Qiii Ramblings
Datasonic - Opportunity or Game Over?
Why are you writing this?
Currently I owned some DSONIC shares all paid up with an average price of 2.x. Although I have vested interest, I felt like contributing / doing some 'good' on a Sunday afternoon. This remains a non expert view and you should act based on your own judgment. I do not know the reason for the Friday sell down and will not want to speculate. Comments are welcomed.
Is DSONIC a designated security?
NO (as of posting)
What is their profit growth to date?
In 2013, they achieved a profit growth of 191.27% compared to 2012 results on the back of a revenue growth of 45.89%. These numbers alone tell us that the group managed to improve margins significantly either through better cost control or economy of scale. In Q4 2013, they achieved a 505.52% profit growth y-o-y while in Q3 2013, it was a 188.29% y-o-y.
What is the significance of the profit growth numbers?
To the layman without heavy fundamental analysis, if I am willing to pay RM2 for a share while it was earning RM1, I should be willing to pay RM4 when it is earning RM2.
What is their current PE ratio?
Based on 2013 earnings and the closing price of RM3.64 on Friday 04 April, they are trading at a PE ratio of 30.
Isn't the PE ratio too high?
In the words of William O'neil, the author of the best selling book "How to Make Money in Stocks" and the CANSLIM formula for stock selection in an interview:
"We found that there is very low correlation between PE ratio and the best performing stocks. Some of these stocks had PE ratio of 10 when they started their major advance, others have PE ratio of 50.
During the 33 years in our survey period, the average PE ratio for the best performing stocks in their early emerging stage was 20. At the end of their expansion phase, these stocks have an average PE ratio of approximately 45. This means if in the past, you are not willing to buy stocks with above average PE, you automatically eliminated a lot of the best performing securities.
A common mistake a lot of investors make is to buy a stock solely because the PE ratio looks cheap. There are many reasons why a share's PE ratio is low.
Another common mistake is to sell a stock with high PE ratios. I remembered in 1962 when an investor barged into my friend's brokerage office declaring in a loud voice that Xerox was drastically overpriced because it was 50 times earnings. He went short at USD88 dollars, Xerox eventually went to USD1300 adjusting for stock splits."
As examples, AMAZON is currently trading at a PE ratio of 552, LinkedIn at 758 while FACEBOOK is at 86. People just want to own them.
What is their fair value / target price?
According to RHB Research, the fair value is RM4.08. The research house came up with this right after the announcement of Q4 2013 results. Based on what I read, this may not have factored in completely the recent contract awards namely Machine Readable Passports for Bangladeshi expats & CCTV for Penang. I eagerly await their new TP after the dust settles or when more news come out in April / May 2014.
Will they be able to repeat the same 'growth' story in 2014/15?
This depends on how well they do on
-
Growth in supply of MyKads & Passport pages to NRD
Targeting 30% to 40% growth in this segment. According to RHB Research, this segment contributes >85% of their revenue
(Source: RHB Research 03 March 2014)
-
New Solutions linked to MyKad
Potential new initiative linked to selective petrol subsidies.
(Source: The Edge Malaysia Weekly 05 April 2014 - read newspaper cutting above)
-
New Government related Ventures
Potential interest in Percetakan Nasional Malaysia Bhd (PNMB) which has contract to supply identification cards to the Home Ministry and Customs Department.
(Source: The Star 05 April 2014 - http://www.thestar.com.my/Business/Business-News/2014/04/05/Datasonic-eyes-govt-printer/ or the post by asamlaksa on the same article)
-
Growth within the Financial Services Sector / Corporations
Growth in the issuance and solutions related to ATM, Credit, Debit, Corporate ID, Loyalty Cards.
-
Growth within the region
Expand reach of current solution offerings within the region.
Do they have institutional sponsorship?
Based on the 2012 Annual Report, as of April 2013, Lembaga Tabung Angkatan Tentera (LTAT) & Globalised Market Traders Pte Ltd hold 2.93% and 2% each. There could be an increase in institutional participation since the share price ran up substantially in the past 12 months. The main board listing with an enlarged market cap and Syariah compliant status should have attracted some funds' attention.
Was the share price driven up mainly by retail participation?
This is a tough question which I do not have the answer to. Tracking the latest Company Announcements on Bursa up to 04 April 2014, the Directors and Principal Officers owned a combined 65.68% of Datasonic. The highest price of a DSONIC share acquired by a Director was RM4.65 while the highest price acquired by a Principal Officer was RM4.70 with a lot more transacted in the RM3.x region. They do not seem to think that the stock is overpriced and keep pumping in cold hard cash.
A quick check with the 2012 Annual Report reveals that the Top 30 shareholders owned a whopping 92.31% of the company.
