Hevea: Fantastic result!

Results Update

For QE31/12/2015, Hevea's net profit increased by 42% q-o-q or 188% y-o-y to RM26 million while revenue grew by 22% q-o-q or 31% y-o-y to RM151 million.

Revenue increased y-o-y contributed by  both  the  particleboard sector (due to higher  sales  of  higher grade products, increased sales in value added products and higher USD exchange rate to Ringgit during this reporting period) and RTA sector (due to process automation which resulted in higher productivity, efficiency and also the capability to produce higher value and wider range of products).

PBT increased y-o-y due mainly to better performance in the particleboard sector resulting from increased sale of higher value and value-added  products coupled with the strengthening of USD, and also achieving an unrealized exchange gain of RM 950,000 instead of  a  loss  of  RM3.3  million  for  the same quarter in FY2014.


Table: Hevea's last 8 quarterly results


Chart 1: Hevea's last 33 quarterly results

Corporate News

In January, Hevea share price tumbled sharply when there was a spate of allegations amde against the company. This includes non-payment of dividend by its substantial shareholder, quality problem of its products in South Korea & funny accounting of amount owing by related parties. All of these were addressed by the management (here). Except for the last item, I do not see these problems as serious red flags. Ingenious accounting treatment is always a no-no for investors and the last item may serve as a nagging issue for sometimes, notwithstanding the fact that the amount owing had been fully settled.
 
Valuation

Hevea (closed at RM1.40 yesterday) is now trading at a PE of 7.6 times (based on last 4 quarters' EPS of 18.4 sen. At this PER, Hevea is still deemed very attractive. It may command a PER of 10-12 times- giving the stock an upside of at least 30%.

Technical Outlook

Hevea has been on a strong uptrend since it broke above its long-term downtrend line, RR at RM0.23 in November 2013.


Chart 2: Hevea's monthly chart as at Feb 24, 2016  (Source: ShareInvestor)

The stock's immediate support is its 50-week EMA line at RM1.10. This was tested in January when the spate of allegations mentioned above surfaced. Despite the negative news, the stock held up very well and we can rely on this test as a guide in future trading of the stock.


 Chart 2: Hevea's weekly chart as at Feb 24, 2016  (Source: ShareInvestor)

Conclusion

Based on good financial performance, relatively attractive valuation & positive technical outlook, Hevea 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, Hevea.