IHH & KPJ: A Tale of 2 Stocks

Two days ago, IHH broke above its September 2014 high of RM5.10-5.12. It rose to an intra-day high of RM5.34 yesterday before it closed at RM5.26. On the other hand, another healthcare group, KPJ has yet to recover above its September 2014 high of RM4.00. It closed at RM3.87 yesterday.

If we look at the charts for both stocks, we can see that IHH has been on a steady uptrend since 2013 while KPJ's uptrend was broken in July 2013. The divergence in the price movement began in July 2014 when KPJ peaked at RM4.90 while IHH continued to rise to a high of RM4.40 before correction set in. After a 10-month sideways movement, IHH broke above its September 2013 high in June 2014 and rose to a high of RM5.12 in September 2014. Meanwhile KPJ also had a breakout in June 2014 - a breakout of an intermediate downtrend that started in July 2013 - at RM3.30. The recovery did not go very far as the share price failed to break above the strong horizontal resistance at RM4.00. KPJ corrected and broke below its intermediate uptrend line that started in April 2014.


Chart 1: IHH & KPJ's weekly chart as at Jan 26, 2015 (Source: ShareInvestor.com)

Why is IHH outperforming KPJ? You can make a case for IHH's earning benefiting from the strengthening of foreign currencies vis-a-vis the MYR but does it justify the costly PER of 58x vs. KPJ's 31x or PB ratio of 6.6x vs. KPJ's 4.6x. Its minuscule DY of 0.004% is certainly no comparison to a more respective DY of 1.5% reported by KPJ.

To be fair, IHH has its strong points. Its net profit margin is higher at 9.3% vs. KPJ's 4.4%. Its financial position is healthier with GR at 0.25x vs. KPJ's 0.94x & CR at 1.85x vs. KPJ's 0.87x.

However, KPJ's management is working with lower capital and for this, they managed to squeezed out a decent return compared to IHH. KPJ's ROE beat IHH's handily at 9.4% vs. 3.5%.What about ROA? Even here, KPJ did better - 3.7% vs. IHH's 2.3%.



Table: IHH & KPJ's financial ratios compared (Powered by ShareInvestors.com)

There is no denying that IHH has a sexier story. It grew by leap & bound- both organically or via M&A while KPJ grew mainly organically. For recent P&L & CF comparison, see the 2 diagrams below.

If you are a trader, IHH is a good trading BUY with its breakout above its recent high. If IHH can repeat the last 2 big moves (of RM0.85 each), the current breakout could send this stock to RM6.00. On the other hand, if you are value investor and a patient sort of guy, you may bet on KPJ doing some catching up. And, IF (a big if) KPJ can break above the RM4.00, it too can be a trading BUY.


Diagram 1: IHH & KPJ's 10-quarter P&L compared (Powered by ShareInvestors.com)


Diagram 2: IHH & KPJ's 10-quarter CF compared (Powered by ShareInvestors.com)

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, IHH & KPJ.