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Friday, May 30, 2008

Brief Hiatus

Posting will be light next week, as I'll be taking a few days off to spend time with my children while they’re on their holidays’ break. I’m really looking forward to this break after a hectic week of analyzing & posting companies’ results. In the meantime, I have provided a few interesting links below for your reading pleasure.

1. Doubts About Oil Demand (go here)

2. Soros thinks Skyrocketing Oil Prices a Bubble (go here)

3. Is speculation driving commodity prices at this point? (go here)

4. Credit crunch is far from over? (go here)

5. Bear or Superbear? (go here)

6. Baltic Dry Index made new high due to China’s iron ore imports? (go here)

7. Vietnam Moving Toward Forex Crisis (go here)

Gamuda broke strong horizontal support of RM2.80-85

Gamuda share price broke its strong horizontal support of RM2.80-85 after 11.00 am today. There were a few announcements to the Exchange that one of its substantially shareholder, FMR LLC has been selling its shares in the market. According to the latest announcement on May 29th, FMR LLC was still holding a 9.09%-stake in Gamuda (or, 182 million shares) as at May 23rd. From the monthly chart below, we can see that Gamuda's next horizontal supports are at RM2.30-40; RM2.00-10 and thereafter at RM1.70. Its tentative long-term uptrend line may provide support at RM1.85-90.


Chart: Gamuda's monthly chart as at May 29th, 2008 (source: Quickcharts)

Due to the aggressive selling by a substantial shareholder, it is advisable to stand aside & let the market takes its course.

Airasia's net profit decline in line with lower load factor

Airasia has just announced its results for 1Q2008 ending 31/3/2008. Its net profit increased by 85.7% to RM161.3 million from RM86.9 million recorded in 1Q2007, on the back of a 31.7%-increase in turnover from RM406.2 million to RM535.2 million. However, its turnover dropped by 15.4% due to seasonal factor and this contributed to the decline in net profit of 34.4% q-o-q.


Table 1: Airasia's 8 quarterly performance

The increased turnover, when compared to 1Q2007, was attributable to 21%-increase in higher passenger volume; 10%-increase in average fare from RM171 to RM189; and, higher ancillary income. Load factor has, however, dropped by 4.4% to 72% due to significant capacity additional (it took delivery of 39 new Airbus A320 up to 31/3/2008) and initial under-performance of newly-launched routes.

From Table 3 below, we can see that Airasia's Average Number of Operating Aircraft has increased from 27.84 in 1Q2007 to 36.04 in 1Q2008. This led to a 35.7%-increase in Available Seat Kilometer ('ASK') from 3215 million to 4364 million. The additional aircraft has caused Airasia's Property, Plant & Equipment to increase from RM2.642 billion to RM5.010 billion during the periods. As the bulk of these costs were financed by borrowings, its gearing ratio increased from 1.47 times to 1.87 times- a level that may begin to raise some concern. Liquidity position is less of an issue as its current ratio has risen from 1.40 times to 1.66 times.


Table 2: Airasia's Q-o-Q & Y-o-Y comparison


Table 3: Airasia's Performance Indicators

Valuation

Airasia (closed at RM1.01 as at May 29th) is now trading at a trailing PE of 3.1 times (based on last 4 quarters' EPS totaling 32.8 sen) or 1.1 times (based on NTA per share of RM0.95 as at 31/3/2008). At these multiples, Airasia is deemed very attractive.

Technical Outlook

Airasia has dropped from its recent high of RM2.14 recorded on October 26th, 2007 to a low of RM0.99 yesterday. The share price has been drifting lower in a channel, which has not been seriously challenged on the upside yet. This downtrend would only be over if the share price can break above RM1.20. The stock would also have to overcome the strong horizontal resistance at RM1.24-27 before any uptrend can begin.


Chart 1: Airasia's daily chart as at May 29th, 2008 (source: Quickcharts)



Chart 2: Airasia's weekly chart as at May 29th, 2008 (source: Quickcharts)

Conclusion

Despite the high oil prices, Airasia has been able to post pretty decent results in the last 2 quarters. There are concerns over the decline in load factor & increase in gearing position, which could explain the sharp selldown of this stock. Because of this selldown, the stock is now trading at attractive multiples. If you like Airasia's business model, then this could be a good time to look at this stock.

Airport's net profit continued to rise

Background

Malaysia Airport Holdings Bhd ('Airport') operates 39 airports locally and 4 airports internationally, two in India (in Hyderabad and Delhi) and one each in Kazakhstan and Istanbul, Turkey.

Proposed Restructuring of Concession Agreement

Under a 1999 concession agreement, Airport was to have paid concession fees of about RM1.31 billion by early 2004 but fell behind on payments in 2001, just as air travel nose-dived in the wake of the September 11th terrorist attacks in the US. Presently, it still owes about RM840 million in concession fees to the government for the Kuala Lumpur International Airport. Under the proposed restructuring, Airport is seeking its first increase in landing and parking charges in 26 years.

