Uchitec may be bottoming

One of the best performer for the past 5 weeks is Uchitec, which rose from a low of RM0.75 as at February 24 to a high of RM1.12 on March 27. A gain of 49% over a period of 1 month! That's why we buy stock. Let's take a closer look at Uchitec.

Recent Financial Results

Uchitec's most recent financial results is for QE31/12/2008, where its net profit dropped by 13.3% q-o-q or 34.0% y-o-y to RM11.0 million while its turnover declined by 3.4% q-o-q or 33.1% y-o-y to RM25.8 million. The drop in profitability is due to lower turnover, which in turn is due to customer's logistics planning restructuring (stemming from European energy-saving directive that will take effect from January 1, 2010). The drop in sales has more than offset the benefit accruing from a depreciation of the Ringgit.



For a clearer picture of Uchitec's recent financial performance, see the chart below. That chart is presented with the earliest quarter (QE31/12/2005) placed on the right-hand side.



Valuation

Uchitec (closed at RM1.07 yesterday) is now trading at a trailing PE of 6.7 times (based on FY2008's EPS of 16 sen). At this multiple, Uchitec is deemed fairly valued.

Technical Outlook

From Chart 1, we can see the strong price run-up for the past 5 weeks. Uchitec had a similar strong price run-up in March-April 2008, when the price rose from RM1.79 to RM2.37. Thereafter, the price moved sideway for 3 months before the downtrend re-commenced in June 2008.


Chart 1: Uchitec's daily chart as at 31/3/2009 (Source: Quickcharts)

From Chart 2, we can see that the March-April 2008 price run-up failed to cross above the 30-week SMA then. Presently, Uchitec is at its 30-week SMA. Can it surpass this level? If it can do so, it may test the 50-week SMA at RM1.30-33 or the horizontal line of RM1.40. The really strong horizontal line resistance is at RM1.75 & RM2.30, which are not likely to be tested any time soon.


Chart 2: Uchitec's weekly chart as at 31/3/2009 (Source: Quickcharts)

Due to the strong price run-up at the end of March, Uchitec's monthly MACD has a positive cross-over. This signals a bottom for Uchitec. Whether this is the start of the new bullish phase is hard to tell. I believe that the bottoming phase will be similar to Uchitec's topping phase in 2006-8.


Chart 3: Uchitec's monthly chart as at 31/3/2009 (Source: Quickcharts)

Conclusion

I believe Uchitec's current up-leg may have run its course. The ensuing consolidation may see the share price trading sideway, between RM0.90-1.10. The catalyst for a re-rating is a reversal in the downtrend in its top-line & bottom-line. We will have to wait for another 2 or 3 quarters before we see the light at the end of the tunnel.