Jerneh's financial performance has recovered in the past two quarters due to writeback of provision for diminution in value of investment and an increase in investment income and lower share of losses from associate companies (such as its JV insurance business in Thailand & the Philippines; its new start-up takaful insurance JV with HSBC; and, its fund management associate, Areca Capital Sdn Bhd).
For QE30/9/2009, Jerneh's net profit increased by 34% q-o-q to RM14.2 million on the back of a 2.6%-increase in turnover to RM68.7 million. Compared to QE30/9/2008, Jerneh has returned to profitability from a small loss of RM0.5 million previously, and an increase in turnover of 19.5%.
Table 1: Jerneh's 8 quarterly results
Chart 1: Jerneh's 11 quarterly results
It will not be easy for Jerneh to maintain the same level of profitability recorded in the past two quarters. Its bottom-line has undoubtedly benefited from the sharp recovery in the stock markets, which may not recur.
Valuation
If we assumed that Jerneh's performance over the past two quarters are "exceptional" i.e. benefiting from write-backs & difficult-to-recur big gains, then the appropriate full-year EPS to use for computing PE multiple is the last 4 quarters' EPS of 8.56 sen. Based on this & Jerneh's closing price of RM1.34 in the morning session, we can compute the PE multiple of 15 times. At this multiple, Jerneh is deemed fairly valued.
Technical Outlook
Jerneh broke above its medium-term downtrend line at RM1.15 in May. It is now in a short-term uptrend line, with support at RM1.30.
Chart 2: Jerneh's weekly chart as at Nov 18, 2009 (Source: Quickcharts)
Conclusion/Comments
While Jerneh may be trading near its fair value, one can still hold onto this stock as it is still in a short-term uptrend. However, we need to track it carefully & act quickly in the event that it breaks below the uptrend line.
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