Salcon: When you got to go...

I have posted on Salcon in June & September last year (here & here). Basically, the story is about Salcon selling of its water assets in China and using its proceed to get into the property business by teaming up with Liew of SPSetia.

Nothing much came out of that story and the stock has been hovering around the RM0.65-0.70 level for the past 6-9 months. I expect the stock to remain at this level for another 2-3 months as the market awaits the expiry of its warrant (exercise price at RM0.75; maturity date: May 16, 2014; 104m warrants outstanding).

However, the stock rose up to RM0.75 today. At the time of writing this post, it is trading at RM0.76. That's a bullish breakout, which could send the stock to RM0.81 & beyond that to RM0.88. The interesting point to note is that the warrant, with 50 days to expiry, is now trading at RM0.065- giving it a premium of 7%.

It is my observation (and a rule) that if a stock charges higher, when one of its derivative(s) is near the expiry date, then you better pay attention. If the derivative concerned is trading at a premium, then you should get ready to go shopping.

Based on the above, Salcon is a trading BUY. I prefer Salcon to the warrant for the simple reason that if anything goes wrong -remember Murphy's Law- you won't have a double whammy.


Chart: Salcon's weekly chart as at Mar 26, 2014 (Source: Tradesignum)

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, Salcon.

MEGB: Is this a real deal?!

A few days, MEGB announced that its major shareholder, Siva Kumar has entered into a put-and-call option with one Gary How Soong Khong from Hong Kong to dispose of his 29.76%-stake for RM1.10 per share. Under the agreement, Gary How has a 6-month call option to purchase the shares from Siva Kumar, while Siva Kumar has a 9-month put option to sell the shares to Gary How. For more, go here.

Since the announcement of this agreement, the share price of MEGB has rallied from a low of RM0.30 to a high of RM0.60. It even broke above its long-term downtrend line at RM0.38 as well as the horizontal resistance at RM0.55.


Chart: MEGB's weekly chart as at Mar 24, 2014 (Source: Tradesignum)

Notwithstanding the positive technical outlook, the question that speculators must ask is whether this is a serious deal. Really serious businessmen don't do deal like this. I mean, I can't imagine Lim Kok Thay or Lee Shin Cheng entering into a deal to sell or buy their companies on this basis. As speculators, we must be careful that we are dealing with actionable information. To me, the MEGB deal looks like, sounds like and smells like another Ingens deal: Something to spur a stock to run up! For my take on the earlier Ingens deal, go here & here.

Finally, even if this is a real deal, the acquisition of a stake of less than 33% will not trigger a mandatory general offer for the stock. MEGB share price will have to find its level in the market place, which until recently was around RM0.30. 

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, MEGB.

Prlexus: Profits rebounded on higher revenue from garment division

Results Update

For QE31/4/2014, Prlexus's net profit increased by 168% q-o-q or 37% y-o-y to RM6.7 million while revenue increased by 27% q-o-q or 32% y-o-y to RM85 million. The q-o-q increase in revenue is mainly due to the increase in revenue of the garment division during the quarter. Profit increased q-o-q mainly due to increase in profits as a result of higher revenue from the garment division. Lower profit in the preceding quarter is mainly due to the recognition of fair value on ESOS.


Table 1: Prlexus's last 8 quarterly results


Chart 1: Prlexus's last 22 quarterly results

Valuation

Prlexus (closed at RM1.16 as at 4.30pm) is now trading at a PE of 5.3 times (based on last 4 quarters' EPS of 22 sen). At this PE, Prlexus is deemed fairly valued for a small-cap stock.

Technical Outlook

For the past 6 months, Prlexus has been trading sideway with support at RM1.05 & resistance at RM1.25. A breakout of either support or resistance level will point the way forward for this stock.


Chart 2: Prlexus's weekly chart as at Mar 21, 2014 (Source: Tradesignum)

 Conclusion

Based on good financial performance, reasonable valuation & mildly positive technical outlook, Prlexus is still a good stock to hold 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, Prlexus.