Recent Financial Results

Airport has just announced its results for 1Q2008 ending 31/3/2008. Its net profit increased by 4.4% q-o-q or 28.6% y-o-y to RM91.6 million while turnover increased by 13.9% q-o-q or 23.4% y-o-y to RM409.9 million.

The 23.4% y-o-y increase in turnover was contributed by 15.1% growth in airport operations [i.e. 20.0% increase in non-aeronautical revenue (such as rental & other commercial revenue) & 10.8% increase in aeronautical revenue coming from passenger movements] and 60.5% growth in non-airport operations [mainly due to 176.8% increase in the agricultural segment]. As a result of the increased turnover, Airport's profitability has increased.

Pre-tax profit of RM122.3 million was 30.0% higher than the same quarter last year but 12.7% lower than the preceding quarter, 4Q2007. The drop in pre-tax profit was due to write-back of non-required provision of pension funds of RM34.35 million in 4Q2007. If this write-back is excluded, then Airport's pre-tax profit had actually increased by 15.7% q-o-q.

For more information on Airport's 1Q2008 financial results, see this nice presentation by the company (go here).



Valuation

Airport (closed at RM3.12 as at May 29th) is now trading at a trailing PE of 11.8 times (based on last 4 quarters' EPS totaling 26.5 sen) or at a P/Book of 1.1 times (based on NTA per share of RM2.83 as at 31/3/2008). Based on the steady growth in the topline & bottomline, I believe Airport's trailing PE is undemanding.

Technical Outlook

Airport share price is in a medium-term uptrend line, with support at RM2.70. Strong horizontal supports are at RM3.10, RM3.00 & RM2.85. Overhead resistance is at RM3.25.


Chart 1: Airport's daily chart as at May 29th, 2008 (source: Quickcharts)



Chart 2: Airport's weekly chart as at May 29th, 2008 (source: Quickcharts)

Conclusion

Based on improving financial performance, inexpensive valuation & positive technical outlook, Airport is a good stock for medium-term investment. The resolution of the long-awaited restructuring of concession agreement could be the catalyst for re-rating of this stock.

Thursday, May 29, 2008

Market Outlook as at May 28th, 2008

Since Monday (May 26th), the KLCI has recorded a lower 'low' and a lower 'high'. This satisfies the requirement for a short-term downtrend. However, one may have to be a bit flexible in making market call in the present listless market.


Chart: KLCI's daily chart as at May 28th, 2008 (source: Quickcharts)

While investors are concerned about macro factors, such as the high crude oil prices, the stalling global economy, the shaky financial system in America & a few OECD countries as well as our internal political uncertainties, they could also be affected by something smaller but closer to home- the school holidays.

From the chart below, we can see that the KLCI adjusted downward just before the November-December 2007 school holiday and it only begun to recover 4 days thereafter. The short mid-term break in March this year is not a reliable guide as it coincided with the General Election. If the current market correction were to mirror the correction in the November-December 2007 school holiday, then the market could begin to show some recovery in the next few days. Having said that, I still believe our market will be range-bound between 1250 and 1300 levels. A break above & below these levels would point the way ahead for our market.

GPacket- a bet on WIMAX's success

On May 13th, I have posted about GPacket's breakout above its medium-term downtrend line (go here). I have concluded that post with this comment:

Based on the high risk involved in the new WIMAX venture & the uncertainties surrounding the recovery of its existing operation, I believe that investors would likely wait for a few quarters of results before buying into GPacket again. For now, one may take comfort that GPacket's downside risk is lower with the breakout above the downtrend line. GPacket is likely to trade in the range of RM2.00 to RM3.00 for sometime before a new trend appears.


A few days later, GPacket announced that Intel, via its global investment arm, Intel Capital, had also proposed to subscribe for RM50 million of four-year redeemable convertible exchangeable bonds in the company. The bonds, which will carry a 4.5% coupon rate, will be converted into either Green Packet or P1 shares, should the latter seek a separate listing during the period. This announcement could be viewed as a coup for GPacket, but it also served the interest of Intel- one of the biggest promoters for WiMAX technology in the world- in its plans to push out WiMAX enabled laptops over the coming months. As part of the joint marketing collaboration, all laptops embedded with the Intel WiMAX chipset will be bundled with P1 broadband services for a 30-day trial period. This will greatly enhance the company’s customer reach and is a potentially key advantage over its competitors.

On the same day, GPacket announced its results for 1Q2008 ending 31/3/2008. For the first time since its listing, GPacket slipped into the red & reported a net loss of RM2.7 million on the back of a turnover of RM22.3 million.



I have tabulated the segmental results for QE31/3/2008, QE31/12/2007 & QE31/3/2007. We can see that the main performer, Software & Applications Division has seen a steady drop in its turnover & profit contribution. The other 2 profit-making divisions, Engineering Services & Solutions and Discounted Telephony Services are still profitable but too small to make a difference. Meanwhile, the new Broadband Services & Solutions Division chalked up a start-up loss, which dragged GPacket into the red.



