Redtone- bottom-line jumped due to huge write-back!

Result Update

For QE31/5/2013, Redtone reported a net profit of RM15.3 million- a huge improvement over the net prfoti of RM3.9 million reported in the immediate preceding quarter, QE28/2/2013.  was mainly due to the reversal of expenses over-captured in previous quarter (about RM11.7 million) and higher data revenue (about 7%-increase). While the higher data revenue is a definite positive, the fact that 76% of the improvement in net profit came from accounting entry would certainly takes the excitement out of the jump in Redtone's bottom-line.


Table: Redtone's last 8 quarterly results


Chart 1: Redtone's last 9 quarterly results

Valuation

Redtone (closed at RM0.82 yesterday) is now trading at a trailing PE of 15.5 times (based on last 4 quarters' EPS of 5.28 sen).  At this PE, Redtone is still deemed attractive for a turnaround stock with room for further growth. Again, I have to emphasize that the good profit for the latest quarter must be taken a pinch of salt and it will affect the perception of most analysts looking at this stock in a slightly negative way.

Technical Outlook

Redtone has been rising gradually for the past two years. It doubled up since May this year. It is now pressing again the strong resistance at the horizontal line at RM0.80-0.85. A convincing breakout of the RM0.80-0.85 resistance would lead to the continuation of the uptrend, with the next resistance at RM1.40.


Chart 2: Redtone's monthly chart as at July 31, 2013(Source: quickcharts)

Conclusion
Based on the turnaround story and exciting future prospects, Redtone could be a good stock for long-term investment. However, it had a strong rally in the past two months and it now faces the strong resistance of RM0.80-0.85. For now, I would rate Redtone as a HOLD.

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, Redtone.