Today i had been watching live, this ESCERAM climbing from 0.425 up to 0.550. I had never thought that this ESCERAM will be so highly dangerously explosive... And today ESCERAM had just released their Q1 Result for 2016. Not to forget there are some surprises in their Annual Report 2015 announced last week Friday.

Well, congrats to those who had been riding on the wind from the day i recommended this stock. So, you must be wondering, what's next? When should i take profit? Hear me out, i might provide you some information.

1) Fundamental Analysis:

The net profit of 2016 had increased 30.85%, from RM1,154k to RM1,510k. For me, this is a significant increase, not many company can go as high as that percentage[2]. In the Q Report, it is mentioned that there is improvement in the operations performance. At the same time, the net cash of the company had been growing linearly. Up to date, the ESCERAM is a net cash company with RM25,277k cash in hand.

The management did mention that the fluctuation in exchange rates may pose challenges to the operation due to increase in various essential cost components. However, they still expect a favourable performance in the coming year as they will continue to explore opportunities to enhance and improve the performance.

In the Annual Report 2015, Mr Chairman, Rithauddin stressed on the company will further generate savings and improve efficiencies by giving priority to factory automation and machinery upgrades. Similar to last year, they will be focusing in reducing wastage to reduce inefficiencies, improving capacities and capabilities despite facing mounting cost pressure. ESCERAM did have cash, trade receivables and trade payables in USD, Thai Baht and Euro while the exchange rate used in the annual report is 3.67, 0.11 and 4.02 respectively.

As of 27 October 2015, the exchange rate is no longer the same, if compared with the annual report, the USD had increased 17%, from 3.67 to 4.28; Thai Baht had increased 9%, from 0.11 to 0.12; the EURO had increased 18%, from 4.02 to 4.73. In short, the currencies had increased around 14%, and their cash and trade receivable will be increased more[1]. Cash and trade receivables represents 95% while trade payables is only 5% in the balance sheet. The point i want to bring out here is, if we convert all their cash and trade receivables to RM, the number will increase significantly around 14%.

In The Financial Daily dated 27 October 2015, it appeared in the Insider Asia's Stock of the Day. This is a nicely written article with a lot of insider news. Let me surface out the important piece of information. The local glove giants (Top Glove, Hartalega, Kossan and Supermax) aim to boost their annual production capacity by spending over RM3 billion as part of their long term capacity expansion plans. There are rumours that big giant companies plan to buy over ESCERAM, but how sure is that, it is just rumours...

Top Glove will be adding annual capacity totaling 7.8bil over the next 2 years; Hartalega plans to add annual capacity of 28.4 billion gloves, Kossan 22.0 billion gloves and Supermax 10.8 billion gloves. Okay, looking at those billions and billions, these major expansion exercises will drive demand for ceramic hand formers, and ESCERAM is the only listed company who is doing the formers[3]. These 4 giant glove counters might be ESCERAM's customers. I will not be surprised if one day, we hear news that ESCERAM is going to expand their factories or raise private placement.

In the top 30 major shareholders, surprisingly there are 7 fund houses had injected their money into ESCREAM. If i compare to their Annual Report 2014, there are not even fund house there. But in Annual Report 2015 alone (as at 7 October 2015), there are 7 fund houses. Just to name a few, RHB Small Cap Opportunity, RHB Emerging Opportunity, RHB Smart Income Fund, i think all these fund houses are Smart Enough to find Emerging Opportunities in the Small Cap Companies.

2) Technical Analysis:

For the technical chart, first let us roughly guess at what price did the fund houses went in. There are three higher highs during that period. Referring to the Annual Report 2014 (as at 30 September 2014) and Annual Report 2015 (as at 7 October 2015), i can assume that once the fund houses pump in, there will be high spikes as well, and higher highs, so, maybe the fund houses had started to collect around 0.24 to 0.28. This is just a rough guess, it might not be true. But the good thing is at least, we know that the fund houses are also aiming at the explosive ESCERAM.

On 27 October 2015, ESCERAM hikes up to 34.1% from 0.410 to 0.550 closing price, with volume of 56 million shares transacted, at the 3rd place of the top volume table. I would say that ESCERAM seldom had such high spikes before. However, i think ESCERAM is overheated and might retraced. My reason being, the chart has breached the Bollinger Band and its RSI is now more than 70%, which indicates that it is overbought, and seldom we see such high spikes in volume. Since ESCERAM had just announced their Quarter Result, there might be profit taking activities happening.

For those who are still holding ESCERAM, remember to set your TP. It still comes back to the reason you buy, is it for long term, mid term or short term? I am not going to comment more on that, but just remember to set your TP. For those who want to re-enter, we can wait until the RSI dropped to between 50% to 70% and we can take action. I believe the share price will not drop to below 0.4 now, with the fund houses supporting the price.

Summary: 

[3]: The Edge Financial Daily: 27 October 2015