DKSH: Damn the tropedoes, full speed ahead!

Last week, I posted on Dsonic and its fantastic rise. This week, I shall look at another stock starting with the alphabet, D: DKSH. If Dsonic was a stud from day 1, DKSH has been a dud forever and ever... until early 2013.

We can see from the 2 weekly charts below how DKSH broke above the psychological RM1.00 level in May 2011 and rallied to RM2.35 in November the same year. In January 2013, DKSH broke above the 2011 high and it has been rising ever since. Yesterday, the stock close at RM8.48.


Chart 1: DKSH's 5-year weekly chart as at Mar 20, 2014 (Source: Tradesignum)


Chart 2: DKSH's 3-year weekly chart as at Mar 20, 2014 (Source: Tradesignum)

Background

DKSH is owned indirectly by DKSH Ltd. also known as DiethelmKellerSiberHegner, a Swiss Market Expansion Services Group. with headquarters in Zurich. From Wikipedia, we learned that the DKSH group "offers any combination of sourcing, marketing, sales, distribution and after-sales-services and is organized into four Business Units: Consumer Goods (including the Business Segment Luxury & Lifestyle), Healthcare, Performance Materials and Technology". (here)

Market Expansion Services, which DKSH group provides, include marketing, sales force management, distribution and logistics, invoicing and credit management, inventory and returned goods management.  

Below is the price chart of DKSH Ltd (Code: DS5) as traded in the Frankfurt Stock Exchange.
 

Chart 3: DS.5's weekly chart as at Mar 20, 2014 (Source: Yahoo Finance)

Historical Financial Performance

I have appended below the table of DKSH's financial performance for the past 16 years. We can see clearly that DKSH's earning started to rise in 2008. This coincided with the expansion in its net profit margin from an abysmal 0.03-0.04% in FY08/09 to 1.64% in FY12 & 3.44% in FY13. While 2-3% net profit margin may not be substantial but against a revenue of RM5 billion, it translates to an earning of RM100-150 million per annum. For a company with outstanding shares issued of 157 million , that means an earning of 64-96 sen!


Table: DKSH's last 16 years results


Chart 4: DKSH's last 16 years results

But...

However, I must point that the net profit for FY13 was bumped up by 2 exceptional one-off gains: RM97.3 million from sale of property & RM8.6 million from sale of DKSH Transport Agencies. If these exceptional gains are excluded, DKSH would report a lower net profit f RM69 million for FY13 as compared to RM78 million in FY12. The smooth rise in the profit numbers and the net profit margin would instead show a kink.  Is the adjusted net profit number a one-off disappointment? Or, has DKSH just crossed a tipping point? We will wait & see.


Chart 5: DKSH's last 16 years adjusted profits and net profit margin

Market Reaction

Despite the rising valuation and this 'poorer' result announced on February 26 (masked by the 2 exceptional one-off gain), the share price didn't miss a beat and continue to march higher. See the daily chart below.


Chart 6: DKSH's daily chart as at Mar 20, 2014 (Source: Tradesignum)

Valuation

Adjusted for the one-off gain, DKSH's EPS for FY13 would be 44 sen. Based on its closing price of RM8.48 yesterday, DKSH is trading at a trailing PE of 19.3 times. For a trading business, DKSH is now trading at very demanding PE multiple.

Conclusion

Based on 'poorer' result and demanding valuation, I would rate DKSH as a 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,DKSH.

Topglov: Poised to further drop

Results Update

For QE28/2/2014, Topglov's net profit dropped by 17.4% q-o-q & y-o-y to RM41.6 million while revenue also dropped by 4.5% q-o-q or 4.9% y-o-y to RM548 million.

Revenue dropped q-o-q due to due to the decline in the average selling price.The weaker performance was on the back of margin pressure from increased competition. In addition, bottom-line was negatively impacted by losses from its China operations amounting to RM5.4 million and forex losses, arising from previously entered forward contract rates that were lower than prevailing market forex rates.


