TChong: Top-line & bottom-line dropped

Result Update

For QE31/3/2014, TChong's net profit dropped 39% q-o-q or 51% y-o-y to RM41 million while revenue  was up 7% q-o-q or 12% y-o-y to RM1.26 billion. Due to increased competition, TChong invested more on "marketing and promotional campaigns have generally sustained Nissan’s market share and carry over of Q4 2013 year end festivities sales momentum into Q1 2014. The promotional campaigns’ costs coupled with the impact of unfavourable foreign exchange on imported CKD kits has put a drag on the Group’s bottom-line in Q1 2014."


Table: TChong's last 8 quarterly results


Chart 1: TChong's last 30 quarterly results

Valuation

TChong (closed at RM5.59 yesterday) is now trading at a PE of 17 times (based on last 4 quarters' EPS of 32 sen). At this PE multiple, TChong is deemed fully valued.

Technical Outlook

TChong is in an uptrend line, with support at RM5.40-5.50. A break of this support could send the stock to the trough experienced in 2012 (at RM4.50).


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

Conclusion


Based on demanding valuation & poorer financial performance, TChong's rating is revised to REDUCE. However, the stock has one positive on its side: it is now resting on its uptrend line support at RM5.40-5.50 which could be the staging area for a mild rebound if market sentiment improves.

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, TChong.