Haio- time for some profit-taking

Results Update

Haio has just announced its results for 3Q2010 ended 31/1/2010. Its net profit dropped by 10.8% q-o-q to RM18.0 million on the back of a marginally 1%-drop in turnover to RM131.3 million. Compared to the previous corresponding quarter (QE31/1/2009), its net profit increased by 50.2% while turnover was 29% higher.

The lower turnover on a q-o-q basis was due to lower sales recorded by MLM & retail division. This coupled with higher personnel expenses & A&P expenses led to a decline in net profit.

This is the second q-o-q decline for Haio. The last time Haio had a q-o-q decline was in QE31/10/08 & QE31/7/08. This coincided with a fairly significant consolidation in Haio during that period (see Chart 1& 3 below).


Table: Haio's last 8 quarterly results
Note: EPS, DPS & NTA have been adjusted for the recent share split & bonus issue.


Chart 1: Haio's last 20 quarterly results

Valuation

Haio (closed at RM4.68 on March 19) is now trading at a PER of 13 times (based on EPS of 36 sen for the last 4 quarters). Based on steady growth in both top-line & bottom-line over the past few years (albeit an occasional q-o-q decline), Haio could easily trade at PER of 15-18 times. Assuming a PER of 15 times, Haio's fair value is RM5.40.

Technical Outlook

Haio has risen from about RM1.40 in March 2009 to a high of RM4.90 a few days ago. There are two negative signs appearing on Haio's daily chart (Chart 2). Firstly, we can see 2 shooting stars formed, which indicate a potential temporary top. Secondly, we can see some weakness in the Slow Stochastic, which has slid lower, indicating a built-up of bearish forces.

Haio's immediate support is at the horizontal line of RM4.50 & the 20-day SMa line of RM4.35. A break below RM4.35 could trigger more prolonged consolidation.


Chart 2: Haio's daily chart as at Mar 19, 2010 (Source: Tradesignum)


Chart 3: Haio's weekly chart as at Mar 15, 2010 (Source: Tradesignum)

Conclusion

Based on 2 quarters of decline in both top-line & bottom-line & potentially bearish technical signals, I believe that some profit-taking in Haio may be a good idea. However, I believe that Haio is still a good stock for long-term investment due to its past steady growth and possible further upside in its valuation.