Willowglen May Have a Bullish Breakout - Can It be True?

Introduction:

Willowglen is primarily involved in developing SCADA system in the transportation, oil and gas, water and waste-water industries, security of buidings/high-end condominiums. The Group's revenue is principally contributed by its Singapore operation (80%), while the balance is coming from Malaysia. Currently the Group is exploring business oppurtunity in Indonesia. On the 22nd of May 2012, the Group has secured a contract amount RM 18mil which is expected to contribute positively to the EPS on FY2012 to FY2014.

Technical Analysis:

Indeed, prior to the announcement of the award of new contract, Willowglen share price has undergone a Bollinger breakup on the 21st of May 2012. From the volume plot, we are able to observe that the number of transactions has been increasing few days ago, which has surpassed its 40 day MA line. This is indeed a buying signal for this stock.

Figure 1: Share price history of Willow (source: www.tradesignum.com)

Fundamental Analysis:

The financial position of the Group is very healthy, with its current ratio stood at 10.25 at FY2011 and no borrowings.

Let's us have a look on the Group's history in terms of revenue from Table 1:

Table 1: Group earning history.

	2011	2010	2009
Revenue (mil)	52.2	54.5	62.0
Net Profit (mil)	8.5	9.3	12.6
Profit Margin(%)	16.3	17.1	20.3
Inventory (mil)	1.3	1.2
EPS (RM)	0.034	0.038
PER	8.7	9.3

As seen, the Group's revenue started to decline from FY2009 to FY2011. Furthermore, its profit margin is downtrending which translates into declining of net profit. The declination of profit is mainly due to lower turnover from Malaysia operation and higher R&D costs. Its PER is consistent throughout all the years (i.e. ~ 9.0).

Willow has published its 4Q2011 result in past few months. The EPS is RM0.0151, which is quite a promising quarter for Willow. If we assume that Willow can make consistent profit in FY2012, the anticipated EPS throughout the year would be RM0.06 (2x EPS in FY2011). However, is Willow able to sustain this attractive EPS on 4Q2011 with its current project in hand?

Willow is going to publish its quarter result 1Q2012 soon. Let's us have a close look on it.