MEGB- keeps sliding away

Results Update

MEGB's net profit dropped by 52% q-o-q or 79% y-o-y to RM5.5 million while its turnover dropped by 7% q-o-q or 24% y-o-y to RM61 million. The drop in top-line is due to more stringent entry requirement while bottom-line suffered due to lower turnover as well as higher staff cost & depreciation charges.


Table: MEGB's last 10 quarterly results



Chart 1: MEGB's last 10 quarterly results (with profit margin)

Valuation

MRGB (closed at RM1.15 as at end of morning session) is now trading at a trailing PE of 14.4 times (based on average quarterly EPS of 2 sen from the past 2 quarters). With the contraction in the top-line 7 bottom-line, MEGB should trade at lower PE multiple than 14.4 times. I would not be surprised if it trades at a PE multiple of 10-12 times in the near future.

Technical outlook

MEGB has broken below its short-term uptrend line at RM1.30 (coinciding with the 20-day SMA line). It may continue its prior downtrend & revisit its recent low at RM1.08.


Chart 2: MEGB's daily chart as at Nov 18, 2011 (Source: Tradesignum)

Conclusion

Based on poor financial performance & technical outlook, MEGB is rated as a SELL.