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Thursday, April 28, 2016

Tienwah: Weaker Earnings on Lower Sales

Result Update

For QE31/3/2016, Tienwah's net profit dropped 52% q-o-q but rose 168% y-o-y to RM5.6 million while revenue declined by 15% q-o-q or 6% y-o-y to RM82 million. Tienwah's PBT dropped q-o-q mainly due to lower sales & the absence of a one-off gain of RM2.1 million on disposal of 50% in TVP. Sales dropped due to changes in pricing of some products to a major customer and the impact of TVP's operation being de-consolidated from 31//12/2015 as a subsidiary to a JV entity. This was partially offset by sales to a new multinational tobacco company customer.


Table: Tienwah's last 8 quarterly results
 
Despite the sharp drop in Tienwah's top-line - due to the 2 reasons given above - I believe that this level is likely to be maintained and earnings could possibly rebound a bit.


Chart 1: Tienwah's last 37 quarterly results

Valuation

Tienwah (closed at RM2.37 yesterday) is trading at a trailing PE of 6.1 times (based on the last 4 quarters' EPS 38.86 sen). If the one-off improvement due to depreciation reduction (a result of change in useful life duration amounted to RM2.1 million, booked in in QE30/9/2015) and the gain of RM2.1 million on disposal of 50% of TVP (in QE31/3/2016), the rolling EPS would drop to 34.5 sen & the trailing PER would rise to 6.9 times. At these multiples, Tienwah's valuation is deemed fairly attractive.

Technical Outlook

Tienwah is trading very near to the horizontal line of RM2.30. If it can surpass the downtrend line, RR at RM2.50, it may begin its next upleg.


Chart 2: Tienwah's weekly chart as at Apr 27, 2016( (Source: Share Investors)

From the monthly chart below, we can see that Tienwah is in an upward channel, with resistance at RM3.00 & support at RM1.70. The stock is not likely to test either resistance or support anytime soon. Its immediate support is the above horizontal line at RM2.30 which happens to be the area where 10-month SMA & 20 & 30-month EMA lines converged. This maybe a good entry level for the stock.

 
Chart 3: Tienwah's monthly chart as at Apr 27, 2016((Source: ShareInvestors) 

Conclusion

Based on improved financial performance and fairly attractive valuation, Tienwah is a good stock for long-term investment.

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, Tienwah.

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