TGuan's net profit rebounded in QE31/12/2007

In October last year, I have posted about TGuan , a company involved in the manufacturing of plastic & paper products; plastic packaging products; and tea, coffee & other related consumer products (go here). I have noted that TGuan was a laggard trading at very attractive multiples. The word 'laggard' does not describe TGuan correctly. Its share price was clearly moving in a downtrend.

TGuan has however reported an improvement in its topline & bottomline in QE31/12/2007 (go here). This turnaround appears to be gaining traction with the announcement of the results for QE31/12/2007. For QE31/12/2007, TGuan's net profit increased by 82.6% q-o-q or 260.9% y-o-y to RM9.7 million. Turnover increased by 4.3% q-o-q or 16.1% y-o-y to RM143 million. For FY2007, TGuan's net profit only declined by 3.3% from RM21.6 million to RM20.9 million, while its turnover has increased by 11.4% from RM470 million to RM523 million. The lower net profit for FY2007 was attributable to higher raw materials cost, higher freight cost, increased interest expenses & operational losses from its newly set-up subsidiary in China,



TGuan (closed at RM0.82 as at Feb 29) is now trading at a trailing PE of 4 times (using its last 4 quarters' EPS of 19.8 sen) or at a Price to Book of 0.45 times (using its NTA per share of RM1.83 as at 31/12/2007). Thus, TGuan is deemed inexpensive.

Technically speaking, TGuan's share price is in downtrend. If we ignore the extreme prices, a downtrend line (in red) can be drawn. One might also draw a downward channel (including the extreme prices, like the 2 parallel black lines drawn by me). A recovery above the psychological RM1.00 level could be the beginning of the bottoming-out process. To follow the technical rule, the worst is over when the share price breaks above the downtrend, either at RM1.30 (as per the red line) or at RM1.45 ( as per the upper channel).


Chart: TGuan's 5-year daily chart as at February 29, 2008 (courtesy of TradeSignum.com)

Based on improving financial performance & attractive valuation, TGuan is a very good candidate for a contrarian play.

Note: Some contrarians follow one rule regarding risk management, which I would like to share with you. The rule is that if the share price dropped more than 20% from the entry price (presumably at RM1.10 as per the first post), one should dispose of the share & stay on the sideline until the share price had surpassed the original entry price. This rule may be a real hassle, but one must follow some rules in investing or in trading.