WWE- a very good set of results for 3Q2006

Background

WWE is mainly involved in the undertaking of water, wastewater and other related environmental projects. Yesterday (August 22), it has announced a very good set of financial results for 3Q2006. The net profit increased by 52.7% q-o-q or more than 7-fold y-o-y to RM6.1 mil. Turnover has also jumped by 51.5% q-o-q or more than 2-fold y-o-y to RM109 mil. The cumulative latest 4 quarters' net profit increased by 55% to RM 7.4 mil from RM 4.8 mil in the preceding cumulative 4 quarters. This is on the back of an almost 3-fold jump in turnover from RM 55 mil to RM 264 mil.

The improved performance is due to the booking in of the jobs done for the Jelutong Sewage Treatment Plant and Central Sludge Facility Phases 1 and 2 in Penang Island (contract sum: RM468,260,693 & contract period: 36 months from December 1, 2004).

In addition, WWE has also been awarded an overseas contract via Letter of Award dated December 11, 2004 for the Construction Of Branch Sewer Networks in North Central Districts of Jeddah by Civil Works Company Ltd (CWC) of the Kingdom of Saudi Arabia (contract sum: Saudi Riyal 408,000,000 [RM417million] & contract period: 32 months from June 4, 2005).








Valuation

In the latest 4 quarters, WWE booked in EPS totaling 17.87 sen but the latest 2 quarters' EPS is actually higher at 24.04 sen. This is because of WWE registered a loss in QE30/9/2005 of RM 3.7 mil, partly due to impairment loss of RM 1.58 mil & higher operating expenses. If we compute the full year's EPS basing on the latest 2 quarters' EPS of 24.04 sen, it will come to an amazing figure of 48 sen. While this maybe more reflective of the current performance of WWE, I would discount it by 30% to take into account some risks that we have overlooked. So, the "final" EPS is 33 sen.

Based on this & WWE price of RM 0.83 now (at 9.30 a.m. Aug 23, 2006), the PE is a very low 2.5 times.

Technical Picture

The weekly chart (Chart 1) shows WWE to be in a downtrend line with a bullish breakout at RM0.80. At the opening bell this morning, WWE has already done a breakout. From the daily chart ( Chart 2), you can see that the support given by the current ST uptrend line at RM0.70 would be an ideal entry to this stock.

















Chart 1: WWE's weekly chart as at Aug 22

















Chart 2: WWE's daily chart as at Aug 22

Recommendation

Based on the above, WWE looks like a very good investment. Since the share has jumped this morning, you may choose to stagger your buying in case the share price were to retrace the current bullish spur.