A Tale of Three Stocks

Three stocks suffered from different problems, emanating from Dubai. The three stocks are LCL, UEMLand & Etitech.

1. LCL

LCL is principally involved in interior fit-out industries, with significant exposure to the Middle East (especially, Dubai). Based on its results for 9-month ended 30/9/2009, LCL incurred a net loss of RM58.6 million on a sale of RM243.7 million. As at 30/9/2009, its current ratio stood at 1.24 times but its gearing ratio stood at an alarming 4.7 times. Its Shareholders' Funds stood at RM82.2 million. This amount may be wiped out if it has to provide for possible losses on some of its debts totaling RM375 million (amount owing by employers based in Dubai is unknown). Some reports indicates that bankers may have to take haircuts of 40-50% for loans granted to Nakheel group (go here). How much would LCL lose?

From the daily chart (Chart 1), we can see LCL has broken below its March low of RM0.32 this morning. The cause of the today selldown is LCL's announcement yesterday of a Default in Payments of Credit Facilities totaling RM72 million by the its subsidiary, LCL Furniture Sdn Bhd- 96% of which is owing to Affin Bank Bhd. To be on the safe side, it is advisable to avoid LCL.


Chart 1: LCL's daily chart as at Dec 11, 2009_12.30pm (Source: Quickcharts)

2. UEMLand

UEMLand is principally involved in property development & investment. Its flagship development is Nusajaya, with an enormous strategic land bank of 4500 acres in Iskandar Malaysia. How is UEMLand affected by Dubai?

One of Dubai’s largest private developers, Damac Properties has committed to purchase a 43.5-acre land in Nusajaya from UEM Land for RM397 million for development purposes in June last year (go here). In April, there were some reports that Damac did not pay a local service vendor for work done. While the Damac investment may look dicey at this moment, the Nusajaya development would not suffer any losses. If there is any losses, it will be psychological as investors would begin to doubt the viability of Nusajaya as they will equate it to The Palm Jumeirah of Dubai. I believe such comparison is misplaced & the negative perception will blow over.

Based on its results for 9-month ended 30/9/2009, UEMLand recorded a net profit of RM10.7 million on a sale of RM198.0 million. As at 30/9/2009, its current ratio stood at 2.74 times but its gearing ratio stood at 0.34 times. As such, its financial position is deemed satisfactory. Based on annualized EPS of 0.6 sen & NTA per share of RM0.59, UEMLand (closed at RM1.49 yesterday) is deemed overvalued as it trades at a PE of 248 times or at Price to Book of 2.5 times.

From Chart 2, we can see that UEMLand has broken to the downside of a symmetrical triangle as well as the strong horizontal line of RM1.50. Its next support is at RM1.40 or RM1.30. While the stock's near-term outlook may be bearish, I think its downside will be limited.


Chart 2: UEMLand's daily chart as at Dec 11, 2009_12.30pm (Source: Quickcharts)

3. Etitech

Etitech is principally involved in the research and development of intelligent battery management systems for rechargeable energy storage solutions using polymer lithium-ion based energy cells for various electronic applications that require light-weight, high-powered rechargeable energy solutions in the telecommunications, healthcare, power utilities, aero models and robotics industries.

Based on its FYE 31/8/2009, Etitech recorded a net profit of RM20.1 million on a sale of RM83.1 million. As at 31/8/2009, its current ratio stood at 6.6 times but its gearing ratio stood at 0.10 times only. As such, its financial position is deemed satisfactory. Based on EPS of 3.0 sen for FYE 31/8/2009 & NTA per share of RM0.40, Etitech (at RM0.46 now) is trading at a PE of 15.6 times or at Price to Book of 1.2 times. As such, Etitech is trading near its fair value.

Etitech's share price has been sliding due to the steady selling carried out by one of its major shareholders, Emirates Investment & Development ('Emirates') which had a 15%-stake in the company. Based on the last filing in Bursa (dated November 11), Emirates' stake has been reduced to 11.21%.

From 60-minute chart (Chart 3), we can see that Etitech broke its recent low of RM0.46 this morning & made a new low of RM0.455. The stock needs to stay at or above the RM0.46 level, failing which we can expect further downside.


Chart 3: Etitech's 60-min chart as at Dec 11, 2009_12.30pm (Source: Quickcharts)

In conclusion, we must avoid LCL due to its financial distress and extremely bearish technical outlook. While UEMLand & Etitech are not in the same leaky boat as LCL, I do not see any urgent need to jump into these stocks now.