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Thursday, March 16, 2017

SCGM: Earning Growth Stagnated

Results Update

In QE31/1/2017, SCGM's net profit was mixed- rose 29% q-o-q but dropped 1% y-o-y to RM7.0 million while revenue rose 9% q-o-q or 23% y-o-y to RM46 million. Revenue increased q-o-q and y-o-y due to increased sales demand from both local and export customers. PBT rose q-o-q due to increase in gain on foreign exchange and interest income but it dropped y-o-y due to higher cost of production attributed by increase in resin price, higher depreciation of property, plant and equipment, higher consumption of electricity power and packing materials.

 
Table: SCGM's last 8 quarterly results

 
Graph: SCGM's last 32 quarterly results

Valuation

SCGM (closed at RM3.82 yesterday) is now trading at a PE of 23X (based on last 4 quarters' EPS of 16.20 sen). With earning growth stagnating, the high PER is not easy to justify. Going forward, SCGM anticipates more states will follow in the footsteps of Selangor to ban the use of polystyrene lunch boxes and this should lead to a huge demand for the products of the company.

Technical Outlook

SCGM is in a long-term uptrend, supported by its 10-month SMA line at RM3.40 (see Chart 1). Last 2 weeks, SCGM broke above June 2016 high of RM3.65. This may signal the continuation of the prior uptrend.


Chart 1: SCGM's monthly chart as at Mar 15, 2017 (Source: ShareInvestor.com)


Chart 2: SCGM's daily chart as at Mar 15, 2017 (Source: ShareInvestor.com)

Conclusion

Despite the demanding valuation, I revised my previous rating from HOLD to a Trading BUY based on satisfactory financial performance, promising prospect and bullish technical outlook.

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.

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