JTInter- after a long rally...

Background

JT International Berhad ('JTInter') is involved in the manufacturing, marketing, and selling tobacco products. It markets its cigarettes under the brand names of Winston, Mild Seven, Camel, and Salem.

Recent Financial Results

JTInter has just announced its results for QE30/6/2011. Its net profit dropped by 12% q-o-q or 9% y-o-y to RM30.5 million while turnover increased by 5% q-o-q or 3% y-o-y to RM307 million. The drop in its bottom-line was due to significant expenditure incurred for new line extensions. These extensions could lead to higher sales & increase in bottom-line, which have been pretty stagnant for the past 3 years.


Table: JTInter's last 8 quarterly results



Chart 1: JTInter's last 17 quarterly results

Valuation

JTInter (closed at RM6.90 yesterday) is now trading at a PE of 14 times (based on last 4 quarters' EPS of 49 sen). Being a well-managed company, JTInter could command a PE of 16-17 times. Thus, the stock could potentially hit a high of RM8.33. One of JTInter's main attraction is its high dividend yield, which currently stands at 6.5%.

Technical Outlook

JTInter's share performance in the past 3 & 1/2 years has been outstanding, where the stock rose from RM3.00 in early 2008 to a recent high of RM7.40. It broke its 10-week SMA line at RM6.80 in the recent selldown. This is the first time JTInter has violated the 10-week SMA line, which says a lot about the strength of the prior uptrend but also the danger that a potential breakdown may bring forth. The last time JTInter had a similarly strong price run-up was in 1995-1996.


Chart 2: JTInter's monthly chart as at August 1, 2011_plotted on log scale (Source: Tradesignum)

Conclusion

Based on good financial performance & reasonable valuation, JTInter could be a good stock for long-term investment, especially if you are looking for a steady income. However, the recent technical breakdown could not be ignored. It could be a warning of more correction ahead. For those with a position in this stock, you may want to reduce your position on any rebound above RM7.00. The stock is a good buy at prices below RM6.00.