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Wednesday, September 20, 2017

CIMB: Broke the Intermediate Uptrend Line

CIMB surprised the market this morning with a sharp drop to RM6.22. A quick look at the press revealed that one of its big shareholders, Mitsubishi UFJ Financial Group Inc has sold off 412.5 million shares in CIMB in a range of RM6.15-6.30 yesterday. Institutional investors are like any other investor out there; If the price is right, they will sell.

Beyond the big block changing hand, we can see that CIMB has now broken below its 9-month old uptrend line at RM6.70 (see Chart 1). Recently, CIMB tested its 7-year old downtrend line at RM7.00-7.10 (see Chart 2). Both developments tang the bell for a period of price consolidation for CIMB. I think the stock is likely to trade sideways between RM6.00 and RM6.50 for the next few weeks until the next price direction has been determined by the market. I rate CIMB as a HOLD unless you can sell it above RM6.50 and switch to a cheaper banking stock.


Chart 1: CIMB weekly chart as at Sep 20, 2017_10.00 (Source: Malaysiastock.biz)


Chart 2: CIMB monthly chart as at Sep 20, 2017_10.00 (Source: Shareinvestor.com)

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.

Tech Stocks Looking Toppish

Technology stocks had a good run since the start of the year. We played catch-up after the scorching run in Nasdaq and other stock markets worldwide. Now we can see that the rally may be due for a pullback or consolidation.

Consolidation is not a bad word. After a strong rally, consolidation will allow the market to digest the recent gain and new players to come into the market. Our objective will be to take some profit for our "over-priced" stocks or to avoid buying "over-priced" stocks just before consolidation set in. Of course it is always easier said than done. The old adage that the market will always find a way to prove us wrong, should not deter us from taking action when action is warranted. Instead we should acquaint ourselves with a lesser-known wisdom that it is better to be generally correct than to be precisely wrong. Good luck!


Chart: FBMACE & TECHNOLOGY Indices weekly chart as at Sep 19, 2017 (Source: Shareinvestor.com)

Monday, September 18, 2017

LAFMSIA: Next Upleg Has Begun?

Background

Lafarge Malaysia Bhd (“LAFMSIA”) is involved in the manufacture, sales & distribution of cement and clinker. LAFMSIA is also involved in the production & sales of ready-mixed concrete and trading in building material.

LAFMSIA has the largest installed cement capacity of 14.14 million metric tonnes (MT) and the most comprehensive network of facilities in Malaysia. The group owns integrated cement plants, two grinding stations, over 40 ready-mix concrete batching plants and six aggregate quarries.

Historical Financial Performance

LAFMSIA's revenue & profits have been in a steady uptrend until FY2014. Since then both revenue and profits have been sliding, with sharper decline in profits.


 Graph 1: LAFMSIAs last 19 years revenue & profits

These are two things that I had noted:

1) LAFMSIA's profits slumped during periods of economic downturn like in FY1997 and FY2008, though the profits slump would actually come 2 years later in FY1999 and FY2010.
2) After that, LAFMSIA's profits would recover strongly but that recovery would fizzle out in  5-6 years time and the profits would drop again, like in FY2004-2004 and FY2014-2015.

If the profit slump in FY2005 can be a guide, LAFMSIA should manage to avoid going into the red now despite incurring net losses totaling RM93 million incurred in 1H2017. For that to happen, LAFMSIA must report net profit totaling more than RM93 million in 2H2017. Is that possible? We will have to wait and see. FYI, LAFMSIA's net profit in a good quarter in FY2014 touched RM70 million. SO it is not impossible that it might avoid a loss-making year in FY2017.

Recent Financial Results

In QE30/6/2017, LAFMSIA's net profit dropped 10% q-o-q to RM44 million on the back of a 5%-decline in revenue to RM532 million. The decline in revenue exceeds 19% y-o-y which caused the group to fall into the red, like in QE31/3/2017.

Revenue dropped q-o-q mainly due to lower sales contribution from the domestic Cement and Concrete segments from a weaker market demand attributed to the competitive environment. Despite the lower revenue, the Group’s loss before tax for the current quarter of RM57.9 million has improved slightly compared to RM63.4 million in preceding quarter, mainly due to the lower depreciation charges and improved operating cost as compared with preceding quarter partially offset by lower gain on disposal of property, plant and equipment.

Like the other players in the cement industry, LAFMSIA is hit by the excess capacity and the slowdown in demand due to weakness in property development. The situation may change when the major infrastructure projects, such as LRT3 or MRT2 or ECRL, are expected to take off in 2018.