Table: Topglov's last 8 quarterly results


Chart 1: Topglov's last 31 quarterly results

Valuation

Topglov (closed at RM5.33 yesterday) is now trading at a PE of 18.4 times (based on last 4 quarters' EPS of 29 sen). At this PE multiple, Topglov is overvalued.

Technical Outlook

Topglov is resting on its "uptrend line" support at RM5.50. If it breaks this support as well as surpassing the January 2014 low of RM5.35, Topglov can slide to RM5.00 & even RM4.00.
(Note: As at 4:40pm, Topglov was trading at RM5.30.)


Chart 2: Topglov's weekly chart as at Mar 19, 2014 (Source: Tradesignum)

Conclusion

Based on poor financial performance, demanding valuation & negative technical resistance, Topglov is rated 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, Topglov.

Scientx: Poised to continue its uptrend

Result Update

For QE31/1/2014, Scientx's net profit rose by 16% q-o-q or 32% y-o-y to RM34 million while revenue increased by 5% q-o-q or 41% y-o-y to RM383 million.

Bottom-line improved y-o-y due to better performance from both manufacturing and property divisions. Manufacturing division reported increased operating profit (increased from RM10.6 million to RM16.0 million) while revenue increased from RM193.5 million to RM288.5 million. Property division also reported higher operating profit (increased from RM23.0 million to RM29.4 million) while revenue increased from RM77.6 million to RM95.0 million.

. 
Table 1: Scientx's last 8 quarterly results


Chart 1: Scientx's last 34 quarterly results 

Valuation

Scientx (closed at RM5.92 yesterday) is now trading at a current PE of 10.5 times (based on annualized EPS of 56.2 sen). At this PE, Scientx is deemed fairly valued.

Technical Outlook

Scientx has been consolidating for the past 8-9 monts. In the past few days, it seems to have broken above the symmetrical triangle at RM5.85-5.90. If this upside breakout can recruit enough support, Scientx could well continue with its prior uptrend.


Chart 1: Scientx's weekly chart as at Mar 19, 2014 (Source: Tradesignum)


Chart 3: Scientx's 5-year weekly chart as at Mar 19, 2014 (Source: Tradesignum)

Conclusion

Based on satisfactory financial performance, reasonable valuation & possible technical breakout, Scientx remains 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, Scientx.

IJM: Poised for an Upleg

The recent announcement that the government has approved MRT2 has given a big boost to the construction industry. While many have expected Gamuda will be the frontrunner for this project, what's surprising is that IJM share price has broken above the horizontal line at RM5.95 as well as the psychological RM6.00 mark.

Now, I am not sure whether this breakout has anything to do with MRT2. From the daily chart (Chart 1), we can see that volume picked up over the past 2 months prior to this breakout. 


Chart 1: IJM's daily chart as at Mar 17, 2014 (Source: Tradesignum)

When you look at the weekly chart (Chart 2), we can see that IJM has broken its 3-year downtrend line at RM5.90. This breakout could lead to a powerful rally, akin to Gamuda's upside breakout in early 2013 (see Chart 3).


Chart 2: IJM's weekly chart as at Mar 17, 2014 (Source: Tradesignum)


Chart 3: Gamuda's weekly chart as at Mar 17, 2014 (Source: Tradesignum)

Based on technical breakout, IJM could be a good trading BUY.

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, IJM.

Yeelee & Prtasco: Two Cup-with-handle breakouts!

This morning, we can see 2 gainers with good volume which have broken above their respective cup-with-handle formation. The first stock is Yeelee which broke above the handle at RM1.45. This morning it also broke above the line connecting the recent peak. The target for this move will be the point of breakout (RM1.45) and the distance between the right peak of the cup and the bottom of the cup (RM0.65). This will give you a target of RM2.10.


Chart 1: Yeelee's weekly chart as at Mar 17, 2014 (Source: Tradesignum)

The second stock is Prtasco which broke above the handle (at RM1.55) about 4 weeks ago. Its target is estimated to be RM2.15.


Chart 2: Prtasco's weekly chart as at Mar 17, 2014 (Source: Tradesignum)

Based on the above bullish breakout, Yeelee and Prtasco could be goos trading BUY.

