It is not volume which determine the value of a company, but its sound fundamental records. In fact, many of the potential stocks in KLCI are low in volume. Elsoft is one of those thin volume counters.
Elsoft is a local business which involve in research, design, developement and provide ATE solution to the semiconductor, optoelectric and automation industry. These company profiles are pretty easy to obtain from the company’s annual report. The more important is, the business of the company, does it sound similar to what is rising up in the market today? Semiconductor, especially those in the communication field, is among the main hit by today’s market, making Elsoft to be one of the beneficial to the industry.
This can be traceable if you notice its financial result for the recent years, the earning recover from the bottom of its financial since 2009, and what didn’t show on the chart is, the 2013 net profit is actually far higher than 2012. These profit and loss indicator is common, what about the balance sheet?
Obviously, this company bears no short term loan, which is an advantage for the business, while start from 2012, the accumulated earning has began to partake the value of its paid up capital, continuous hike in the accumulated earning can lead to bonus shares or right issue. Even the cash itself is more than the long-term asset as well as payables value, although this proves the liquidity of this company, but it seems to be a little low in the efficiency of cash utilization, so we move on the inspect the ROE, it is at about 18.65% while Return on Asset is about 17.27% after calculation. The ROE is not as satisfy as what we expected, if the management is efficient enough, we shall see them expanding or diversifying the business in the near future.
The current ratio of Elsoft is very high at 7.4 in 2012, the cash in hand is even high, that it can actually pay off its debt of RM5.05 million with less than 20% of its cash. Since the balance sheet looks nice, let’s inspect the company’s earning ability, with 181 millions of shares issued, the revenue earned per share for year 2013 is RM0.14 per share, about 16% of the share price, it’s an average earning ability but that’s the space for the company to improve.
The profit margin of Elsoft can hit until 43%, that is a high profit margin and sustainable for the uncertainty of the cost. The new plant in Penang that had proposed is carrying out well and it is believe that upon complete, the new plant may contribute more revenue to the company in a fast pace, because of the new plants are build using cash, so it doesn’t incur any borrowing interest to the company.
Notice how the trading chart of Elsoft coincide with its net profit chart, Elsoft reversed since 2013, and it is now about the same price level with its price in 2007, which recorded for 6.7 million net profit, in year 2013, the net profit announced was 10 million, obviously, it is better than the profit it 2007, which hints an undervalued to the shares, and pushed it up further, and whether it can reach its high in 2006? Let’s see whether 2014 financial result will be going to reach the 18 million of net profit or underperform, 1Q is actually quite underperform if compared QoQ, which is 45.76% lower. Higher profit may be impossible if the following quarter results did not overtake the previous year quarter results, the movement can be also halted in this case.