From this, GPacket has pretty much become a bet on the success of the first WIMAX venture in Malaysia. And, the precipitous drop in its share price that followed is telling us that some investors are not comfortable. In the recent announcements to the Exchange, we can see that Goldman Sachs has been aggressively selling GPacket shares in the market.

From the weekly chart below, we can see that GPacket broke its recent low of RM2.06 yesterday when it closed at RM1.95. As at 4.30pm, the stock is trading at RM1.80, down 15 sen.


Chart: GPackets weekly chart as at May 28th, 2008 (source: Quickcharts)

Based on the above, I believe that we should avoid GPacket until we have seen a turnaround in its financial performance.

Note: For a different take on GPacket's prospect, please check out the article entitled "Still upbeat on Green Packet" from the EdgeDaily.

Muda's net profit increased sharply

Muda has just announced its results for 1Q2008 ending 31/3/2008. Its net profit increased by 106% q-o-q or 542% y-o-y to RM18.8 million. Turnover, which increased by 21.8% y-o-y from RM154.4 million to RM188.1 million, is however lower by 6.9% when compared to the preceding quarter. Against a backdrop of higher sales prices, the decline in the turnover indicates that the demand for Muda's products had slipped.



I have tabulated Muda's segmental performance below:



From the above, we can see Muda had benefited from the improved profitability of its Paper Milling Division & the reduction in the losses incurred by its Paper Packaging Division. The Paper Milling Division is enjoying an upward trend in paper prices, which is due to the tight supply of raw material & higher crude oil prices, while the Paper Packaging Division is enjoying a stable market brought on by limited supply of imported paper & higher input costs. While Muda expects the favorable market for paper products to continue for the rest of the year, I believe that Muda's improved performance may not sustain for very long based on the following:

1. Demand for paper products has declined due to higher selling prices; and
2. Higher input costs may eventually lead to an erosion in margin.

There were a few announcements of staffs exercising their ESOS over the past few days. Normally, an exercise of ESOS is a prelude to a sale. This may indicate that some of Muda's staff believe that Muda share is fairly valued at the present price.

Muda (closed at RM0.73 as at May 28th) is now trading at a trailing PE of 6.6 times (based on last 4 quarters' EPS totaling 11 sen) or at a P/Book of 0.52 times (based on NTA per share of RM1.39 as at 31/3/2008). As such, Muda is fairly attractive.

Muda share price has a strong run-up after breaking above its trading range of RM0.30 to RM0.48 on April 16th. The breakout was noted in this post. A break above RM0.75-76 could signal further upside, while a break below RM0.63-64 would lead to the opposite.


Chart: Muda's daily chart as at May 28th, 2008 (source: Quickcharts)

Based on attractive valuation & improving financial performance, Muda could be a good stock for long-term investment. Investing in Muda after the recent sharp rise in its share price may not advisable. As noted, we have seen some profit-taking by insiders (i.e. Muda's staff) at the present price level. As such, a more prudent approach could be to slowly sell into strength.

Century's net profit jumped in 1Q2008

Century has just announced its results for 1Q2008 ending 31/3/2008. Its net profit increased by 64.1% q-o-q or 370% y-o-y to RM9.8 million. Turnover, which increased by 9.0% y-o-y from RM34.9 million to RM38.1 million, is however lower than the preceding quarter by 14.6%.

The drop in turnover (when compared to the preceding quarter) was attributable to the dry-docking of two floating storage units (FSUs) for 2 months (the dry-docking of the two FSUs -out of six units owned-was according to schedule). This would have resulted in a drop in its pre-tax profit by 36.2%, if not for the exceptional profit of RM5.732 million from the sale of a property.



Century (closed at RM1.77 as at May 28th) is now trading at a trailing PE of 3.3 times (based on last 4 quarters' EPS totaling 54 sen) or at a P/Book of 0.96 times (based on NTA per share of RM1.85 as at 31/3/2008). At these multiples, Century is deemed very attractive.

Century share price is moving in an uptrend line, with support at RM1.50. It has good horizontal support at RM1.60.


Chart: Century's weekly chart as at May 28th, 2008 (source: Quickcharts)

Based on attractive valuation & positive technical outlook, Century is a good stock for medium-term investment.

TChong's topline & bottonline soared

TChong has just announced its results for 1Q2008 ending 31/32008. Its net profit increased by 69.4% q-o-q or 331% y-o-y to RM54.1 million, while turnover increased by 71.9% q-o-q or 90.7% y-o-y to RM760 million. TChong explained its improved performance as follows:

Overall market shares of NISSAN and UD vehicles for the current quarter is higher at 5.2% compared to 3.8% for 2007. The launch of the all-new Grand Livina in December last year added 3,539 units to 1Q08 sales of 8,582 vehicles. While the all-new Grand Livina gets most of the attention, the Group’s other existing models delivered a robust performance of 5,043 units for 1Q08 compared to 4,287 units previously.

