SCGM: Tentative Earning Recovery

Results Update

In QE31/72018, SCGM's net profit rose 6 folds q-o-q on the back of a 16%-increase in revenue to RM56 million. When compared to same quarter last year, net profit dropped 81% while revenue rose 4%. Revenue increased q-o-q, mainly due to higher sales from local and overseas markets. PBT rose q-o-q in line with higher revenue achieved for the current quarter. PBT dropped y-o-y due to higher resin prices, higher finance costs, higher electricity costs, higher depreciation charges, higher labor cost and foreign exchange losses incurred

 
Table: SCGM's last 8 quarterly results

 
Graph: SCGM's last 38 quarterly results

Financial Position

SCGM's financial position is deemed adequate with current ratio at 1.25 times while gearing ratio is elevated at 0.96 time.

Valuation

SCGM (closed at RM1.42 yesterday) is now trading at a PE of 23X (based on last 4 quarters' EPS of 6.16  sen).  At this PE, SCGM is deemed fully valued. However, PE will improve once earning starts to increase.

Technical Outlook

After a steady decline, SCGM seems to have found support at RM1.30-1.40.


Chart: SCGM's weekly chart as at Sep 20, 2018 (Source: Malaysiastock.biz)

Conclusion

Based on tentative recovery in earnings, adequate financial position and possible bottoming of the share price, vised my rating for SCGM from a SELL to a HOLD.

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.