Table 1: LAFMSIA’s last 8 quarters’ P&L


Graph 2: LAFMSIA’s last 42 quarters revenue & profits

Latest Financial Position

As at 30/6/2017, LAFMSIA's financial position is deemed fair with current ratio at 1.13x and total liabilities to total equity at 0.44x.

Valuation

We are unable to rely on the PER as a valuation model as LAFMSIA has a net loss of RM55 million in the past 4 quarters. Instead we have to rely on the Price to Book valuation model. What I did was to compare LAFMSIA prices during the 3 troughs with its Net Assets & Net Tangible Assets per share. You can see that LAFMSIA was trading fairly close to similar Price/Net Assets or Price/Net Tangible Assets in the previous trough in 2005.


Table 2: LAFMSIA's Price to Book Valuation in last 3 troughs

However LAFMSIA has run up 30% from its recent low without any improvement in earning yet. In that sense, LAFMSIA could be running ahead of its earning and that can be a recipe for a big drawback in price if disappointment ensued.

Technical Outlook

We can see from the weekly chart that LAFMSIA has broken above its immediate downtrend line, S2-S2 at RM6.00 as well as the "horizontal lie" AB at RM5.90. This double breakout has signaled the end of the downtrend and possibly the beginning of the next upleg.


Chart 1: LAFMSIA’s weekly chart as at Sep 15, 2017 (Source: Shareinvestor.com)

Below, you can see LAFMSIA was still in a long-term uptrend line with support at RM5.00.


Chart 2: LAFMSIA’s monthly chart as at Sep 15, 2017 (Source: Shareinvestor.com)

Conclusion

Based on technical breakout, LAFMSIA could be on the path of price recovery. If that panned out, the stock could be a BUY on weakness (at prices closer to RM6.00). However, any price recovery cannot sustain without earning recovery. Thus we should not take too large a position in this stock until we have seen an earning recovery in the quarters ahead. Good luck!

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.

MAGNI: Earnings Plunged

Results Update

Last Thursday (Sep 14), Magni announced its result for QE31/7/2017. Its net profit dropped 49% q-o-q or 17% y-o-y to RM20 million while revenue dropped 2% q-o-q but rose 8% y-o-y to RM294 million.

Revenue dropped y-o-y due to lower Garment revenue which decreased by 0.8% due to unfavorable foreign exchange differences and lower Packaging revenue which dropped 12.7% due to the closure of offset printing packaging business. These were partially offset the higher revenue from the continuing packaging operations which increased by 1.8%.

PBT dropped y-o-y due to lower Garment PBT which decreased by 43.2% mainly due to lower gross profit margin, higher operating expenses and softer revenue; lower Packaging PBT which dipped by 47.9% mainly due to higher raw material costs for corrugated packaging business. In addition, the comparative PBT for the immediate preceding quarter i.e. QE30/4/2017 was inflated by insurance claims (RM0.216 million) and reversal of over provision of business closure costs (RM0.356 million) in QE30/4/2017 by the discontinued packaging operation.

As a result of the sharp drop in profits, Magni cut its dividend to 3.5 sen from 6 or 7 sen in the immediate past 2 quarters. While the dividend cut may conserve its reserve for contingency or for new investment.


Table: Magni's last 8 quarterly results


Graph: Magni's last 42 quarterly results

Valuation

Magni (closed at RM6.16 on Friday) has a trailing PE of 8.6 times (based on last 4 quarters' EPS of 71.39 sen). Albeit the dividend cut, Magni still pays quarterly dividend which totaled 21.5 sen in the past 4 quarters; giving the stock a DY of 3.5%. Overall, Magni is still quite attractively valued.

Technical Outlook

Magni is still in a long-term uptrend, supported by its 10-month EMA line at RM6.00. Below this, Magni may have support from the 20-month EMA line at RM5.00 and then the horizontal line at RM4.50.


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


Chart 2: Magni's weekly chart as at Sep 15, 2017 (Source: ShareInvestor.com)

Conclusion

Despite the sharp drop in earning and dividend cut, Magni is still a good stock for long-term investment based on attractive valuation. After the sufficient price drop, the stock will be more appealing. The good entry level may be between RM5.00 and RM6.00.

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.

Friday, September 08, 2017

Market Outlook as at September 8, 2017

I like to share two interesting developments that may affect our market next week. 

