Tradewinds (M) Bhd ('TWS') is involved oil palm cultivation, sugar refining and rice processing & distribution. For more on the group, check out its website (here).
Recent Financial Results
TWS's top-line & bottom-line rose sharply in the past 2 quarters after the completion of its acquisition of a majority 50.1%-stake in Padiberas Nasional Bhd ('Bernas') in January 2010. For QE30/6/2010, its net profit increased by 13% q-o-q or 562% y-o-y to RM87 million while turnover declined marginally by 1% compared to the immediate preceding quarter (QE31/3/2010) but increased by 210% y-o-y to RM1.286 billion.
Table 1: TWS's last 8 quarterly results
Chart 1: TWS's last 8 quarterly results
(Note:I have replaced Chart 1 as the earlier chart was not for TWS.)
Financial Position
The main concern for this stock is the high gearing position after the acquisition of Bernas. From Table 2 below, we can see that the gearing ratio is very high at 1.28 times while liquidity position as reflected in its current ratio is adequate at 1.26 times. As 54% of the bank borrowings are classified under current liabilities, they are most likely used to finance its working capital requirement. As such, I believe the gearing is not excessive though it would be good if the company can raise its capital & bring down the gearing ratio to below 1 time.
Table 2: TWS's Balance Sheet as at 30/6/2010
Valuation
TWS (closed at RM3.53 yesterday) is now trading at a PER of 3 times only (based on the annualized EPS of 119.52 sen). At this multiple, TWS is deemed very attractive.
Technical Outlook
TWS is trapped between the horizontal lines of RM3.30 & RM3.60. From October 2008 to July 2010, TWS was tracing out a pattern known as a wedge. The stock broke above the wedge in late July at RM3.30. As such, the RM3.30 is a strong support level.
Chart 2: TWS's weekly chart as at Aug 25, 2010 (Source: Quickcharts)
Conclusion
Based on major shift in financial performance & attractive valuation, TWS could be a good stock for long-term investment. However, the main concern for the stock is its higher gearing as well as nagging corporate governance issue that always follows its major shareholder, Syed Mokhtar.
22 comments:
Dear Alex
Mind to give some opinion on 3A?
Regards
Yap
hi alex,
please give comment on suncity.
thanks
Hi Alex
XDL is moving today.What will be it's next support level and how far you think it can go?
Hi Alex,
In the view of choosing between F&N and DLady.
Can you give me a push. Especially market trend wise.
Thanks a lot
AL
Syed Mokhtar is also in MMC DRB etc ...what happen to these companies ? being suck up high n dry ...in western countries he will put in jail in no time ...lol
hi Alex,
how do you get the gearing? i'm using total liability/total equity = 4159779/2369968 = 1.76. am i correct since mine not the same like yours
hi Alex,
Gadang rights issue 2:3 with free warrants of 1:4. It closed at 0.86 yesterday.
What is your thought on how to analyze whether it's worthwhile to buy in order to be eligible for the rights issue.
thanks
maxwealth88
Hi Alex,
Hello Master,what do u think about layhong?Currently takeover by Ql resources.It's worth to buy...
ken
hi alex, can you give your comment on tenanga, which just announced its bonus issue?
one more question, if there are corporate exercises like bonus issue, are they going to be reflected in the warrants issued by banks? eg, tenaga-cl
Hi Alex,
Can you share your inputs on Fajar?. And btw what is treasury shares distribution , is it the same as bonus issue ?. TQ
Hi Yap
I think 3A is a very promising stock that is trading at an excessive multiple. The financial performance would have to catch up with the hype & that may take a while (say 2-3 years). Until then, it would trade sideway.
Technically speaking, the stock is trapped in a triangle with support & resistance (or, you may call them downside & upside breakout level) at RM1.75 & RM1.95.
Hi x
Suncity has broken above its symmetrical triangle at RM3.80. Its next resistance is at RM4.00 and thereafter the recent high at RM4.20-4.22. It could be a trading BUY.
Hi JC/
XDL has good support at RM0.50 & uts next resistance is at RM0.55 & then RM0.57.
