Topglov- Bottom-line slipped

Results Update

For QE31/5/2013, Topglov's net profit dropped by 20% q-o-q or 25% y-o-y to RM40 million while revenue inched higher by 5% q-o-q but remained unchanged y-o-y at RM604 million. The slight growth in revenue was the "result of expansion in demand and further improvement in efficiency from better utilization of production capacity". Bottom-line dropped due to decline in profit margin due mainly to "a more competitive pricing structure and the adverse movements in foreign exchange which resulted in the recognition of unrealized losses of RM10.9 million from value on its USD foreign exchange forward contracts and AUD fixed income investments. Compared to the preceding quarter, the unrealized loss amounted to RM1.4 million only".

Note: If the unrealized forex losses are excluded, Topglov's pre-tax profit still declined from RM62.8 million in QE31/1/2013 to RM54.3 million in QE31/5/2013- a drop of 13.5%.


Table: Topglov's last 8 quarterly results


Chart 1: Topglov's last 28 quarterly results

Valuation

Topglov (closed at RM6.35 yesterday) is now trading at a PE of 18.7 times (based on last 4 quarters' EPS of 34 sen). At this PE multiple, Topglov is overvalued.

Technical Outlook

Topglov has nearly revisited its high of RM6.88 in 2010. Its immediate resistance will be the horizontal line at RM6.80 & its support would be the horizontal line at RM5.60.


Chart 2: Topglov's weekly chart as at June 13, 2013 (Source: Quickcharts)

Conclusion

Based on demanding valuation & strong technical resistance, Topglov is rated SELL INTO STRENGTH.

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, Topglov.