VS: Earnings dropped

Result Update

For QE30/42016, VS's net profit dropped by 30% q-o-q or 27% y-o-y to RM19 million while revenue rose 1% q-o-q or 21% y-o-y to RM508 million. VS's PBT dropped q-o-q due to lower gross profit margin resulting from weakening of USD against MYR.


Table: VS's last 8 quarterly results


Chart 1: VS's last 45 quarterly results

Valuation

VS (closed at RM1.19 yesterday) is trading at a trailing PE of 8.5 times (based on last 4 quarters' EPS of 14.04 sen). At this PER, VS (a cyclical stock) is deemed fairly valued.

Technical Outlook

VS has been trading sideways since it broke below its 21-week SMA line in January. The stock is supported by the horizontal line at RM1.10.


Chart 2: VS's weekly chart as at June 30, 2016_11.00am (Source: ShareInvestor.com)

On the monthly chart, VS seems to have peak. MACD has crossed below the MACD signal line while the momentum is easing back.


Chart 3: VS's monthly chart as at June 30, 2016_11.00am (Source: ShareInvestor.com)

A different view can be seem when we put the 10-year monthly chart side-by-side with the profits chart. The stock peaked when earnings peaked. Earnings for the current cycle appear to have peaked. Thus it is likely that share price would also have peaked.



Chart 4: VS's 10-year monthly chart and profits chart (Source: ShareInvestor.com)

Conclusion

Based on weaker financial performance, a potential peak in earnings and the transitioning from uptrend to sideways in the technical outlook, I would rate VS as 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, VS.

Apollo: Earnings Plummeted

Result Update

For QE30/4/2016, Apollo's pre-tax profit dropped 76% q-o-q or 73% y-o-y to RM1.7 million while revenue also increased by 4% q-o-q or 1% y-o-y to RM53 million. Profits dropped q-o-q due to fluctuation of foreign currency exchange rate and provision of impairment loss on one  of  the  leasehold  building of RM823k.


Table 1: Apollo's last 8 quarterly results

In the previous post, I opined that "(i)f MYR were to recover in 2016, profits could well drop back below RM10 million mark". I'm still surprised by the sharp drop in earnings in the past 2 quarters.


Chart 2: Apollo's last 35 quarterly results

Valuation

Apollo (closed at RM5.68 yesterday) is now trading at a PE of 15 times (based on last 4 quarters' EPS of 37.26 sen). Apollo is deemed fully valued.

Technical Outlook

Apollo is in a long-term uptrend. Its immediate support from the 2013 high is about RM5.50-5.60.


Chart 2: Apollo's monthly chart as at June 28, 2016 (Source: ShareInvestor.com) 

From the weekly chart, we can see that RM5.60 is also support from the intermediate uptrend line, S1-S1.


Chart 3: Apollo's weekly chart as at June 28, 2016 (Source: ShareInvestor.com) 

Conclusion

Based on Apollo's unexciting performance & full valuation, I maintain my rating of TAKE PROFIT. However, there is no urgent need to sell immediately nor aggressively. I think your capital may be better deployed in another F&B stock, like Oldtown.

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, Apollo.

Rubber Glove Sector Again

After the Brexit, investors are shifting their money to safe assets, like US bonds, gold & USD. Until the dust has settled, we can expect USD to remain strong and that will benefit our exporters. Of all the export sectors, the rubber glove sector will probably stand out.

Kenanga has an OUTPERFORM rating for this sector as well as all the stocks in the sector. I have appended below the valuation table for the 4 main stocks involved in rubber glove production.


Table: Rubber Glove Stocks Valuation

I have also appended below the charts with profits trend for your easy viewing. We can see the following:

• Price charts are in line with profits movement.
• Harta & Kossan's profits are less volatile compared to Topglov & Supermx. That may be due to "careful management".
• Except for Supermx, quarterly profits for the other 3 stocks made a new high in 2015 compared to 2009.

