Topglov announced its results for QE31/5/2011 yesterday. Its net profit inched up marginally by 1% q-o-q to RM25.6 million n the back of a 10%-increase in turnover to RM535 million. Compared to the same quarter last year, its net profit dropped by 60% while turnover was off by 4%. Topglov explained its steadier q-o-q performance as follows:
Despite the ongoing headwinds of high latex price and weaker US dollar, the Group managed to show an improvement in PBT. The continuous price revision on latex glove prices and the long-standing business relationship with its customers had enabled it to seek their understanding in passing on part of the increased raw material costs to them, which enabled it to reduce the impact on the PBT.
Table 1: Topglov's last 8 quarterly results
Chart 1: Topglov's last 20 quarterly results
Valuation
Topglov (closed at RM5.26 yesterday) is now trading at a PE of 24 times (based on last 4 quarters' EPS of 21.38 sen). At this PE multiple, Topglov is over-valued. If there is no improvement in its earning soon, Topglov's PE multiple would roll over & the share price would come tumbling down. However, this doesn't seem to be the reflected in the price chart.
Technical Outlook
Despite the deterioration in its financial performance over the past 4-5 quarters, the over-valuation as well as the recent negative news on the hike in natural gas prices, Topglov has been holding very well above the RM5.00 mark. The dichotomy between the fundamental forces & the technical picture shows the stock has strength.
Looking at Chart 2, Topglov is trading within an ascending triangle. Since prices have moved very close to the apex of the triangle, a moment of decision is coming up. The price could either break upward or downward. If the market cannot decide, then the price will continue to trade sideway & exit the apex at RM5.30-5.40 level. If so, Topglov would enter into a trendless or sideway trading. On the other hand, a breakout in either direction would point the price direction for the next few weeks or months to come.
Chart 2: Topglov's daily chart as at June 17, 2011 (Source: Tradesignum)
From the monthly chart (Chart 3), we can see that Topglov is still quite far above the 40-week SMA line (equivalent to 200-day SMA line) as well as the long-term uptrend line. These 2 lines would provide support at RM4.00-4.10 level in the event of a breakdown in Topglov.
Chart 3: Topglov's monthly chart as at June 1, 2011 (Source: Tradesignum)
Conclusion
As noted, the stock is holding very well at the present price level of RM5.00-5.40 despite the barrage of negative news. Technical analysts look to this positive reaction as a sign of strength. As such, I would recommend to those who have the stock to HOLD. I cannot recommend a BUY as the stock is overvalued & it has poor visibility.
Hi Alex,
ReplyDeleteThe breakout of Sapcres seem like very likely to success. Whats ur opinion?
Tx!
Hi Alex,
ReplyDeleteCan you comment on MRCB as it breakout the resistance level at 2.25 but drop back below this level after that.Please advice.
Thanks
Hi Alex,
ReplyDeleteHow is Harta doing in terms of technical?
Hi vincent
ReplyDeleteMRCB is in an uptrend. If we use the 200-day SMA line as a proxy for the uptrend line, then the support is at RM2.10.
A medium-term downtrend line, which started in January 2011, has capped any upside move over the past few months. If it can break above that downtrend line at RM2.32-2.34, the stock's uptrend may continue.
Hi Fabien Wong
ReplyDeleteHarta's chart is quite confusing since March 2010. In late May 2010, it broke its accelerated uptrend line at RM5.00. The last attempt to recover above that uptrend line failed in July 2010 and then the stock dropped to a low of RM3.94. Drawing a line connecting the July 2010 low & the low of mid-Feb 2009, we have a new uptrend line. The support of this line is at RM5.25-5.30.
For the past 4 months, Harta has been range-bound between RM5.30 & RM5.75. I believe this will continue until it pumps into the new uptrend line. When that happens, we may see the slow rebound that may bring the stock up to its recent high of RM5.96. On the other hand, if the stock were to break below this uptrend line as well as the psychological level of RM5.00, we may see another round of decline for the stock, possibly to the level of RM4.00. However, the latter is a very bearish scenario which is very unlikely at this stage. I am confident that Harta is a good stock for long-term investment and the good entry level is RM5.00-5.30.
Thanks Alex for the input. Harta is a fundamentally good stock, well managed co with high return and strong balance sheet. However, the price is trading between 5.30 - 5.70(like u mentioned) for months and the volume is low. I hope there will be a rerating soon or perhaps a M&A target since Latexx had moved ahead becoming the largest nitrile maker after the its merger with YTY.
ReplyDeleteI'm starting to monitor GAB too. Today's low is 10.02 closed at 10.10. Only realised after market close. If below 10, i'll jump in.
ReplyDeleteHi Fabien Wong
ReplyDeleteGAB is at its 1-year old uptrend line support of RM10.00. A break below this support could send the stock to the 200-day SMA line at RM9.50. Both are good support levels and if you are interested to get in, you need to calibrate your position accordingly.
Hi Alex,
ReplyDeleteI compared Top Glove with its peers (Kossan, Latexx, Supermx) and noticed that Top Glove PE is the highest. Any idea why it is so ? Is it the faith the market has in Top Glove management or something else ? What I observed is Top Glove has almost no debt while the rest w/ certain amount of debt.
Technically, it makes sense to sell Top Glove and buy the others based on fundamentals. Appreciate your expertise advice.
Hi sookpeng
ReplyDeleteI cannot add further to what I have written about Topglove & the other players. Topglove may command a higher price because it is the market leader. Two other players that can rival Topglove are Supermax, the current number two player and Hartalega, the most profitable player. However, Hartalega's high profit level will slowly be eroded as more & more players switch their production from natural rubber latex gloves to nitrile gloves.
For M&A play, Adventa looks very interesting. It has a sizable position in surgical gloves market which the others are eying. I think Topglove would like to get a head start & buy up Adventa.