TWS's net profit increased by 56% q-o-q or 153% y-o-y to RM193 million while its turnover increased by 14% q-o-q or 89% y-o-y to RM1.591 billion. The increase in net profit was mainly due to the favourable performance achieved by all three operating divisions, Rice, Sugar and Plantation.
Table: TWS's last 8 quarterly results
Chart 1: TWS's last 10 quarterly results
Valuation
TWS (closed at RM8.08 at the end of the morning session) is now trading at a PE of 4.9 times (based on its last 4 quarters' EPS of 165 sen). For a consumer stable stock (with plantation exposure) to trade at such low PE multiple is exceptional. I believe this stock could easily trade up to a PE multiple of 12-15 times. TWS has undoubtedly benefited from the favorable commodities prices. Would a reversal in the commodities prices result in smaller price margin? If we were assumed a sharp decline in earning of 50% (to 82 sen) & then conservatively value the stock at a PE of 12 times, its fair value would be about RM9.84!
Technical Outlook
Applying the same projection method used in the case of TChong, we can see that TWS's current rally might hit a price of RM15.00.
Chart 2: TWS's monthly chart as at Feb 2, 2011 (Source: Tradesignum)
Conclusion
Based on good financial performance, attractive valuation & bullish technical outlook, TWS is a good stock to invest for the long-term.
Hi Alex
ReplyDeleteTWS is indeed very cheap. But will the high gearing be a concern?
Hi Alex :
ReplyDeleteTWS is a stingy counter whereby it only paid out a megre dividend of 10-20 cts per 1000 shares since last given out rt and bonus in year 93 to 95. The PE is around 16 times and not as low as what is reported . So all in all , nothing surprises to minority shareholders except that it has made quite alot but sadly only keep for themselves. Thus it is up to each intelligence either to buy or to sell? The choice is yours !!!
Hi JY
ReplyDeleteI have dealt with the issue of high gearing in my previous 2 posts. See the extracts below:
Post dated Dec 1, 2010
One of the main concern for TWS is its stretched Balance Sheet. As at 30/9/2010, its current ratio is satisfactory at 1.6 times while its debt to equity is at 1.2 times. In my opinion, the slightly higher leverage is understandable since TWS has substantial exposure in the trading sector (via its Rice & Sugar divisions). It would be too conservative to expect lower leverage in trading operation in the consumer stable businesses, such as Rice & Sugar.
Post dated Aug 26, 2010
The main concern for this stock is the high gearing position after the acquisition of Bernas. From Table 2 below, we can see that the gearing ratio is very high at 1.28 times while liquidity position as reflected in its current ratio is adequate at 1.26 times. As 54% of the bank borrowings are classified under current liabilities, they are most likely used to finance its working capital requirement. As such, I believe the gearing is not excessive though it would be good if the company can raise its capital & bring down the gearing ratio to below 1 time.