Chart: Rubber Glove Stocks Price Charts & Profit Charts
 
While all the rubber stocks may out-perform the market, their individual performance will be determined by the following:

• Harta is still the most expensive stock. This may change if it can deliver the promised rise in its profit that comes along with its expansion program.
• Topglov and Supermx are trading at very attractive multiples. While Topglov share price has risen substantially (as well as corrected back substantially), the price run-up was brought on by impressive profit in the past 4 quarters. I am however cautious of Topglov after its big rally - especially the boost from its bonus issue as well as a secondary listing on SGX. 
• Supermx was a laggard - for good reason-  until early part of this year. Its rally seems to be a catch-up rally as the stock has yet to deliver on its bottom-line performance.
• Kossan is my pick for this sector. It is not the cheapest but it has been the most consistent performer.

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, Harta, Kossan, Supermx & Topglov

Brexit: Take Your Time

After a weekend of reading about Britain’s exit from the European Union (“Brexit”), I'm still befuddled by this unexpected and unwelcome event. Its immediate impact on the financial markets has been enormously painful. Global equity markets lost about USD2 trillion in value on Friday. We can expect volatility to remain for the next few weeks as the financial markets sort out the full implications of this development.

Brexit plunged the UK into a crisis as the Prime Minister Cameron has resigned to take responsibility for the loss. A caretaker government may step in until a successor has been elected in October. Cameron has wisely decided not to invoke Article 50 of the Lisbon Treaty to begin the withdrawal from the European Union (“EU”). This may buy time for the people to decide on the whats, hows and whens the next steps will be.

For now, there is still much confusion on the outcome of Brexit as well as a fair amount of buyer’s remorse. Among the “Leave” campaigners, they were many who simply didn’t believe the vote will be successful. Their fear was a poor showing which might weaken British’s position in any future negotiation with Brussels. Over the weekend, a petition for a re-vote attracted more than 3 million signatures. Interestingly, the petition was started by a “Leave” supporter.

How the political elites in London, Brussels, Berlin & Paris handle the Brexit outcome will be critical, not only for the future of UK’s position within the European Union but also the future of the EU as well as the UK. For the UK, an exit from the EU could lead to a breakup of UK. The Scots, which had voted in 2014 to remain in the UK, had voted this round overwhelmingly in favor of remaining in the EU. They are now clamoring for exit from the UK. For the EU, Brexit could lead to other nations withdrawing from the EU. There is much interest in not having Brexit or, if Brexit is inevitable, to make the exit a swift but painful affair.

Meanwhile HMS London is rudderless. The Conservatives will likely elect a new leader to spearhead Brexit in October. After all, Brexit referendum was Cameron's tactic of appeasing a faction in his party that wants the UK to exit the EU. Any deal negotiated by the new leader with Brussels is likely to be put before the people. Thus, the UK will probably have a second referendum in the form of a General Election where the Conservatives would argue for the people’s ratification of the Brexit deal while Labour party will argue against it. That General Election will decide the final exit from the EU. And, it's because of this likely General Election in a not-so-distant future that Labour party leader, Jeremy Corbyn is now experiencing a challenge within his party. Many of his party leaders want a more dynamic leader to lead them into the next General Election.

*****

Equity markets will remain volatile in the short-term because there will be plenty of talks about Brexit. After a while, the market will get bored because there will be no action taken to begin the process for the Brexit. Then the selling will subside and the recovery can begin. 

Our FBMKLCI is currently in a downward channel.  The immediate support will be at the horizontal lines at 1620 & 1600. If these lines are violated, the index may revisit its August 2015 low at 1500.

Chart: FBMKLCI's weekly chart as at June 24, 2016 (Source: ShareInvestor.com)

I will leave you with this thought of a strange world that we are living in today.  

