Tasek: Earnings Took A Knock

Results Update

For QE30/9/2016, Tasek's net profit dropped by 58% q-o-q and y-o-y to RM7.6 million while revenue rose 14% q-o-q or 10% y-o-y to RM149 million. Revenue dropped q-o-q mainly due to lower sales by both the cement and ready-mixed concrete segments, which in turn was due to the lower average net pricing from the intensive price competition and shorter business cycle. Lower revenue plus higher costs of production in the cement segment - arising from plant maintenance - and lower interest income, led to lower profit before tax of RM9.9 million as compared to RM23.3 million recorded in QE30/6/2016


Table: Tasek's last 8 quarterly results

 
Chart 1: Tasek's last 34 quarterly results & dividend payout 

Valuation

Tasek (closed at RM14.60 last Friday) is now trading a PE of 27 times (based on last 4 quarters' EPS of 54.87 sen). At this PER, Tasek is deemed overvalued. With the decline in profit, Tasek's dividend payment also declined, leading to a drop in its dividend yield to 5.5%. At this rate, one is hard-pressed to make a case that Tasek is a good income stock.

Technical Outlook

Tasek has been in an uptrend since 2006. If it can stay above the support from the horizontal line at RM14.00 (which may be its uptrend line support), there is still a chance that the uptrend will remain intact. A break below the RM14.00 mark could signal the end of the uptrend.


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


Chart 3: Tasek's monthly chart as at Oct 28, 2016 (Source: ShareInvestor.com)

Given the amount of construction projects announced over the past 1-2 years, it is hard to believe that Tasek uptrend would come to an end. Then again, if we look at the leader of this sector, LAFMSIA, we can see that LAFMSIA had broken its uptrend line at RM9.00 in early 2016.


Chart 4: LAFMSIA's monthly chart as at Oct 28, 2016 (Source: ShareInvestor.com)

Conclusion

Based on poorer financial performance, demanding valuation and challenging operating environment, I revise the rating for Tasek to a SELL.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.