Adventa has just announced its results for QE31/7/2010. Its net profit increased by 27% q-o-q or 79% y-o-y to RM8.2 million while turnover increased by 8% q-o-q or 20% y-o-y to RM87.4 million. Adventa attributed its better performance to high production utilization rate; improvement in the distribution business; and continuous increased production capacity.
Table: Adventa's last 8 quarterly results
What's significant about this quarterly results is that the company did not suffer another quarter of decline in profitability. If that had happened, one cannot avoid drawing the conclusion that the company's profit growth has stopped & the performance of the rubber glove sector has peaked & would continue to see lower profit going forward. On the other hand, it is also too early to conclude that the worst is over for Adventa & this rubber glove sector. What we have is a stalemate and we would have to see further results to get a clearer picture.
Chart 1: Adventa's last 22 quarterly results
Chart 2: Adventa's profit margin over the last 22 quarterly results
Valuation
Adventa (closed at RM2.39 yesterday) is trading at a PE of 12 times (based on last 4 quarters' EPS of 20 sen). At this multiple & the uncertainty in this sector, Adventa is deemed fully valued.
Technical Outlook
Adventa has dropped since making an all-time high of RM4.30 in January this year. However, the stock has good horizontal support at RM2.20 and RM2.00. Its uptrend line support is at RM2.15-2.20.
Chart 3: Adventa's weekly chart as at Sept 27, 2010_log scale (Source:Tradesignum)
Conclusion
Based on the improved financial performance & good technical outlook, I would rate Adventa a hold. To get into this stock at RM2.00-2.20 may not be a bad idea, though it's a bit early. I would prefer to see another quarter of increased profit before calling a BUY on this stock but then again the price could have moved higher from here.
10 comments:
Hi Alex,
How u think about DXN?
Hi Isaac
I have commented on DXN on Sept 22. As noted earlier, DXN is a very profitable MLM company. Its earning is about 18 sen. Based on its close of RM1.20 yesterday, it's trading at a PE of 6.7 times, which is still inexpensive.
Chartwise, DXN has surpassed its all-time high & strong horizontal resistance at RM1.10 on Sept 24. It is now undergoing some consolidation. If it can stay above the RM1.10 level, its uptrend has further upside. Needless to say, a stock that has risen sharply would experience bout of sharp correction. If you manage your risk well, DXN can be a good trade or investment.
Good luck!
Hi Alex,
Can you please share your inputs on IJMLAND. Thanks.
Hi Stephanie
IJMLand is poised to test its downtrend line at RM2.43-45. If it can break above that, it may commence its upleg. Its next horizontal resistance is at RM2.60 & then RM2.90.
Hi Alex,
What's your view on Supermax. Chairman Mr Thai is forecasting the company to report record revenue at 1 bil for FY2010 vs 800mil for FY2009. That would be 20% upside. From the Q1 and Q2 results, profit looks to be intact.
regards
Hi hkloon,
Supermx's net profit dropped 11% q-o-q from RM51.5 million to RM45.9 million in QE30/6/2010. This break in the sequential rise is an early indication of possible reversal in the profit growth for the company.
However, one quarter of decline may be cutting it a bit too fine, as one can seen from the rebound in the net profit of Adventa. We will have to wait for the results for the other rubber glove makers before we can be certain which way the market is heading.
As for the statement from the Chairman of Supermx, one can only say that increased turnover need not lead to increased net profit.
Dear Alex,
Kindly comment on Latexx.TQ
Hi TehGK
Latexx is the only big rubber glove maker that did not suffer a break in the sequential rise in its profit recently. For QE30/6/2010, Latexx's net profit increased by 4% q-o-q or 89% y-o-y to RM21.6 million on the back of increased turnover of RM134 million (an increase of 7% q-o-q or 81% y-o-y).
Chartwise, Latexx has come to a strong horizontal support of RM2.30-2.35. If the stock were to rebound strongly after revisiting the recent low of RM2.37, it could be a successful test of the low that would set the stage for a recovery in the share price.
After the rebound in Adventa's profit, one cannot rule out similar profit rebound for other rubber glove makers. I'm still in the camp that believe that this sector has crossed the tipping point & rubber glove players would likely to see a sustained period of price weakness. However, if you hold the opposite view & you like Latexx for whatever reason, you can consider establishing a small position in this stock at RM2.30-2.40 level for the following reasons:
1) sequential rise in profit in tact;
2) retracement of recent price gain of about 50%;
3) technical support at RM2.30-2.40 level.
Hi Alex,
Can You share some information on Favco. It seems to be active recently
Thanks
Hi green jade
I can only give my technical take on Favco. The stock is trapped within a big symmetrical triangle, with support at RM0.80 & resistance at RM0.92. Despite the last 2 days of big volume, the stock has not turned bullish unless it can punched above the RM0.92 mark.
Good luck!
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