Titan Chemicals Corporation Berhad (5103)

Q3'06 quarter result

Titan managed to post a very impressive Q3 earnings. However, the investors or even local research houses still do not show great interest in this stock. There is even one research house maintains its sell recommendation, with target price of about RM1.03. They stated that its valuations or dividend yields are not exticing enough to compensate the potential downside risk.

opportunity in difficult situation

No doubt the stock is not performing since its IPO, about a year ago - Its IPO price is RM1.77 after the revised of the initial price (above RM2, I cant really remember clearly). However, I continue to see the opportunity in this undervalued stock.
It is one of the largest petrochemical companies in the region. For the nine months to Sept 06, it reported a 17% revenue increase to RM3.92bil from RM3.35bil previously. I would not mention about the net profit of Titan as it had included a non-recurring income of RM341m, as a result of the acquisition of its Indonesia subsidiary - PT Titan. While one local research house keeps saying that petrochemical cycle is in downturn, why Titan is able to record a higher revenue so far?
For its subsidiary, PT Titan recorded a net profit of RM4m in Q3'06, a dramatic turnaround from a net loss of RM18m in second quarter. This indicates that the company has excellent management team. New managing director, Mr Thomas P Grehl was appointed in Q2, to replace Mr Donal M. Condon. The management also believes PT Titan will be continued to be profitable. Another point that shows Titan has excellent management team would be the ability to increase market share of its subsidiary in Indonesia, from Q1-8%, Q2-20% to Q3-25%. Its a very impressive figures!

Major challenge

Titan needs to ensure it is able to enjoy better margins in its complex business nature. Its net profit is very much depending on the margins that they can enjoy. It is clearly indicated that their recorded revenue is higher. However, their net profit is still in yo-yo situation due to the uncertainty of the profit margin. Once Titan is able to pass the higher oil price cost to their customers, they will be able to do extremely well again. Titan is in the proccess of passing these costs that there exists a bit of a time lag.

Target price

Closing price for Titan before X'mas holiday is RM1.32. One of the local research house has a target price of RM1.66 for it. How far do you think it can go?

* This stock is not suitable for short term traders who aim to get profit in short term