ULICORP: Painful Fall!

Technical Update

To say that Ulicorp had a tough week is an understatement. The stock started the week at above RM6.00. And, over the past 4 days, it had broken through 4 supports: the psychological RM6.00 support and the horizontal support levels at RM5.50, RM5.00 & RM4.50. Until the stock has found a base, the safest course of action is to avoid the stock.

The drop in the share price has prompted BURSA to issue an UMA query to the company which elicited the standard reply (here). To me, the stranger thing is that the exchange did not issue an UMA query for the steady rise in the share price over the past 2 years.


Chart 1: Ulicorp's weekly chart as at Aug 18, 2016 (Source: ShareInvestor)


Chart 2: Ulicorp's monthly chart as at Aug 18, 2016 (Source: ShareInvestor)

Background

United U-Li Corporation Bhd ('Ulicorp') is involved in the manufacture and trading of cable support systems, integrated ceiling systems, steel roof battens and building materials.

Historical Financial Performance

From the 9-year P&L below, we can see that Ulicorp's revenue has risen from RM140 million to RM180 million. Its PBT rose from RM22 million in FY2012 to RM35 million in FY2015. While the increase is commendable, it is by no way outstanding.


Chart 3: Ulicorp's last 9 yearly results

Recent Financial Results

The last 10-quarter P&L can clearly shows the steady improvement in earnings in the past 2 years.


Chart 4: Ulicorp's last 10 quarterly results


Table: Ulicorp's last 10 quarterly results

Valuation

Ulicorp (closed at RM4.40 yesterday) is now trading at a trailing PER of 23x (based on last 4 quarters' EPS of 19.36 sen). This elevated PER is not justified by high growth; its earnings grew by 16% last 4 quarters- giving it a PEG ratio of 1.4x. Thus the stock is richly valued even after its sharp drop!

Conclusion

Based on the demanding valuation & bearish technical outlook, Ulicorp is rated a SELL.

Note: After the sharp plunge in the past 2 days, I was quite surprised that I had posted on this stock before (here & here). Regrettably I did not make a TAKE PROFIT call earlier.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.