Suppose They Gave A War and Nobody Came 

Suppose They Held An Election and Nobody Ran 

Suppose They Voted For Exit and Nobody Left

SCGM: Earnings Dropped Sequentially

Results Update

In QE30/4/2016, SCGM's net profit dropped 51% q-o-q or 33% y-o-y to RM3.5 million while revenue was mixed- down 13% q-o-q but up 26% y-o-y to RM32 million. Revenue dropped q-o-q due to the lower demand from export customers. PBT decreased by 43% q-o-q mainly due to  the  decrease in operation profit as a result of drop in Sales Turnover and the loss on foreign exchange.

 
Table: SCGM's last 8 quarterly results

 
Chart 1: SCGM's last 29 quarterly results

Valuation

SCGM (closed at RM3.61 yesterday) is now trading at a PE of 16X (based on last 4 quarters' EPS of 16.19 sen). With earning CAGR of 30% (for the past 2 years), SCGM's PEG ratio is at a decent 0.5X. As a growth stock, SCGM is deemed fairly attractive.

Technical Outlook

SCGM is in a long-term uptrend, supported by its 10-month SMA line at RM3.40. Earlier signs of weakness did not lead to a price correction. Instead the stock rallied in June after it broke out of an intermediate downtrend line at RM3.00.


Chart 2: SCGM's monthly chart as at Jun 23, 2016 (Source: Tradesignum.com)

The rally of the past 3 weeks ran smack into a poorer set of quarterly result could only lead to one thing: Price correction. Let's see how far the correction would carry the stock for next few days. I see support at RM3.20. (Note: The stock was trading at RM3.40 as at 4.45pm.)


Chart 2: SCGM's monthly chart as at Jun 23, 2016 (Source: ShareInvestor.com)

Conclusion

Based on poorer financial performance, I expect correction for SCGM for next few days or weeks. However, its strong financial performance, reasonable valuation & positive long-term technical outlook should cushion the drop. I maintain a HOLD rating for SCGM.

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, SCGM.

Magni: Earnings Dropped Sequentially

Results Update

For QE30/4/2016, Magni's net profit dropped 28% q-o-q but rose 14% y-o-y to RM18.8 million while revenue dropped 28% q-o-q but rose 10% y-o-y to RM194 million. Revenue dropped q-o-q due to 32%-drop in sales for garment segment, offset by a 4%-increase in sales for packaging segment. PBT decreased q-o-q mainly due to lower revenue and lower other operating income arising from higher currency exchange loss.

Table: Magni's last 8 quarterly results


Chart 1: Magni's last 29 quarterly results

Valuation

Magni (trading at RM4.12 yesterday) has a trailing PE of 8.16 times (based on last 4 quarters' EPS of 50.46 sen). At this PER, Magni's valuation is still fairly attractive. 

Technical Outlook

Magni is in a long-term uptrend. MACD is curving down a bit but is still comfortably above the MACD signal line. ADX is is curving down a bit and threatening to cut below the ADXR. Both readings suggest that a temporary top may be at hand.


Chart 2: Magni's monthly chart as at Jun 23 2016 (Source: ShareInvestor.com)

The daily chart shows that Magni has just broken to the downside of a symmetrical triangle. If it continue to slide below the psychological support at RM4.00, it may dipped to test the 20-month EMA line support at RM3.50. (Note: MAgni is now trading at RM4.07 as at 4.45pm).


Chart 3: Magni's daily chart as at Jun 23 2016 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance and attractive valuation, Magni remains a good stock for long-term investment. However if you wish to sidestep a temporary decline, you may consider a trading SELL if the stock drops below the RM4.00 mark & re-enter at RM3.50-3.60.

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, Magni.

Brexit: A Surprise?!

As at 12:10pm, the Vote Count for UK's referendum on its membership in the European Union is heading in the direction of Britain exiting (or BREXIT). With 14.7% vote to be counted, the only way that the vote can change is the Remain vote must surpass the Exit vote by 21.7%. That's very unlikely.


Brexit Vote Count via Yahoo

The pounds get pounded and dropped 9.7% to 1.345 as at 12:10 pm Malaysian time.


Chart 1: GBP-USD's 30-min chart as at June 24, 2016 (Source:Investing.com)

Our FBMKLCI dropped 22 points to 22 points to 1617!

