DKSH & Harison compared

Technical Outlook examined

Over the past 4 weeks, DKSH has been dropping very sharply after it hit a high of RM2.37 on November 21. The stock broke its accelerated uptrend line (S1-S1) at RM1.75 on December 12 as well as the strong horizontal support at RM1.50 on December 19. Its immediate support is the horizontal line at RM1.30-1.35. Below that, its next support is the intermediate term uptrend line (SS) at RM1.05.


Chart 1: DKSH's weekly chart as at Dec 19, 2011 (Source: Tradesignum)

Let's compare DKSH with a similar trading house, Harison. Harison is holding above its horizontal line at RM3.40. During the recent selldown, Harison tested its long-term uptrend line (SS) support at RM2.80. Can Harison hold onto the current horizontal support of RM3.40?



Chart 2: Harison's weekly chart as at Dec 19, 2011 (Source: Tradesignum)

Financial Performance Indicators & Ratio compared

Which is a better stock? I have tabulated the financial performance indicators & ratio for your easy reference. For the 9-month ended 30/9/2011, DKSH's net profit improved substantially while Harison's bottom-line remained unchanged. As a results, DKSH's ROCE improved from 11.6% to 19.3% while Harison's ROCE slid from 12.5% to 11.9%. However, it must be noted that DKSH is highly geared, with debts to equity of 0.9 time & total liabilities to equity of 4.4 times. Harison appears conservative with debts to equity of 0.2 time & total liabilities to equity of 0.8 time.


Table: DKSH & Harison's financial performance indicators & ratio compared

Valuation

In term of valuation, Harison (closed at RM3.46 yesterday) is now trading at a PE of 6.9 times (based on the 9-month results which yield an annualized EPS of 49.84 sen). DKSH (closed at RM1.39 yesterday) is now trading at a PE of 5.0 times (based on the 9-month results which yield an annualized EPS of 27.99 sen).

Conclusion

While DKSH trades at a lower PE multiple, I am not confident that it can maintain its recent strong results. DKSH has a long history of lackadaisical performance while Harison is noted for its steady growth. Despite the lower PE multiple and recent strong growth in its bottom-line, I am wary of DKSH. I still prefer Harison as it is a financially stronger while DKSH shows signs of over-trading - which may not be a healthy practice in the challenging times ahead.