Adventa- running on the spot

Results Update

Adventa announced its results for QE30/4/2011 yesterday. Its net profit increased by 13% q-o-q but declined by 29% y-o-y to RM4.6 million, while turnover was lowered by 2% q-o-q but increased by 29% y-o-y to RM104 million. From Chart 1, we can see that the company's turnover has been rising steadily since 2006 while profit has been flattish during the same period, except for the steady decline in the past 4-6 quarters. This decline is attributable to higher input cost (especially, latex cost) which Adventa had failed to pass on completely to its customers. However, the latex prices are expected to decline further and this could lead to better financial performance for Adventa & other rubber glove producers. See Chart 2 below.


Table: Adventa's 8 quarterly results



Chart 1: Adventa's last 25 quarterly results


Chart 2: RSS3 prices from 2002 to June 2011 (Sorce: Rubbernet)

Valuation

Adventa (closed at RM1.96 yesterday) is now trading at a PE of 10 times (based on last 4 quarters' EPS of 19 sen). At this PE multiple, Adventa is deemed full value.

Technical Outlook

Adventa has been declining since it peaked at RM3.55 in January 2010. It broke the psychological RM2.00 level 2 days ago. Its next support is the long-term uptrend line at RM1.90 & then the horizontal line at RM1.85.


Chart 2; Adventa's weekly chart as at June 29, 2011 (Source: Quickcharts)

Conclusion

Based on recent financial performance, valuation & technical outlook, one would be hard pressed to make a case to invest in Adventa. However, the stock has been beaten down so much that its downside is likely to be limited. For those who have this stock, I think you are better off holding onto it. For the others with a contrarian streak & a long-term view, I believe investing in Adventa at RM1.85-1.90 level can be considered. Just don't bet your farm on it!