MISC has been consolidating over the past 5 years. This is attributable to a decline in its financial performance over the past 5 years. See Tabble 1 below.
Table: MISC's last 5 years financial performance
The poorer financial performance is in turn attributable to a decline in shipping rates (due to overcapacity). See Chart 1 below.
Chart 1: BDI rates as at May 24, 2011 (Source: Investmenttools.com)
Valuation
MISC (closed at RM6.69 yesterday) is now trading at a PE of 37 times. Needless to say, MISC is overvalued when compared to its FY2010 earning.
Technical Outlook
MISC consolidates within a symmetrical triangle (ABC). In early May, it broke to the downside of that triangle. Certain patterns are more prone to be continuation patterns while other more prone to be reversal patterns. To be a continuation pattern, the breakout must occur in the direction of the prior trend. So in the case of MISC, if the price breakout is to the upside (along the line 'AC'), it would be a continuation pattern and we would have a bullish breakout. Unfortunately, MISC broke to the downside (along the line 'BC'). This means we have a reversal pattern and a bearish breakout. This could lead to a prolonged downtrend for MISC. The stock may enjoy some support at the horizontal lines at RM6.60 (& then at RM5.60) but can any rebound sustain?
Chart 2: MISC's weekly chart as at May 24, 2011 (Source: Tradesignum)
From the monthly chart (plotted on log scale), we can see that MISC has also broken below its long-term uptrend line (SS) at RM8.00 in early May.
Chart 3: MISC's monthly chart as at May 24, 2011_plotted on log scale (Source: Tradesignum)
Conclusion
Based on poor recent financial performance, no sign of recovery in shipping rates, expensive valuation & bearish technical outlook, MISC is rated a SELL.
Note: As at 11.30am, MISC is trading at RM6.75.
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