TSH- at a critical crossroad

Result Update

For QE30/9/2012, TSH's net profit was mixed; rose 12% q-o-q but dropped 53% y-o-y to RM16.3 million. Revenue dropped 7% q-o-q or 5% y-o-y to RM260 million. The decline in net profit y-o-y was due to lower CPO prices, lower FFB output, higher fertilizer dosage & prices, lower share of profit from JV entities & forex losses of RM10.6 mil.


Table: TSH's last 8 quarterly results


Chart 1: TSH's last 18 quarterly results

Valuation

TSH (closed at RM2.24 yesterday) is now trading at a PE of 25 times (based on last 4 quarters' EPS of 8.81 sen). At this PE multiple, TSH is deemed overvalued.

Technical outlook

From the two charts below, we can see that TSH, which was in a strong uptrend in the past 18 months, has peaked. A possible Head-&-Shoulder (HS) formation has formed, with the neckline support at RM2.15. If this stock breaks below the neckline, the HS formation will be a HS reversal. In technical analysis, HS reversal is feared as it is one of most reliable reversal patterns. Once this pattern is confirmed, the stock is expected to go into a downtrend. (Note: The opposite of a HS reversal is the reversed HS reversal where the stock, which was in a downtrend, would change its price direction to an uptrend). However, a failure to break the neckline of a HS formation could lead to the stock continuing in its prior uptrend. Here, we have the expression that what doesn't kill you can only make you stronger!


Chart 2: TSH's daily chart as at Nov 20, 2012 (Source: Quickcharts)


Chart 3: TSH's weekly chart as at Nov 20, 2012 (Source: Quickcharts)

Conclusion

Based on poorer financial performance, demanding valuation & potentially negative technical outlook, I would rate TSH as an AVOID or REDUCE.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, TSH.