Multico: Broke its long-term uptrend line.

Background

Multi-Code Electronics Industries (M) Bhd ['Multico'] is involved in the manufacturing of electronics parts and accessories for the automotive industries. From the chart below, we can see that it is a medium size company with annual net profit of about RM10 million.


Chart 1: Multico's 17 yearly results

Other Information

In QE31/7/2007, it incurred a huge loss of RM33 million due to provision for doubtful debts. In 2010, 2 former directors of Multico were found guilty of defrauding the company of RM18 million. For more, go here.

Valuation

Multico (closed at RM1.53 last Friday) is now trading at a PE of 7 times (based on annualized EPS of 22 sen). At this PE, Multico- a smallcap stock- is deemed fairly valued.

Technical Outlook

Multico is in a long-term uptrend line until March this year. Then the stock broke its uptrend line at RM1.60 and slid to a low of RM1.45 before rebounding. However Multico failed to climb back above the uptrend line. It is likely to trade sideways in the near term.


Chart 2: Multico's weekly chart as at Jun 27, 2014 (Source: Tradesignum)

Conclusion

Based on mildly bearish technical outlook & fair valuation, Multico is rated a REDUCE.

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, Multico.