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Wednesday, April 26, 2017

Gtronic: Earnings Improved

Result Update

For QE31/13/2017, Gtronic's net profit dropped 27% q-o-q but rose 27% y-o-y to RM4.7 million while revenue rose 7% q-o-q but dropped 15% y-o-y to RM50 million. Revenue rose q-o-q due to the higher volume loadings seen from some of the Group's customers. Lower net profit achieved was mainly due to forex loss (net) of RM0.6 million recognized in the income statement as compared to preceding quarter forex gain of RM3.1 million; and start-up expenses incurred amounting to RM0.7 million.


Table: Gtronic's last 8 quarterly results


Chart: Gtronic's last 44 quarterly results

Valuation 

Gtronic (closed at RM5.25 yesterday) is now trading at a PE of 55 times (based on last 4 quarters' EPS of 9.47 sen). At this elevated PER, a lot of positives had been factored into the share price. Any earning disappointment will not be well-received.

Technical Outlook

Gtronic had a strong rally over the past 8 months, from the low of RM2.60 in August 2016 to the current price of RM5.25. That's a 67%-retracement of the decline of RM4.90 from its high of RM6.50 in December 2015 to the low of RM2.60 in August 2016. A 67% Fibonacci retracement is a very significant  retracement where the market may take a pause. I believe the stock could correct back to RM5.00 before going higher.


Chart: Gtronic's weekly chart as at April 25, 2017 (Source: Malaysiastock.biz)

Conclusion

Based on improving financial performance, Gtronic can be a good stock for long-term investment. However, its demanding valuation & the sharp rebound may lead to a correction in the near-term. Some profit-taking may be a good idea at this stage. 

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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