MEGB reported its results for QE30/6/2011 on August 26. Its net profit declined by 49% q-o-q or 48% y-o-y to RM11.6 million while its turnover also dropped by 11.0% q-o-q or 14.7% y-o-y to RM65.8 million. The drop in its net profit was attributed to higher depreciation charges & staff costs due to its on-going expansion. MEGB would require higher revenue in order to recover the increased overhead. Instead, MEGB's revenue declined. This is a very worrying sign. From Note 3 to the account, we can see the decline was attributable to two factors:
1. Lower PTPTN loan for diploma students, from RM60,000 to RM45,000. This caused MEGB to reduce its student fee to RM50,000.Unless, these two factors are revised, I believe MEGB's financial performance would not recover anytime soon. MEGB has always targeted students from the lower income group which are very dependent on PTPTN loans.
2. The intake requirement has been raised from 3 credits to 5 credits in SPM examination.
Table: MEGB's last 9 quarterly results
I have appended below the charts for MEGB's top-line & bottom-line performance for the past 9 quarters as well as the profit margin during the period. We can clearly see that MEGB's profit margin began to slide almost immediately after its listing. In the past 2 quarters, MEGB's revenue has been sliding due to reasons stated above.
Chart 1: MEGB's last 9 quarterly results
Chart 2: MEGB's last 9 quarterly profit margin
Financial Position
As at 30/6/2011. MEGB's financial position is deemed satisfactory with current ratio at 4 times & negligible gearing of 0.1 time. It has cash in hand of RM132 million as well as Receivables, Deposit & Prepayment of RM130 million. It is quite normal to collect some fees or deposit upfront which are either booked in as cash or Receivables, Deposit & Prepayment.
Valuation
MEGB (closed at RM1.21 now) is trading at a PE of 10 times (based on annualized EPS of 12 sen). At this PE multiple, MEGB is deemed fairly valued.
Technical Outlook
MEGB has broken its strong horizontal support at RM1.60, which happened to be its recent low. A new all-time low is a very bearish development and MEGB would have to find some support somewhere & recover from the persistent selling. Could it find this support at the psychological RM1.00 level? Only time will tell.
Chart 3: MEGB's daily chart as at Sept 2, 2011_3.00pm (Source: Quickcharts)
Conclusion
Based on poor technical outlook & financial performance, MEGB is expected to slide further. While the temptation to buy into the stock is alluring due to the sharp decline, the stock could be a value trap as it could get even more attractive as the price continued to slide. I believe a recovery is only possible once the revenue has stabilized & begins to recover. Another stock with a similar problem is Haio.
Hi Alex,
ReplyDeleteHartalega announced an encouraging earning result while Supermax is an unexpected surprise. I would expect the other latex glove manufacturers to be in the similar situation to Supermax. What do you think ? Any more insight on the overall glove business ?
Hi Alex,
ReplyDeleteAnalyst from NetResearch under CBRS scheme have malton target price of RM 1.60, that is more than 230% potential upside !!!. I've never seen such a high percentage target from analyst report. Is it too good to be true or just merely too bullish, miss-guide investor.
For conservative and be realistic, i think 30% upside potential should be more attainable. What do you think?
Alex, do you have investment idea on Brem holding. Its business model very similar with PBA, defensive and have consistent income derived from water concessionaire, but with additional growth factor from property development. Brem currently trade cum cash dividend of 5sen + share dividend of 1: 25 + bonus 1:4
What is your opinion for those investor who is holding the share in this volitile market?
ReplyDeleteHi Chun Mun
ReplyDeleteTime like this, you wish you are not holding too much shares. A few months ago, you wished you were holding more shares. If you find yourself in such predicament, just put yourself in another time frame and your mind should calm down. If it didn't, then you are probably having too much stocks. Sell some (or all) and you would regain your sense of balance or control.
In the book, Pit Bull, Martin Schmartz ( here ) talked about changing gears in tune with the market outlook. If you are in the wrong position, you can't think right. In the chapter entitled "Don't short the Republican", Martin lost USD800k by shorting the S&P futures. When he told his wife (who is his business partner as well) his position, the wife told him coolly to cut the position & take the loss. "You can always make back your losses", she told him. He did just that & felt much better. Then he slowly claed his way up again & by the end of the year, he recovered all his losses. That's an example which may help us in this difficult time.
Hi hng
ReplyDeleteYes, I agree with you. The report on Malton looks a bit too good to be true. However, you can never tell. In my 5 years of analyzing stocks, there were a few occasions when I came across stocks that are too good to be true. Examples: TWS, HPI, Harison & AJI. I remember calling a BUy on AJI and my good friend laughed at me. Who knows?
I am not familiar with Brem. Chartwise, it is still in an accelerated uptrend line, with support at RM1.42-1.45. If that uptrend line is broken, the long-term uptrend line may kick in. That uptrend line support is at RM1.27-1.30.
Hi sookpeng
ReplyDeleteHartalega did better than expected while Supermax did not. The difference is of course due to the product mix, with Hartalega heavily producing nitrile gloves while Supermax producing more rubber gloves. However, with every player shifting into nitrile glove, Hartalega's margin would be under threat. The market is anticipating that and it is now pricing it into the stock. That's why Hartalega is not rising.
Rubber glove sector is still weighed down by negative factors, such as high latex cost (or rising input cost for nitrile glove); rising fuel cost; and unfavorable forex movement. However, bad times do not last forever. You need to continue to track this sector and get in when it bottoms out.
Megb fiasco.
ReplyDeletewhen share price drops we say somethings are wrong wth the company whether fundamentally or technically.
The fact is seller overcome buyer at this point of time, you can say whatever u like abt the company after the price drops or rises.
Hi Unknown
ReplyDelete"The fact is seller overcome buyer at this point of time, you can say whatever u like abt the company after the price drops or rises".
How succinct you've put it! It is like a killer explaining to the judge, "The victim died because I killed him." You have the time to spare, do check out my take on MEGB ( here ).