The first thing is USD-MYR  has broken its uptrend line (see Chart 1 below). The movement in that currency pair simply means MYR is gaining on USD. This is due more to weakness in the USD than strength in our MYR. Because if our MYR is really strengthening, we should see SGD-MYR breaking its uptrend line. From Chart 2 below, you can see that SGD-MYR is still in an uptrend- for now.



Chart 1: USD-MYR monthly chart as at Sep 8, 2017_12.30pm (Source: Investing.com)


Chart 2: SGD-MYR monthly chart as at Sep 8, 2017_12.30pm (Source: Investing.com)

As I said before, MYR need only to stabilize for our stock market to regain its uptrend. While we await the strengthening of MYR, we need not be overly pessimistic about the MYR or the economy. I maintain my earlier forecast that our market is likely to go higher in 2018.

The second thought I like to share is the improvement in some sectors in the market. The second liner stocks, as represented by FBM70, are improving. Those who are sitting on their cash, should slowly nibble into beaten down stocks that may not get any cheaper going forward.


Chart 3: FBM70's daily chart as at Sep 8, 2017_12.30pm (Source: Shareinvestor.com)

I think you can consider getting some Plantation stocks or some stocks in the Trading Service sector. I don't have a laundry list of good stocks to look at, except Tenaga. Technology stocks are richly priced. I would take some profit in that sector.


Chart 4: Plantation's daily chart as at Sep 8, 2017_12.30pm (Source: Shareinvestor.com)


Chart 5: Trad/Serv's daily chart as at Sep 8, 2017_12.30pm (Source: Shareinvestor.com)

Good luck and have a nice weekend.

Thursday, September 07, 2017

Tunepro: A Possible Trading Buy

Results Update

For QE30/6/2017 (2Q17), Tunepro's net profit rose 9% q-o-q but dropped 51% y-o-y to RM13 million while revenue rose 3% q-o-q or 7% y-o-y to RM134 million. Revenue came from increase of RM3.2 million in Gross Earned Premium from the Philippines and Middle East markets in general reinsurance business and increase of RM0.6 million in investment income, mainly due to reversal of MMIP investment income in 1Q17. There was a decrease of RM2.0 million in Group's segment profit, from RM15.1 million in 1Q17 to RM13.1 million in 2Q17, due mainly to increases in net commissions mainly from general insurance business. [Note: Tunepro's result for QE30/9/2016 was released on August 18.]


Table: Tunepro's last 8 quarterly results


Graph: Tunepro's last 23 quarterly results

Valuation

Tunepro (closed at RM1.09 yesterday) is now trading at a PER of 14.7 times (based on last 4 quarters' EPS of 7.43 sen). Its dividend yield is about 4.6% (based on dividend payment of 5 sen in FY16). Based on these 2 valuation models, Tunepro is deemed fairly valued.

Technical Outlook

Tunepro broke below the medium-term downtrend line, rr at RM1.02 in late August. It then rallied to a high of RM1.12 before correcting back to about RM1.05. Today, it broke above the recent high of RM1.12- possibly starting its recovery.


Chart 1: Tunepro's daily chart as at Sep 7, 2017_12.30pm (Source: Malaysiastock.biz) 

Tunepro's immediate resistance could be the intermediate downtrend line, RR at RM1.30. If it can also break above this downtrend line, then Tunepro could begin its next upleg.


Chart 2: Tunepro's weekly chart as at Sep 7, 2017_12.30pm (Source: Malaysiastock.biz) 

Conclusion

Despite weaker financial performance and negative technical outlook, Tunepro remains a good stock for a recovery play due to its recent sharp selldown from RM1.60 to RM1.00.

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.

Wednesday, September 06, 2017

KPJ: 1-to-4 Share Split Goes Begging

Background

KPJ is the largest private hospital group in Malaysia, owing a total of 3000 beds which accounts for 23% of the 13,000 private hospital beds in the country. It’s the fifth-largest hospital operator based on market capitalisation in Asia Pacific behind IHH Healthcare Bhd, Apollo Hospitals Enterprise Ltd, Phoenix Healthcare Group Co Ltd and Fortis Healthcare Ltd.

KPJ currently operates 26 hospitals in Malaysia, two in Indonesia and one in Bangladesh and have more than 1,000 medical specialists on board. KPJ has allocated RM1 billion to add seven new hospitals in the country in the next 5 years. Two of the new hospitals will be built in Sarawak, three in Johor and one each in Perlis and the Klang Valley.

