SEG International Bhd ('SEG') is one of the top performer in our market for the past six months. It rose from RM0.95 (as at 31/12/2009) to a recent high of RM4.75 (on June 24)- chalking up a gain of 500% over a 6-month period!! See Chart 1 below.
Chart 1: SEG's weekly chart as at July 6, 2010 (Source: Tradesignum)
Historical, Recent & Projected Financial Results
What would justify the sharp rise in SEG? A quick look at its last quarterly result for QE31/3/2010 shows a decent improvement in its top-line & bottom-line. Its net profit increased by 42% y-o-y to RM9.5 million on the back of a 35%-increase in turnover to RM55 million. A q-o-q comparison is quite meaningless since SEG is involved in a seasonal business.
Table: SEG's quarterly result for QE31/3/2010 compared
If you assumed that turnover & profits for FY2010 is 35% & 40% higher than that of FY2009, the 10 years financial track record from FY2001-2010 can be tabulated below.
Chart 2: SEG's Actual & Projected Financial Performance for FY2001-2010
Valuation
Based on projected EPS of 17 sen for FY2010, SEG (closed at RM4.52 at the end of the morning session) is now trading at a PER of 27 times. At this PER, SEG is grossly over-valued.
Proposed Share Split, Bonus Issue & Rights Issue of Warrant
SEG has proposed a 1-to-2 Share Split and thereafter a 2-for-5 Bonus Issue. The ex-date for this exercise is on July 12. At this moment, it is not clear whether it will still proceed with the proposed warrant issue (on the basis of 1-for-2 shares held after the Share Split and Bonus Issue). For more, go here. I believe this proposed exercise is the reason why the share price of SEG has been rising so sharply.
Conclusion
Based on high valuation, SEG is expected to underperform in the medium to longer term (after the completion of the Proposed Share Split, Bonus Issue & Rights Issue of Warrant). As such, it would be a good idea to take profit on this stock now.
9 comments:
Dear Alex,
Is GUH a good buy at current price 1.06? Any dividend payout for this co?
Thanks.
Hi Layman,
GUH broke its medium-term uptrend line at RM1.15 in early June. With this, the stock is expected to drift sideway.
Please visit Bursa website to check on the dividend payout.
Dear Alex,
Any news on MMosaic? Price surge with thin volume...
Hi Wilson,
MMosaic broke above the strong horizontal resistance at RM1.40 on June 29. Today, it is trying to break above another strong horizontal resistance at RM1.75-80. These 2 breakouts are achieved on relatively thin volume. Thereafter, MMosaic may challenge its long-term downtrend line resistance at RM1.90.
Another stock which has a nice breakout is Cocoland. This stock broke above the horizontal resistance at RM1.50 on moderate volume on June 16. After surpassing its all-time high of RM1.54 (recorded in January this year), Cocoland is now venturing into new territory. Its next resistance may be the psychological level of RM2.00.
I did not highlight these breakouts because the market was very uncertain in late June. Alas, both stocks have done very well.
Dear Alex,
What do you think of Notion at the current level. It has been staying at 2.9x for about 2 weeks. Do you think it's good to accumulate for the free warrants (1 warrant for every 5 shares from their private placement exercise) that is due to be ex at the month end? Thank you.
Hi David Ng,
From many research reports, you will get a feeling that Notion has bright fundamental outlook. This differs from the cloudy-to-bearish technical picture. Fundamentally, Notion's HDD business is still seeing strong demand. This should sustain its high level of profitability.
Chartwise, the stock made a momentum high of RM3.49 in mid-January followed by a re-test on thinner volume in early-April (hitting a high of RM3.50). Failure to break above the RM3.50 level plus the ensuing correction means that Notion had seen a double top reversal. The stock has however found support at the 200-day SMA line at RM2.50-2.60 in late May. Its subsequent rebound was capped by the resistance posted by the overhead 100-day SMA line at RM3.00-3.05.
Finally, we have a capital raising exercise thrown into the mix. This could only mean that the stock may see increased "demand" which could tip the balance in favor of a near-term rally in the share price. Beyond that we would have to wait & see whether the financial performance has changed sufficiently to alter the technical outlook of this stock.
Hi Alex,
Good day!
When is the best time to enter plantation stock?
For plantation stock, which counter is the most you like?
eg. IOI,GenP.
Thank you.
Heng
Hi Heng
It's hard to tell. We have to wait for the signals from our technical analysis. The cautious-to-bearish outlook is for a period of 3-6 months.
However, some funds managers, analysts & pundits may disagree with this outlook. One such funds manager is Jimmy Rogers who is visiting Malaysia now. The Star newspaper reported that he believed that "investments in selected commodities – particularly agriculture and natural resource-based commodities like rice, wheat, gold silver, platinum and palladium – to remain intact this year". [See the link below]. Who can argue with Jimmy Rogers, the man who made so much money from the sharp rise in commodity prices. You can read more about his shrewd investment strategies by visiting his website (http://jimrogersnews.com/).
http://biz.thestar.com.my/news/story.asp?file=/2010/7/9/business/6630413&sec=business
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