Latexx- buyout deal aborted

Results Update

Latexx has announced its results for QE31/3/2011, where its net profit increased 22% q-o-q on the back of a 11%-decline in turnover. The improvement in net profit was due to a lower effective tax rate for current quarter (mainly due to utilisation of capital and reinvestment allowances). When compared to the same quarter last year, turnover was lower by 25% while net profit dropped by 39%.


Table: Latexx's last 8 quarterly results



Chart 1: Latexx's last 13 quarterly results

Recent Corporate development

In February, Latexx announced that it will be disposing off its entire business to Navis Asia for RM852 million or RM3.10 per share (go here). On Monday (May 16), Latexx announced that the deal is off as the parties were unable to agree on the definitive terms (go here).

Valuation

Latexx (closed at RM2.40 on May 16) is now trading at a PE of 8.9 times (based on last 4 quarters' EPS of 27 sen). At this PE multiple, Latexx's valuation is deemed undemanding.

Technical Outlook

Latexx was sold down on May 16 after the share price broke below the triangle at RM2.55. However, it has tested the support of the recent low at RM2.37-2.40. If the latter is violated, then Latexx may test its next support at the psychological RM2.00 level. While the selling can be very intense over the next few days & the RM2.00 support may be tested, I believe this level should hold.


Chart 2: Latexx's daily chart as at May 16, 2011 (Source: Quickcharts)



Chart 3: Latexx's weekly chart as at May 13, 2011 (Source: Quickcharts)

Conclusion

Based on the cancellation of the Navis Asia buyout deal & the poor financial results for QE31/3/2011, we can expect further sell-off in Latexx over the next few days. Nevertheless the stock is trading at undemanding PE multiple and as such, it could be a buying opportunity especially if the share price comes down to the RM2.00 mark.