The Group revenue almost doubled in 1Q08. Operating margin, a raw measure of a company’s profitability, increased from 4.9% in 1Q07 to 9.2% by 1Q08. Net income was RM54.1 million or 8.1sen per share, up 331.0% from a low base in 1Q07, as the higher level of revenue flowed directly through to the bottom line.




In its results announcement, TChong has given an informative account of the improvement in the auto sector:

Total Industry Volume (TIV) of new vehicles in Malaysia for 1Q08 recovered by 24.6% to 130,774 units compared to 104,950 units in the same period last year (source: Malaysian Automotive Association). Compared to the preceding quarter, current quarter’s TIV is 1.4% higher than the TIV for 4Q last year of 128,942 units. The higher registrations in the current quarter are indicative of a resilient consumer and a ready market for new models.


TChong (closed at RM1.98 as at May 28th) is now trading at a trailing PE of 9.4 times (based on its last 4 quarters' EPS totaling 21 sen) or at a P/Book of 1 time (based on its NTA per share of RM1.93 as at 31/3/2008). However, if TChong can maintain its last quarter's profitability, then its full year's EPS could be as high as 32 sen; thus giving it a forward PE of 6.2 times. As such, TChong is deemed inexpensive.

TChong share price is moving in a short-term uptrend, with support at RM1.90. However, the medium-term downtrend line is still capping the rise in its share price. In order to breakout of that downtrend line, TChong need to surpass the RM2.05 level convincingly.


Chart: TChong's daily cahrt as at May 28th, 2008 (source: Quickcharts)

Based on improved performance & attractive valuation, TChong could be a good stock for long-term investment. The share price need to break above the RM2.05 level for a sustainable upside move.

Tuesday, May 27, 2008

Harison- an attractive consumer stock

Harrisons Holdings (Malaysia) Bhd ('Harison') is involved in the marketing, sales & distribution of consumer, engineering, building materials, wines and chemical products and the operation of shipping, insurance & travel agencies.

Harison has just announced its results for 1Q2008 ending 31/3/2008, where its net profit increased by 16.6% q-o-q or 65.2% y-o-y to RM6.4 million. Its turnover increased by 14.0% q-o-q or 18.8% y-o-y to RM272 million. The improved performance is attributable to stronger sales in the Fast Moving Consumer Goods Division (FMCG). The company has also benefited from a small gain of RM614,000 from the disposal of other investment.



Harison (closed at RM1.39 as at May 27th) is now trading at a trailing PE of 4.2 times (based on the last 4 quarters' EPS totaling 33.4 sen) or at a P/Book of 0.44 times (based on NTA per share of RM3.15 as at 31/3/2008). The company pay a dividend of 7.5% in FY2007 & 7.0% in FY2006- giving it a decent dividend yield of 5.2%. At these multiples, Harison is deemed very attractive.

Harison share price movement is rather erratic. For the past 2 years, the stock appears to be in an uptrend (starting from RM0.92 in July 2006) & peaked at RM1.50 in July 2007. Since then, the stock has been drifting lower, with lows of RM1.20 was recorded in February & March 2008. In the recent rebound, the stock appears to have broken above its medium-term downtrend. As such, Harison share price could continue to rise & the stock may re-test its recent high of RM1.50.


Chart: Harison's daily chart as at May 27th, 2008 (source: Tradesignum.com)

Based on attractive valuation & improved performance, Harison could be a good consumer stock to hold for the medium-term.

Imaspro's net profit grew further

As noted in an earlier post (go here), Imaspro is involved in the manufacturing of pesticides and plant micronutrients, distribution and agency of pesticides and other agrochemicals, and trading of pesticides and other agrochemicals.

Imaspro has just announced its results for 3Q2008 ending 31/3/2008. Its net profit increased by 29.0% q-o-q or 81.3% y-o-y to RM5.6 million, while turnover increased by 52.7% q-o-q or 133% y-o-y to RM51.4 million. The company has benefited from increased demand form its overseas customers.



Imaspro (closed at RM1.46 as at May 27th) is now trading at a trailing PE of 7.5 times (based on last 4 quarters' EPS totaling 19.5 sen) or at a P/Book of 1.5 times (based on NTA per share of RM0.98 as at 31/3/2008). With the strong growth experienced in the last 2 quarters, I believe that Imaspro's profitability growth will continue. As such, Imaspro is deemed attractive based on these multiples.

Imaspro share price has broken above its medium-term downtrend line at the RM1.30 level in April. The share price will now encounter the heavily congested area between RM1.50-60 level. If it can surpassed this resistance area, it may re-test its all-time high of RM1.75.


Chart: Imaspro's daily chart as at May 27th, 2008 (source: Tradesignum.com)

Based on strong growth, improving financial performance & attractive valuation, Imaspro is a good stock for medium-term investment.

Proton's turnaround is still a WIP

Proton has just announced its results for FY2008 ending 31/3/2008. For the full year, it recorded a net profit of RM203 million on a turnover of RM5.63 billion. This compared favorably to last year's results, when it incurred a net loss of RM590 million on a turnover of RM4.91 billion.

