Shang may have a bullish breakout

Background

Shangri-La Hotels (M) Bhd ['Shang'] is involved in the hotel operation & property investment. It owns 3 resorts, i.e. the Rasa Sayang Resort & Golden Sands Resort in Penang and the Rasa Ria resort in Kota Kinabalu, Sabah as well as 2 hotels, i.e. Shangri-La Hotel Kuala Lumpur and Traders Hotel Penang. For its property investment, it owns the UBN Tower which is located next to Shangri-La Hotel Kuala Lumpur.

Recent Financial results

For QE31/12/2009, Shang's net profit increased by 69% y-o-y to RM9.4 million on the back of a 6%-increase in turnover to RM105 million. Compared to QE30/9/2009, its net profit was lower by 26% despite a 13%-increase in turnover.


Table: Shang's last 8 quarterly results


Chart 1: Shang's last 15 quarterly results

Valuation

Shang (closed at RM2.16 on April 28) is now trading at a PER of 22 times (based on annualized EPS of 10 sen). Price to Book is about 1.3 times (based on NTA per share of RM1.70 as at 31/12/2009). At these multiples, Shang is deemed fully valued.

Technical Outlook

Shang broke above its downtrend line at RM1.80 in October last year. It broke above the strong horizontal resistance of RM2.10 today, on thin volume. If it can recruit sufficient buying support, it may go higher. Its next resistance is at RM2.40 & then RM2.60.


Chart 2: Shang's weekly chart as at April 28, 2010 (Source: Quickcharts)

Conclusion

Its financial performance in the past two years has been unexciting & the stock is trading at its fair value. However, Shang could be a trading BUY as the stock has just broken above a strong resistance, albeit on thin volume.