 
Chart 2: FBMKLCI's 30-min chart as at June 24, 2016 (Source: ShareInvestor.com)

We know that Brexit will likely impact a few listed companies directly. The Star newspaper - quoting a Maybank Investment Bankreport- listed down the major Malaysian investments in the UK: property developments (Battersea by SP Setia, Sime Darby), regulated assets (YTL Power), casino ops (Genting Malaysia (GENM), and renewable energy (KNM Group). The indirect impact is unknown. What's unknown is always very scary!! If you are scared, you sell in the market. I think we must remain calm in this maelstrom. I feel that the selling is overdone.

MBSB: Long-term Value Proposition (UPDATED)

MBSB has gone ex its 2-call Rights Issue of 1-for-1 @RM1.00. The ex-date was June 21. The first call of RM0.59 shall be payable on application while the second call of RM0.41 shall be capitalized from the share premium account. The theoretical ex-right price is RM0.83 (arrived at by adding up the closing price on the last cum-date of RM1.07 & the subscription price of RM0.59, and then dividing the total by 2).

The important dates for this rights issue exercise are:
1) Date for commencement of trading of rights: June 27
2) Date for cessation of trading of rights: July 4
3) Date of acceptance of rights: July 13
4) Date of listing of rights shares: July 26

After MBSB went ex on Tuesday, MBSB traded at around RM0.80. Investors are very concerned that there is something wrong with the stock.


Chart 1: MBSB's daily chart as at Jun 21, 2016 (Source: Kenanga/Chartnexus)

The purpose of this post is to answer the following questions:

• Should I hold onto the stock?
• Should I subscribe for the rights?

To answer these questions, let's begin by looking the fundamentals & technical aspects of the stock.

Result Update

For QE31/3/2016, MBSB's net profit rebounded up by 28-fold q-o-q to RM35 million while revenue was down 1.6% q-o-q to RM812 million. The q-o-q increase in PBT was mainly due  to lower allowances  for  impairment losses on loans, advances and financing. (Note: The results for QE31/3/2016 was announced on May 12.)


Table: MBSB's last 8 quarterly results

A closer look at the chart below reveals that MBSB's earnings peaked in June 2014. Since the, its bottom-line has been sliding even though top-line increased. This is due to higher allowances for impairment losses as MBSB raised its provision to match the standard of commercial banks.


Chart 2: MBSB's last 47 quarterly results

Valuation

MBSB (at RM0.795 yesterday) is now trading at a trailing PER of 25 times (based on the annualized EPS of 3.16 sen). The high PER is due to continuous provisioning made to raise its loan standard. A better indication of its potential is its low Price to Book ratio of 0.7x (compared to Maybank's PBR of 1.3x or AMBank's PBR of 0.9x).

Technical Outlook

MBSB share price has been trending lower since it peaked in October 2014. The potential trend reversal was noted in my February 2015 post.


Chart 3: MBSB's weekly chart as at June 21, 2016 (Source: Kenanga/Chartnexus)

MBSB may find support at the horizontal line at RM0.70-0.72. It is not likely that we may see a test of the next horizontal line at RM0.50-0.52 since that's below the first call of RM0.59 in the present rights issue.

 
Chart 4: MBSB's monthly chart as at June 21, 2016 (Source: Kenanga/Chartnexus)

To sell or not to sell?

The earlier questions - to hold onto the stock and/or to subscribe for the rights? - are the same. It revolves around the question of whether MBSB's financial performance will deteriorate further and drag down its share price.

I believe that MBSB's poor financial performance could have been overstated by the need to raise its impairment loss provision. Whether this tougher standard is really needed is questionable. If the company can recover from the current lending environment without a crisis; the share price would certainly rebound back. The reason why it has made higher impairment provision is that it aspires to be a full-fledged Islamic bank. Currently, it is a finance exempt company – a company that carries on financing business without a banking license. For more, go here.