For 4Q2008, Proton's net profit jumped 22 times q-o-q or 257 times y-o-y to RM236 million, while turnover increased by 18.5% q-o-q or 37.3% y-o-y to RM1.72 billion. The higher turnover is attributable to higher sale volume from newly-launched models, such Saga & Persona. The increased profitability was attributable significantly by 2 non-operational items, i.e. income of RM32 million from sale of rights for use of Intellectual Property Rights ('IPR') [which is the Jinhua Youngman Europestar RCR deal involving the re-badging of the left-hand drive Proton GEN2's in China] as well as recognition of R&D grants of RM194 million from the government under the National Autimotive Policy ('NAP'). If these 2 items are excluded, Proton would incur a pre-tax loss of RM23 million for FY2008.

While Proton may not record another sale of IPR rights, it may receive further R&D grants under the NAP. This grant is disbursed according to the amount spent, as well as the area of expenditure. For example, every dollar spent on R&D activities would qualify for a 50 cent grant. Proton, which is currently working on an MPV model, may receive similar grant in the current financial year, which is intended to defray its R&D expenditure.

Looking at the increased sale in the last 3 quarters, Proton's turnover has been boosted by sales of its newly-launched Saga & Persona models. There is a good chance that Proton's sale will continue to improve & the company may record an operating profit for this year.



From the chart below, we can see that Proton is trading in the range of RM3.50 & 4.50 in the past 6 months. Proton share price is still in a long-term downtrend, since it peaked in February 1997 at RM17.20.


Chart: Proton's monthly chart as at May 26, 2008 (source: Quickcharts)

Despite increased turnover, Proton's operating results are still disappointing. Technical outlook is still bearish. In my opinion, Proton is going to underperform the market.

Hume's net profit jumped

Hume has just reported its results for 3Q2008 ending 31/3/2008. Its net profit jumped by 37.5% q-o-q or 215% y-o-y to RM47.2 million while turnover increased by 8.5% q-o-q or 19.0% y-o-y to RM187 million. The big boost to its profitability came mainly from the increase in its Share of Profit of Associates, where the main contributor is its 39%-owned associate, Southern Steel, which is involved in steel production.



Hume (closed at RM4.20 as at May 26th) is now trading at a trailing PE of 5.5 times (based on its last 4 quarters' EPS totaling 77 sen) or at a P/Book of 0.9 times (based on its NTA per share of RM4.20 as at 31/3/2008). At these multiples, Hume is deemed inexpensive.

From the chart below, we can see that Hume's long-term uptrend (starting from November 1998) is being impeded by the medium-term downtrend line (starting from January 2004). Hume need to break above the latter at RM4.60 in order to revisit its all-time high of RM5.60.


Chart: Hume's monthly chart as at May 26, 2008 (source: Quickcharts)

Based on attractive valuation, Hume could be a good stock for medium-term investment.

Allianz returned to profitability

Allianz has just announced its results for 1Q2008 ending 31/3/2008. It reported a net profit of RM17.7 million on a turnover of RM398.8 million. This compared favorably to the results of the immediately preceding quarter, where it incurred a loss of RM35.4 million on the back of a much higher turnover of RM489.9 million. When compared to the same quarter last year, net profit increased by almost 5 folds while turnover was 44% higher.

The y-o-y improvement was attributable to strong organic growth as well as contribution from newly-acquired CAB. The turnaround from a net loss in 4Q2007 to a net profit in 1Q2008 was due to higher pre-tax profit of RM30.5 million (due to improvement in underwriting profit) as well as exceptional items incurred previously (such as a one-off integration cost of RM15.9 million for voluntary separation scheme, impairment & write-off of assets & branch relocation exercise, plus higher claims incurred & provision for bad & doubtful debts, following the alignment of the practices & procedures of CAB & the group).



Allianz (closed at RM3.80 as at May 26th) is now trading at a forward PE of 8.3 times (based on annualized EPS of 46 sen) or at a P/Book of 1.7 times (based on NTA per share of RM2.19). At these multiples, Allianz is deemed very attractive.

Chartwise, Allianz has now broken to the upside of its downtrend line. While the share has weakened a bit over the past few days, I believe that it will find buying supports at the horizontal support level of RM3.60.


Chart: Allianz's daily chart as at May 26, 2008 (source: Quickcharts)

Based on attractive valuation & good technical outlook, Allianz is a good pick for long-term investment.

Monday, May 26, 2008

Equity markets rocked by Oil's sharp rise

Equity markets, which rallied strongly off their March low, have been showing signs of weakness for the past two weeks. Some analysts believe that the current rally, which could be just a bear rally, may have peaked & is due for a correction. One of the main reason for the current market's correction is the sharp rise in the price of crude oil.

Jim Cramer, a columnist with the Street.com, cautioned equity investors to be patient. In his latest article entitled "Lower Oil is the Bull's Only Hope", he wrote: "So we wait, and watch the market go down until oil has a price break. Because there is no way you can mount a serious rally with these price increases (in Crude Oil)."


