TChong: Earnings Improved due to Favorable Sales Mix

Result Update

For QE30/6/2019, TChong's net profit rose 22% q-o-q or 57% y-o-y to RM19 million while revenue dropped 1% q-o-q or 2% y-o-y to RM1.067 billion. The automotive revenue rose 1.3% y-o-y to RM2,096.6 million and EBITDA rose 46.9% y-o-y to RM149.6 million. Automotive division recorded a 1.3%-decline in revenue to RM1,041.7 million, while EBITDA has improved by 16.2% to RM80.4 million. The lower revenue was due to stiff competition in the automotive market. EBITDA improved due to favorable sales model mix.


Table: TChong's last 8 quarterly results


Graph: TChong's last 49 quarterly results

Financial Position

As at 30/6/2019, TChong's financial position is deemed satisfactory with current ratio at 1.4 times and gearing ratio at 1.0 time.

Valuation

TChong (closed at RM1.45 yesterday) is now trading at a trailing PER of 7.9 times (based on last 4 quarters' EPS of 18.37 sen). At this PER, TChong is trading at a fairly reasonable value for a turnaround stock.

Technical Outlook

TChong appears to be making a base at around RM1.30-1.40. Immediate resistance will be at the psychological RM1.50 mark and thereafter at the horizontal line at RM1.65.


Chart 1: TChong's daily chart as at Aug 20, 2019 (Source: Malaysiastock.biz)


Chart 2: TChong's monthly chart as at Aug 20, 2019 (Source: Malaysiastock.biz)

Conclusion

Based on improved financial performance, satisfactory financial position and fair valuation, TChong could be a good stock for recovery play.

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.