When it finally achieves its goal of becoming an Islamic bank, it may be valued differently. That could be the reason why an experienced ex-banker, Chua Man Yu bought a 6.06%-stake into MBSB on February 29. I am unable to find out the price paid by Chia Man Yu but it shouldn’t be too far from the closing price on February 29 of RM1.33 (here). Even at that point of time, the planned rights issue for MBSB has been announced (here). If Chua Man Yu – who was the co-founder of RHB Bank – felt that MBSB was a good deal at RM1.33 in February, it could be an even better deal at around RM0.80 today!!

Thus the depressed share price today could be a possible buying opportunity? The question could be re-framed: Should I buy?!

(Note: The post was updated by replacing the 3 price charts and the commentary in the section "To Sell or Not To Sell" has been revised to include in the point about Chua Man Yu's investment in the stock in February.)

Conclusion

Based on reasonable valuation & deep sell-down, MBSB could be a good stock for a contrarian 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, MBSB.

Oldtown: Earnings Breaking Up

Background

Oldtown Berhad ('Oldtown') is involved in the manufacturing of beverages and operation of cafe chain. Its has a total chain of 237 café outlets, of which 207 café outlets are located in Malaysia, 10 café outlets in Singapore, 16 café outlets in Indonesia and 4 café outlets in China. It operates its café outlets under the brand name of ‘OLDTOWN WHITE COFFEE’. 

The Group is also engaged in the manufacturing, marketing and sales of coffee and other beverages, including instant coffee mix, instant milk tea mix, instant chocolate mix and roasted coffee powder. It offers its products to both local and overseas markets, such as Hong Kong, Singapore, Taiwan, United States of America, Canada, Indonesia, Philippines, Thailand, Brunei, United Kingdom, Australia and China.

Oldtown Factory in Perak & an example of Oldtown Cafe  

Historical Financial Performance

Over the past 5 years, Oldtown's top-line has been rising steadily. Bottom-line was flattish due to higher opex that comes with a new factory & a larger chain of cafes. Nevertheless its net profit for the latest half-yearly result shows a breakout above the RM25 million mark. How did this happen? Let's zoom into its quarterly result.


Chart 1: Oldtown's last 10 Half-yearly P&L

Recent Financial Results

The latest quarterly results for QE31/3/2016 was announced on May 26. Its net profit rose 66% q-o-q or 80% y-o-y to RM18 million while revenue was mixed- up 2% q-o-q but down 4% y-o-y to RM105 million. 


Table 1: Oldtown's last 10 quarterly P&L


Chart 2: Oldtown's last 10 quarterly P&L

From the table & diagram below, we can see that revenue from cafe operation dropped 4% y-o-y while beverage manufacturing operation enjoyed a 22%-increase in revenue. At the same time, beverage manufacturing operation's profit margin rose to 31.4% from 20.8% while profit margin for cafe operation dropped from 9.2%  to 7.6%.


Table 2: Oldtown's Segmental Result for QE31/3/2016 & FYE31/3/2016


Chart 3: Oldtown's Segmental Result for QE31/3/2016 & FYE31/3/2016

Latest Financial Position

Oldtown's financial position as at 31/3/2016 is deemed satisfactory with current ratio at 4x while total liabilities to equity at 0.2x. Its cash in hand was RM154 million (or RM0.33 per share).

Valuation

Oldtown (closed at RM1.83 this morning) is now trading at a PER of 15.7 times (based on last 4 quarters' EPS of 11.63 sen). If the net cash of RM0.33 per share is deducted, the PER would be lowered to 12.9 times. Its dividend yield is quite attractive at 4.9%.

Technical Outlook

Oldtown rose about 30% sine the announcement of its latest quarterly result on May 26. The sharp rally propelled the stock above its downtrend line at RM1.60 and the horizontal line at RM1.70.


Chart 4: Oldtown's weekly chart as at June 20, 2016 (Source: Kenanga/Chartnexus)

The daily MACD has crossed below the MACD Signal line- indicating consolidation ahead. The price may ease back to the horizontal line at RM1.70 to build a base.


