TSM- took a big hit!

Results Update

TSM has just announced its results for QE31/10/2011. It reported a net loss of RM21.1 million on a turnover of RM96.0 million. The loss was attributed to loss incurred on the discontinued operation of a recently-acquired die-cast & precision manufacturing business, Kenseisha.


Table: TSM's last 8 quarterly results



Chart 1: TSM's last 30 quarterly results

The discontinued die-cast & precision operation has been a drag on TSM, affecting its overall results. With its discontinuation, TSM will focus on its core business of manufacturing wire harness (see Chart 2 below). Over the past 4 quarters, this segment contributed a pre-tax profit of RM35 million.


Chart 1: TSM's last 7 quarterly performance for the Wire Harness segment

Valuation

Assuming an effective tax rate of 25%, the company's net profit would be about RM26.3 million. This translates to a full-year EPS of 21 sen (based on current outstanding shares of 127.39 million units). Based on its closing price of RM1.12 yesterday, TSM is now trading at a PE of 5.6 times. This is fairly reasonable. However, I do not believe the stock will rise significantly in the near future as many investors are disenchanted with the stock due to the disastrous investment in Kenseisha.

Technical Outlook

TSM is in an intermediate downtrend. You may use the 100-day SMA line as the downtrend line, with resistance at RM1.20. Its immediate support levels are the horizontal line at RM1.10 as well as at RM1.00.


Chart 3: TSM's daily chart as at Dec 22, 2011 (Source: Tradesignum)

Conclusion

Little do we know that the recent investment in Kenseisha could turn out so badly for TSM. Our call to take profit on TSM in June was quite timely (here) It may be too early to jump back into this stock. However, if it drop to the RM1.00 level, you can consider accumulating a bit.