CSCStel: Earnings May Have Peaked

Results Update

CSCStel's net profit dropped by 17% q-o-q to RM24.2 million on the back of a 4.5%-decline in revenue to RM258 million. When compared to the corresponding quarter last year, net profit rose 137% despite a 16%-drop in revenue.. Revenue dropped q-o-q due to significant decrease in the sales volume. Profit before tax dropped q-o-q due mainly to significant drop in sale of our higher priced higher margin products and substantial increase in raw material cost.


Table: CSCStel's last 8 quarterly results


Graph: CSCStel's P&L for last 36 quarterly results

Valuation

CSCStel (closed at RM1.99 yesterday) has a PER of 8.2 times (based the last 4 quarters' EPS of 24.42 sen). At this PER multiple, CSCStel is deemed fairly valued.

Technical Outlook

CSCStel rallied from a low of RM0.90 in September last year to a high of RM2.20 in October.We can see that the share price is within a large "upward channel" with resistance from the upper line, RR at RM2.10-2.20.


Chart 1: CSCStel's monthly chart as at Nov 16, 2016 (Source: ShareInvestor.cm)

From the weekly chart, we can see the MACD has hooked down though it has not crossed below the MACD signal line. +DMI is still above -DMI, indicating uptrend. ADX has hooked down, signaling a weakening of the uptrend momentum. While the indicators have yet to give a negative reading, the signs are there that the stock could have made a temporary top. Taken together with the monthly chart study above, I am inclined to believe that the risk is on the downside for now.


Chart 2: CSCStel's monthly chart as at Nov 16, 2016 (Source: ShareInvestor.cm)

Conclusion

Based on the weaker financial performance and recent sharp rally, I am revising my rating for CSCStel from a HOLD to a TAKE PROFIT.

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.