For more on Cup-with-handle, check out this write-up in Stockcharts.com and this one in Investopedia.

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, Yeelee & Prtasco.

REITs: The worst could be over

In December last year, I posted that REITs are sufficiently attractive after a retracement of 50-60% (here). In addition, I feel that some REITs came very close to its NAV and their yields were pretty decent. Since then, the three REITs that I highlighted - SUNREIT, CMMT & PAVREIT - had rebounded off the low. Now, all 3 REITs look like they had formed a base and from here they could continue to their recovery. As such, any weakness could be a buying opportunity for those with a long-term investment horizon.



Chart 1: SUNREIT's weekly chart as at Mar 14, 2014 (Source: Tradesignum)


Chart 2: PAVREIT's weekly chart as at Mar 14, 2014 (Source: Tradesignum)


Chart 3: CMMT's weekly chart as at Mar 14, 2014 (Source: Tradesignum)

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, CMMT, PAVREIT & SUNREIT.

Dsonic: The gift that keeps giving!

Everyone loves to own a winner in the stock market. Better still if you can get a multibagger. And, there is no bigger big mutibagger in the past one year than Dsonic.

Dsonic was listed in September 2012 at its IPO price of RM2.00. In May 2013, it broke above the RM2.00 resistance and launched into a rally that saw its share price rose 13-fold!! If you have the good fortune to buy 2000 Dsonic shares at the point of breakout at RM2.00, you would now have 15,000 Dsonic shares trading at RM3.62. The increase in units was not due to any Rights Issue but purely due to a 1-for-2 bonus issue and a 1-to-5 share split.  This means that your initial outlay of RM4000 is now worth RM54300.

Imagine my surprise when I recently learned that Dsonic is again proposing another bonus issue! Mind you, this is a 1-for-1 bonus issue! Like Mae West, Dsonic subscribes to the idea that "Too much of a good thing is wonderful."

I have seen quite a few spectacular rises in the past but Dsonic must take the cake. Never have I seen a stock so determined to reward its shareholders like Dsonic. This stock will be long remembered as a stock that keep on giving....

I appended below the quarterly results (in table & chart) and the price chart for your perusal. You will note that the earning dipped slightly last quarter. That's not a significant development unless this trend persists for next 1-2 quarter(s). The EPS is about 12 sen (arrived at by dividing its NP of RM82 million by the total shares issued of 675 million units). At the current price of RM3.62, it is trading at a trailing PE of 30 times.


Table: Dsonic's last 7 quarterly results


Chart 1: Dsonic's last 7 quarterly results


Chart 2: Dsonic's daily chart as at Mar 13, 2014 (Source: Tradesignum)

I touched on Dsonic a few months back (here), lamenting about missing out on the stock. Others have done a better job at selling this stock. For example,  RHB Research called a BUY on it with TP of RM3.36 (here) while Maybank IB highlighted it as a trading idea (here, go to Page 5). RHB's TP of RM3.36 is based on PE of 23.5x FY2014F and even that bullish target has been overrun.

In times like this, I remind my clients to be careful. Whenever we blow a balloon too fast, we run the risk that the balloon will blow up in our face.

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, Dsonic.

Puncak: Time to Harvest?!

In 2012 & 2013, I highlighted the deep discount in Puncak and posited that it could be a good recovery play. Back then, I was merely thinking of a recovery to RM2.00-2.30. See my posts in January 2012 & April 2013. If you look at this chart from the April 2013 post, you can see that beyond the RM2.00-2.30 the stock has strong resistance at RM3.00-3.30.

In the past 15 months, Puncak did in fact put in a recovery - a very strong recovery - where the share price went past the RM2.00-2.30 level as well as the RM3.00-3.30 level. It hit a high of RM3.60 in December last year before profit-taking set in and the stock dropped to a low of RM2.80 in January this year. It rebounded back to the high of RM3.60 last month (February).

