YTLCMT- may have a bullish breakout

Background

YTL Cement Bhd ('YTLCMT') has recently announced that it proposed to acquire a further 35.16% stake in Perak Hanjoong Simen Sdn Bhd ('Perak-Hanjoong') for RM200,000,000 in cash. Presently, YTLCMT together with its wholly-owned subsidiary holds a 64.84% equity interest in Perak-Hanjoong. For more, go here.

Perak-Hanjoong is the second largest integrated cement producer in the country. Operating two plants located in Padang Rengas, Perak, Perak-Hanjoong has a plant capacity of 3.0 million metric tonnes (“MT”) per annum for clinker and 3.4 million MT per annum for cement, both of which are manufactured for local and export markets. Perak-Hanjoong also has a cement depot and packing plant near Batu Caves in Selangor, with an annual capacity of 600,000 MT

Financial Performance & Position

For FYJun2010, YTLCMT recorded a net profit of RM267 million on a turnover of RM1.842 billion. Its financial position as at 30/6/2010 is deemed satisfactory with current ratio at 1.99 times & gearing ratio at 0.35 times.

Based on EPS for FY2010 of 37.8 sen & the current share price of RM4.24, the stock is trading at a PE of 11.2 times. At this multiple, the stock is reasonably valued. However, the acquisition of additional stake in Perak-Hanjoong is expected to be earning accretive, which means that it could lead to a lowering of the PE multiple as computed earlier. How much of an impact, I do not know.

Technical Outlook

Based on the chart below, YTLCMT may have broken above the downtrend line at RM4.16-17. The immediate horizontal resistance is at RM4.30, while immediate horizontal support is at RM4.00. The bullish breakout is not accompanied by big volume, which raised doubt as to the sustainability of any subsequent rally.


Chart: YTLCMT's weekly chart as at Sept 27, 2010_2.40pm (Source: Quickcharts)

Conclusion

Based on technical breakout, YTLCMT could be a good trading BUY.