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Thursday, April 17, 2014

Zhulian: Bottom-line improved slight but top-line dropped further!

Result Update

For QE28/2/2014, Zhulian's net profit rose 25% q-o-q but dropped 42% y-o-y to RM17.2 million while revenue dropped 15% q-o-q & 39% y-o-y to RM66 million. The company attributed the q-o-q drop in revenue to decrease in market demand from Thailand, offset by higher revenue from Indonesia market. Net profit increased q-o-q due to lower expenses incurred and increase in share of profit of equity accounted investee (to RM7.0 million from RM3.7 million in QE30/11/2013). In addition, the company's net profit was boosted by forex gain of RM1.8 million as compared to a forex loss of RM2.7 million in QE30/11/2013. If the impact of forex gain or loss were excluded, the company's net profit would be lower q-o-q.


Table: Zhulian's last 8 quarterly results


Chart 1: Zhulian's last 30 quarterly results 

Valuation

Zhulian (closed at RM2.84 today) is now trading a PE of 12 times (based on last 4 quarters' EPS of 23.6 sen). However, if we computed the full-year EPS based on the new EPS for the past 2 quarters, the figure would be 13.4 sen. This would give the stock a PE of 21 times- which is very high. 

Technical Outlook

Zhulian has corrected back significantly since it announced its 3Q2014 results. The stock is nevertheless above its long-term uptrend line, with support at RM2.50-2.60.


Chart 2: Zhulian's weekly chart as at Apr 16, 2014 (Source: Tradesignum)

Conclusion

Despite the weak financial performance & expensive valuation, Zhulian's rating is revised from STRONG SELL to REDUCE because the stock has dropped off significantly. It may find support at the long-term uptrend line at RM2.50-2.60 and may begin to form a bottom. At the price of RM2.50-2.60, the stock would be rated as a HOLD.

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, Zhulian.

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