Tuesday, May 24, 2011

P.I.E profit slump, a concern?

A 10% slump in share price forces me to take a look at the recent quarterly announcement. I was having dilemma whether I should explain this a bit further because I do not want to be perceived that I am trying to defend the share. Well, It's a silly thought because I do not think my blog has that kind on impact on the market.

Having said that, here are my comments:

The good news is they announced 0.35 dividend that will go ex by May 25 and will be paid by June 8. At 3.86, gross dividend yield is 9%.

Secondly, the price drop was very sharp and that indicated a very huge dissapointment, definately shoot first ask question later kind of phenomena. But the volume was very thin, indicating that there were no instituitional selling. More important aspect is there is no follow through selling today.

Now going into the financial results, the real problem as gross margin which shrunk by 6% YoY(13% Q1 '11 vs 19% Q1 '10) despite of 10% growth in the top line. If they can hold at about 19% gross margin, the profit would have jumped by more than 50% instead of 20% slump. So the real question is can the gross margin go back to 19% ? The management indicating that profit margin was impacted by unfavorable product mix, i.e. more lower margin products. I also suspect that there are facing problems of unable to pass on the cost to customers fast enough due to rising commodities and Ringgit strength. Since the business is cyclical, I believe that the recent correction in commodities complex will be favorable to P.I.E.

Is it time to sell? No. If it's NOT the time to sell, is it time to buy? I was trying to buy some today at $ 3.85 but there were not enough sellers. So, you make that conclusion yourself.

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