EForce: Looking toppish

Result Update

For QE30/6/2014, EForce's net profit dropped by 8% q-o-q but rose 60% y-o-y to RM2.0 million while revenue was unchanged q-o-q but rose32% y-o-y to RM3.7 million. Net profit dropped q-o-q due to higher operating expenditure and lower interest income.


Table 1: EForce's last 8 quarterly results


Chart 1: EForce's last 26 quarterly results 

Valuation

EForce (closed at RM0.73 last Friday) is now trading at a PE of 20 times (based on last 4 quarters' EPS of 3.49 sen). EForce's high PE maybe just justified by its high growth in the past 4 quarters of 42%- which gives to a PE/G ratio of 0.5 times. However, the company's business is correlated to the state of the financial markets and this growth may recede in the event of a market downturn. Thus, I would not out too much emphasis on growth as the business is fairly cyclical. EForce could well be seeing its peak earnings right now.

Technical outlook

EForce has recently tested its uptrend line and rebounded (see Chart 2). If you look at the monthly chart (Chart 3), you will see that EForce is at a tipping point. Any further decline would lead to a reversal in the trend, from uptrend to downtrend.


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


Chart 3: EForce's monthly chart as at Sep 19, 2014 (Source: Equities Tracker)

Conclusion

Based on technical consideration, EForce is rated 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, EForce.