SAM: Earnings Plummeted

Result Update

For QE30/9/2016, SAM's net profit dropped 43% q-o-q or 68% y-o-y to RM5.6 million while revenue dropped 4% q-o-q or 28% y-o-y to RM122 million. Revenue dropped q-o-q as its three business segments reported lower revenue. Revenue from the Equipment Manufacturing segment was lower by RM32.8million as a result of weaker demand from customers. Revenue from the Aerospace segment decreased by RM14 million due to the weakening demand for air cargo and the reduction in the production rate for A380 aircraft. Revenue for the Precision Engineering segment also decreased by RM0.2 million during the quarter. Coupled with new projects start-up cost and unfavorable foreign exchange movement, its profit before tax dropped from RM10.8 million to RM7.9 million .


Table: SAM's last 8 quarters' P&L


Chart 1: SAM's last 24 quarters' P&L

Valuation

SAM (closed at RM5.55 at the end of the morning session) is now trading at a PER of 14.6x (based on last 4 quarters' adjusted EPS of 38 sen). Based on CAGR of 45% over the past 2 years, PEG ratio is still comfortably below 1x. Provided this is not the end of its growth cycle (with the peak in late 2015), SAM valuation is deemed 'reasonable' for a growth stock.If you read the current year prospect (see below), you may come to the conclusion that the next few quarters will be challenging due to weakness in equipment manufacturing and precision engineering divisions.


From Notes to the Account (page 11)

Technical Outlook

SAM is in a tentative uptrend line, SS which accelerated in 2015. It made a double-top reversal at RM8.00 and is now hanging onto the support from the horizontal line at RM5.60. If this support fails, SAM will drop to the next support at the horizontal line of RM4.20 (which may happen though not in the next few months). Below that, SAM may find support at the tentative uptrend line RM3.50. I believe the stock is unlikely to test the uptrend line anytime soon unless SAM's financial performance completely collapses.


Chart 2: SAM's monthly chart as at Dec 1, 2016 (Source: ShareInvestor)
 

Chart 2: SAM's weekly chart as at Dec 1, 2016 (Source: ShareInvestor)
 
Conclusion

Based on poor financial performance and negative technical outlook, I revised my rating for SAM as a HOLD. If it breaks the support at RM5.60, you may consider reducing your position in the stock as it may slide down further.

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.