Wednesday, October 19, 2011

ENG- positive trading in the face of negative news

There is a report in the Star newspaper about ENG's Thailand plant being inundated by flood (here). This gives ENG's problem a much wider publicity than the announcement in Bursa yesterday. In technical analysis, if a stock does not drop any more on bad news, that's a positive development. Conversely, if a stock does not rise on good news, that's a negative development. It simply means that the good news or bad news have been fully factored into the price.

ENG has not only not dropped on this bad news, it has actually risen to close at RM1.57 as at end of the morning session. If the stock can close at a price higher than yesterday's close, that could be a definite positive for the stock. If the next day (or next few days), ENG can climb back above yesterday's high of RM1.72, then ENG's sell-off could have ended. The fact that the stock is now trading at a price higher than yesterday's close is an indication that the sell-off is now sputtering.


Chart: ENG's daily chart as at Oct 19, 2011_12.15pm (Source: Quickcharts)

If the stock can close with a small gain today, I believe those who having the stock should hold onto the stock and wait for the recovery that may come.
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4 comments:

  1. AnonymousWednesday, October 19, 2011 2:10:00 PM

    Hi Alex

    Totally agree, Eng rise as high as 1.65 in early morning, but ease off a bit to trade at 1.58 end of morning session. As yesterday selloff was mainly in response to Eng bursa announcement. similarly, potential relief could be come the settlement of the flood condition in Thailand.

    In the Eng balance sheet, its has about 110m fixed assets (property+ plant and equipment) and cash of 80.8m (net cash 25m)

    With management guide that 50% asset is from Thailand (55m) and assuming only 60% success rate of insurance coverage, Eng could potentially write off as much as 22m assets, which is still within Eng capacity by increase its capex for new plant+ equipment replacement.

    In summary, Eng buyout offer of RM 2.50 could potentially adjusted downward by 35sen to RM 2.15, that is after take into account fully year write off earning of 20.6m + 22m assets impairment, equivalent to 35sen per share.

    ReplyDelete
  2. Alex LuWednesday, October 19, 2011 4:23:00 PM

    Hi Hng,

    I think your numbers are about the same as mine. I think the losses/damages from fixed assets & inventory write-off could be about RM5-10 million and opportunity lost of could be RM5-10 million. Again, it is a rough estimate. I think the management is also not sure how bad is the situation.

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  3. AnonymousWednesday, October 19, 2011 5:23:00 PM

    Hi Alex

    What could be possible reason for JCY rally to as much as 30%?

    Is JCY overtake Eng business opportunity?

    ReplyDelete
  4. Alex LuWednesday, October 19, 2011 5:26:00 PM

    Hi hng

    JCY was spared from the flood . I guess it would benefit from ENG's misfortune. I agree that the rally is too sharp at this stage. It is hard to make a case to get into the stock at the current price.

    ReplyDelete