I don't know how far it may go. Maybe RM0.60.
hi Ai Ling
In term of valuation, DLady is more attractive than F&N. Based on the quarterly results for June 30, DLady has an annualized EPS of 124 sen (based on its EPS for 1H10 of 62.08 sen) while F&N has an annualized EPS of 87 sen (based on its EPS for 9M10 of 65.40 sen). For FY2009, DLady and F&N paid dividend of 65.6 sen & 41.8 sen, respectively.
Based on their closing price yesterday, DLady (closed at RM14.60) has a current PER of 11.8 times & a dividend yield of 4.5%. F&N (closed at RM14.46) has a current PER of 16.6 times & a dividend yield of 2.9%.
However, the higher multiple for F&N may be justifiable as it is a bigger company than DLady.
Hi juicy
I think that's too harsh. I don't think Syed Mokhtar is the kind of person that you've described. However, the persistent related party transactions have dulled investors' interests in the group. This problem is not only confined to Syed Mokhtar but has also afflicted other major shareholders, such as the Lim family (of Genting group) and also Johor SEDC's listed companies.
Hi Bond
I calculated gearing ratio as total bank borrowings to shareholders' funds.
Hi MaxWealth88
In regards to any Rights Issue, the question to consider is whether you want to own this stock or not. If the answer is 'yes', then you can consider getting into the Rights Issue of warrant or ICULs or new shares, by either owning some shares prior to the entitlement date or by buying the Rights to subscribe such new shares or warrant or ICULs.
In the case of Gadang, we know that the company is a profitable concern, earning 12.76 sen for FY2010. Its financial position is average as its gearing ratio is somewhat elevated at 0.6 time.
Technically speaking, the stock has dropped about 10 sen over the past few days, coinciding with the announcement of the entitlement date for the Rights Issue. This means that some shareholders do not want to go through the exercise & chose to exit now. The stock tested its uptrend lien at RM0.83-84 today. A break below the uptrend line would lead to further decline. That would be bearish for the stock ahead of the Rights Issue.
Unless the selloff is too heavy, I believe the uptrend line would hold. If it failed to hold, then you should wait to buy after the entitlement date (by buying the Rights & subscribing for the Rights shares). The reason is the selling could continue after that date as the reluctant shareholders may do arbitraging, i.e. selling their remaining shares & using the money to buy the Rights & subscribing for the Rights shares. By so doing, you may get a lower entry cost to this stock.
Good luck.
Hi dipankara
No need for such titles. I am just a remisier who is trying to serve his clients.
On QL's acquisition of Lay Hong, my take is that this is a clear sign that poultry stocks may see some buying interests soon. It confirmed an earlier statement made by the boss of Lonbisc when he was queried about the justification for Lonbisc's acquisition of a stake in Lay Hong as well as TPC, later. He said that Lonbisc is buying into these companies in order to secure the supply of eggs. I was quite curious by that statement for some time. Is it that hard to source for eggs?
I don't think Lay Hong would make a good BUY at this stage since it has run up so much, but look at the other poultry stock. I had recommended LTKM for long-term investment & LHH for speculative BUY, some time back. I may revisit these recommendations later.
Hi kc
I am positive on Tenaga because of the strong growth in demand for electricity. The bonus issue may draw in the retail crowd, which would only mean that the stock may move up soon.
CWs would be adjusted for bonus issue for the underlying securities.
Hi Stephanie
Fajar has announced good earning for FY2010, with higher net profit of RM24.7 million on turnover of RM166 million. FY2010 EPS was 16.18 sen.
Technically speaking, the stock is still trapped in a medium-term downtrend line with resistance at RM1.10.
Treasury shares distribution is merely the distribution of shares that were accumulated via share buyback exercises. These shares can be distributed or canceled.
HI Alex , re : MMC ... when MMC sold Ashton shares in Austalia sometime back .. all the money just gone missing throght paper shuffling ...lol
Hi juicy
I have no comment regarding the proceed from the sale of Ashton shares. It would be very unlikely that this money would vanish into thin air or that it could have been diverted into another account. I am sure the lawyer handling the S&P or the broker handling the deal would not put himself at risk.
This is not to say that outright cheating does not happen in corporate world. They had happened & would continue to happen but the participants are more careful about the paper trail. Such outright cheating could easily lead to prosecution for CBT. To avoid such legal problem, the participants would go through indirect dealing where one could only say they took too much risk or they were foolish or stupid. There is no crime in being stupid or foolish nor for taking excessive risk.
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