Background

Daibochi Plastic & Packaging Industry Bhd ('Daiboci') is involved in the production packaging materials for many applications such as food, beverage, FMCG, pharmaceutical and industrial uses.

Strong Rally in Share Price

Daiboci has rallied from a low of RM0.50 in March last year to a recent high of RM3.30 on Jan 26. The basis for this strong rally is Daiboci's improved financial performance. Is the recent improved financial performance sustainable? Or, is it an exceptional fortuitous period for Daiboci which is difficult to sustain?

Historical Financial Results

I have appended Daiboci's top-line & bottom-line for the past 10 years. While the estimated pre-tax profit for the current year (FYE Dec2009) is sharply higher than the preceding 5 years, Daiboci's top-line has risen very little in the past 4 years. So, the increased bottom-line for FYE Dec2009 is not due to increased business volume, but higher profit margin. How did this come about? Is this a result of higher selling prices? Is it a result of lower input cost? It may not be significant whichever one is the answer because in the commercial world, exceptional profit margin seldom persist for long.


Table 1: Daiboci's last 10 years' results


Chart 1: Daiboci's last 10 years

Recent Financial Results

Daiboci's top-line & bottom-line has been flattish in the last 3 quarterly results (QE31/3/2009 to QE30/9/2009). In fact, its top-line took a dip in QE30/9/2009. It would be interesting to see Daiboci's results for QE31/12/2009, which is expected to be released in mid-February. Unless a very convincing set of results is issued, I believe the rally in Daiboci would end abruptly.


Table 2: Perstima's last 8 quarterly results


Chart 2: Daiboci's last 8 quarterly results

Technical Outlook

I have appended Daiboci's weekly chart from 1992 until today. You can see that Daiboci is now deep in the overbought zone (look at RSI & Slow Stochastic indicators). In the past, Daiboci had similar sharp run-ups which ended very unpleasantly.


Chart 3: Daiboci's weekly chart as at Jan 28, 2010 (Source: Quickcharts)

Conclusion

Based on the extreme overbought condition & doubts as to the sustainability of Daiboci's current profitability, I would recommend profit-taking on this stock.