As Puncak again comes under selling pressure after reports indicating that the Federal Government has invoked Section 114 of the Water Services Industry Act (Wasia) 2006 in acquiring Selangor water assets from concessionaires. The invocation of this provision means arbitration is the only option available for setting the takeover price for the assets to be acquired. Following the report, Selangor government was also reported to have reduced its offer (to buy over these assets) to RM7.6 billion from RM9.6 billion previously. For more, go here.

Investors will have to decide; to sell or not to sell. The dilemma is reflected in 2 conflicting reports where CIMB has downgraded Puncak's TP from RM4.16 to RM3.31 while RHB has maintained its TP for Puncak at RM5.22.

I believe that it is time to take profit on Puncak by adopting a SELL INTO STRENGTH if the stock rebounds back to RM3.20-3.30 or REDUCE slowly at the present price.


Chart: Puncak's weekly chart as at Mar 13, 2014  (Source: Tradesignum)

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, Puncak.

Kianjoo: Two's a company, Three's a crowd

In November last year, Kianjoo received an offer from Aspire Insight Sdn Bhd to buy-out Kianjoo’s entire business undertaking, assets & liabilities for RM1.47 billion, effectively valuing Kianjoo at RM3.30 per share.

Aspire Insight Sdn Bhd is a SPV who whose members include EPF, Can-One Bhd’s former chief operating officer Chee Khay Leong and other unidentified partners.

The takeover exercise is a longer process which might take up to a year or more, requiring court approvals. Aspire Insight had until March 14 to complete its due diligence exercise and sign definitive agreements in relation to its proposed buyout offer of the assets and liabilities of Kianjoo.

This week, Kianjoo received a non-binding letter of interest (LOI) from Japan’s Toyota Tsusho Corp (TTC) to acquire a 51% stake in the can manufacturer for a tentative maximum price of RM3.74 per share.

TTC said the LOI was submitted after reviewing Kianjoo’s historical and current share price and was subject to the completion of a due diligence on Kianjoo and its related companies. The offer is subject to a due diligence, where TTC reserved the right to re-calculate the offer without any limitation.

When the offer was announced on Monday, Kianjoo shot up to RM3.50 but closed at RM3.41. Today, Kianjoo dropped further to close at RM3.35. I think that if Kianjoo were to touch RM3.30 (or go lower than that) tomorrow, it could be a good trading BUY. 

 

Chart: Kianjoo's weekly chart as at Mar 12, 2014 (Source: Tradesignum)  

While the TTC’s offer may be indicative, I am sure the offer from Aspire Insight is a firm offer. As such, the downside to the stock is at RM3.30 while the upside is 13% higher at RM3.74.

(Source: The Star, here & here) 

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, Kianjoo.

Lonbisc: A possible breakout of a long-term downtrend line

Background

London Biscuit Bhd ("Lonbisc") is involved in the manufacture & sale of confectionery, snacks, sweets & candies and other related foodstuffs. It has a controlling stake in Kheesan, another listed company involved in the same business (here).

Housekeeping

In the past 3 years, Lonbisc had disposed off its investment in two listed companies involved in the production of eggs. In 2010, it sold off its 23.86%-stake in Lay Hong Bhd to QL Resources Bhd for RM11.852 million (at a small loss of RM130,000). In 2011, it sold off its 33.65%-stake in TPC Plus Bhd to Huat Lai Resources Bhd for RM8.075 million (at a small loss of RM400,000). With these disposals, Lonbisc has freed up its financial resources and can concentrate in its core businesses. 

Results Update

In QE31/12/2013, Lonbisc's net profit increased by 13% q-o-q or 69% y-o-y to RM4.9 million while revenue improved by 26% q-o-q or 46% y-o-y to RM92 million. Lonbisc is not very strong on investor relation or communicating to the investing. However, it furnished a surprising detailed segmental report, which I have reproduced below.



