Topglov: Poised to further drop

Results Update

For QE28/2/2014, Topglov's net profit dropped by 17.4% q-o-q & y-o-y to RM41.6 million while revenue also dropped by 4.5% q-o-q or 4.9% y-o-y to RM548 million.

Revenue dropped q-o-q due to due to the decline in the average selling price.The weaker performance was on the back of margin pressure from increased competition. In addition, bottom-line was negatively impacted by losses from its China operations amounting to RM5.4 million and forex losses, arising from previously entered forward contract rates that were lower than prevailing market forex rates.


Table: Topglov's last 8 quarterly results


Chart 1: Topglov's last 31 quarterly results

Valuation

Topglov (closed at RM5.33 yesterday) is now trading at a PE of 18.4 times (based on last 4 quarters' EPS of 29 sen). At this PE multiple, Topglov is overvalued.

Technical Outlook

Topglov is resting on its "uptrend line" support at RM5.50. If it breaks this support as well as surpassing the January 2014 low of RM5.35, Topglov can slide to RM5.00 & even RM4.00.
(Note: As at 4:40pm, Topglov was trading at RM5.30.)


Chart 2: Topglov's weekly chart as at Mar 19, 2014 (Source: Tradesignum)

Conclusion

Based on poor financial performance, demanding valuation & negative technical resistance, Topglov is rated SELL.

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, Topglov.