For QE31/1/2015, KESM's pre-tax profit dropped by 28% q-o-q but rose 192% y-o-y to RM4.2 million while revenue dropped by 10% q-o-q but rose by a marginal 0.5% y-o-y to RM62 million.
Table: KESM's last 8 quarterly results
Chart 1: KESM's last 40 quarterly results
Valuation
KESM (closed at RM2.68 yesterday) is now trading at a PE of 9 times (based on last 4 quarters' EPS of 30 sen). At this PE, KESM is deemed fairly valued.
Technical Outlook
From the daily chart, we can see that KESM has broken above its medium-term downtrend line at RM2.50 in mid-February.
Chart 2: KESM's weekly chart as at Mar 11, 2015_11.00am (Source: ShareInvestor.com)
The monthly chart shows the stock had broken out of a large symmetrical triangle at RM2.30 in February 2014. With the exception of the overshooting in 1998 & 2000, this triangle had checked all upside & downside move for this stock. The 2014 breakout might still have some room to go- bearing in mind the NTA of RM5.87 per share!! Let's wait & see.
Chart: KESM's weekly chart as at Mar 11, 2015_11.00am (Source: ShareInvestor.com)
Conclusion
Based on decent financial performance, fair valuation & positive technical outlook, KESM 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, KESM.
Hi Alex, KESM proposed to acquire remaining 30% of its subsidiary from the major shareholder for RM 30 million cash last year. This subsidiary is contributed substantially to the earnings of the group. What do you think of the valuation after taking into account the acquisition?
ReplyDeleteHi tklaw
ReplyDeleteYou are referring to the acquisition of 34.6%-stake in Kesmi (Test) SB for RM35 million.
I can't determine the exact profit contribution of this company to Kesm group's bottom-line. Assuming that it contributes the entire earnings of the holding company, then its earning is about RM20 million.
If we valued this company at a PER of 5 times, then the entire company is worth RM100 million. Thus, a 34.6%-stake is about RM35 million.
Of course, Kesm - being a listed company - commands a higher PER. Thus, the acquisition should be earning accretive and be good for the share price.
However, there are a few assumptions made and these may or may not be true.