Elsoft: Earnings Continued to Grow

Background

Elsoft Research Berhad ('Elsoft') is involved in the research, design and development of test and burn-in systems and application-specific embedded systems. It provides products for semiconductor, opto-electronic (such as image sensors) and automation industries (such as lighting).

Historical Financial Performance

Elsoft's top-line and bottom-line grew at a rapid pace in the past 6 years.


Graph 1: Elsoft's last 14 years' P&L

Recent Financial Performance

In QE30/9/2018, Elsoft's net profit rose by 13.6% q-o-q or 61.7% y-o-y to RM13.6 million while revenue rose 1.3% q-o-q or 47.1% y-o-y to RM24.5 million. Revenue rose q-o-q mainly due to greater demand from smart devices industry and continuous demand from automotive and general lighting industry. The increase in revenue led to increase in profits.


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


Graph 2: Elsoft's last 24 quarters' P&L

Financial Position

Elsoft's financial position as at 30/9/2018 is deemed very healthy with current ratio at 4.6 times and gearing ratio at 0.2 time.

Valuation

Elsoft (closed at RM1.42 last Friday) is now trading at a PER of 17 times (based on last 4 quarters' EPS of 8.25 sen). Based on last 5 years' earnings CAGR of 30%, Elsoft's PEG ratio stood at only 0.6 time. At this PEG ratio, Elsoft is deemed fairly attractive for a growth stock.

Technical Outlook

Elsoft is in a gradual uptrend in the past 5 years- reflective of its steady earning growth.


Chart: Elsoft's weekly chart as at Nov 16, 2018 (Source: Malaysiastock.biz)

Conclusion

Based on good financial performance and position, attractive valuation and bullish technical outlook, Elsift is a god stock for long-term investment.

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.