Nam Cheong – will it breakout from its all time high?

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October is indeed a month to forget, especially for those who have bought the infamous trio just before they crashed. Within a few sessions, the trio, namely Asiasons, Blumont and LionGold lost an approximate S$8.7b in market value. As a result of such colossal drop in their share prices, it inevitably caused collateral damage to other small to mid cap stocks. However, there are exceptions. An example is Nam Cheong which is trading at the upper end of its five month trading range $0.260-0.295
Chart observations
With reference to Chart 1 below, it is evident that Nam Cheong is on the verge of (once again) challenging the six times tested resistance of $0.295. It has been trading within the range of $0.260 – 0.295 for more than five months. The moving averages (21D, 50D, 100D & 200D EMA) are moving higher with golden crosses. Indicators such as OBV are trending higher towards its all time high. ADX has turned higher since 21 Oct and was around 29 last Friday which was indicative of a trend.
Chart 1: Nam Cheong approaches all time high
Source: CIMB itrade complimentary chart (8 Nov 13)
Results to be out on 12 Nov morning
Besides the technical aspect, one factor which may increase the odds of a successful breakout is its upcoming 3QFY13 results release. According to a DMG report dated 8 Nov 2013, Nam Cheong will report results on 12 Nov, Tuesday morning. DMG expects Nam Cheong to post a record quarterly profit in 3QFY13. DBS Vickers postulates that there may be potential positive earnings surprise in 3Q / 2HFY13.
Average analyst target is around $0.360
Based on Figure 1 below, average analyst target price polled by Bloomberg is around $0.360. This represents a potential capital appreciation of around 24%. However, it is noteworthy that some analysts are valuing Nam Cheong based on blended FY13-FY14F earnings. Hence as we approach 2014, it is likely that the analysts may raise the target price by rolling forward their valuations based on FY14F earnings. In addition, it is likely that FY14F earnings are higher than that of FY13F earnings as Nam Cheong has increased their shipbuilding program from 19 vessels in 2013 to 28 vessels in 2014.  Readers can refer to the analyst reports on Nam Cheong http://www.namcheong.com.my/investor-relations/research.cfm,
SGX announcements and my writeup appended here http://www.sharesinv.com/articles/2013/07/22/nam-cheong-%E2%80%93-likely-beneficiary-of-malaysia%E2%80%99s-oil-and-gas-capex-plans/ for more information.
Figure 1: Analysts’ target prices for Nam Cheong
Source: Bloomberg (11 Nov 13)
Conclusion – 3Q results may be the impetus for breakout
If Nam Cheong can break its six times tested resistance $0.295 with volume expansion, an eventual technical target price is around $0.330. However, this is an eventual technical target which may or may not be reached in the near term. It is noteworthy that Nam Cheong’s upcoming 3Q results may provide the impetus for it to move higher.
P.S: Do note that chart reading is subjective in nature and different people may have different interpretations on the same chart.
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