Wednesday, April 24, 2013

Redtone- black is better than red!


Background

Redtone International Bhd ('Redtone') is slowly recovering from its loss-making streak over the past 3-4 years. The turnover was achieved by disposal of its loss-making businesses and repositioning itself in the data & broadband space. For more, check out this article in The Edge newsletter.

Result Update

For QE28/2/2013, Redtone reported a net profit of RM3.9 million- a slight decline of 1.3% q-o-q but a 8-fold improvement over the same quarter last year. Revenue soared 52% q-o-q or 72% y-o-y to RM40.5 million.


Table: Redtone's last 8 quarterly results


Chart 1: Redtone's last 8 quarterly results

Financial Position

As at 28/2/2013, redtone's financial position is deemed healthy with current ratio at 1.2 times while gearing ratio is negligible, with bank borrowing of RM2 million as compared to Shareholders' Funds of RM97 million. Cash & bank deposits amount to RM34 million.

Valuation

Redtone (closed at RM0.415 yesterday) is now trading at a trailing PE of 19 times (based on last 4 quarters' EPS of 2.18 sen. I expect Redtone's current earning to improve to 3.5-4.0 sen; thus bringing down PE to 11-12 times.

Technical Outlook

Redtone is in an intermediate uptrend line, S1-S1. It is poised to test its recent high of RM0.45 while its immediate support is the horizontal line RM0.42 (see Chart 2). An upside breakout above RM0.45 could send the stock to RM0.82. (see Chart 3).



Chart 2: Redtone's daily chart as at April 24, 2013_4.00pm (Source: quickcharts)


Chart 3: Redtone's monthly chart as at April 24, 2013_4.00pm (Source: quickcharts)

Conclusion
Based on the turnaround story, exciting future prospects (supported by recent financial performance) and potentially positive technical outlook, Redtone could be a good stock for long-term investment.

Note: 
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, Redtone.

4 comments:

Dav C said...

Hi Alex

Any comment on GenHK that going up this few days? thanks.

Alex Lu said...

Hi Dav C

GenHK has surpassed its recent high of S$0.46. It may even have broken above its long-term downtrend line at S$0.45. I used the word 'may' because I am not sure the chart (from Yahoo Finance) has been adjusted for Bonus & Right Issues.

Based on the above, GenHK could be a good trading BUY.

Ray Khor said...

Hi Alex,

Would appreciate your view on Farlim and MYEG please. I noticed a volume increase for FARLIM recently. Thanks.

Ray

Alex Lu said...

Hi Ray Khor

My take on the two stocks:
1. Farlim may have broken above its long-term downtrend line at RM0.30. This happens to be a strong horizontal resistance-turned-support. It is safe to buy some at RM0.30 and see whether this stock can continue to rise.

2. MYEG broke above its strong horizontal resistance at RM0.85 2-3 weeks ago and revisited the 2011 high of RM0.90. It failed to surpass the 2011 high & it has since dropped below the horizontal line at RM0.85. It should find support at the intermediate uptrend line at RM0.79-0.80. At that level, you may consider buying into the stock.