Monday, November 30, 2015

Petronm: Earnings remained strong!

Results Update

For QE30/9/2015, PetronM's net profit rose 1% q-o-q to RM74 million on the back of a 4.6%-drop in revenue to RM2.16 billion. Revenue dropped 27% y-o-y due to the drop in selling prices (as a result of the drop in oil prices) notwithstanding 5%-increase in sales volume (8 million compared to 7 million barrels previously). Profits increased due to better operating efficiency, stable margins & robust growth in sales volume.

Table: PetronM's last 11 quarterly results

Chart 1: PetronM's last 13 quarterly results


PetronM (closed at RM3.55 as at 10.15am this morning) is now trading at a PER of 4.2 times (based on annualized EPS of 85 sen). The exceptionally high earning may reverse once the crude oil prices recover and the crack spreads narrow. Until then, the strong earnings could propel the share price higher.

Technical Outlook

PetronM broke above its horizontal line at RM3.20 two weeks.

Chart 2: PetronM's weekly chart as at Nov 30, 2015_10.15am (Source: ShareInvestor,com)

As noted in an earlier post, Petronm is in an irregular upward channel. In the right environment, a test and rally off the lower boundary could be very powerful. We saw that in 2009-2011. Will the same happen today?

Chart 3: PetronM's monthly chart as at Nov 30, 2015_10.15am (Source: ShareInvestor,com)


Based on turnaround in financial performance, attractive valuation  & positive technical outlook. PetronM could be a good stock for a medium-term investment.


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, PetronM.


lai said...

Hi Alex,

Instacom and scable looks ok. May i have your opinion please.

Thank you

Alex Lu said...

Hi lai

My take on the 2 stocks are:
1) Instacom

This stock rallied very well recently due to a strong buy report from CIMB (see the Malay Mail report provided by the link below). While I am positive on the acquisition of Vivocom by Instacom, I am not as bullish as the analyst who wrote the report.

In my opinion, there are 2 areas of weakness in that report:
a) We are asked to accept the idea that the new company, Vivocom is a great company that deserves a fair value of RM0.72 per share. With a share base of 2.34 billion, Vivocom is worth RM1.68 billion. If this is correct, why did the owners sold their 78.6%-stake at RM133 million; thus valuing the entire company at RM169 million?

b) We were told that Vivocom is an in-house contractor for CRCC. And, because of that, Vivocom would secure contracts on a negotiated basis with higher profit margins. It didn't clearly state why or how is Vivocom deemed to be an in-house contractor. Is it because it's owned by CRCC or friendly parties? Either way, it is hard to accept that this special arrangement should lead to higher profit margin for Vivocom. A higher profit margin for Vivocom would naturally come at an expense to CRCC. Is this how you treat your 'parent' or 'friends'?

In view of the above, one should be careful in play this stock. The stock may go up and you should take profit when the going is good.

2) Scable

It is still in an uptrend line, with support at RM1.55. Results have been slightly disappointing. However, I believe that it is well-positioned to capture much of the new demand for transmission cables in line with the massive dam building in Sarawak. The future for the company is quite exciting.

lai said...

Thanks for the insight. I guess objectivity as an analyst in todays world is a very hard thing to come by