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Thursday, March 17, 2016

Topglov: Earnings Dropped Sequentially on Strengthened MYR

Results Update

For QE29/2/2016, Topglov's net profit dropped 18.5% q-o-q but rose 86.6% y-o-y to RM105 million on the back of a revenue which had similarly dropped 13.3% q-o-q but rose 21.2% y-o-y to RM693 million. PBT dropped q-o-q due to the weakening USD, as well as intense competition in the nitrile glove segment as well as the increase in natural gas price. [Like Kesm's recent result, Topglov's financial performance is extremely sensitive to forex movement. Going forward, we can expect current quarter result of other exporters will be lower if MYR continue to strengthen.]

 
Table: Topglov's last 8 quarterly results


Chart 1: Topglov's last 39 quarterly results

Valuation

Topglov (traded at RM5.20 yesterday) is now trading at a PE of 15.8 times (based on last 4 quarters' EPS of 32.87 sen). At this PE multiple, Topglov is fairly valued. [Topglov had implemented a 1-for-1 bonus issue in January.]

Technical Outlook

Topglov broke its intermediate uptrend line, S1-S1 at RM5.50 in late January. Since then it had been struggling to stay above the RM5.00 mark. Its trading range was quite wide- as high as RM5.89 and as low as RM4.79. Failure to stay above the RM5.00 psychological mark could see the stock dropping to the horizontal line at RM4.30 or even the long-term uptrend line at RM3.80.  



Chart 2: Topglov's weekly chart as at Mar 16, 2016 (Source: ShareInvestor.com)


Chart 3: Topglov's monthly chart as at as at Mar 16, 2016 (Source: ShareInvestor.com)

Conclusion

Despite a drop in earning and a mildly negative technical outlook, Topglov is still a good stock for long-term investment based on fairly attractive valuation and good industrial outlook. The rating is revised from BUY to 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, Topglov.

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