TSM Global bhd [formerly, Juan Kuang (M) Industrial Bhd] ('TSM') is involved in the manufacture & supply of wiring harness systems (for motor vehicles) and auto accessories as well as being an importer & wholesaler of electrical products & access.
In QE31/7/2010, TSM completed the acquisition of a 85.47% stake in Kenseisha (M) Sdn Bhd (KMSB) from Sierra Indah Sdn Bhd for RM15.08 million (here). KMSB is involved principally in die-casting and precision machining of parts for electronic equipment. It has two plants in Bangi Industrial Estate, Selangor.
Recent Financial Results
TSM has just announced its results for QE31/7/2010, where its net profit dropped by 25% q-o-q or 4% y-o-y to RM6.4 million. Its turnover increased by 49% q-o-q or 76% y-o-y to RM110 million. KMSB contributed RM19.6 million to the turnover. TSM's profit for this quarter was weighed down by operating loss of RM2.637 million incurred by KMSB & the writing off of goodwill arising from the acquisition of KMSB of RM2.777 million. TSM is working towards achieving a breakeven in operating results from KMSB by the present 4th quarter.
Table: TSM's last 8 quarterly results
Chart 1: TSM's past 25 quarterly results
Financial Position
TSM's financial position is deemed very healthy. As at 31/7/2010, its current ratio was at 2.5 times whiel bank borrowings to shareholders' funds stood at 0.13 time.
Valuation
TSM (closed at RM3.22 yesterday) is now trading at a trailing PE of 6 times (based on last 4 quarters EPS of 54 sen). If TSM can turnaround the operation of KMSB, TSM would achieve better earning in the next financial year. As such, its future PE multiple could be lower than 6 times. Even at the present trailing PE of 6 times, TSM's valuation is deemed undemanding.
Technical Outlook
TSM has risen steadily from about RM1.00 in 2009 to above RM3.00 now. Its immediate horizontal support is at RM3.00 while its immediate horizontal resistance is at RM3.30. If it can break above the RM3.30 level & the recent high of RM3.50-3.60, TSM could potentially go to the RM5.00.
Chart 2: TSM's weekly chart as at Sept 30, 2010_plotted on log scale (Source: Tradesignum)
Conclusion
Despite the dip in its net profit, TSm is still an interesting company. Its two core business could propel TSM to higher level of profitability. Based on undemanding valuation & good financial position undemanding valuation, TSM could be a good stock for long-term investment.
4 comments:
Hi Alex,
I own some TSM shares and hence have immense interest in your writeup here and would like to share some of my analysis on TSM, if you do not mind. I agree with you that TSM is a great company with an attractive valuation and hence also a great investment (may be due to my cognitive bias). Q-to-Q, I feel that its profit after tax does not seem to decline as stated by you, both are at 12.7m. The decline in profit as mentioned by you is actually "profit attributed to ordinary shareholders" and hence earnings per share from 15.6 to 11.4 sen. This is because of the increase in minority interest (MI) from 3.9 m to 6.4m. Any idea why such big increase in MI? One serious concern is its profit margin has declined quite drastically Q-to-Q from 17% to 12%, probably due to the drag down by Kenseisha. I hope this is a temporary phenomenon as described by you. However, TSM managed to increase the ROE of its 2011ttm by a percentage point to 18.5%, thanks to its increase in borrowings, and hence increase its accounting leverage while still remain very healthy in its balance sheet. I am not a follower of technical analysis (but still follow your blogs constantly for many reasons) but I believe your "breakthrough" price of RM5.00 should not be a problem, basing on fundamental valuations, other than the simplistic PE ratio.
The major shareholder was/is a close associate of Tajuddin Ramli. Is TR in TSM ?
Hi KC,
You cannot just stop at Profit after tax & ignore Profit attributable to Shareholder. The latter is the true Profit that shareholders have a claim on. As noted by you, the difference between the two profit numbers are Minority Interest ('MI').
You have noted that MI has increased. This simply means that the operations that contributed profit to the company is not wholly-owned by the company. The third party has a claim on this profit & it is deducted as MI.
Thanks for sharing your thoughts on this stock.
Hi The Emperor
Is Tajuddin Ramli in TSM? I have no idea.
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