Lonbisc- an attractive consumer stock

Background

London Biscuit Bhd ("Lonbisc") is involved in the manufacture & sale of confectionery and other related foodstuffs.

Lonbisc has a 23.49%-stake in Lay Hong Bhd, a listed company involved in poultry farming. The rationale for the acquisition is to gain control and ownership of a major supplier to ensure adequate, regular and continuous supply of liquid eggs at "controlled prices" to meet its ongoing expansion plans. In addition, Lonbisc has a 32.97% in Khee San Berhad, another listed company, which is engaged in dealing and manufacturing of sweets and confectionery products.

Recent Financial Results

Lonbisc reported a good set of results for QE30/62009. Its net profit increased by 47% q-o-q or 112% y-o-y to RM6.7 million while turnover was up 15% q-o-q or 37% y-o-y to RM55 million. The increased turnover was attributable to the incorporation of the turnover of its associate, Khee San Berhad into Lonbisc's P&L account. This also helped to boost Lonbisc's steady top-line growth (see Chart 1 below).


Table 1: Lonbisc's 8 quarterly results


Chart 1: lonbisc's 18 quarterly results

Valuation

If Lonbisc can maintain the same results as achieved in QE30/6/2009, then its full year EPS can be as high as 34 sen (derived by annualizing its EPS of 8.58 sen for QE30/6/2009). Lonbisc (closed at RM1.10 today) is trading at a trailing PE of 3.2 times. Its Price to Book is also very attractive at 0.5 times (based on NTA per share of RM2.23 as at 30/6/2009). All in all, Lonbisc is an attractive consumer stock worth considering.

Technical Outlook

Lonbisc is still in a long-term downtrend line, with resistance at RM1.30-35 (based on the weekly chart, Chart 2). The share price is rising in a short-term upward channel, with support at RM1.00 (see the daily chart, Chart 3).


Chart 2: Lonbisc's weekly chart as at Oct 20, 2009 (Source: Quickcharts)


Chart 3: Lonbisc's daily chart as at Oct 20, 2009 (Source: Quickcharts)

Conclusion

Lonbisc is an attractive consumer stock worth tracking. For those with a long-term investment horizon, you may accumulate this stock now (or, preferably at RM1.00 level). Trading BUY may be initiated if the stock broke above the downtrend line at RM1.30-35.