Recent Financial Performance 

For QE30/6/2017, KPJ's net profit dropped 16% q-o-q but rose 6% y-o-y to RM32 million while revenue dropped less than 1% q-o-q but rose 4% y-o-y to RM793 million. The drop in profits was caused by a slight drop in gross profit margin (from 30.2% to 29.9%) and increased administrative expenses (by RM10 million) which had more than offset the drop in net finance cost (by RM3 million) and increased share of results of associates (by RM0.6 million). (Note: KPJ's latest result was announced on August 24.)


Table: KPJ's last 8 quarterly results

KPJ's quarterly revenue has been on a steady uptrend for the past 10 years. Its earning has been flattish in the past 5-6 years due to expansion program which led to lower profit margin as higher administrative expenses were not fully absorbed by revenue from the newly hospitals opened.


Graph: KPJ's last 42 quarterly results

Latest Financial Position

As at 30/6/2017, KPJ's financial position is deemed average, with current ratio at 1.0x and total liabilities to total equity at 1.4x.

Proposed Corporate Exercise

In April, KPJ proposed to carry out a share split of 1-to-4 (here). Such a generous share split has caused many a stock to run amok. While we can see similar euphoria in KPJ-WB (see Chart 3 below), the response from KPJ was muted. The main reason is that steady selling by EPF. Strangely, EPF appears to have ceased its selling since early May (here). It's likely that EPF expects better prices ahead once the share split has been implemented. At that point, KPJ will be priced around the RM1.00 and that would make it an affordable stock for the general public; thus inviting speculative activity and higher prices.

Valuation

KPJ (closed at RM4.16 yesterday) is now trading at a PE of 29.5 times (based on last 4 quarters' EPS of 14.08 sen). At this PER, AEON KPJ is over-valued. (Note: IHH is now trading at a PER of about 31 times- based on annualized EPS of 19 sen).

Technical Outlook

KPJ has been moving sideways with a downward bias for the past 3 years. There is no sign that the sideways movement is about to change.


Chart 1: KPJ's monthly chart as at September 5, 2017 (Source: ShareInvestor.com)


Chart 2: KPJ's weekly chart as at September 5, 2017 (Source: ShareInvestor.com)


Chart 3: KPJ-WB's weekly chart as at September 5, 2017 (Source: ShareInvestor.com)

Conclusion

KPJ could be a good speculative stock for a short-term play. While the stock is a good stock for long-term investment, the continuous expansion program is a drag on its earning. This plus the fact that the stock is fully valued make KPJ an unexciting stock, except for one possible short-term play for the 1-to-4 share split.

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.

AJI: Post-Dividend Payout Blue

"Too much of a good thing can be wonderful!" Mae West

A Handsome Windfall, A Bumper Dividend & A Sharp Drop

In February this year, AJI received the award of compensation of RM166 million from the Government for the compulsory acquisition of its factory land located in Jalan Kuchai Lama for the MRT2 project (here). The compensation gave the company a gain on disposal of RM145 million. To reward its shareholders, AJI announced a final dividend and a special dividend totaling RM1.55 per share in May (here) . These dividend entitlements went ex on August 30.

Driven by higher earning (as a result of forex gain) and news of the big windfall from the compulsory acquisition of the above land, AJI share price rose from RM8.00 in late 2015 to a recent high of RM26.48 (recorded on August 8).


Chart 1: AJI's monthly chart as at September 5, 2017 (Source: ShareInvestor.com)

AJI hanged around the RM26 price level for about 2 weeks, and on August 25, it started to slide down. At the close on August 29 (the last cum date for the bumper dividend), AJI closed at RM24.00 (after it dropped to an intraday low of RM23.02). After the ex date, AJI share price continued to drop below its reference price (or, theoretical ex entitlement price) of RM22.45. Yesterday it closed at RM19.98.


Chart 2: AJI's intraday chart as at September 5, 2017 (Source: ShareInvestor.com)

Technical Outlook

Whether you are looking at the unadjusted price chart or adjusted price chart (adjusted for the bumper dividend payment), you can see that the uptrend line of the stock has been violated. The question is where will the share price find its next support and begin to right itself. Since the share price has dropped about 19% from adjusted high of RM24.50, I think the base for corrective move to the upside should kick in soon. I believe that the first support will be at the psychological RM20.00 mark even though the share price closed just below that level yesterday. Beyond that I would refer to the adjusted price chart (on the right hand side) and I see support at RM19.50 (the base formed in June) and then the horizontal line at RM18.60.


