Background

Elsoft Research Berhad engages in the design, research and development of test and burn-in systems and application specific embedded systems. It provides cost effective Automated Test Equipment (ATE) solutions to the semiconductor, optoelectronic and automation industries. The Group’s key product i.e. test and burn-in systems are used by its customers who manufacture optoelectronic devices such as LED, image sensors and automotive lightings to test their products before launching into the market.

Strong & Healthy Financials

ELSOFT has a healthy cash flow and a strong balance sheet with continuously growing revenue and profit. ELSOFT's decreasing current ratio and growing Return on Equity suggests more efficient management thus generating more profit for shareholders. The group also has a minimum 40% dividend pay-out policy and has been declaring dividends consistently since 2005.

Recent Developments

Butterfly Farm Venture – In August 2015, ELSOFT invested RM 3.6m for a 21% stake in butterfly farm that is now opened in Penang. This venture is believed to have a return on investment of 20% i.e. RM 0.7m annually.

High Demand for LEDs – In the first half of 2016, ELSOFT will be producing about 40 units of LED test equipment worth RM20mil mainly for its automotive and smart devices segments. The group is also developing LED test equipment for smart devices that are scheduled to be released late 2016.

Medical Device to drive earnings – With regards to the group's medical equipment manufacturing business, ELSOFT has also secured orders from a local customer supplying to hospitals in the country.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – Elsoft Research Berhad

Potentially accumulating stock – Looking at the weekly iVSAChart of ELSOFT, it has been on a downtrend since Mar 2016, indicated by the sign of weaknesses (red arrows). The downtrend has been capped, indicating smart money may have exhausted the supply. Once the sellers have been removed, the market will move higher. However, we need to see more signs of strengths (green arrows) to ensure it is returning to uptrend.

Our View - We favour ELSOFT as it has strong fundamentals and also pays a minimum 40% dividend. Furthermore, with the increase in demand for LEDs and the recent opening of the butterfly farm venture, we believe ELSOFT will continue to have a strong balance sheet with growing revenue and profit. However, current iVSAChart price and volume actions indicate that there needs to be more sign of strengths before resumption of uptrend.

Interested to learn more?

- Website https://www.ivsachart.com/events.php

- Email: sales@ivsachart.com

- WhatsApp: +6011 2125 8389/ +6018 286 9809

- Follow & Like us on Facebook: https://www.facebook.com/priceandvolumeinklse/

This article only serves as reference information and does not constitute a buy or sell call. Make your own assessment before deciding to buy or sell any stock.