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Friday, July 18, 2014

Huayang: An unexplained q-o-q earning decline

Results Update

For QE30/6/2013, Huayang's net profit dropped by 37% q-o-q but rose 94% y-o-y to RM24 million while revenue dropped by 31% q-o-q but rose by 70% y-o-y to RM136 million. The y-o-y improvement was attributed to steady construction progress of all on-going projects. The q-o-q deterioration should be explained but it was not. I appended the company's explanation of its drop in this quarter as well as its rise in the immediate preceding quarter.


Table: Huayang's last 8 quarterly results


Chart 1: Huayang's last 24 quarterly results 

Valuation

Huayang (at RM2.36 yesterday) is trading at a PE of 6.7 times (based on last 4 quarters' EPS of 35 sen). At this PE, Huayang is still deemed fairly valued.

Technical Outlook

Huayang may have broken above its downward channel. However, for the stock to rise further, it needs to surpass the high of RM2.55 recorded in 2013. Failure to do so would set the stage for a double top reversal.


Chart 2: Huayang's weekly chart as at Jul 17, 2014 (Source: Tradesignum)

Conclusion

Despite the drop in financial performance, Huayang is still a good stock for long-term investment based on attractive valuation. Technical outlook is mildly positive but tricky as it needs to surpass its 2013 high of RM2.55 to avoid the dreaded double top reversal. For now, it is rated 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, Huayang.

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