Chart 1: Crude Oil chart as at May 23, 2008 (courtesy of SuperCharts by Omega Research)

Below, I have presented the charts of our market, Dow Jones Industrial, London's FTSE, Hong Kong's HSI & Singapore's STI. We can see that all these indices, with the exception of our KLSE, had already made a lower 'low' compared to the preceding 'low', recorded in early May. Today, our KLCI has joined these other markets & recorded a lower 'low' as well. There is a serious possibility that equity markets may see a big selloff if the price of crude oil were continued in its present trend & hit the psychological USD140 or USD150 level.


Chart 2: KLCI's daily chart as at May 23, 2008 (source: Quickcharts)



Chart 3: DJI's daily chart as at May 23, 2008 (source: Yahoo Finance)



Chart 4: FTSE's daily chart as at May 23, 2008 (source: Yahoo Finance)



Chart 5: HSI's daily chart as at May 23, 2008 (source: Yahoo Finance)



Chart 6: STI's daily chart as at May 23, 2008 (source: Yahoo Finance)

Choo Bee's net profit soared

Background

Choo Bee is involved in the manufacturing of flat based steel products and trading in a comprehensive range of flat and long based steel products such as structural steel and building materials. The Group also manufactures flat based stainless steel products and provides steel servicing, a pre-production service to customers with products that have steel as a component such as shearing of sheets and slitting of coils.

Recent Financial Performance

Choo Bee has just announced its results for 1Q2008 ending 31/3/2008. Its net profit soared by 103% q-o-q or 142% y-o-y to RM16.3 million while turnover increased by 21.3% q-o-q or 51.9% y-o-y to RM155.9 million. The improve performance was attributable to improved margins and higher volume sold.



Valuation

Choo Bee (closed at RM2.12 on May 23rd) is now trading at a trailing PE of 6.1 times (based on last 4 quarters' EPS totaling 35 sen) or at a P/Book of 0.65 times (based on NTA per share of RM3.28 as at 31/3/2008). At these multiples, Choo Bee is deemed very attractive.

Technical Outlook

The share price is moving in a very gradual uptrend line, with support at RM2.00. Horizontal supports are at RM2.10 & thereafter at RM1.90, while horizontal resistance are at RM2.30 & RM2.50.


Chart: Choo Bee's weekly chart as at May 23, 2008 (source: Quickcharts)

Conclusion

Based on the bright outlook for the steel sector, Choo Bee's improving financial performance, attractive valuation & good technical picture, Choo Bee is a good investment for medium- & longer-term.

Friday, May 23, 2008

Tranmil's debt restructuring exercise

Tranmil has proposed a debt restructuring scheme in which it offers to issue 243.818 million ordinary shares in exchange for the debt outstanding totaling RM536.3 million as at May 19th. The share will be valued at RM2.20, i.e. at a premium of 22.91% & 8.37% to the 5-day volume-weighted average market price ('VWAMP') and 1-month VWAMP of Tranmil shares up to May 2nd, respectively.

The impact on the Balance Sheet of this exercise (assuming full acceptance) will be to increase Tranmil's share capital from RM270.118 million to RM513.936 million; increase its NTA per share from RM1.57 to RM1.87; and, reduce its gearing from 1.87 times to a negligible level. On the P&L account, Tranmil could save on interest cost, which totaled RM9.32 million for the 1Q2008 ending 31/3/2008. This saving could help to reduce Tranmil's losses, which amounted to RM47.75 million in that quarter. As such, this restructuring scheme will only buy more time for Tranmil while its management works on a viable turnaround of the company. Most analysts are not convinced that Tranmil can survive under the current business model.

Chartwise, the share price of Tranmil is still in a downtrend line, with resistance at RM1.70-73 level. A breakout above this downtrend line could potentially send the share price to RM1.90-2.00. At this level, debtors could be encouraged to convert their debts to shares. I do not see how they could subsequently realize the moneys tied down in the shares issued in exchange for their debts. I expect the subsequent selldown of these shares to be ferocious.


Chart: Tranmil's daily chart as at May 22, 2008 (source: Quickcharts)

YTLPower nearing its long-term uptrend line

On May 5th, I have posted about the rally in the share price of YTLPower (go here). This coincided with the issuance of a 10-year warrant on the basis of 1 warrant for every 3 shares held, at an exercise price of RM1.25 (or, at a discount of 48.8% to the 5-day weighted average market price of YTLPower share on price fixing date). The offer of such an attractive warrant created a sudden surge in demand for the stock, leading to a rally in YTLPower share price. I believe that the increased demand came mostly from retail players, who were either not aware of the adjustment in the share price after the entitlement has lapsed or thought that they could be safe due to the operation of the Bigger Fool Theory. Whatever it is, we have now passed the entitlement date & are witnessing an adjustment in the share price.

In my earlier post, I have attempted to value the share & the warrant and arrived at a theoretical ex-right value for the share of RM2.20 & an estimated warrant price of RM1.39 (which includes a conversion premium of 20%).

