PBA may have a bullish breakout

Background

PBA Holdings Bhd ('PBA') is involved in the treatment & distribution of water for Penang. PBA is regarded by many as the best-managed water treatment and/or distribution company that is listed on the Malaysian stock market. The reason why it is less profitable than the other listed companies is because its treated water is sold at lower rates in Penang than in the other states.

Recent Financial Results

Based on the latest quarterly results for QE31/3/2007, PBA's net profit has increased by 11.2% q-o-q or 45.9% y-o-y to RM11.8 million. The improved profitability was attributed to higher turnover of RM43.9 million, an increase of 3.6% q-o-q or 7.8% y-o-y.

If you compared the last 4 quarters with the preceding 4 quarters, you can see that net profit has increased by 38.5% from RM30.4 million to RM42.2 million while turnover has gained 7.8% from RM162.6 million to RM175.2 million. EPS has similarly increased by 38.3% from 9.2 sen to 12.7 sen.



Current Financial Position

Based on the Balance Sheet as at 31/3/2007, PBA's financial position is deemed sound. Its liquidity position is adequate with current & quick ratio at 1.1 & 0.9 times, respectively. Unlikely others, PBA's Total Borrowings to Shareholders' Funds is very manageable at 0.2 times.

Valuation

Based on the trailing 4-quarter EPS of 12.7 sen & yesterday(27/7/2007)'s closing price of RM1.37, PBA is now trading at a PE of 10.8 times. That's relatively inexpensive for a defensive utility stock.

Technical Outlook

Since making a high of RM2.09 in September 2003, PBA has been in a downtrend. While it appears to have a breakout to upside of the downtrend line at RM1.28/30 level in mid-June, that breakout could not sustain & the share price eased back to find support at the downtrend line (see the 2 charts below). Yesterday, PBA made a big move & broke above the strong horizontal resistance at RM1.35. While the volume build-up has been fairly timid, I believe this breakout of the RM1.35 level could signal a bullish phase ahead for this stock.


Chart: PBA' monthly chart as at July 26 (courtesy of Quickcharts)


Chart: PBA' weekly chart as at July 26 (courtesy of Quickcharts)

Conclusion

Based on the bullish technical outlook and fairly decent fundamental picture, I believe PBA is a good investment for the medium-term. Good entry level is at RM1.35.