For QE30/11/2013, Zhulian's net profit plunged by 65% q-o-q & 56% y-o-y to RM13.7 million while revenue dropped by 37% q-o-q & 33% y-o-y to RM78 million. The drop in the top-line was attributed to lower overseas market demand during the fourth quarter. This and the drop in the share of profit of equity accounted investee led to an even greater q-o-q drop in the bottom-line.
There was no comment in the notes to the accounts whether this drop was exceptional or one-off in nature. A report in the Star newspaper was equally uninformative (here). Instead there was a comment that gave me a double-take, where the company attributed "the fall in full year earnings, lower by RM33.37mil, to weak local demand". So the poorer financial result was due to lower demand in the domestic market as well as overseas markets???
This reminds me of the drop in the financial performance of Haio in 2010 (here). I doubt Zhulian will return to its heyday any time soon.
Table: Zhulian's last 8 quarterly results
Chart 1: Zhulian's last 29 quarterly results
Valuation
Zhulian (closed at RM4.61 today) is now trading a PE of 17.5 times (based on last 4 quarters of 26.3 sen). After the sharp plunge in bottom-line, this stock's PE multiple would collapse to 10-12 times. If the EPS for the 4Q2013 of 2.99 sen (say 3 sen) would be the 'normal' earning going forward, then its annualized EPS would be 12 sen. If we valued the stock at PE of 12 times, the stock would be worth RM1.44.
Technical Outlook
Zhulian is still in an uptrend but not for long.
Chart 2: Zhulian's weekly chart as at Jan 22, 2014 (Source: quickcharts)
Conclusion
Based on the terrible results, Zhulian is rated a STRONG SELL.
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, Zhulian.
Been some time since I was in the market and at this blog. Went out way too early after the General Elections period and had missed some great opportunities. Especially with the oil & gas counters. But then, there will always be opportunities in the stock market, which is why I'm doing some research again. And *you* are the authority when it comes to analysis.
ReplyDeleteMy gosh, you have been right big time yet again with the call on Zhulian! I've checked the date of this post - 22 Jan - with the price chart and you are way ahead. Those who had sold the following day would have cut losses to the minimum. But I doubt many would have done that, especially with the sharp drop that followed. It's human nature - people would been frozen by the shock and would comfort themselves of "a rebound".
It's almost a month since then, and the price has gotten even lower. The price looks really attractive but I'm going to refrain from trying to "catch the bottom". Zhulian investors might despair with your evaluation of RM1.44 - I don't think it would go that low but it looks like this counter has some way to go yet.
Hi Mat Cendana,
ReplyDeleteGood to see your comment. Zhulian's result was shocking when viewed in the context of a stock that had risen so substantially. To make things worse, the company seems nonchalant about the drop in sales and profits. Either they don't want to tell the whole story or they can't tell the real story. In such a situation, the best thing to do is to sell off.