The right for this new warrant started trading in the market on May 21st. After 2 days of trading, that warrant right has dropped to RM0.65 as at yesterday. This valued the warrant at RM0.75 (i.e. the price of the warrant right plus the subscription cost of RM0.10 per warrant). The share has in turn dropped to RM2.15 as at yesterday. Those who bought 3 shares at RM2.66 on the last day of the entitlement (i.e. May 12th) would have suffered a setback of RM0.88 {[(2.15 x3) + 0.65] - [2.66 x 3]}.

Before we go any further, I must say that the trading of the warrant right for 5 business days, started on May 21st & ending on May 28th, is not a good gauge of the value of the warrant or the share. This trading of any entitlement right is intended for shareholders, who do not wish to subscribe for their entitlement, to dispose of their rights. In a quiet & volatile market (like now), there is a high probability that supply may overwhelm demand, leading to a drop in the warrant right price beyond its fair value. At some point, arbitraging would come into play, leading to a drop in the share price. Thus, a vicious circle would set in. Our interest is to ascertain whether the warrant right price or the share price had dropped to a level worth considering.

Assuming that a person were to buy 3 shares at RM2.66 (the closing price on the last cum date), he would be entitled to subscribe for 1 warrant at RM0.10. If he were to convert his warrant immediately to share by paying RM1.25, he would end up with 4 shares (original 3 shares plus the new 1 share) at a total cost of RM9.33 [(2.66 x 3) + 0.10 + 1.25]. Thus, his shares will cost RM2.33 apiece. Now, another person buying the 3 shares at the same time might choose to exercise his warrant conversion to share at the end of the 10-year maturity period. The net present value of the exercise price would be RM0.48 (based on a discount rate of 10%). As such, his 4 "shares" would cost RM8.56 [(2.66 x 3) + 0.10 + 0.48], or RM2.14 apiece. So, the theoretical value of the share could range from RM2.14 to RM2.33.

Based on this price range for the share, the value of warrant would be RM0.89-1.08 (without any conversion premium), or RM1.32-1.51 [with any conversion premium of 20% (say, RM0.43)]. The warrant right would then be trading at RM0.79-0.98 (without factoring in conversion premium).

As such, YTLPower share & the warrant right are fairly attractive at the present price of RM2.14 & RM0.685 (as at 9.30 am).

Finally, the long-term uptrend line support for YTLPower is at RM2.00. As such, the downside risk is not high.

Chart: YTLPower's monthly chart as at May 22, 2008 (source: Quickcharts)

Thursday, May 22, 2008

Maybulk's topline & bottomline dropped

Maybulk has just announced its results for 1Q2008 ending 31/3/2008. Its net profit dropped 40.9% q-o-q or 35.8% y-o-y to RM92.3 million while its turnover dropped 5.5% q-o-q, but increased 68.0% y-o-y to RM180.5 million.



The poorer results is mainly due to the following factors:
  1. there was no exceptional gain from sale of vessels in 1Q2008 as compared to a gain of RM33.9 million in 4Q2007 or RM74.0 million in same quarter last year;
  2. it provided RM20.2 million for diminution in value of its quoted equity investment for 1Q2008 as compared to a gain of RM23.8 million booked in for 4Q2007; and
  3. Its turnover declined 5.5% q-o-q due to
  • a 18.9%-drop in the average Hire Days for its Product Tankers, which more than offset the 13.2%-increase in the average Time Chartered Equivalent ('TCE') rates for the Product Tankers.
  • a 4.7%-drop in the average TCE rates for its Dry Bulks Carriers, which more than off set the 3.4%-increase in the average Hire Days for the Dry Bulks Carriers



Market Outlook

From Chart 1 below, we can see that the rates for Dry Bulks, Dirty Tankers & Clean Tankers are on the rise for the past 4-5 months. They have risen to a level, either matching or nearly matching, the high recorded in 2007. These rates may not sustain if the growth of the global economy were to suffer due to slowdown in the US economy.


Chart 1: The 3-year Chart of BDI, BDTI & BCTI rates up to 21/5/2008 (source: Capital Link Shipping)

Valuation

Based on the past 4-quarters' EPS of 49 sen, Maybulk (closed at RM4.38 yesterday) is currently trading at a trailing PE of 8.9 times. At this multiple, Maybulk is still attractive.

Technical Outlook

Maybulk is still in an uptrend line, with support at RM3.90-4.00.


Chart 2: Maybulk's weekly chart as at May 21, 2008 (source: Quickcharts)

Conclusion

In view of the current high shipping rates, I believe Maybulk's financial performance could rebound. The stock is trading at an attractive multiple & the technical outlook is still positive. As such, I think Maybulk share price may still have further upside.

ENG's profit & sale improved further

Background

Eng Technologi Holdings Bhd ('ENG') is involved in the manufacture of hard drive. The company, which grew on the back of rapid expansion of global demand for data storage, suffered serious setback in 2007 when it lost one of its major customers in China. The results for the past 3 quarters indicate that ENG may have finally rebounded from that setback.