Chart 5: Oldtown's daily chart as at June 20, 2016 (Source: Kenanga/Chartnexus)

Conclusion


Based on satisfactory financial performance, fair valuation & bullish technical outlook, Oldtown could be a good stock for long-term investment. Good entry level will be about RM1.70.

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, Oldtown.

BJToto: Better Earnings Thanks to Lady Luck & Market Generosity

Results Update

For QE30/4/20165, BJToto's net profit increased by 79% q-o-q or 35% y-o-y to RM105 million while its revenue rose 12% q-o-q  or 2% y-o-y to RM1.48 billion. Its pre-tax profit increased by 77.6% q-o-q due to higher revenue and by lower prize payout by gaming operations and favorable foreign exchange effect enjoyed by H.R. Owen. Thus, the improved financial performance - built on good luck & market generosity - does not inspire a whole lot of confidence.


Table: BJToto's last 8 quarterly results


Chart 1: BJToto's last 47 quarterly results

Valuation

BJToto (closed at RM2.90 yesterday) is now trading at a fair PE of 12.7 times (based on the last 4 quarters' EPS of 22.76 sen). Its dividend yield is fairly attractive at 6.6% pa.

Technical Outlook

For the past 3 years, BJToto is in long-term downtrend line (RR)- dropping from a high of RM3.80 in May 2013 to a low of RM2.80 in August 2015. It broke above that downtrend line twice in the past 9 months. The first breakout was in October 2015 and the second one was in February this year. The second breakout was more convincing, with MACD crossing above the zero line. In both breakout, the volume was lacking.

Alas, the second breakout may fail like the first breakout. Since early June, BJToto has dropped back below the overcome downtrend line (with support at RM3.00). It is living on borrowed time- staying close to the violated RM3.00 support as well as struggling to form a short-term uptrend line (SS) with its support at RM2.95.

Chart 2: BJToto's weekly chart as at June 20, 2016 (Source: Kenanga/Chartnexus)

Conclusion

Despite a temporary "better" financial result & weaker technical outlook, BJToto is deserved a HOLD rating due to its fair valuation.Like Magnum, BJToto is a good income stock that continues to pay decent dividend even in tough times.

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, BJToto.

BJFood: Coffee Anyone?

BJFood dropped 26 sen over the past 3 days, from RM1.83 on June 13 to RM1.57 yesterday (June 16). This followed poor result for QE30/4/2016 when its net profit dropped by 57% q-o-q or 51% y-o-y to RM3 million while revenue was mix- dropped 6% q-o-q but rose 8% y-o-y to RM139 million.

In my earlier post (here), I noted that if BJFood were to break below its 3rd fan uptrend line at RM1.80-1.85, its uptrend would be over. The next strong support - where a base may form - is at RM1.40-1.45. This is the starting point of the sharp price rally in July 2014 when BJFood announced its acquisition of the remaining 50%-stake in Barjaya Starbuck Coffee Company Sdn Bhd, the owner of the “Starbucks Coffee” chain of cafes and retail stores in Malaysia (here).

Starbuck Coffee is the main revenue & profits contributor to BJFood while the remaining businesses of Kenny Rogers Roasters & Jollibeans Food are either relatively small or new and they are loss-making. In QE30/4/2016, BJFood's bottom-line took a hit due to the weak MYR as 40% of the raw material inputs for Starbuck Coffee are denominated in USD. When our MYR recovers in the near future (hopefully soon), BJFood's earnings would rebound.

Thus, BJFood's current selldown could present a good buying opportunity. A good level to begin your accumulation is at RM1.50. Good luck!


Chart 1: BJFood's daily chart as at Jun 16, 2016 (Source: ShareInvestor.com)


Chart 2: BJFood's weekly chart as at Jun 16, 2016 (Source: ShareInvestor.com)

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, BJFood.

