Daiboci: Time to take profit

Result Update

For QE31/3/2014, Daiboci's net profit dropped 10% q-o-q or 8% y-o-y to RM6.6 million while revenue rose 12% q-o-q or 23% y-o-y to RM90 million. The q-o-q increase in revenue was attributed to 13%-increase in the packaging segment revenue which is due to the expansion in export revenue, particularly from a MNC customer in South East Asia.

The packaging segment recorded an increase of 5% in pre-tax profit as compared to the preceding quarter. However, there is a slight compression in profit margin for the current quarter mainly due to the further increase of raw material prices, especially in polyethylene and polypropylene resins and films in the current quarter. In addition, the profit margin has been affected by the product mix and the increase in operating expenses mainly due to the hike in electricity tariff as well as wages in early 2014.

Table: Daiboci's last 8 quarterly results


Chart 1: Daiboci's last 26 quarterly results

Valuation

Daiboci (closed at RM4.50 yesterday) is now trading at a PE of 18.8 times (based on last 4 quarters' EPS of 24 sen). At this PE, Daiboci is deemed over-valued.

Technical Outlook

Daiboci is in a steady uptrend line. You may use the 40-week EMA line as the proxy for an uptrend line. A break below the 40-week EMA line would then be a bearish event, as evidenced in 2010.


Chart 3: Daiboci's weekly chart as at May 12, 2013 (Source: Tradesignum)

Conclusion

Despite positive technical outlook, Daiboci is now trading at a demanding PE multiple. As such, its rating should be revised to SELL INTO STRENGTH.

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, Daiboci.