Chart 3: AJI's daily chart as at September 5, 2017 (Source: Kenanga/BTX)

Recent Financial Result

AJI's latest quarterly result is for QE30/6/2017, which was announced on August 24. In that quarter, AJI's net profit dropped 95% q-o-q or 40% y-o-y to RM7.9 million while revenue dropped 16% q-o-q or 2% y-o-y to RM96 million. The q-o-q decline is due to two main reasons: huge gain on disposal of the factory land of RM145 million plus the seasonally weaker quarter. The y-o-y decline was attributed to weaker performance from the Consumer Segment, where operating profit plunged from RM10.2 million to RM2.1 million due to lower revenue, higher production cost as a result of higher material costs and higher advertising and sales promotion expenses incurred to promote its products locally and overseas. I believe the financial performance will recover next quarter.


Table: AJI's last 8 quarterly results


Graph: AJI's last 48 quarterly results

Latest Financial Position

As at 30/6/2017, AJI's current ratio stood at 12x and total liabilities to total equity stood at 0.1x. Not many companies listed on Bursa Malaysia can match AJI in term of financial strength.

Valuation

AJI (closed at RM19.98 yesterday) is trading at a trailing PER of 76x (based on adjusted 4 quarters' EPS of 26 sen). The "normal" profit of the company for the past 2 quarters had gone haywire due to the A&P expenses as well as the huge gain on disposal of the factory land (where all kind of "additional" expenses had sprung up). Once AJI net profit returned to normal (~RM12 million a quarter), its PER will stabilize at 26x. At this level, the stock is deemed fairly valued.

Including the recent bumper dividend, AJI has paid out dividend totaling RM3.56 over the past 12 years since I first started tracking this stock. See my first report.

Conclusion

Based on satisfactory financial performance & strong financial position, solid management and unique & established products, AJI is a good stock for long-term investment. The current selldown could be a good opportunity to get into this stock. However, your buying should be gradual as the share price has just broken its long-term downtrend line. Good luck!

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.

Tuesday, September 05, 2017

Axiata: Earning Rebounded

Background

Axiata Group Berhad (“Axiata”) provides various telecommunications products and services in Asia. It has controlling interests in six mobile operators under the brand names of ‘Celcom’ in Malaysia, ‘XL’ in Indonesia, ‘Dialog’ in Sri Lanka, ‘Robi’ in Bangladesh, ‘Smart’ in Cambodia and ‘Ncell’ in Nepal, with strategic interests in ‘Idea’ in India and ‘M1’ in Singapore. The Group has an infrastructure company, ‘edotco’, which operates in five countries to deliver telecommunications infrastructure services, and operates and manages a regional portfolio of over 25,000 towers. For more information on the group, go here.  

Historical Financial Performance

Axiata’s top-line has been on a steady uptrend over the past 10 years. However its bottom-line suffered a decline in the past 5 quarters, with net profit below RM400 million from QE31/3/2016 to QE31/3/2017. It even incurred a net loss of RM309 million in QE31/12/2016. The reasons for the decline in profit (and loss) for these 5 quarters are:
  • amortisation of intangibles assets arising from acquisition of Nepal operation
  • accelerated depreciation in Indonesia & Bangadesh
  • foreign exchange losses
  • higher net finance costs
In QE30/6/2017, Axiata net profit climbed back above the RM400 million. This may mark the beginning of its earning recovery.

Graph: Axiata’s last 42 quarters revenue & profits

Recent Financial Result

Axiata announced its latest quarterly result for QE30/6/2017 last week. Its net profit rose 70% q-o-q or 116% y-o-y to RM407 million while revenue rose 3% q-o-q or 14% y-o-y to RM6.06 billion. The q-o-q improvement in profit was due to improved performance in all major operating companies with the exception of the Cambodian operation. Improved revenue and effective cost management resulted in EBITDA growth by 5.6%. For the quarter, share of results from associates and joint ventures declined by more than 100% mainly as a result of the investment in India. India continues to face intense market aggression arising from the new entrant in the Indian market. PAT improved by 82.8% and PATAMI increased by 70.4% to RM407.2 million contributed mainly by the improved quarter performance by all major operations.

Table: Axiata’s last 8 quarters’ P&L

Latest Financial Position

Axiata’s financial position is relatively weak as at 30/6/2017, with current ratio at 0.66x and total liabilities to total equity at 1.25x. The weak financial position - due to over-expansion - need to be rectified by either capital-raising or partial disposal of its stakes in some of the operating units (such as its tower asset company).

