VS: Earnings Continued To Grow

Result Update

For QE31/1/2017, VS's net profit rose 6% q-o-q or 29% y-o-y to RM35.5 million while revenue rose 12% q-o-q or 52%  y-o-y to RM764 million. VS's profits rose q-o-q mainly attributable to higher sales contributed by the Malaysia and China operations and forex gain of RM7.2 million which more than offset the impairment loss of RM2.9 million.


Table: VS's last 8 quarterly results


Graph: VS's last 48 quarterly results

Valuation

VS (closed at RM1.74 yesterday) is trading at a trailing PE of 20.5 times (based on last 4 quarters' EPS of 8.48 sen). At this PER, VS is deemed fully valued.

Technical Outlook

VS had a strong rally from a low of 13-14 sen in 2014 to a high of RM1.60 in late 2015. After a consolidation of 14 months, VS broke above the RM1.60 mark and continues with its prior uptrend. See Chart 1 & 2 below.


Chart 1: VS's monthly chart as at Mar 28, 2017 (Source: MalaysiaStock.Biz)

 
Chart 2: VS's daily chart as at Mar 28, 2017 (Source: MalaysiaStock.Biz)

The rally in VS is quite troubling because of two things; firstly, the share price is at a new high while quarterly earnings has yet to surpass the high of  Oct 2015, and secondly, warrant price is not rallying as strongly as the share price rally. At some point, these dichotomies must be resolved: Earnings must rise & warrant price too; or share price must pullback! We will have to wait & see.
(Note: The profile of VS-wa is exercise price of RM1.65 and expiry date of Jan 6, 2018; giving you a premium of 16%.) 

 
Chart 1: VS-wa's daily chart as at Mar 28, 2017 (Source: MalaysiaStock.Biz)

Conclusion

Based on good financial performance & positive technical outlook, VS can bea good stock for long-term investment. However the share price maybe running ahead of the fundamentals as noted above. As such, I still maintain my rating of SELL INTO STRENGTH or switch from share to the warrant.

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.