Daibochi Plastic & Packaging Industry Bhd ('Daiboci') is involved in the production packaging materials for many applications such as food, beverage, FMCG, pharmaceutical and industrial uses.
Strong Rally in Share Price
Daiboci has rallied from a low of RM0.50 in March last year to a recent high of RM3.30 on Jan 26. The basis for this strong rally is Daiboci's improved financial performance. Is the recent improved financial performance sustainable? Or, is it an exceptional fortuitous period for Daiboci which is difficult to sustain?
Historical Financial Results
I have appended Daiboci's top-line & bottom-line for the past 10 years. While the estimated pre-tax profit for the current year (FYE Dec2009) is sharply higher than the preceding 5 years, Daiboci's top-line has risen very little in the past 4 years. So, the increased bottom-line for FYE Dec2009 is not due to increased business volume, but higher profit margin. How did this come about? Is this a result of higher selling prices? Is it a result of lower input cost? It may not be significant whichever one is the answer because in the commercial world, exceptional profit margin seldom persist for long.
Table 1: Daiboci's last 10 years' results
Chart 1: Daiboci's last 10 years
Recent Financial Results
Daiboci's top-line & bottom-line has been flattish in the last 3 quarterly results (QE31/3/2009 to QE30/9/2009). In fact, its top-line took a dip in QE30/9/2009. It would be interesting to see Daiboci's results for QE31/12/2009, which is expected to be released in mid-February. Unless a very convincing set of results is issued, I believe the rally in Daiboci would end abruptly.
Table 2: Perstima's last 8 quarterly results
Chart 2: Daiboci's last 8 quarterly results
Technical Outlook
I have appended Daiboci's weekly chart from 1992 until today. You can see that Daiboci is now deep in the overbought zone (look at RSI & Slow Stochastic indicators). In the past, Daiboci had similar sharp run-ups which ended very unpleasantly.
Chart 3: Daiboci's weekly chart as at Jan 28, 2010 (Source: Tradesignum)
Conclusion
Based on the extreme overbought condition & doubts as to the sustainability of Daiboci's current profitability, I would recommend profit-taking on this stock.
12 comments:
Mr Alex. Thank you for pointing out the hype in Daibochi. CIMB is promoting the company together with Tomypak. There could be a syndicate involved ina ramping the share.
By the way, Kenanga Research is very keen on Daibochi. But Kenanga was keen on LCL last year & Memstech before that. Of course not that Daibochi is in that league.
By the way, Kenanga Research is very keen on Daibochi. But Kenanga was keen on LCL last year & Memstech before that. Of course not that Daibochi is in that league.
dear alex..
could you comments about maybank in current situation...whether to keep or sell this stock?
hi-alex!!
its-all-bad-news-for-commodities.....
anyhow-wanna-know-valuations-for-klc??
will-klc-get-support-near-2450//or-there-is-a-further-dowmside-in-feb??
plz-reply..........
Shahriz, while u are concerning about maybank, I am more interested in recent proposed merge and acquisition in the local banking sector.
Good day Alex,
Can u pls write some review on the matter that HLB and Mulpha proposed to buy over EONCAP, and about the selling of Muamalat bank stakes by DRB.
What are the pricing they might give to succed the deals?
Hi Ronnie,
I know that CIMB & Kenanga have been fairly bullish on Daiboci & Tomypak, but I feel that these stocks are overpriced at the current level & that their recent improved bottom-line may not sustain. I had looked at Daiboci's recent & historical results in this post.
I had just looked through Tomypak's Income Statements for the last 10 quarters, where the same pattern is noticeable, which is a jump in bottom-line in the last 4 quarters without any significant rise in the top-line (which seems to swing between RM35 million & RM53 million per quarter over the past 10 quarters). On weakness, Tomypak may pullback to close its recent gap at RM2.30, which would be immediate support level. A break below the RM2.30 level could send Tomypak to its next horizontal support levels at RM1.90-2.00 & thereafter at RM1.60-1.70.
Hi prashant,
The current weakness in commodities is due to a strong rebound in US Dollar (USD). The last time the USD had a similar bullish breakout was in August 2008 when it rose about 20% over a period of 4-6 months before topping out. A rise in USD could cause an unwinding of USD carry trade- thus a selloff in many classes of risk assets, including commodities.
Hi Shahriz,
I am positive on Maybank for the current financial year (FYE June 2010) after its massive provisioning exercise in the final quarter of FYE June 2009. However in the current environment, Maybank is likely to drift lower, possibly testing its 200-day SMA line at about RM6.30. If you have a large position, you may want to reduce the position a bit. Alternatively,you can do a "trading SELL", i.e. sell the stock now & buy it back hopefully at a lower price at a later date.
Hi Kenny,
I would look into your query later. There is not enough information available now for a good analysis.
Hi Alex. Can u please comment on AFFIN ? It look like forming a break-out to hit RM3.00. How u think ??
Hi Wong,
Affin is trapped in a triangle formation. An upside breakout at RM2.60 could be the start of the next upleg, which could potentially reach RM2.90-3.00. So far, we are still waiting for the bullish breakout which has not happened yet.
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