TWSPlnt- top-line & bottom-line soared

Background

TWS Plantation Bhd ('TWSPlnt') is involved mainly in the cultivation of oil palm, owning estates measuring 127,000 hectares in Peninsular Malaysia and Sabah & Sarawak.

Recent Financial Results

Fr QE30/6/2011, its net profit increased by 85% q-o-q or 224% y-o-y to RM90.1 million while its turnover increased by 46% q-o-q or 74% y-o-y to RM336 million. The increased top-line & bottom-line is attributed to higher production of FFB.


Table: TWSPlnt's last 8 quarterly results



Chart 1: TWSPlnt's last 13 quarterly results

Financial Position

TWSPlnt's financial position as at 30/6/2011 is mixed, with current ratio at 0.43 time while debts to equity ratio is at 0.43 time. The lower current ratio is due to high short-term borrowings taken to finance its estate development. This mismatch of asset & liability maturity profile could be a problem in the event of a credit crunch where the bankers may withdraw their line of credit. TWSPlnt is better served by replacing these short-term borrowings with term loans or loan stocks with longer tenor.

Valuation

TWSPlnt (closed at RM3.49 yesterday) is now trading at a PE of 8 times (based on last 4 quarters' EPS of 43 sen). Is TWSPlnt currently at or near the peak of its earning cycle? That depends on the outlook for CPO. At the moment, CPO is still in a medium-term downtrend line, with resistance at RM3300. Its immediate support is at the horizontal line at RM3100 & then at the psychological RM3000 level. Thereafter, CPO may find support at the horizontal line at RM2700 (which may be its long-term uptrend line).


Chart 2: CPO's weekly chart from August 18, 2011 (source: ifs.marketcenter.com)

Technical Outlook

TWSPlnt has broken below its 20-week SMA line. If it break below its 40-week SMA line at RM3.31, TWSPlnt's uptrend for the past 1 year could be over. Even at the present moment, TWSPlnt looks very toppish.


Chart 3: TWSPlnt's weekly chart as at August 15, 2011 (Source: Tradesignum)

Conclusion

Based on its recent financial performance & valuation, TWSPlnt looks like a good stock for long-term investment. However, the concern about the sustainability of its earning & the poor technical outlook should cause one to think twice before getting into this stock now. Nevertheless, it is definitely worth close tracking, but it could be a good long-term buy if it dropped to the level of RM2.00-2.50.