PWRoot: Earnings powered by forex gain

Results Update

For QE30/9/2015, PWRoot's net profit dropped 4% q-o-q to RM14 million on the back of a 22%-decline in revenue to RM84 million. Compared to the same quarter last year, net profit was 185% higher despite a 16%-drop in revenue. Revenue dropped q-o-q due to lower local & overseas sales from FMCG segment. Profit after tax rose q-o-q due to forex gain of RM7.1 million.


Table: PWRoot's last 8 quarterly results

We must note that PWRoot had benefited from forex gain in the past 2 quarters as well as exceptional gain on disposal of property in QE31/3/2015. These exceptional gain amount to RM25 million helped to boost the company's earnings but they may not recur in the future. As such, we must be watchful of a rollback of earning for PWRoot in the next few quarters.


Chart 1: PWRoot's last 34 quarterly results

Valuation

PWRoot (closed at RM2.81 yesterday) is now trading at a trailing PER of 14 times (based on last 4 quarters' EPS of  19.2 sen). If the exceptional gains noted above are excluded, its last 4 quarters' EPS would drop to 10.9 sen & its trailing PER would rise to 26 times. As such, PWRoot is no longer an attractive stock.

Technical outlook

PWRoot is in a long-term uptrend with support at the horizontal line of RM2.40.


Chart 2: PWRoot's monthly chart as at Nov 25, 2015 (Source: Shareinvestor.com)

 Conclusion

Based on satisfactory financial performance & positive technical outlook, PWRoot is rated a HOLD. As PWRoot is trading at full valuation - with limited upside - you should consider TAKING PROFIT if it rises to the RM3.00 mark.

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, PWRoot.