VS: Earnings dropped

Result Update

For QE30/42016, VS's net profit dropped by 30% q-o-q or 27% y-o-y to RM19 million while revenue rose 1% q-o-q or 21% y-o-y to RM508 million. VS's PBT dropped q-o-q due to lower gross profit margin resulting from weakening of USD against MYR.


Table: VS's last 8 quarterly results


Chart 1: VS's last 45 quarterly results

Valuation

VS (closed at RM1.19 yesterday) is trading at a trailing PE of 8.5 times (based on last 4 quarters' EPS of 14.04 sen). At this PER, VS (a cyclical stock) is deemed fairly valued.

Technical Outlook

VS has been trading sideways since it broke below its 21-week SMA line in January. The stock is supported by the horizontal line at RM1.10.


Chart 2: VS's weekly chart as at June 30, 2016_11.00am (Source: ShareInvestor.com)

On the monthly chart, VS seems to have peak. MACD has crossed below the MACD signal line while the momentum is easing back.


Chart 3: VS's monthly chart as at June 30, 2016_11.00am (Source: ShareInvestor.com)

A different view can be seem when we put the 10-year monthly chart side-by-side with the profits chart. The stock peaked when earnings peaked. Earnings for the current cycle appear to have peaked. Thus it is likely that share price would also have peaked.



Chart 4: VS's 10-year monthly chart and profits chart (Source: ShareInvestor.com)

Conclusion

Based on weaker financial performance, a potential peak in earnings and the transitioning from uptrend to sideways in the technical outlook, I would rate VS as a SELL INTO STRENGTH.

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, VS.