Gtronic: Earnings Continued To Rise

Result Update

For QE30/6/2017, Gtronic's net profit rose 51% q-o-q or 8% y-o-y to RM7.1 million while revenue rose 26% q-o-q or 10% y-o-y to RM63 million. Revenue & profits rose q-o-q due to higher volume loadings and commencement of mass production of new products from certain customers in the Group.


Table: Gtronic's last 8 quarterly results


Chart: Gtronic's last 46 quarterly results

Valuation 

Gtronic (closed at RM6.17 yesterday) is now trading at a PE of 64 times (based on last 4 quarters' EPS of 9.66 sen). At this elevated PER, Gtronic is priced to perfection. Any slightest shortfall in earnings will lead to huge disappointment and punishing price adjustment.

Technical Outlook

Who would have thought Gtronic could have such a strong rally over the past 12 months. From the low of RM2.60 in August 2016, Gtronic is ast approaching the January 2016 high of RM6.50.


Chart 1: Gtronic's monthly chart as at July 25, 2017 (Source: Shareinvestor.com)

A closer look at the daily chart reveals bearish divergence in the MACD as well as weakening of the uptrend momentum (with a drop-off in ADX). While indicators can alert us to be careful, there is still no breakdown in term of price action.


Chart 2: Gtronic's daily chart as at July 25, 2017 (Source: Shareinvestor.com)

However, when you compared the price chart with the earnings track record, you will see that there is a huge difference in Gtronic's profits recorded in 2016 & that's recorded today. That's why I am very wary of the super-bullish report for this stock.


Chart 3: Gtronic's monthly chart as at July 25, 2017 & its quarterly profits track record

Conclusion

Based on improving financial performance, Gtronic can be a good stock for long-term investment. However, its demanding valuation & the sharp rebound may lead to a correction in the near-term. Thus I am maintaining my rating of SELLING INTO STRENGTH to take profit if you have gotten into the stock in 2016 as I had recommended (here).

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.