I supposed the law of supply & demand holds here. If the majority buy to keep, then it is justifiable for the price to go up since the demand outweighs the supply. If there are less units in the open market, the only way to improve trading liquidity is to have bonus issues / share splits.
What does the chart say?
The weekly chart shows it touched and rebounded from EMA10 while the daily chart shows that it touched and rebounded from EMA50. There seems to be buying support between the RM3.50 to RM3.70 zone where the share price went into a 3-week consolidation in March 2014.
Opportunity or Game Over?
Based on the newsflow that the company's fundamentals are intact and assumption that the top shareholders continue to hold majority of their shares (cash paid up), it is possible that this is a healthy correction = buying opportunity. The only possible responsible notes are
- HOLD if you own some (if you can),
- BUY with CASH; and
- THINK TWICE before you play with DSONIC-CA.
With pure intentions,
Qiii
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Discussions
3 people like this. Showing 38 of 38 comments
Well sometimes it depends on perspective. I do not see anything wrong with Directors buying in shares themselves to own the company. Most companies do have starting roots as family businesses and it is not unusual to see family members in the board. Esp when Directors bought on Friday, it should signal that they are not aware of any negative / fundamental changes within the company.
Regarding institutional investors, we will see when the latest list of shareholders is out in the Annual Report for 2013.
2014-04-06 20:15
Definately not a buy at current price but a hold if you had bot it cheap much earlier !!
2014-04-06 21:42
RHB TARGET PRICE IS 4.08...ANYTHING FROM 3.50 TO 4,,IS A BUY OPPORTUNITY...BUT CAN IT FALL MORE LOWER THEN 3.50?? TO ME I FEEL IF IT DROP MORE FURTHER DOWN OF 3.50, THEN DAMAGES HAD ALREADY BEEN DONE TO THIS STOCK..AND PEOPLE THAT SHOULD BE HELD RESPONSIBLE FOR THIS DAMAGE WILL BE TA SECURITIES,, SUNDAILY
2014-04-06 22:51
kkteng70----IT WAS TRYING TO SEARCH FOR SUPPORT LEVELS ARROUND 4.08.. FOR ME IT S BEST TO BE ARROUND 3.50 TO 4 AT THE MOMENT, BECAUSE BURSA POLICE IS WATCHING...LATER WITH GOOD NEWS PLUS NEW TARGET PRICE, IT CAN SURGE AGAIN UP
2014-04-06 23:03
why local stock Price can not go up like US stock ? Good growing profit company like dsonic must be able give a chance. why so many people give negative comment on this stock to stop it price from go up futher? NEED to give a fair treatment or reward to the company which it always make it grows in term of profit.
2014-04-06 23:20
it s a very healthy correction for datasonic, so this counter should calm down at the moment,, do not surge without any concrete news or target price.. be smart like CMSB,, it knows when to go forward and when to go behind, till today no warning from bursa police...CMSB is a very very smart counter, i like the ways it move forward n backwards..a beautifull tango dance.. DATASONIC also should learn this tango dance from CMSB
2014-04-07 00:15
1. Amazon, Linkedin & Facebook have astronomical PE is not a justification that any company with lower PE is worth investing. Yahoo has a PE of 1000 before dotcom bust.
2. It is correct that a trend can persist for longer than expected, i.e. Over-optimisim or over-pessimism. Dsonic PE may likely to continue uptrend due to the buzz and excitement built by the market. It may also noted that you might able to make a quick profit, just don't get caught naked.
3. At the current price and PE, all the future contacts, rumors, speculative deals have already or most likely been priced in, although, as mention above, more contracts and speculation may continue to drive the price upward. Indirectly that also means Dsonic has no margin of safety but to deliver the expected numbers or risk become another Zhulian
4. In reference to PE, PE itself is a quantitative factor. Quantitative factor is only useful if it is supported by a qualitative survey of the company. Dsonic main business comes from 2 areas. 1) Supply smart card i.e. Mykad & Passport 2) ICT solution support. To me selling Mykad/Passport is quite a finite source of income, unless I am required to change my Mykad/Passport for something more high tech every single year. This leave them only one possible lucrative business which is providing ICT solution and maintenance to their customers. I would not have any idea how big is the market but their business totally relies on government sector. Add in they are a newly listed company, insufficient track record to show sustainability of earning power, negative free cash flow, high debts, total liabilities is over total equity. The probabilities for something to go wrong is high.
5. And Dsonic has an ongoing 30m litigation with Huawei.
2014-04-07 11:09
@JT Yeo:
Thanks for your opinions. Appreciate it. Based on your comments, there are only 3 areas which I'd like to highlight so as not to mislead other readers of the message in my article.
(1) According to the latest 2013 annual audited accounts, the company enjoys a free cash flow of RM64mil so it is not in negative cash flow.
