Monday, February 04, 2013

PWRoot- pre-tax profit & revenue inched higher

Results Update

For QE30/11/2012, PWRoot's net profit dropped 7% q-o-q but rose 84% y-o-y to RM8.5 million while revenue increased by 12% q-o-q or 26% y-o-y to RM70 million. The decline in net profit q-o-q was due to a deferred tax charge of RM2.1 million. Notwithstanding the drop in net profit, it is encouraging to note that pre-tax profit increased by 11% q-o-q or 108% y-o-y to RM12.6 million (despite a smaller gain of sale of property of RM1.3 million as compared to RM2.1 million in QE31/8/2012). The improved pre-tax profit was due to increased revenue (from increased sales, domestically & overseas).

Table: PWRoot's last 8 quarterly results

Chart 1: PWRoot's last 23 quarterly results

Financial Position

PWRoot's financial position as at 30/11/2012 is deemed healthy. Its current ratio stood at 2.9 times while gearing is negligible at 0.06 time. A look at the current assets revealed that it has receivables of RM100 million or a receivable turnover of 135 days (compared to revenue of RM203 million for the 9-month ended 30/11/2012). This is compared to a receivable turnover of 135 days experienced by Oldtown (where its receivable as at 30/9/2012 stood at RM48 million while revenue from Beverage operation for 9-month period amounted to RM98 million). As such, I believe PWRoot's receivable is within industrial average & its financial position is deemed satisfactory.


PWRoot (closed at RM1.20 last Thursday) is now trading at a PE of 12 times (based on last 4 quarters' EPS of  9.90 sen). If the gain from property disposal of RM3.4 million is excluded, the PE would be about 13 times. Previously, I have rated PWRoot as fairly valued (go here).

However, if we take into account its strong earning growth of about 70% (even after excluding gain from property disposal), PWRoot's  PEG ratio is about 0.2 time. If the strong growth tapered off (say, to 25%), the PEG ratio will still be fairly comfortable (at about 0.5 time). As such, I like to revise my previous take on its valuation to be under valued.

Technical outlook

PWRoot is in an uptrend, with immediate horizontal support at  RM1.05.

Chart 2: PWRoot's weekly chart as at Jan 31, 2013 (Source: quickcharts)


Based on good financial performance, attractive valuation & positive technical outlook, PWRoot remains a good stock for long-term investment.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, PWRoot.

No comments: