Tuesday, December 11, 2007

MSNiaga, a possible contrarian buy


Mesiniaga Bhd ('MSNiaga') is involved in sale & service of IT products & related services. Its subsidiaries are involved in the provision of management training, consulting & outsourcing services and sales of networking cables & related products.

Past 5-year Financial Performance

The group's turnover has been increasing steadily from RM230 million to RM322 million, from FY2002 to FY2005. In FY2006, its turnover dropped marginally to RM316 million. I expect current year's turnover to equal that of FY2006. Pre-tax profit, which was maintained at RM27 million for FY2002 & FY2003, dropped to RM23 million in FY2004-2006. This is likely to drop further to RM10 million in the current year.

Recent Financial Results

MSNiaga's net profit for QE30/9/2007 increased by 43.9% q-o-q or 82.4% to RM3.5 million. Its turnover has increased by 7.1% to RM85.8 million from RM80.1 million recorded in the same quarter last year. Nevertheless, the turnover is lower than the preceding quarter's turnover of RM108.5 million.

MSNiaga suffered a net loss of RM1.7 million in QE31/3/2007 when its turnover dropped to RM42.6 million due to the deferment of projects.

Current Financial Position

As at 30/9/2007, MSNiaga's financial position is deemed satisfactory. Its liquidity position is healthy as reflected by its current & quick ratio of 3.14 & 2.94, respectively. Gearing ratio is negligible at 0.06 times. In term of working capital management, one will note that the inventory's turnover period has improved slightly from 17 days as at 31/12/2006 to 13 days as at 30/9/2007. If there is any concern about MSNiaga, it must be its high Trade Debtors figure. This has increased from RM153.2 million as at 31/12/2006 to RM165.3 million as at 30/9/2007, or 160 days to 176 days. I do not know the quality of these debtors and would have to depend on the management to determine whether these debtors are collectible. Presumably, any doubtful debts have been adequately provided for.


Based on MSNiaga's closing price of RM1.64 as at December 12th, the stock is trading at a trailing PE of 11.0 times (using its past 4 quarters' EPS of 15.0 sen) or 0.6 times its book value (using its NTA per share of RM2.80 as at 30/9/2007).

Technical Outlook

From Chart 1, we can see that MSNiaga share price has been drifting lower since making a high of RM18.90 in February 2000 (no doubt benefiting from the dotcom bubble). During the period from May 2005 to June 2007, the stock was trading between RM2.40-2.90. In July 2007, the the strong horizontal support of RM2.40 gave way & the stock trended lower (see Chart 2). From the low of RM1.60, MSNiaga has rebounded to test its downtrend line resistance at RM1.65-68 in the past 4 days. Unable to break through this resistance, the price is drifting lower again. A break above this downtrend line could potentially signal a temporary bottom for the stock.

Chart 1: MSNiaga's monthly chart as at December 11 (courtesy of Quickcharts)

Chart 2: MSNiaga's daily chart as at December 11 (courtesy of Quickcharts)


MSNiaga is a very attractive stock at the current level, where it is trading at a PE of 11.0 times its trailing earning or 0.6 times its book value. Ignoring the all-time high of RM18.90 recorded in the dotcom bubble period of 2000, the share price is substantially lower than its high of RM4.00-6.00 in 2002-2003. A sustained recovery in the Malaysian economy may see stronger spending in ICT industry; thus benefiting MSNiaga. At the current price, MSNiaga could have discounted substantially all its bad news.

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