Table 1: Lonbisc's last 8 quarterly results



Chart 1: Lonbisc's last 39 quarterly results 

Lonbisc, which is not very strong on investor relation or communicating to the investing, surprised me by releasing a detailed segmental report (below), which gives the revenue numbers but omitted the results/profit numbers. I can't fully understand the report except to note that the market conditions for all 3 product segments (confectionery, snacks and sweets & candies) are either good or strong. That could only be good news for its shareholders.


Table 2: Lonbisc's segmental reporting for QE31/12/2013

Financial Position

Lonbisc's financial position as at 31/12/2013 is deemed mixed with poor liquidity as refelcted in its current ratio of 0.6x while gearing ratio is fairly elevated at 0.7x. The poor liquidity & high leverage position is due to poor assets management, with investment in property, plant & equipment amounted to RM528 million while annualized revenue for FY2014 is about RM330 million.

Valuation

Lonbisc (closed at RM0.765 today) is trading at a PE of 8 times (based on annualized EPS of 10.3 sen). Based on this PE, Lonbisc is deemed fully valued for a smallcap.

Technical Outlook

Lonbisc may have broken above its long-term downtrend line at RM0.70. It has also broken above its horizontal resistance at RM0.75. With this double breakout, Lonbisc could be poised to rise further. Its next strong resistance levels are RM0.90 & RM1.00.


Chart 2: Lonbisc's weekly chart as at Mar 10, 2014 (Source: Tradesignum)

Conclusion

Based on improved financial performance & mildly positive technical outlook, Lonbisc could be a good stock for a recovery play. Its negative factors are its poor liquidity position & elevated leverage- both are the result of its poor assets management.

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, Lonbisc.

Kheesan: Yet to taste the sweet taste of success

Background

Khee San Bhd ('Kheesan') is involved in the manufacture of sweet and confectionery products. The Company’s products are being sold in the local and international markets. The Sweet and Candies segment is subdivided into categories: such as candies, bubble gum, chewing gum, tablets, sweets and wafers are being manufactured by the Company, which includes household brands, such as Fruitplus, Torrone and Bento.

Kheesan is controlled by London Biscuits Bhd ('Lonbisc') which owns a 30.7%-stake in Kheesan. Lonbisc acquired this stake for RM27.63 million (or RM1.50 per share) in October 2007.

Recent Financial Results

Kheesan'as revenue has been rising steadily for the past 5 years. The strong growth was not undertaken at the expense of margin.


Table: Kheesan's last 14 years results plus annualized FY14 result

 
Chart 1: Kheesan's last 14 years results plus annualized FY14 result

Financial Position

Kheesan's financial position is deemed mixed, with low liquidity as reflected by a current ratio of 0.5 time as at 31/12/2013. Its gearing ratio is satisfactory at 0.6 time. The low current ratio is the result of using short-term borrowings to tie over its fixed assets. On further checking, Kheesan appears to be very inefficient in the use of capital as reflected by its Property, Plant & Equipment of RM148 million as compared to its annualized revenue of RM110 million for FY2014.  

Valuation

Kheesan (closed at RM0.625 today) is trading at a PE of 8 times (based on annualized EPS of 7.58). Measured by PER, Kheesan is deemed fully valued for a smallcap.  If measured by PBV, Kheesan is deemed cheap at current PBV of 0.4x.

Technical Outlook

Kheesan is in an intermediate uptrend line, with support at RM0.50 (see Chart 2). This intermediate uptrend began after Kheesan broke above its 'possible' long-term downtrend line at RM0.50 in late part of 2013 (see Chart 3). Kheesan's immediate resistance is at horizontal lines RM0.60, RM0.65 & RM0.70.

 
Chart 2: Kheesan's daily chart as at Mar 10, 2014 (Source: Tradesignum) 


Chart 3: Kheesan's weekly chart as at Mar 10, 2014 (Source: Tradesignum)

Conclusion

Based on mildly positive technical outlook & steady improvement in financial performance, Kheesan could be a good stock for a recovery play. The negative factors to consider are the poor liquidity position & unsatisfactory management of financial resources.

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, Kheesan.

Maybulk: recovery beckon?

