Tong Herr amazes with continued net profit growth

Tong Herr Resources Bhd ('Tongher') is involved in the manufacture & sale of stainless steel fasteners such as nuts, bolts, screws & other threaded items. Yesterday, Tongher announced its results for QE30/9/2006 where its net profit increased by 86.5% q-o-q or 324.7% y-o-y to RM20.7 million. Turnover has increased by 38.3% q-o-q or 94.7% y-o-y to RM88.2 million. The increased turnover is attributable to the commencement of operation of its Thailand-based subsidiary in December 2005. In addition, Tongher's profitability may have benefited from the production of more special and customized items and high-margin product lines.

Due to the sharp rise in net profit, Tongher's EPS for QE30/9/2006 is at 24.39 sen. If this earning can be maintained going forward, Tongher's EPS for full-year could be as high as 97.56 sen. At 3.00 p.m. (November 29), Tingher is trading at RM4.00. At this price, Tongher's PE is about 4.1 times, which is still relative inexpensive.

From the weekly chart below, you can see that Tongher has broken out of its rising wedge at RM3.50 level in October. The next resistance was RM3.90, which was broken today. Tongher could revisit its high of RM4.30 recorded in December 2004.



Based on cheap valuation, I believe Tongher is still attractive investment despite having risen by about 80% in the past 12 months (i.e. from RM2.20 in December 2005 to RM4.00 at 3.00 p.m. today).