Monday, February 27, 2012
Latexx- Something don't smell right!
Latexx's results for QE31/12/2011 disappoints many in term of the decline in both the top-line & bottom-line. Net profit declined by 93% q-o-q or 91% y-o-y to RM926k while turnover dropped by 26% q-o-q or 16% y-o-y to RM90 million. The drop in the bottom-line was due to the provision of RM7.6 million for settlement of claim with the Inland Revenue Board due to reassessment of income tax payable. The decline in turnover is due to slower sales arising from volatility of the raw material costs. I find the explanation for the decline in turnover to be unacceptable. You don't see Kossan or Topglov suffering from a decline in turnover because of volatility in raw material costs! Something is not right in Latexx!
Table: Latexx's last 8 quarterly results
Chart 1: Latexx's last 14 quarterly results
Latexx (presently, at RM1.54) is trading at a PE of 8 times (based on last 4 quarters' EOS of 19.34 sen). Based on this PE multiple, Latexx's valuation is deemed undemanding.
Latexx has broken to the downside of its triangle at RM1.72 in early February. It also broke below its horizontal support at RM1.72 last Friday. Its next support is at the horizontal line at RM1.45.
Chart 2: Latexx's daily chart as at Feb 27, 2012_11.00am (Source: Quickcharts)
Based on unsatisfactory explanation for the decline in turnover & the bearish technical outlook, Latexx is a stock to avoid.