TChong's earlier profit-taking call cancelled

TChong is now trading at RM2.85 as at 10.00 am. This means that the stock has just surpassed the high of RM2.70 recorded on Nov 18. More importantly, it has also surpassed the rising 'horizontal' line connecting the peak or 'high' for this stock since 1993. There are two announcements which could have spurred the sharp rise in the share price:

1) TCIE (Labuan) Pty Ltd, a wholly-owned subsidiary of TCMH, has on 10 December 2009 received a Certificate of Investment dated 7 December 2009 (“Investment Certificate”) from Danang Industrial and Export Processing Zones Authority, Vietnam to establish a wholly-owned subsidiary named TCIE Vietnam Pte Ltd (“TCIE Vietnam”) to undertake the following businesses (“Investment Project”):

(i) Manufacturing and assembly of buses, trucks and passenger cars.
(ii) Sale of buses, trucks and passenger cars produced and/or assembled by TCIE Vietnam.
(iii) Provision of after-sales services for the maintenance and repair of TCIE Vietnam’s products.
(iv) Sale of spare parts for the maintenance and repair of the TCIE Vietnam’s products.

The total investment capital for the Investment Project is USD15.0 million of which USD6.0 million will be capital contribution (charter capital) from TCIE (Labuan) Pty Ltd. The charter capital of USD6.0 million shall be contributed within 24 months from the date of the issuance of the Investment Certificate.

2) Company has incorporated a new subsidiary, TC Utama Sdn Bhd (“TC Utama”) which will have an authorized capital of RM100,000 and an issued and paid-up capital of RM2. Its principal activity will be property holding. Is TC Utama the vehicle set up to undertake the development of its Segambut land?

I think the market is presently reacting to the unexpected Vietnam venture. The Vietnamese market is a huge untapped market which would hold great potential for TChong.

With the bullish upside breakout, TChong share price could potentially go as high as RM5.00-6.00. This target is arrived at by adding the trading range (A) to the breakout point (RM2.80). If we based on a logarithmic chart, the target price could be about RM6.00 (such as the one below). If we used a linear chart, the target price is about RM4.60.

In 1997-98, TChong had a bearish downside breakout where the share price dropped to a low of RM0.42. Using the logarithmic scale, the distance traveled from the point of breakout of RM1.00 (A1) is equivalent to the trading range (A2).


Chart: TChong's weekly chart as at Dec 11, 2009 (Source: Tradesignum)

Based on the above observation, I would withdraw my earlier call to take profit on TChong (go here).

Note: The above chart is plotted on logarithmic scale, while the chart in earlier post was plotted on arithmetic (or, linear) scale.