Coastal's profit margin dropped sharply

Results Update

Coastal has just announced its results for QE31/3/2012. Despite higher revenue (which increased by 6% q-o-q or 49% y-o-y to RM233 million), Coastal's net profit dropped 40% q-o-q or 45% y-o-y to RM30.8 million. The company attributed the drop in its bottom-line to a decline in profit margin. What else?!


Table: Coastal's last 8 quarterly results


Chart 1: Coastal's last 31 quarterly results

Valuation

Coastal (closed at RM1.88 yesterday) is now trading at a PE of 5.5 times (based on last 4 quarters' EPS of 34.29 sen). At this multiple, Coastal is deemed fairly attractive.

Technical Outlook

I have drawn three parallel lines on the chart below. These lines seem to act as support & resistance against which Coastal's share prices would bound off. Presently, Coastal is breaking the middle line at RM1.90. This could be followed by a downward move towards the lower line (where support is at RM1.20-1.30).


Chart 2: Coastal's weekly chart as at May 24, 2012 (Source: Tradesignum)

Conclusion

Coastal is a stock worth close tracking as it is quite attractively priced. However, its financial performance is a bit weak in the past few quarters. My unconventional technical approach has just issued a red flag, anticipating a downward move in the stock. On balance, I would suggest that we avoid this stock for now, given the poor market condition.