Valuation

Axiata (closed at RM4.93 on August 30, 2017) is now trading at a trailing PER of 75x (based on last 4 quarters’ EPS of 6.6 sen). At this PER, the stock is over-valued. However Axiata may be on the path of recovery. If its net profit can climb back to RM600 million a quarter, its full-year EPS would be about 28 sen - bringing down its PER to 18x. At a PER of less than 20x, Axiata will again be an attractive telco stock.

Technical Outlook

Axiata broke its long-term uptrend in 2015 when its share price went below its 30-month EMA line. Since then, Axiata has been on a downtrend.  

Chart 1: Axiata’s monthly chart as at August 30, 2017 (Source: Shareinvestor.com)

If Axiata can surpass the intermediate downtrend line, RR at RM5.30, the share price recovery may begin.

Chart 2: Axiata’s weekly chart as at August 30, 2017 (Source: Malaysiastock.biz)

Conclusion

Axiata could be a good stock for a recovery play based on tentative sign of earning recovery. It is a home-grown multi-national company with good management, steady revenue growth and, until recently, long track record for profitable operation. However the stock is not cheap as its earning had declined sharply over the past 5 quarters. With earning recovery beckons, Axiata could be a good stock to consider for long-term investment. 

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.

BONIA: Signs of Earning Recovery

Background

Bonia Corporation Berhad (“Bonia’”) is an investment holding company, with subsidiaries involve in the design, manufacture, promotion, marketing, distribution, wholesale, and retail of leatherwear, footwear, apparel, accessories, and eyewear for men and women. Bonia was founded in 1974 and listed on Bursa Malaysia in 1994. For more information on the group, go here. If you wish to Bonia products online, go here.

Historical Financial Performance

Bonia’s top-line has been on a steady uptrend until FY2015. Despite the drop in sales in the past 3 years, Bonis’s bottom-line started to recover in FY2017. The earning recovery was brought about by improvement in gross profit margin (“GPM”) as the Group has adjusted its pricing strategy by introducing higher-margin products, reducing discounts given out to customers, in particularly for Bonia and Braun Buffel brands.

 Graph 1: Bonia’s last 19 years revenue & profits

Recent Financial Result

Bonia announced its latest quarterly result for QE30/6/2017 last week. Its net profit rose 61% q-o-q or 103% y-o-y to RM7.7 million while revenue was mixed - up 2% q-o-q but down 4% y-o-y – at RM154 million. As explained earlier, Bonia’s bottom-line improved due to the improvement in gross profit margin as the Group has adjusted its pricing strategy by introducing higher-margin products, reducing discounts given out to customers for new product ranges, in particularly for Bonia and Braun Buffel brands. The higher PBT achieved also due to lower fair value adjustments on investment properties of RM238,000 for the current quarter as compared to last year’s RM2.66 million.

Table: Bonia’s last 8 quarters’ P&L

Graph 2: Bonia’s last 40 quarters revenue & profits

Latest Financial Position

Bonia’s financial position is deemed healthy as at 30/6/2017, with current ratio at 2.77x and total liabilities to total equity at 0.56x.

Valuation

Bonia (closed at RM0.565 on August 30, 2017) is now trading at a trailing PER of 14x (based on last 4 quarters’ EPS of 3.94 sen). At this PER, Bonia is deemed fully valued. However if earning recovery picks up, valuation may become more attractive.

Technical Outlook

Bonia broke its long-term uptrend line, SS at RM0.70 in late 2015. It has since found support at the horizontal line at RM0.55-0.56. While the MACD indicator has hooked up (a positive sign), long-term uptrend will only commence once MACD has gone above the zero line.

Chart 1: Bonia’s monthly chart as at August 30, 2017 (Source: Shareinvestor.com)

The weekly chart is mildly negative, with the MACD indicator just below the zero line. Will the support at the horizontal line at RM0.55 stop the slide? We will have to wait and see.

Chart 2: Bonia’s weekly chart as at August 30, 2017 (Source: Malaysiastock.biz)

Conclusion

Bonia could be a good stock for a recovery play based on tentative earning recovery. It is a well-established company with good management and a long track record for profitable operation and steady sales growth. However the stock is not cheap as the green shoots of earning recovery have only begun to sprout. If you like to get into a beaten down stock and ride on its recovery, Bonia could be a good stock to do so.

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.