quarter;
2. lower revenue & higher opearting cost in the aluminium can division, which resulted in a drop in profit from RM11.7 mil to RM9.4 mil; and
3. higher resin cost, one-off re-location expenses & VSS expenses, which has led to increased losses in the PET & plastics division from RM0.7 mil to RM2.5 mil.







Valuation

Based on the last 4 quarterly results, Kian Joo's EPS is about 20.15 sen. At the closing price of RM2.63 for today (Oct 12), Kian Joo is now trading at a PE of 13.2 times. This is quite near the fair value for a stock of comparable size & quality for the Malaysian stock market.

Technical Outlook

The main attraction of this stock is that it has just turned technically bullish. The share price has just broken above its medium-term downtrend line at the RM2.55 level. We can see that it has also surpassed the immediate horizontal resistance (now, turned into support) at RM2.60 level. The next resistance is at RM3.00.


















Chart: Kian Joo's daily chart as at Oct 11

Conclusion

Based on the bullish technical outlook, I believe that Kian Joo is an interesting trading buy. The recent financial results is a disappointment but with the drop in the price of crude oil and most basic metals, I believe that Kian Joo's profit margin will rebound as would its bottomline.