Thursday, January 30, 2014

PWRoot- dragged lower by impairment loss

Results Update

For QE30/11/2013, PWRoot's net profit dropped 9.5% q-o-q to RM8.7 million on the back of a 7%-increase in revenue to RM76 million. Compared to the same quarter last year, net profit was 2% higher while revenue was 8% higher. Revenue increased q-o-q due to increased local demand. The bottom-line dropped q-o-q due to impairment loss on trade receivables of RM2.9 mil from Egypt. Excluding the impairment loss (and adjusted for tax), PWRoot's net profit could be higher by 13% q-o-q or 28% y-o-y to RM10.8 million.

Table: PWRoot's last 8 quarterly results

Chart 1: PWRoot's last 27 quarterly results


PWRoot (closed at RM2.15 yesterday) is now trading at a PE of 17 times (based on last 4 quarters' EPS of  12.40 sen). At this PE multiple, PWRoot is deemed fully valued.

Technical outlook

PWRoot has broken above its medium-term downtrend line, RR at RM2.10 in early part of this month. Presently, PWRoot has drifted lower and may find support at the same downtrend line (now acting as a support). Below that, it may also find support at the psychological RM2.00 mark. However, if the stock had corrected sufficiently, it may renew its upleg and test the Jun 2013 high at RM2.33.

Chart 2: PWRoot's daily chart as at Jan 29, 2014 (Source: Tradesignum)

Chart 3: PWRoot's weekly chart as at Jan 29, 2014 (Source: Tradesignum)


Based on good financial performance (albeit a significant impairment loss) & mildly positive technical outlook, PWRoot remains a good stock for long-term investment. However, its valuation is no longer cheap and it deserves a rating of a HOLD only.

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.

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