Background
Tai Kwoong Yokohama (Yoko) is involved in the manufacture & sale of automotive batteries.
Recent Financial Results
Yoko announced its results for 3Q2009 ended 30/9/2009. Its net profit jumped 113% q-o-q to RM6.5 million on the back of a 24%-increase in turnover to RM53 million. Because of the jump in turnover, Yoko recovered from a net loss of RM1.5 million incurred in 3Q2008. The improved performance was due to higher margin, higher sale volume, lower finance cost & lower corporate expenses.
Table 1: Yoko's 8 quarterly results
Chart 1: Yoko's 21 quarterly results
Lead price movement
Lead, the main component in the production of automotive batteries, has been rising since the end of 2008. It bottomed at the 1000-point level, which was a fairly steep drop from its high of 4000-point recorded in October 2007. I believe that Yoko values its inventory on a First-in-First-out (FIFO) method, with a production time lag of about 6-9 months. So, the higher cost of lead in October 2007 impact its bottom-line in QE30/9/2008 & QE31/12/2008. Similarly, the lower cost of lead in November 2008 will boost its bottom-line in QE30/9/2009 & QE31/12/2009.
Chart 2: Lead's weekly chart as at Nov 12, 2009 (Source: London Metal Exchange)
Valuation
Yoko (trading at RM1.20 as at 4.45pm) has a PE multiple of 5.5 times (based on the last 4 quarters' EPS of 22 sen). At this multiple, Yoko is a fairly attractive stock, even though it is a small & illiquid stock and should trade a slight discount.
Technical Outlook
Yoko has broken above its long-term downtrend line at RM0.80-90 in September. It has just surpassed its July 2007 high of RM1.16. The next resistance is at RM1.40 and thereafter RM1.60.
Chart 3: Yoko's monthly chart as at Nov 12, 2009 (Source: Quickcharts)
Conclusion
Based on good financial performance, attractive valuation & bullish technical breakout, Yoko may continue to go up.
