Willow- exciting times ahead?

Background

Willowglen MSC Bhd ("Willow") is involved in the research, development & supply of computer-based control systems (aka SCADA). Its systems can cater for a wide range of applications in key areas such as water management industry, oil & gas pipeline systems public utility systems & integrated monitoring systems. Its main market continues to be Singapore and Malaysia while its Indonesia operations are at development stage where it focuses in providing SCADA and security solutions to the data centers, utilities and building facilities industries. 

Recent Financial Results

For QE31/12/2012, Willow's net profit increased by 44% q-o-q or 63% y-o-y to RM6.0 million while revenue increased by 22% q-o-q or 74% y-o-y to RM27 million. It expects sales to improve further in FY2013 due to the growing demand for SCADA and security solutions in the transportation, oil and gas, water and waste-water industries and security of buildings and high end condominiums.


Table: Willow's last 8 quarterly results


Chart 1: Willlow's last 29 quarterly results

Financial Position

Willow's financial position as at 31/12/2012 is deemed satisfactory. It has no bank borrowings but instead it had cash in hand of RM31 million (or, 12 sen per share). The bulk of its assets are tied down in debtors (comprising amount owing by contract customers of RM26 million and trade debtors of RM17 million). While compared to its annual revenue of RM83 million, the debtors collection period is rather high at 189 days. Since the bulk of this receivable is due to contract customers, the high collection period could be the industrial practice which the company has to abide to.

Valuation

Willow (closed at RM0.37) is now trading at a PE of 5.9 times (based on last 4 quarters' EPS of 6.32 sen). At this PE multiple, Willow is deemed fairly valued for a small cap, with potential for sales growth in the future.

Technical Outlook

Willow seems to have broken above the resistance posed by the line connecting its peaks over the past 10 years. This upside breakout could signal the beginning of the next upleg for the stock.


Chart 2: Willow's monthly chart as at Feb 26, 2013_11am (Source: quickcharts)

Conclusion

Based on good financial performance, positive future sales growth outlook, satisfactory financial position & positive technical outlook, Willow could be a good stock for long-term investment.

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, Willow.