Success- a good long-term BUY

Background

Success Transformer Corp Bhd ('Success') is involved in in the manufacture and sale of electrical apparatus and industrial lighting; the production and sale of metal products (focusing on metal stamping parts and metal casings); manufacture and fabrication of process equipment (such as unfired pressure vessels, heat exchangers, tanks, and silos) & other machinery and parts (including mechanical works, maintenance services, and shutdown works); and hiring and servicing of machinery equipment.

Recent Financial results

Success has just announced its results for 1Q2009 ended 31/3/2009. Its net profit increased by 12.3% q-o-q or 19.5% y-o-y to RM6.1 million while its turnover increased by 8.0% q-o-q or 6.6% y-o-y to RM45.5 million. The improved performance of 1Q2009 vis-a-vis 4Q2008 was attributed to higher sales of process equipment, while the improvement over 1Q2008 was also partly due to higher sales of process equipment as well as additional contribution from Seremban Engineering Sdn Bhd (after Success bought out the remaining 40%-stake in April 2008).



Financial Position

Success' financial position as at 31/3/2009 is very healthy, with current ratio at 2.2 times and gearing ratio at 0.3 times.

Valuation

Success (closed at RM0.81 yesterday, but presently at RM0.865 as at 10.30 am) is trading at a trailing PE of 3.9 times (based on last 4 quarters' EPS totaling 21 sen). At this multiple, Success is an attractive stock.

Technical Outlook

Since hitting a low of RM0.60 in December last year, Success has been inching up slowly. From the weekly chart, we can see that this stock is still in a medium-term downtrend, until it can break above the overhead resistance at RM0.92.


Chart 1: Success' daily chart as at May 25, 2009 (Source: Quickcharts)


Chart 2: Success' weekly chart as at May 25, 2009 (Source: Quickcharts)

Conclusion

Based on good financial performance & position, Success is a good stock for long-term investment. However, its technical outlook has not turned positive yet as its medium-term downtrend is still intact. Good entry level is at RM0.75 (near its 50-day SMA line).