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.