(2) The message in my little write up is to point out that PE ratio is NOT a good measure to determine whether a company is overvalued or not so to say that a company is overpriced at PE of 39 or undervalued at PE of 5 is not ideal. It is like saying Old Town coffee is overpriced vs kopi @ kedai mamak but people find value in it. As you mentioned, the market will price in / discount any developments with the company. Well maybe sometimes it can be manipulated which is probably a good thing that Bursa raised caution so people avoid getting trapped by unscrupulous quarters.
(3) Currently Datasonic enjoys an economic moat in its core business area and up to this point, we have not heard of any negative development to this effect. This includes the supply of perishables and maintenance of solutions. Based on existing order book, the recurring income for the next 2 years should be intact. Buy Call from RHB research published when the price was RM3.63 with a FV of RM4.08 holds water.
2014-04-07 12:02
Qiii, terima kasih. macam mana pun, kaki kontra aka semut semut tak peduli cerita macam ini. semut semut suka harga gerak cepat dlm masa tersingkat dan mahu untung cepat. majoriti sini ialah semut semut dan banyak dah lari berkeliaran.
2014-04-07 12:07
sebenarnya, pasaran ada banyak saham bagus. bukan hanya dsonic. tapi sebab apa tak ada orang peduli tapi hanya mahu dsonic. sebab harga dsonic panas. Semut semut dapat untung besar keluar masuk keluar masuk banyak kali. Tapi last kali ialah jumaat lepas. satu kali habis kasi balik semua untung.
2014-04-07 12:12
@tewnama: Terima kasih. Saya suka membaca komen abang tewnama kat forum DSONIC - Best. Bila I tengok transaksi hari Jumaat, pedih jugak sebab kelihatan macam ada orang besar balun stok ni. Ramai semut2 yang kena kau-kau.
2014-04-07 12:28
1. @Qii, lets put this to a test hypothetically.
2. Dsonic profit is as actual and projected, 2013-2015 = 82m, 92m and 110m (MCap = 2400m)
3. IOIPG profit of actual and projected, 2013-2015 = 560m, 740m and 1010m (MCap = 8400m)
4. Assumed both analysts are accurate, currently projected the profit up to 2015, but unable project further, 'lack of solid data to do any projections'
5. Assuming you have net worth of RM10m today and only allow to put your money in one stock to choose for above, which would you choose?
6. We know that before last Friday, the stock is about say RM24.00 (without spit or bonus), at PE of 39x like you share, do you think the retailers will buy and keep? Similarly IOIPG can split or give bonus, say, after split and bonus it is price at RM0.28, so you think it would also attract more retailers?
2014-04-07 12:36
@sosfinance: Very good question. Actually I won't put my money in just from that info. We make money from price movements. It is a matter of time frame. By my calculation DSONIC has an annualized historical volatility of 56% and win rate over 3 months has been consistently 100%. I will put a big chunk of money there but not all.
I do not know enough about IOIPG to comment but if the original intention of including it as part of KLCI index goes through, maybe won't park my money in it too long.
2014-04-07 12:52
now datasonic very stable at 3.60,,,i think already stablize, everything priced in, most vital it is trading below rhb target price of 4.08,,, so bursa police cannot kacau lagi...now datasonic should calm down.. do not surge without any concrete news...be smarter like CMSB
2014-04-07 14:16
@Dakewlest, ATOZ, tonylim: Thanks.
@johnny cash: We will have to see what happens over the next two days. Still early to be too eager. Patience is key these few days.
2014-04-07 17:37
Wow, strike 1. That was fast. New project to manage Tenaga Kerja Indonesia (TKI) or Indonesian Foreign Workers.
http://www.bursamalaysia.com/market/listed-companies/company-announcements/1588205
We may see a confirmation of Morning Star on the daily chart tomorrow.
2014-04-07 18:58
The optimus is a great dud who has a heart built to be ANTIdsonic for no reason at all...he belong t d zombie world , once a while appears to harras people n then dissapears...
2014-04-07 19:16
@johnny cash: Great. Thanks for sharing. Seems like RHB answered the question in the title of this article "Buying Opportunity".
Closing today is beautiful. The daily chart now shows a confirmed bullish reversal pattern although some might argue that the candle today is not a full "Morning Star" as it did not pierce through mid point of the bearish candle on Friday. Either way it was a convincing reversal pattern.
2014-04-08 17:00
@ Qiii; yes now everything is in the hand of RHB...as positive news comes in new tp will be given.. for retalers it s better not to be to speculative, cause bursa police is watching.. lucky they just gave a cautious warning only.. thanks to them
2014-04-08 21:05
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4.9 / 5.0
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
steelheart
Institutional investors punya holding is negligible in Datasonic. Mostly held by the own management team. Obviously is crony company. Goreng counter definitely. Up or down? Take your bet. LoL...
2014-04-06 18:38