Results Update

For QE31/12/2013, Maybulk's net profit increased by 130% q-o-q or 15% y-o-y to RM19.7 million while revenue dropped by 8% q-o-q or 5% y-o-y to RM57.8 million.


The Group posted a quarterly operating loss of RM2.3 million in QE31/12/2013, an improvement of RM4.0 million compared to RM6.3 million loss in the immediate preceding quarter (QE30/9/2013). This was mainly due to increased hire days and reduced docking cost.

Other operating income increased RM13.0 million mainly due to year end mark to market gain on investment (RM9.5 million) and gain on disposal of a parcel of land. Whilst administrative expenses increased RM1.2 million due to higher software maintenance cost, finance costs remained stable.

The associate (POSH) reported another profitable quarter, contributing RM9.0 million to the Group’s bottom line.


Table: Maybulk's last 8 quarterly results


Chart 1: Maybulk's 31 quarterly results

Shipping Rate Outlook

As noted in July 2013 (here), Shipping rates had bottomed out and poised for recovery. From Chart 2 below, we can see a rally in late 2013 which sent DBI to a high of  USD2400 in late December last year. Since then, the rate has eased back substantially. From Chart 3, we can see that BDI has even broken below the medium-term uptrend line at USD1800. This means that shipping rates may not rally again anytime soon.


 Chart 2: BDI's monthly chart as at Feb 2014 (Source: Investmenttools.com)


 Chart 3: BDI's daily chart as at Feb 2014 (Source: Investmenttools.com)

Valuation

Maybulk (closed at RM2.10 yesterday) is now trading at a trailing PE of 42 times (based on last 4 quarters' EPS of 26 sen). The high PE is not a good indicator of the value of the stock due to the cyclical nature of the shipping industry.


Kenanga rated Maybulk as Outperform and valued the stock at RM2.53 based on forward FY14PBV of 1.3x which the 6-year average forward PBV for the stock. Maybulk is currently valued at 1.1x PBV.

Technical Outlook

Maybulk has rallied significantly over the past 1 year from a low of RM1.30-1.40 in January 2013 to test its long-term downtrend line at RM2.20. For Maybulk to rise further, it must break above the downtrend line at RM2.20. Its supports are at the psychological RM2.00 mark and below that, at the 50-week EMA line at RM1.80.


Chart 4: Maybulk's weekly chart as at Feb 26, 2014 (Source: Tradesignum)

Conclusion

Based on improving financial performance & undemanding valuation, Maybulk is worth accumulating on weakness. This is especially true if the stock were to ease back to the level of RM1.80-2.00. However, if the stock were to break above the RM2.20 mark, it could be a trading BUY. The catalyst for its rerating could be the group reporting an operating profit as well as the listing of its associate, POSH on SGX.

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, Maybulk.

PPB: Broke above a strong resistance!

Commodity prices have risen significantly ince the start of the year. From Chart 1, we can see that Reuters/Jefferies CRB Index has increased from a low of 275 at the beginning of the year to 306 yesterday, That's an increase of 11% in 2 months!!


Chart 1: CRB's weekly chart as at Mar 5, 2014 (Source: Stockcharts)

This has prompted a slow recovery among the commodity forms, such as Olam, Noble and Wilmar (on SGX) and also PPB (on our local bourse). From Chart 2, we can see that PPB has broken above its downtrend line as well as horizontal line at RM16.00. Its next strong resistance is at the horizontal line RM18.00.


Chart 2: PPB's weekly chart as at Feb 26, 2014 (Source: Tradesignum)

Olam may have broken above its long-term downtrend line but the same may not be said for Noble & Wilmar (an associate of PPB).


Chart 3: Olam's weekly chart as at Mar 5, 2014 (Source: Tradesignum)


Chart 4: Noble's weekly chart as at Mar 5, 2014 (Source: Tradesignum)


Chart 5: Wilmar's weekly chart as at Mar 5, 2014 (Source: Tradesignum)

Based on the bullish technical breakout for CRB index and PPB, PPB could be a trading BUY.

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, PPB, Olam, Noble & Wilmar.