Pelikan is about to test its uptrend line

Background

Pelikan is involved in the manufacturing & distribution of writing instruments, art, painting & hobby products, office stationeries & printing consumables (go here). In January 2007, it completed its acquisition of Pelikan Hardcopy Holding AG ('PHH'), which is involved in the manufacturing & distribution of printer supplies (go here).

Prior to April 2005, Pelikan (formerly, Diperdana) was involved in the provision of logistics & related services. This business was sold off to Konsortium Logistik Bhd.

Financial Results

For FYE31/12/2007, Pelikan's net profit increased by 20.4% from RM77.3 million to RM93.0 million. Turnover jumped 81.3% from RM659 million to RM1.19 billion. The huge increase in turnover is attributable to the completion of its acquisition of the Hardcopy business at the beginning of the year. Nevertheless, the increase in its net profit was very much smaller because the margin of the Hardcopy business is lower.

For the QE31/12/2007, Pelikan reported a net loss of RM10.4 million as compared to a net profit of RM22.1 million recorded in the immediately preceding quarter (QE30/9/2007) or a net profit of RM7.3 million recorded in the same quarter last year (QE31/12/2006). The loss was attributable to:

1. Higher percentage sales of lower margin Hardcopy products, as compared to QE30/9/2007, when sales of higher margin writing instruments was higher due to "back to school"season in Europe;
2. The group continued to incur additional costs in merging the newly acquired businesses with the existing operation. This includes provisions to cover losses relating to pre-acquisition period of PHH group (which also included losses from subsequent sale of assets of PHH group).
   
3. Reversal of negative goodwill of RM16.8 million, which was recognized as other income in the 1st quarter. This negative goodwill arose from the acquisition of PHH group.
   

If the reversal of the negative goodwill was excluded, Pelikan would report a net profit of RM6.4 million, instead of a net loss of RM10.4 million.



Valuation

Pelikan (closed at RM3.08 as at 21/4/2008) is trading at a trailing PE of 9.1 times (based on EPS of 34 sen for FYE31/12/2007) or at a P/Book of 1.8 times (based on NTA per share of RM1.70 as at 31/12/2007). At these multiples, Pelikan is deemed attractively priced.

Technical Outlook

Pelikan rose from a low of RM0.63 in June 2004 to a high of RM5.80 in July 2007 (see Chart 2). Since then, the share price has been drifting lower. [At the end of the morning session today, Pelikan share price dropped 8 sen to RM3.00.]

From the weekly chart (Chart 1), we can see that Pelikan's uptrend line support is at RM3.00. Its immediate horizontal support is at RM2.80 and thereafter at RM2.10. Its immediate horizontal resistance is RM3.40 & thereafter at RM3.70.


Chart 1: Pelikan's weekly chart as at April 21, 2008 (courtesy of Quickcharts)



Chart 2: Pelikan's monthly chart as at April 21, 2008 (courtesy of Quickcharts)

Conclusion

Based on relatively attractive valuation & potential good technical support at the RM3.00 level, Pelikan could be a good stock to buy for the medium-term.

Note: I had called a BUY on this stock in November 2006 (go here).