Topglov- light at the end of the tunnel?

Results Update

Topglov has just announced its results for QE31/5/2012. Its net profit increased by a minuscule 1% q-o-q but rose 110% y-o-y to RM53.8 million while its revenue increased by 10% q-o-q or 13% y-o-y to RM603 million. The marginal increase in Topglov's net profit on q-o-q basis was due to higher latex prices (from RM6.81 per kg to RM7.52 per kg) & loss on fair value of forex contract of RM2.5 million (as compared to a gain of RM15.8 million in QE29/2/2012). If the fair value adjustment is excluded, the pre-tax profit would rose by 24.9%. In addition, it must be noted that rubber latex price has dropped sharply since May, which would lead to better profit for Topglov in the next quarter.


Table: Topglov's last 8 quarterly results


Chart 1: Topglov's last 24 quarterly results


Chart 2: TOCOM RSS3 price chart as at June 14, 2012 (Source: Rubbernet)

Valuation

Topglov (at RM4.88) is now trading at a PE of 18.3 times (based on last 4 quarters' EPS of 26.64 sen). If we divide the share price with the annualized earning for QE31/5/2012 (of 34.8 sen), the PE would be 14 times. Based on the latter figure, Topglov is still deemed fully valued.

Technical Outlook

Topglov appears to have broken above its strong horizontal resistance at RM4.70 as well as long-term downtrend line at RM4.80. With this breakout, the stock could be poised to test the psychological RM5.00 level & then its next strong horizontal resistance at RM5.30. An upside breakout of the RM5.30 horizontal line should make the beginning of its next upleg.


Chart 3: Topglov's daily chart as at June 15, 2012_10.00am (Source: Quickcharts)

Conclusion

Based on good financial performance & positive technical breakout, Topglov could be a good stock for trading BUY. With rubber latex prices weakening further, its future prospect is brightening. Those looking to buy for long-term can start nibbling now.