Tongher's net profit dropped sharply in QE31/7/2007

Tongher's net profit for QE31/12/2007 dropped by 59.1% q-o-q or 66.8% y-o-y to RM6.2 million. For the same quarter, its turnover dropped by 29.8% q-o-q or 5.8% y-o-y to RM97.7 million. The lower revenue and net profit are due to a lower demand and selling price for the product as well as higher cost of raw materials purchased in the preceding quarters.



Tongher (closed at RM2.79 as at Feb 26) is now trading at a PE of 5.5 times (based on its EPS of 51 sen for FY2007) or at a Price to Book of 1.3 times (based on its NTA per share of RM2.17 as at 31/12/2007). While the share price may appear inexpensive, investors may take a cautious view towards this stock for the next few quarters to see whether the slump in its performance would continue.

The share price has recently broken below its uptrend line support of RM3.10 on January 18 and hit the horizontal support of RM2.60 before rebounding. while the rebound is quite weak compared to the sharpness of the fall, the share price has managed to break above the short-term downtrend at RM2.90. I think the share is likely to trade between RM2.60 & RM3.00 for a while until investors have a clearer view of the performance of the company.


Chart: Tongher's weekly chart as at February 26, 2008 (courtesy of Quickcharts)

Based on the technical breakdown & the sharp deterioration in its performance, Tongher should be avoid until a clearer picture has emerged.

Note: Previously, I have erroneously commented that the company had completed a 1:3 bonus issue in October last year. The bonus issue completed was a 1:2 bonus issue.