Salcon poised for a bullish breakout?

Background

Salcon Berhad ('Salcon') is a water infrastructure builder and concessionaire, offering value-added services in the investment, design, construction, commissioning, operation and maintenance of water and waste-water treatment plants.

Salcon’s orderbook as of August 2009 is reported to be about RM1.2 billion and it is currently tendering for more than RM1.5 billion worth of new jobs. For more on Salcon, check out this September article in the Edge as well as this recent post by Malaysian-Finance.

Recent Financial Results

Based on the results for QE30/6/2009, Salcon's net profit increased by 97% q-o-q or 74% y-o-y to RM6.4 million while turnover increased by 40% q-o-q or 80% y-o-y to RM112 million. The better performance was attributable to new construction projects as well as concession income from China. The results for QE30/9/2009 will be announced before the end of the month.


Table 1: Salcon's 8 quarterly results

One of the strong point for Salcon is the steady growth in both its top-line & bottom-line over the past 2 years (see the chart below).


Chart 1: Salcon's 8 quarterly results

Valuation

Salcon (closed at RM0.60 in the morning session) is now trading at a PE of 21 times (based on the last 4 quarters' EPS of 2.8 sen). At this PE multiple, Salcon is fully valued.

Technical Outlook

Notwithstanding the high valuation, Salcon looks appealing from the technical perspective as the share is on the verge of a possible upside breakout of a triangle. The breakout level is at RM0.625.


Chart 2: Salcon's daily chart as at Nov 18, 2009 (Source: Tradesignum)

Conclusion/Comment

Salcon is poised for a possible upside breakout. A catalyst for a bullish rally may come if Salcon announced a good set of results for QE30/9/2009 (expected in the next few days). Watch out for this stock.