3A: Earnings Rose On Better Margin & Forex Gain

Result Update

For QE31/12/2016, 3A's net profit rose 28% q-o-q or 322% y-o-y to RM13 million while revenue rose 8% q-o-q or 1% y-o-y to RM95 million. Revenue rose q-o-q due to higher sales. Profits increased 25.5% q-o-q due to higher product margins and higher forex gain.


Table: 3A's last 10 quarters' P&L


Graph: 3A's last 14 quarters' P&L

Proposed Bonus Issue

3Ahas proposed a Bonus Issue of 1-for-4 in September last year. This proposal is likely to be approved soon as the application of the listing of the new bonus shares has been submitted to Bursa In November last year (here).

Other Development

In October, Securities Commission Malaysia (SC) charged six individuals with insider trading offences under Section 188 of the Capital Market and Services Act 2007 (CMSA). Among those charged are:

• Fang Chew Ham, 69, the founder and Managing Director of 3A
• Executive Director Fang Siew Yee, 36, and
• Non-executive Director Fong Chiew Hean

There is no update on these cases (here).

Valuation

3A (closed at RM1.33 last Friday) is now trading at a PER of 13x (based on last 4 quarters' EPS of 9.89 sen). For a consumer stock with good growth, 3A is deemed fairly attractive valuation.

Technical Outlook

Over the past 2 years, 3A has risen gradual from RM0.90 in January 2015 to a high of RM1.45 in June 2016. If it can break above the intermediate downtrend line, R1-R1 and recruit enough buying support, the stock can commence on its next upleg.


Chart 1: 3A's daily chart as at Feb 24, 2017 (Source: Shareinvestor.com)

3A has been consolidating in a 5-year rounding bottom formation. The gradual rise over the past 2 years is leading to an upswing which could send the stock to retest its 2010 high of RM2.30.


Chart 2: 3A's monthly chart as at Feb 24, 2017 (Source: Shareinvestor.com)

Conclusion

Based on good financial performance, fairly attractive valuation and mildly bullish technical outlook, 3A remains a very good stock to consider for long-term investment. However, the stock's price performance in the near term may be affected by the development of the insider trading case.

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.