Friday, June 22, 2018

Superln: Earning Failed to Back Up Recent Price Rally

Result Update

In QE30/4/2018, Superln's net profit dropped 63% q-o-q or 78% y-o-y to RM1.4 million while its revenue dropped 7% q-o-q or 22% y-o-y to RM25 million. Revenue dropped q-o-q mainly attributable to lower insulation sales volume and competitive pricing environment in the current quarter.  The drop in the sales volume was mainly attributed to the fewer workdays resulting from festive holidays, weak local market sentiment prior to the Malaysian General Election and competitive global market. The competitive pricing environment, lower sales volume, coupled with higher cost in production resulting from installation and commissioning of machinery in the production process led to the group registering profit before tax of RM1.4 million in the current quarter as compared to RM5 million in the preceding quarter. Profit after tax of the Group has decreased by RM2.3 million to RM1.4 million as compared to preceding quarter.


Table: Superln's last 8 quarters' results


Graph: Superln's last 21 quarters' results

Valuation

Superln (closed at RM1.52 yesterday) is now trading at a trailing PER of 20x (based on last 4 quarters' EPS of 7.7 sen). At this PER, Superln is deemed fully valued.

Technical Outlook

Superln peaked in August 2017 and went into a steady decline that's captured by the downtrend line, RR. That decline caused the stock to break its long-term uptrend line, SS at RM1.65 in March. In May, the continuous price decline has formed a bottom when the share price managed to climb back above the intermediate downtrend line, RR. From here, Superln will form a base to launch its next upleg. Until then, it is likely to move sideways.


Chart: Superln's weekly chart as at Jun 21, 2018 (Source: Malaysiastock.biz)

Conclusion

Based on weaker financial performance and mildly negative technical outlook, Superln is rated as a SELL until earning has improved or technical outlook has changed.

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.

4 comments:

Jim said...

Hi Alex,

Can you kindly comment on TM?

Thanks.

Tay Sz said...

Dear Alex,

Notice the revenue is raising. However, that did not translate into real profits, could you help us to reason why it is manipulating by management relevant to recent slump of Malaysian Ringgit or due to other.

Please help to reasons.

Thank you

Best Regards
Tay SZ

Alex Lu said...

Hi Jim,

There are many reports out there on TM. Please refer to them as those dedicated analysts will probably have a deeper insight to this stock than I would. I can only give you the technical outlook. I think the stock is likely to stay above RM3.00 which is the long-term uptrend line, which stretches back to 1998.

In the medium-term, I think the share price will not go up much due to uncertainty about the pricing of its products and its earnings outlook. You can take your time to buy this stock on weakness.

Alex Lu said...

Hi Tay Sz,

Superln's profit has dropped sharply mainly due to
1) decrease in total gross profit contributed as a result of competitive pricing environment, lower sales volume, higher cost of materials coupled with unfavorable exchange rate movement; and
2) higher cost in production resulting from installation and commissioning of machinery in the production process.

The latter is worth noting; the company's PPE rose from RM56 mil in Apr 2016 to RM72 mil in Apr 2017 and to RM78.5 million in Apr 2018. Such a steady expansion program will support a strong growth in sales. However Superln's sales did not expand as fast as anticipated- leading to under-absorption of production overhead. This will lead to smaller profit.

This is not a bad thing. In fact it is a very natural development for any company undertaking an expansion program to experience a few quarters of under-absorption (or under-recovery) of production overhead. The thing to look out for next is this; once sales cross a critical threshold, the under-absorption will no longer be an issue and profit will rise rapidly. That will soon drive share price up sharply.

If you like this company (like me), then you wait for that to happen.

Good luck!