Ingress to test the strong resistance at RM0.90?

On September 17, Ingress announced that its 70% subsidiary, Ingress Technologies Sdn Bhd (ITSB) has won a RM196 million contract from Perodua Manufacturing Sdn Bhd (PMSB) for the supply of components comprising rear modules, door surrounding modules and fuel lids to PMSB for the new model starting in the first half of the financial year ending Jan 31, 2012, for five years. The investment in equipment and toolings for this project was estimated to total RM17.7 million.

Following the announcement, Ingress' share price broke to the upside of its symmetrical triangle formation at the RM0.40 on the same day. We still saw Ingress made a high of RM0.815 this morning- four days after the aforesaid announcement. How much profit can the PMSB project contribute? Based on a gross profit margin of 14% (as per its quarterly results for QE31/7/2009), we can expect a profit contribution of RM28 million over five years or RM5.6 million per annum. With generous tax incentive available, I believe that the whole amount could be added to the net profit; thus adding 7.3 sen to its EPS.

However, Ingress' results for FY2008 & FY2007 are fairly disappointing as it had recorded net losses of RM40 million & RM11 million, respectively. The huge net loss for FY2008 was attributable to write-down of RM45.6 million in the Automotive division due to a change in depreciation methods & impairment of tooling equipment in order to comply with FRS 108. In addition, its Other division also wrote off RM9.8 million for provision for bad debts & impairment of equipment. Ingress' 1H2010 results is more encouraging as it reported a net profit of RM3.5 million- giving a 6-mth EPS of 4.6 sen or a full-year EPS of 9.2 sen. Thus, Ingress (closed at RM0.81 at the end of the morning session) is now trading at PE of 8.8 times. This is fair value for stock in the Automotive sector. For example, Tan Chong which closed at RM2.10 this morning, is now trading at 9 times its annualized EPS 23.2 sen. Many would prefer Tan Chong to Ingress since they are both trading at the same PE multiple.


Chart 1: Ingress' daily chart as at Sept 24, 2009_11.00am (Source: Quickcharts)

From the weekly chart, Ingress' upside will be severely tested soon as it approaches the horizontal resistance at RM0.90 & thereafter at RM1.10 & RM1.30. It is advisable to take some profit at the RM0.90 level.


Chart 2: Ingress' weekly chart as at Sept 24, 2009_11.00am (Source: Quickcharts)