Background

Eti Tech Corporation Bhd ('Etitech') is involved in the research and development, design, and marketing of battery management systems for rechargeable energy storage solutions.

Recent Financial results

Etitech has just announced its results for QE30/11/2009, where its net profit dropped 36% q-o-q or 19% y-o-y to RM3.4 million, while turnover was mixed- declined by 7.1% q-o-q but increased by 11.7% y-o-y to RM21.8 million. The drop in bottom-line was due to a drop in sales as well as a poorer sales mix.


Table: Etitech's latest 8 quarterly results


Chart 1: Etitech's latest 8 quarterly results

Financial Position

Etitech's financial position is deemed healthy, with high liquidity position as reflected by current ratio of 8 times while low leverage position as refelected by gearing ratio of 0.1 time.

Valuation

Etitech (closed at RM0.415 on Jan 29) is now trading at a PER of 14.6 (based on last 4 quarters 's EPS of 2.84 sen). At this multiple, Etitech is deemed fully valued.

Major Shareholder sold off

Emirates Investment and Development Co. ('EIDC') used to be one of the major shareholders of Etitech, with a stake of 14% or 96 million shares in October 2009. Shortly thereafter, EIDC began to aggressively selldown its stake in Etitech. By January 20, EIDC has fully sold off its stake in Etitech. This information was obtained from two filing made last month, where EIDC filed in on Jan 18 that its stake in Etitech has been reduced to 43.624 million shares (here) & then it filed in on Jan 20 that it has disposed off the remaining 43.624 million shares (here). This was confirmed with the registrar, Securities Services (H) Sdn Bhd. With this source of selling pressure exhausted, the stock is likely to slowly recover.

Technical Outlook

Etitech has been in a downtrend with resistance at RM0.82-83, while support from the channel line at RM0.40. The RM0.40 level happens to be the immediate horizontal support while the immediate horizontal resistance is RM0.46-47.


Chart 2: Etitech's daily chart as at Jan 25, 2010 (Source: Quickcharts)

Conclusion

Based on the completion of the selldown by EIDC, I believe Etitech should stabilized at the RM0.40 level. The stock may not rise very much as it is fully valued at the present price level. The catalyst for a re-rating of the stock may only come after its financial performance has improved significantly. Investors may not get excited with MOUs as there has been a few such announcements over the past few months which failed to lead to anything substantial.