CHINWEL: Correction After Earnings Normalization

Results Update

In QE31/3/2016, Chinwel's net profit dropped 42% q-o-q or 1% y-o-y to RM11 million while revenue dropped 10% q-o-q or 7% y-o-y to RM111 million. Revenue dropped q-o-q due mainly to a 11.3%-drop in revenue in the fastener product segment. PBT dropped 36.9% q-o-q due to decline in both fastener & wire products segments of 25.1% & 40.7% respectively. With the lifting of anti-dumping duties for importation of Chinese by the European Commission in February, the sale of this product will be lower.


Table 1: Chinwel's last 8 quarters' P&L


Chart 1: Chinwel's last 12 quarters' P&L


Table 2: Chinwel's segmental performance for Mar 2016 & 2015

Historical Financial Performance

Revenue for last 2 years was back up to the previous high in FY2011 & FY2012 at around RM500 million per annum. With a bit of help from the weak MYR, Chinwel achieved a net profit of RM64 million in FY2016, which surpassed its previous high of RM48 million recorded in FY2012. It's likely that we had seen peak earning in FY2016. Going forward, I expect its revenue and earnings to be impact by the competition from Chinese products as well as the strengthening of the MYR.
 

Chart 2: Chinwel's last 10 Year' P&L

Valuation

Chinwel (closed at RM1.54 yesterday) is now trading at a trailing PE of 7.7 X (based on last 4 quarters' EPS of 20.08 sen). Assuming that earnings for the next few quarters matches the earnings for QE31/3/2016, Chinwel's EPS for the next full-year will be about 14.4 sen. Thus its forward PER will be about 11x, which is a fair PER for the stock.

Technical Outlook

Chinwel has dropped back to its long-term uptrend line support at RM1.50.


Chart 2: Chinwel's monthly chart as at Jun 16, 2016_12.30 (Source: ShareInvestor) 

At the psychological level of RM1.50, the stock may form a base before recovering.


Chart 3: Chinwel's weekly chart as at Jun 16, 2016_12.30 (Source: ShareInvestor)


Conclusion

Based on recent sharp correction, Chinwel is now trading at a fair valuation as well as supported by long-term uptrend line. As such, Chinwel deserves a HOLD rating.

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, Chinwel.

Topglov: Earnings Normalized

Results Update

For QE31/5/2016, Topglov's net profit dropped 40% q-o-q or 14% y-o-y to RM62 million while revenue was mixed- dropped 3% q-o-q but rose 2% y-o-y to RM672 million. Revenue declined 3% q-o-q  even though the sales volume growth was 5% due to lower average selling price and weaker USD. Profit before tax declined by 44% due to the weakening of USD, intense competition in nitrile glove segment as well as the increased raw material price.

 
Table: Topglov's last 8 quarterly results


Chart 1: Topglov's last 40 quarterly results

Valuation

Topglov (traded at RM4.91 yesterday) is now trading at a trailing PE of 15.3 times (based on last 4 quarters' EPS of 32.01 sen). However, since earnings has begun to normalize, the more meaningful PER would be a forward PER. Assuming the next 3 quarters' earning will be similar to last quarter's earning, then forward EPS would be 20 sen. This will give you a forward PER of 24.5 times. This nearly matches Harta's forward PER of 25.6 times (based on its close of RM4.10 & forward EPS of 16 sen) but compares unfavorably to Kossan's forward PER of 20.3 times (based on its close of RM6.49 & forward EPS of 32 sen).

Technical Outlook

Topglov is likely to move within an upward channel, with support at RM2.50 & resistance at RM7.00. We may see a sideways movement with a downward bias for the next 3-4 years - similar to what we saw from 2010 to 2015.


Chart 2: Topglov's monthly chart as at as at Jun 15, 2016 (Source: ShareInvestor.com)

Conclusion

Based on weaker earning ahead and demanding valuation, I would revise Topglov from a HOLD to a SELL ON STRENGTH (at or above RM5.00). If you wish to stay invested in rubber glove stocks, my preference is KOSSAN.

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, Topglov.