GCB (5102) - GCB: The recovery may begin
For QE30/9/2015, GCB reported a net profit of RM22 million as compared to a net loss of RM13 million in the same quarter last year. Revenue soared 72% y-o-y. When compared to the immediate preceding quarter, its net profit increased 10-fold while revenue increased by 23%.
GCB returned to profitability due to the increased sales volume and selling price of cocoa cake and powder. The higher net gain on commodity future contract and lower inventory write-down also contributed to the increase in profit before tax for current quarter.
Table: GCB's last 8 quarterly results
As pointed out in the last post, GCB's profit & profit margin seems to have bottomed and are poised for recovery. This expectation panned out nicely and it could herald many quarters of better results ahead.
Chart 1: GCB's last 44 quarterly results
Financial Position
As at 30/9/2015, GCB's financial position is fairly tight with current
ratio at 1.03 time and gearing ratio at 3.4 times. The high gearing is
the
result of high borrowings to finance its inventory & trade
receivable. Inventory holding period had improved from 160 days in
31/3/2015
to 104 days while debtors' turnover period had deteriorated from 43 to
73 days over the same period.
Valuation
GCB (closed at RM0.85 yesterday) is now trading at a trailing PER of 31 times (based on last 4 qaurters' EPS of 2.75 sen). If GCB can continue to chalk up results similar to QE30/9/2015, its PER would reduce to less than 5 times. This plus its PBR of 1.1 times its NTA (of 80 sen @30/9/2015) means that GCB is probably fairly valued today.
Technical Outlook
GCB has finanlly broken above its downtrend in early September. However, the stock failed to rally given the uncertainty in the commodity sector in general.
Chart 2: GCB's weekly chart as at Nov 24, 2015 (Source: ShareInvestor)
From the next chart, we can see how far this stock has declined. Any recovery - however gradual - would be very rewarding.
Chart 3: GCB's monthly chart as at Nov 25, 2015 (Source: ShareInvestor)
Conclusion
Based on recovery in its financial performance and mildly positive technical outlook, GCB is now rated a BUY. However, it must noted that the commodity sector in general is still weak and the company's financial position is fairly tight. Thus, any exposure to the stock should be carried out cautiously.
Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, GCB.
http://nexttrade.blogspot.my/2015/11/gcb-recovery-may-begin.html
