Results Update
Guanchg's net profit increased by 14.5% q-o-q or 76.5% y-o-y to RM34.4 million while turnover increased by 15.4% q-o-q or 23.6% y-o-y to RM335 million. The improved bottom-line is mainly attributed to higher turnover (which was boosted by a full-quarter contribution from its new cocoa processing plant in Batam), net gains from forex derivatives as well as appreciation of the Ringgit. This is contrary to my expectation (here). I believe this is partly due to the continued rise in cocoa prices (see Chart 2 below). As long as cocoa prices are in an uptrend, I believe Guanchg's financial performance would still be satisfactory.
Table: Guanchg's last 8 quarterly results
Chart 1: Guanchg's last 23 quarterly results
Chart 2: Cocoa prices from 2006 up to yesterday
Valuation
Guanchg (closed at RM2.60 yesterday) is now trading at a PE of 6.4 times (based on annualized EPS of 40.56 sen). At this PE multiple, Guanchg is still fairly attractive.
Technical Outlook
Based on the weekly chart (plotted on log scale). Guanchg has broken its uptrend line. Since then, it has moved sideway.
Chart 3: Guanchg's weekly chart as at August 8, 2011_plotted on log scale (Source: Tradesignum)
Conclusion
Based on the good financial performance, I believe Guanchg is worth a HOLD. It is not rated a BUY due to its uncertain technical outlook. In addition, I am inclined to be cautious on any stock which had rallied significantly in such a short period.
Guanchg, the rising of top-line and bottom line is not because of doing good for their business, but they go to speculate the commodities future.
ReplyDeleteAlso the cash version bank borrowing ratio is not encouraging, any losses uncured in derivative may kill the company ... More info at moolah website
Hi Ethan,
ReplyDeleteI agree that Guanchg's exceptional performance is partly due to successful hedging strategy. That could explain why the market is wary of the stock at the current price.
At the first glance on recent quarter report's balance sheet, it fails the acid test. The company might have trouble to pay the bills. High risks and should avoid no matter how good / bad is the technical outlook.
ReplyDeleteHi Sunny
ReplyDeleteHow did it fail the acid test? In term of current or quick ratios? I know its inventory has soared from RM156 mil as at 31/12/2010 to RM265 mil from 30/6/2011. I am not worried about the inventory turnover because this is an easily disposable commodity. I am a bit concerned by market risk, in term of price volatility. However, it is possible that the management has taken measures to hedge that risk.