TWS has just announced its results for QE30/9/2010. It's a sterling performance with net profit soaring to RM124 million- an increase of 42% q-o-q or 236% y-o-y. This was achieved by a 9% q-o-q or 207% y-o-y increase in turnover to RM1.4 billion. The improved performance was due to all round improvement in its 3 divisions- Rice, Sugar & Plantation. The Rice division has benefited from stability in the price of rice while the Plantation division has benefited from higher selling prices of CPO.
Table: TWS's last 8 quarterly results
Chart 1: TWS's 9 quarterly results
Financial Position
One of the main concern for TWS is its stretched Balance Sheet. As at 30/9/2010, its current ratio is satisfactory at 1.6 times while its debt to equity is at 1.2 times. In my opinion, the slightly higher leverage is understandable since TWS has substantial exposure in the trading sector (via its Rice & Sugar divisions). It would be too conservative to expect lower leverage in trading operation in the consumer stable businesses, such as Rice & Sugar.
Valuation
TWS (RM4.55 as at 12.00pm) is now trading at a current PE of 3.5 times (based on an annualized EPS of 131 sen which in turn is based on the last 3 quarterly results). At this multiple, TWS is deemed very attractive.
Technical Outlook
TWS has broken above its pennant formation at RM4.20. With this bullish breakout, the stock will continue on its prior uptrend. Its next resistance is at RM5.15-5.20.
Chart 2: TWS's weeky chart as at Dec 1, 2010_11.00am (Source: Quickcharts)
I have also plotted the long-term monthly chart, on log scale below. From this chart, we can see that the stock could potential test the line connecting its last 17 years' peak (at RM6.00).
Chart 3: TWS's monthly chart as at Nov 1, 2010 (Source: Tradesignum)
Conclusion
Based on impressive financial performance, attractive valuation & bullish technical outlook, TWS is a very good stock to buy for medium to long-term investment.
12 comments:
Dear Alex
Can you comment on Pantech and its Pantech-LR. These stock have been on free-fall after ex- for its ICLUS and bonus share. Is current pantech-LR worth of buying? convertible at 6 for 1 pantech within 7yr, coupon rate at 7%, issue price at 10sen
Hi Hng,
Assuming you got the terms of the ICULs correctly (it's hard to search for them), then it could be a workable investment idea. How it works is this: You buy 6 Pantech-LR at 1.5 sen now & then subscribe for the Pantech-LR at 10 sen each. Each of these 6 Pantech ICULs would cost about 11.5 sen. This means that the premium for each ICULs is 13% to the Pantech shares (currently trading at 61 sen). This is higher than what I expected, which is about 5-10%.
But you would get 600 free warrants. What's the conversion price of this warrant (I can't find it)? Assuming it is at the current market price, then the warrant is worth about 9-12 sen (based on 15-20% conversion premium). Would the value of this free warrant compensate for the additional premium on the Pantech ICULs. Barely.
Finally, you must consider whether Pantech shares can hold at the horizontal support at RM0.60. If it breaks this strong support, then we would be looking at the next support at 50 sen.
After going through the above, you would agree with me that for all the hard works and if everything goes according to plan, you could make a small profit. I easie & better approach is to buy Pantech at 60 sen which will save you a lot of hassle.
gud-day alex, may i know what is your pov about scomien? what is the support & resistance? thanks!
Thanks, Alex. the conversion for pantech warrant is at 60sen. I do agree with you that upcoming pantech-LA may have little upside which solely depending on pantech share performance, but its coupon rate at 7% could cushion downside risk over the 7yr. Anyhow, i've bought some pantech-LR at 1.5sen, either to sell later at higher price which could command high profit margin or will go through the whole exercise
HI Alex,
Base on this USD versus MYR chart http://s206.photobucket.com/albums/bb149/maxgaba/?action=view¤t=UDSversusMYR.jpg , what is your comment on the glove stock ?
Hi cheer
The strengthening of the USD could be positive for many exporters, including rubber glove makers. Have they turned the corner? It's hard to say. The recovery in USD could be temporary due to technical reason (such as being grossly oversold) or could be due to political uncertainties (conflict in the Korean Peninsular) or weakness in Euro.
To me, the rubber glove sector is still not out of the wood due to high production capacity.
Hi Alex,
Please share yoru views on Cheetah Holdings. It appears a consistantly profitable smallcap with a low PE and low debts. Just a bit concerned on the outlook of the clothing industry going forward since we have heard of a recent increase in raw materials prices. Thanks!
hi AlexP
Cheetah had a good year for FYJune2010, with higher bottom-line & top-line (here). Its 1Q2011 was not so good. Its net profit & turnover dropped (here).
Cheetah is an also-ran when compared to Padini & Bonia. In FYJune2010, their top-line & bottom-line growth are as follows:
1) Padini (Turnover up 9% to RM523 mil, Net Profit up 23% to RM61 mil)
2) Bonia (Turnover up 14% to RM360 mil, Net Profit up 61% to RM33 mil)
3) Cheetah (Turnover up 8% to RM127 mil, Net Profit up 11% to RM14 mil)
Chartwise, Cheetah is range bound between RM0.45 & RM0.60 but of late, the price movement is biased to the upside. As Cheetah's valuation is quite reasonable with PE of about 5.5 times, you may regard it as a slow long-term investment.
Hi Alex
Can you comment on Fima Corporation. This counter has been trading at low PE and seems very attractive. Any potential of moving upward? Thanks
Hi tklaw
You are right about Fimacor. It's a very profitable company, making 49 sen for 1H2011 or 98 sen for FY2011 (annualized basis).
Its financial position is very healthy, with very little borrowings, cash balance of RM137 million (or RM1.67 per share) & current ratio of 2.1 times. If you minus out the cash from the share price of RM5.62 now, the stock is trading at a PE of 4 times.
Chartwise, Fimacor has surpassed its all-time high of RM5.40 recorded in 1996. With this breakout, Fimacor may go higher. However, the rally that began in 2009 seems to be in the 5th Wave (according to Elliot Waves theory). The 5th Wave is a very tricky wave, with many possible outcomes. With attractive valuation behind it, Fimacor may surprise many before the game is over.
Hi Alex,
You have recommended an excellent stock. Many people are making a great fortune in a short time.:) When do think is the good time to take profit?
Thanks.
Hi tklaw,
If you are talking about TWS, then I'll say that's a tough question. Based on a PE of 15 times & annualized EPS of RM1.31, TWS's fair value could be RN19.65! Compared to the price of RM6.45 yesterday, that sounds very far-fetched. In that case, you should apply a discount for uncertainties (such as political factors affecting price subsidies, recurrent of RPTs, etc) to come to a more realistic fair value. Even if you apply a discount of 50% to RM9.82, the stock still has some distance to go.
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