Muda's net profit increased sharply

Muda has just announced its results for 1Q2008 ending 31/3/2008. Its net profit increased by 106% q-o-q or 542% y-o-y to RM18.8 million. Turnover, which increased by 21.8% y-o-y from RM154.4 million to RM188.1 million, is however lower by 6.9% when compared to the preceding quarter. Against a backdrop of higher sales prices, the decline in the turnover indicates that the demand for Muda's products had slipped.



I have tabulated Muda's segmental performance below:



From the above, we can see Muda had benefited from the improved profitability of its Paper Milling Division & the reduction in the losses incurred by its Paper Packaging Division. The Paper Milling Division is enjoying an upward trend in paper prices, which is due to the tight supply of raw material & higher crude oil prices, while the Paper Packaging Division is enjoying a stable market brought on by limited supply of imported paper & higher input costs. While Muda expects the favorable market for paper products to continue for the rest of the year, I believe that Muda's improved performance may not sustain for very long based on the following:

1. Demand for paper products has declined due to higher selling prices; and
2. Higher input costs may eventually lead to an erosion in margin.

There were a few announcements of staffs exercising their ESOS over the past few days. Normally, an exercise of ESOS is a prelude to a sale. This may indicate that some of Muda's staff believe that Muda share is fairly valued at the present price.

Muda (closed at RM0.73 as at May 28th) is now trading at a trailing PE of 6.6 times (based on last 4 quarters' EPS totaling 11 sen) or at a P/Book of 0.52 times (based on NTA per share of RM1.39 as at 31/3/2008). As such, Muda is fairly attractive.

Muda share price has a strong run-up after breaking above its trading range of RM0.30 to RM0.48 on April 16th. The breakout was noted in this post. A break above RM0.75-76 could signal further upside, while a break below RM0.63-64 would lead to the opposite.


Chart: Muda's daily chart as at May 28th, 2008 (source: Quickcharts)

Based on attractive valuation & improving financial performance, Muda could be a good stock for long-term investment. Investing in Muda after the recent sharp rise in its share price may not advisable. As noted, we have seen some profit-taking by insiders (i.e. Muda's staff) at the present price level. As such, a more prudent approach could be to slowly sell into strength.