Sin Chew may have broken above its downtrend

Background

Sin Chew Media Corp Bhd (“Sinchew”) is the publisher of the country’s largest circulated Chinese newspaper, Sin Chew Daily and Guang Ming Daily. The controlling shareholder of Sinchew is Tan Sri Tiong Hiew King, a Sarawak tycoon.

Other information

Recently, Tan Sri Tiong has acquired a 21.01% stake in Nanyang Press Holdings Bhd via Ezywood Options Sdn Bhd. Nanyang has informed that the collective interest of Ezywood and persons acting-in-concert in Nanyang would increase to 44.76% from 23.74%. Nanyang is the publisher of the country’s oldest Chinese newspapers, Nanyang Siang Pau.

Recent Financial Return

Sinchew’s cumulative net profit for the last 4 quarters amounted to RM54.3 mil, which represents a drop of 9.5% as compared to the preceding 4 quarters’ bottomline. During the periods under consideration, its turnover has increased marginally by 2.4% from RM460 mil to RM472 mil.

Valuation

Based on the last 4 quarters' EPS of 18.0 sen & today's closing price of RM2.67, Sinchew is now trading at a PE of 14.8 times. This is almost the fair value by common yardstick. However, I believe Sinchew, like other media stocks, would benefit in the light of the improvement in the economy going forward.

Technical Outlook

From Chart 1, we can see that Sinchew has been in a downtrend since achieving a high of RM3.50 in October 2005. Its recent low was at RM2.50 in September 2006. From Chart 2, we can see that Sinchew had tested that low again in December 2006 & bound back.

A break above the immediate downtrend line at RM2.58/60 would confirm a reversal of the downtrend for the stock. Today, the stock did just that when it went up with good volume & touched a high of RM2.69 before closing at RM2.67. Nevertheless, Sinchew had similar strong upsurges in the past 3 months (all 1-day affairs), which did not sustain. As such, we must track the current move closely & make an entry only if it can sustain for more than 1 day.


Chart 1: Sinchew's weekly chart as at Jan 10


Chart 2: Sinchew's daily chart as at Jan 10

Conclusion

If the current move can sustain for more than one day & the price stays above RM2.60, Sinchew could be a good buy for the medium-term.