Haio reported its results for 2Q2011 ended 31/10/2010. Its net profit dropped 21% q-o-q or 70% y-o-y to RM6.1 million while its turnover declined 4% q-o-q or 60% y-o-y to RM53 million. The poor results is attributable to "the lower contribution from the MLM division and unusually, sales during Ramadhan month were significantly lower". The poor performance of the MLM division is due to "the slower membership growth" which is in turn due to the "recent amendments to the Direct Sales Act appear to have affected the confidence of the direct selling industry".
Table: Haio's last 8 quarterly results
Chart 1: Haio's 23 quarterly results
Valuation
Haio (closed at RM2.83 as at 10.00am) is now trading at a current PE of 20 times (based on the annualized EPS of 13.96 sen derived from the 1H2011 EPS of 6.98 sen). Without a quick recovery, Haio's share price would continue to drift lower as investors discount the stock to an acceptable PE (possibly to 15 times earning). As such, Haio's fair value could be about RM2.10.
Technical Outlook
Haio may test its long-term uptrend line at RM2.75-2.80 soon. While this is a strong support level, the continued poor performance may bring forth more selling which would severely test the uptrend line. We will have to wait & see whether the stock would stage a decent rebound from here.
Chart 2: Haio's monthly chart as at Dec 1, 2010 (Source: Tradesignum)
Conclusion
Based on weak financial performance & unattractive valuation, Haio is a stock to be avoided for now. However, it may enjoy a technical rebound from the long-term uptrend line support at RM2.75-2.80.
Haio used to be paying huge dividends prior to the amendment to direct selling act which has affected its MLM division drastically. It has touched a height around RM 10 and after the bonus issues , its price has dropped to around RM 2.85 and thereafter shot up to RM 3.25. It then stabilised to 2.85-2.96 i.e the present price. Given the unforseen scenario esp on rules and regulations stipulated by the govt, do you think this counter may spring back in the near future ? Could this stock reaches its height again that say RM5 ?
ReplyDeleteHi ayseng
ReplyDeleteCould Haio reach RM5? Who knows... I am still tracking this stock because there is always a chance that this out-performer may recover from the rut & put into another scorching run.
HAIO had a shake-out on 30/9 and marked the low of 2.70. The volume was 7.4mil. Today it has gone down to 2.80 (lowest) and the volume as per writing: Slightly more than 500k.
ReplyDeleteWhat does this mean? There's no more weak holders! This looks like a low volume test.
Hi Kelvin Yam
ReplyDeleteThat's a sound analysis. The bullish divergence angle that your analysis has thrown is worth noting. Let's see whether the selling would be exhausted over the next few days & some rebound may kick in.
Hi Alex, don't mind give some feedback on Mahsing??
ReplyDeleteCan you please comment on the high inventory by coastal contracts. I find everything is good except for the high inventory. I would like agree with you that it is a good long term investment but can you advice on the entry price? Thanks!
ReplyDeleteHi Alex,
ReplyDeleteMerry Christmas and Happy New "Bull" Year 2011.
Thanks for all your analysis and kind comments. Appreciate it very much.
Cheers.
Hi Raymond Y
ReplyDeleteMahsing is testing its horizontal support at RM1.80. If that failed, it may test its uptrend line at RM1.70. The latter would be a good entry to this stock, provided it does not break.
Hi KMeng
ReplyDeleteCoastal had explained in a few research reports over the years that it produces some vessels not to customers' order but for its inventory of finished goods (or vessels). This creates some problem as its Balance Sheet carries high inventory. Under normal Financial Management principles, a high inventory would lead to an assumption of poor inventory management & the need for some provisioning. It would also lead to high working capital & the need for debt financing. This may explain Coastal's lower PE multiple as the investment community would always value the stock at a discount.
Coastal has been trading in a sideway fashion for the past 8 months. It has good horizontal support at RM2.10 & RM2.00- which could be good entry level to the stock.
Some analyst even recommended SELL for Haio when they predicted that this stock may test at 1.60-1.70 or even lower ? Your comment that this stock may stabilise at 2.85-2.96 will be a challenge in the near term. Given all the unkind words thrown at this counter at the moment , do u still think that this stock is a GOOD BUY at the prevailing price?
ReplyDeleteHi leslieroycarter
ReplyDeleteI did not say that "this stock may stabilise at 2.85-2.96". What I stated was "it may enjoy a technical rebound from the long-term uptrend line support at RM2.75-2.80". "Based on weak financial performance & unattractive valuation, Haio is a stock to be avoided for now". In my estimation, "Haio's fair value could be about RM2.10".
HAIO has formed a bottom reversal bars on 22/12 and 23/12, which has strength in it, or Sign of Strength (SOS). If the price range near RM2.52 is being tested (down bar + very low volume), it would show that the supply has been exhausted. Guess what happen when there's no more supply?
ReplyDeleteHi Kelvin Yam
ReplyDeleteYou mentioned about Haio's trading on Dec 22 & 23 where it seems to have found support at the psychological RM2.50 level (also a horizontal line support) & staged a gradual recovery. This could be a temporary bottom where a bear rally may set in & push the price up to the downtrend line resistance at RM2.90. Can it break above the downtrend line? We will have to wait & see. I am inclined to sell into the rally.
At this stage, it is important to note that Haio has broken its long-term uptrend line support at RM2.75-2.80. That's based on the log scale monthly chart.
Based on extremely disappointing financial performance & poor technical outlook, Haio is a SELL. If you chose to trade the bear rally, you better set a tight protective stop. And... good luck.