Canone- profit soared due to exceptional item

Results Update

In QE31/3/2012, Canone's net profit soared 6-fold q-o-q or 22-fold y-o-y to RM91 million while revenue increased by 9% q-o-q or 39% y-o-y to RM182 million. The improved profit was attributed to Share of Profit from Associates of RM88 million. This new exceptional item can only come from the newly-acquired associate, Kian Joo. I think the description of the item may not be accurate. The proper description should be excess of Share of Net Assets of Associates of RM329 million over the price paid for the Acquisition of RM241 million.

Note: Kianjoo reported a pre-tax & net profit of RM33.5 million & RM27.2 million, respectively. For more, go here.


Table: Canone's last 8 quarterly results


Chart 1: Canone's last 14 quarterly results

Valuation

Canone (closed at RM2.15 yesterday) is now trading at a PE of 10 times (based on last 4 quarters' adjusted EPS of 21 sen [with the exceptional gain of RM88 million excluded]). At this PE multiple, I believe Canone is still attractive, with potential upside of 10-20%.


Technical Outlook

Canone's share price is trapped within a triangle. If it can break to the upside of that triangle, ABC at RM2.25, the share price could continue its prior uptrend.

 
 Chart 2: Canone's daily chart as at May 29, 2012 (Source: Tradesignum)

Conclusion

Based on good financial performance, promising prospects flowing from its successful acquisition of Kianjoo & attractive valuation, Canone is a good stock for long-term investment.