Ogawa- gearing up for a bullish breakout?

Ogawa is involved in designing, marketing, retailing, distributing, and servicing of health care equipment and supplementary appliances. It provides a range of health and wellness equipment comprising various relaxation, therapeutic, fitness, diagnostic, and hygiene products.

Listed in June 2007, Ogawa has been in a downtrend until last month when the stock broke above its downtrend line at RM0.35. The stock is now attempting to break above the horizontal resistance at RM0.45-46. If successful, it may challenge its next resistance at the horizontal line of RM0.51-52. A break above this latter resistance could see the stock sailing up to the horizontal line at RM0.85-90.


Chart 1: Ogawa's weekly chart as at August 18, 2010_9.05am (Source: Quickcharts)

Ogawa's financial performance has turned around this year. For the 9-month ended 31/3/2010, Ogawa recorded a net profit of RM2.2 million on turnover of RM108 million. This compared favorably with last year's 9-month results where it incurred a net loss of RM15.7 million on turnover of RM87 million. Oqawa (closed at RM0.45 yesterday) is now trading at a trailing PER of 19 times or at a Price to Book of 0.9 time (based on NTA per share of RM0.49 as at 31/3/2010). At these multiples, Ogawa is deemed very demanding.

Can Ogawa duplicate the success of its close competitor from Singapore, OSIM? For QE30/6/2010, OSIM reported a net profit of S$12.1 million (a y-o-y increase of 142%) and a turnover of S$131 million (a y-o-y increase of 12%). For more, see the table below.


Table: OSIM's 2Q2010 & 1H2010 results

Due to its strong recovery, OSIM rose from a low of S$0.10 in April 2009 to a recent high of S$1.10. See Chart 2 below.


Chart 2: SIM's daily chart as at August 17, 2010 (Source: SGX)

Conclusion

Ogawa may rally if it can break above the horizontal resistance at RM0.45-46 convincingly. The catalyst for a rally could be a good set of number for QE30/6/2010 (expected any day now).