As promised in our last post, we will look at WONG ENGINEERING BHD (WONG) and explore how we can take advantage of a possible price pattern that could happen by DECEMBER 2021!
WONG is a fundamentally solid company which has been around since 1982 and listed on the KLSE Mainboard in 1998.
However, what is more exciting is the technical price setup! I tend to rely more on technical indicators and price action, as I always believe that price usually precedes fundamental news.
WONG is principally engaged in the manufacturing of high precision stamped and turned metal parts and components, complex welded frame structure, related modules and systems as well as trading, marketing and retailing of industrial and consumer products. These products are used in oil & gas, aerospace. telecommunication, test instrument, semiconductor, automotive and medical services sectors.They have also ventured into construction and property development since 2017.
From a PE prespective, WONG is not considered expensive, trading at a PE of 24 times and price-to-book of 2.39. It does not command the PE ratios of other tech or EMS companies (which could trade to PE ratios of up to 100 times) as the company is not considered a tech play although they are part of the electronics manufacturing chain. About 25% of the earnings is currently derived from the technology/manufacturing division. However, from the latest annual report the comapany has stated that the Manufacturing division invested RM3.04 million to improve its facilities, including the addition of new milling machines. There is great potential for the manufacturing division to further grow and the PE ratios could easily be re-rated to reflect this.
What is more interesting to note is that the company has posted 3 consecutive quarters of profits exceeding RM2 million each quarter. If the level of profits is maintained in the coming 4th quarter (releasing in December 2021), the company could be looking at its best financial year ever!
From the daily price chart, we can see that the price started trending upward from RM0.70 on 26th March 2021 (A) and broke through the key psychology resistance of RM1.00 (B) on 3rd of June before touching a new 52-week high of RM1.56 (C) on 7th July. Subsequent retracements have all been well supported at the upward trendline on the daily chart with higer-highs and higher-lows structure.
WONG touched a 17 year high of RM2.17 (D) on 10th Sept and then retraced to test the upward trendline at RM1.6, which has held. Currently, the price at RM1,76 seems to be making its way up again with the potential test of the highs again on the cards. Incidentally, the “ALL TIME HIGH” was RM3.26 in Feb 2000.
INTERESTING CHART OBSERVATIONS
1) The start of the move from (A) was probably due to the Q1 earnings catalyst (profit rose by 439% q-o-q) that was announced on 25th March 2021.
2) (C) was hit 1 week after the Q2 results (profit up by 26% q-o-q) were announced.
3) (D), which was a 17 Year high was hit after Q3 results on Sept 10 (up 11% q-o-q)) and announcement of the Bonus Issue of 6 new shares for every 5 existing shares.
BONUS ISSUE CATALYST
Bonus issues typically sends a positive signal to the market that the company is confident of its long-term growth prospects. Also, the bonus issue increases liquidity in the stock as well as allowing for wider retail paticipation at more attractive prices.
Case in point: Recently, there were 2 announcements of proposed bonus issues by JAYCORP and SKB SHUTTERS, which saw their respective share prices propelling to new 52 week high!
Similarly, when WONG proposed a 6 for 5 bonus issue on 10th Sept 2021, the share price hit a 17 year high that very same day. The share price also went up by RM0.12, from RM1.57 to RM1.69 when the bonus issue by approved in the EGM held on 20th Oct 2021.
BIG GAP TRADE SETUP
With the the bonus issue of 6 for 5, assuming the current price of RM1.76, this would give an ex price of RM0.80. This would create a nice gap trade setup, as I have discussed previously. (https://klse.i3investor.com/blogs/thealphatrader/2021-10-16-story-h1592735067-FAJARBARU_BUILDER_BHD_7047_Potential_Explosive_Trade_Setup.jsp)
At the current price of RM1.76, WONG offers a very good trade setup since it has retraced from the recent 17 year high of RM2.17 and has bounced off the upward trendline support around RM1.60 and rising. From the start of this uptrend since March 2021 every retracement to the uptrend support line has held. The next catalyst could be the Q4 results announcement in December 2021. Gauging from the last 3 quarterly results, there is a strong possibility that they might report their best annual financial results ever! Also the setting for the BONUS entitlement date could spark another round of buying!
I would like to stay with this trade as long as the daily upward trendline is not violated. If all the right variables are in place, I hope to see a new 17 year high by December 2021 and hopefully, a new ALL TIME HIGH in the not too distant future! Have a good week everyone and happy trading!
Disclaimer: This blog is created for sharing of trading ideas only. It is not in any way or form meant to be an inducement or recommendation to buy or sell any stocks. Consult your financial consultant before making any financial investments.