Recent Financial Results

ENG has announced its results for 1Q2008 ending 31/3/2008. Its net profit dropped 12.4% q-o-q from RM12.7 million to RM11.2 million while turnover increased 5.8% from RM150.4 million to RM159.1 million. The lower net profit was attributable to higher effective tax rate for QE31/3/2008, which in turn was due to different tax treatment accorded to incomes in different countries. Nevertheless, it is noted that its pre-tax profit has increased for the same periods from RM14.9 million to RM17.8 million.



Valuation

If ENG can maintain its profitability as reported in the last 2 quarters, the it may achieve a full year EPS of 40 sen. As at yesterday's close of RM1.55, ENG is trading at a forward PE fg 3.9 times. Its P/Book is at 0.9 times (based on NTA per share of RM1.68 as at 31/3/2008).

Others

ENG had earlier proposed a First & Final Dividend of 9 sen (tax exempt) which will go 'ex' on June 5th. This gives the share a decent dividend yield of 5.8%.

Technical Outlook

The weekly chart shows that ENG may have broken to the upside of its medium-term downtrend line at RM1.50. The stock has a good horizontal support at RM1.50 & RM1.25.


Chart: ENGs weekly chart as at May 21, 2008 (source: Quickcharts)

Conclusion

Based on improving performance, attractive valuation & bullish technical outlook, ENG is a good investment for medium-term.

Wednesday, May 21, 2008

Market's upside move hanging by a thread

Our market's upside move, which has never been very impressive in the best of times, might have taken a fatal blow. The current move- in the shape of a bearish wedge- was inching toward its recent high of 1305, recorded on April 29th. However, the market did not take too kindly to the fresh political uncertainties brought on the weekend news of Dr. M's resignation from UMNO.

From the chart, we can see that the KLCI has just broken below the wedge yesterday. This morning, the KLCI dropped more than 8 points to hit a low of 1279, before recovering. The drop could be attributable to DOW's overnight drop of 199 points. As at 11.30 am, the KLCI is up about 1 point at 1288. Losers outnumbered gainers 298 to 155.

If the KLCI could recover above the 1300 level over the next day or two, the current market upleg may be intact. On the other hand, if the KLCI were to drop below 1271, the low recorded on May 5th, then a new short-term downtrend could have set in. The market is now at a crossroad.


Chart: KLCI's daily chart as at May 20, 2008 (source: Quickcharts)

Jobst's net profit on track

Background

Jobstreet Corporation Bhd ('Jobst') is involved in the provision of interactive recruitment services. It operates in Malaysia, Singapore, the Philippines, Bangladesh, Indonesia and Japan. In addition, it also has associates operating in Hong Kong & Singapore as well as operating via a joint-controlled entity in India.

Recent Financial Results

On Monday, the company announced its results for 1Q2008 ending 31/3/2008. Its net profit increased by 56.2% q-o-q or 75.4% y-o-y to RM10.4 million, while turnover increased by 12.2% q-o-q or 41.0% y-o-y to RM25.3 million. The improved net profit was attributable to higher gross profit margin due to higher revenue contribution from JobStreet ESSENTIAL. This compared to a drop in net profit for 4Q2007 ending 31/12/2007, which was due to the following factors:
  1. Lower gross profit margins due to higher revenues from contracting staff services from JobStreet Japan and lower JobStreet ESSENTIAL sales;
  2. Higher staff costs;
  3. Withholding tax on inter-company dividends from JobStreet.com Philippines, Inc;
  4. Impairment loss on goodwill related to JobStreet.com India Pvt Limited and Blurbme Holdings Pte Ltd; and
  5. Provisions for diminution in value of investment in quoted securities.


Note: Jobstreet had a bonus issue of 2-for-1 & a share consolidation of 2-to-1 in December 2007.

Valuation

Jobst (closed at RM1.72 yesterday) is now trading at a trailing PE of 15.8 times (based on the last 4-quarters' EPS totaling 10.9 sen) or at P/Book of 5.5 times (based on a NTA per share of RM0.31 as at 31/3/2008). At these multiples, Jobst may be deemed fairly priced. However, it is noted that Jobst has a strong growth track record. For example, the last 4-quarters' net profit grew by 43% over the preceding 4-quarters. Based on this growth rate, we can compute Jobst's PEG (or, PE/Annual Growth Rate) to be 0.37. A company with a PEG of 0.37 is considered very attractive. To learn more about PEG ratio, please go here.

Technical Outlook

From the charts below, we can see that Jobst is in a uptrend channel. The stock will have buying supports at RM1.50 & may come under selling pressure at RM1.90-2.00.


Chart 1: Jobst's weekly chart as at May 20, 2008 (source: Quickcharts)


Chart 2: Jobst's monthly chart as at May 20, 2008 (source: Quickcharts)

Conclusion

Jobst is deemed a good investment for long-term. Since my first post in December 2006, the stock has gained 50% (go here) and I believe the best is yet to come.