Tuesday, November 27, 2007

Tongher testing strong support of RM3.36-40

Tongher has just announced its results for QE30/9/2007 . Its net profit declined by 38% q-o-q or 26% y-o-y to RM15.2 million while its turnover of RM139 million is slightly lower than that recorded in QE30/6/2007 but 58% higher than that reported in the same quarter last year. The poor performance was attributed to lower demand for its products, which coupled with higher raw material costs, has resulted in a drop in its profit margin.

The share price has dropped back since making its high of RM4.53 recorded on October 1st. The sharp price run-up in September & October preceded the bonus issue of 1:3, which went ex on October 16. Since then, the share price has corrected back about 22% (based on yesterday's closing price of RM3.52). In this morning session, the share price dropped 12 sen to close at RM3.40. This is very near the strong horizontal support of RM3.36-40 level, where a rebound may happen. If this support is violated, then the share price may test its uptrend line support at RM3.06-10 level. The uptrend line support could be a entry level for this very well-managed company.

Based on the last 4 quarters' EPS of 61 sen, Tongher is now trading at a trailing PE of 5-6 times. We do not know what's Tongher's future EPS will be, but assuming that it is 30% lower than the last 4 quarters' EPS, Tongher could be earning about 43 sen per share. Thus, at the price of RM3.40, it may be trading at a future PE of 8 times. Even at this adjusted earning, Tongher is still an attractive stock. Watch this stock closely.

Chart: Tongher's weekly chart as at November 26 (courtesy of Quickcharts)

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