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Wednesday, June 13, 2007

ONASTEL - Some Charts

At investssmart chatbox this evening, someone mentioned that ONASTEL has made a "triangular break-out". Since there was more than one person who aren't sure exactly what that meant, let's take a closer look at the daily charts.

1. The key line is probably the top line that connects the 2 recent highs on 9 May ($1.58) and Jun 6 ($1.54).

2. The "triangle" is quite visible on the charts above.

3. This evening's closing at $1.54 appears to have broken the top line. Normally, this is considered a bullish signal.

4. However, I think the "break-out" has actually happened earlier than today, on June 1, when the stock price closed above the 20 day MA at $1.49. But then again, everyone uses different MAs, so, I don't think there is necessarily an exact answer, although ideally, different methods should "converge" and provide a close answer.

5. Volume has been fairly low over the last month (since early May).

6. Personally,
I would much prefer to see a much higher volume today than yesterday. This didn't happen today, but let's see what happens tomorrow, to see if there is a really bullish breakout.

Other technical comments:

1. The stock has been on a long-term uptrend since Jan 2006 (see weekly chart below), when it traded below $0.50. An investor who had bought it then would have done extremely well

2. Since May 31 (see chart above), the stock has been trading above the 20 day MA. Someone who is late into this stock could have bought it around then, when the price pulled back closer to the MA.

3. The Bollinger Band looks to be narrowing, suggesting that a possible break-out could soon be in the cards ... (although I don't really know exactly when).

4. What I find interesting is the positive "divergence" between ONASTEL good performance today, vs other steel counters and
the CI. Today, the CI closed lower by 0.6% (7.55 pts), steel counters like MASTEEL and KINSTEL closed lower by 2.2% and 1.8% respectively, yet, ONASTEL closed higher at 1.3%. Some might say that the divergence is proof that something is happening to ONASTEL ... It's hard to say at this juncture - the divergence extent is not so large, but then, there's no harm either to ONASTEL isn't it? ...

5. If one already has exposure in ONASTEL, should one consider pyramiding tomorrow? That I think depends on one's personal style. For me, I prefer to add during pull-backs, so, I will probably not "pyramid" tomorrow. In any case, if one is thinking of doing this, then, you'll need to set your own stop loss level in case something unexpected happens (although I'm not expecting this to happen).

Other quick fundamental comments:

1. ONASTEL is a steel counter with fairly decent fundamentals.

2. Q1/07 (Quarter ending 31 Mar 2007) earnings are decent at $22.7M. At $1.54, the stock is capitalized at $585M. If we simply annualize Q1/07 earnings (and this is definitely inaccurate, but serves as a rough guide), then, the stock is trading at a P/E of 6.4, which is not over-valued.

3. FYE2006 earnings = $71.4M, which implies a P/E of 8.2.

4. Q1/07 earnings of $22.7M is a substantial improvement over Q1/06 earnings of $1.8M. On a forward basis, there is good reason to think that ONASTEL should post much higher earnings for 2007 than 2006. The P/E is likely to fall below 5-6 with improved 2007 earnings. I believe most analysts (that follows ONASTEL) is probably going to say that this is a fairly undemanding P/E.

5. ONASTEL balance sheet is not perfect, but reasonably decent. Borrowings are at a fairly low level, although at one stage, it was in a net cash position. Nevertheless, it still looks reasonably decent compared to some of its peers.

6. Whilst ONASTEL future earnings prospects looks bright over 2007, and possibly extending to most of 2008, beyond that, I expect it to be secularly cyclical, i.e. some lean years mixed in between some really good years.

7. ONASTEL just announced a decent dividend of 10 sen per share less 27% tax. Ex-dividend date is 27 June, which is less than a fortnight away.

8. ONASTEL AGM is going to be held this Friday, 15 June. There may be some speculative activity happening, to boost the share price up prior to AGM, although this is only a speculative conjecture, and the recent share price increase might be due to the dividend effect.

Concluding Remarks

If you currently own ONASTEL like me, I am planning to enjoy the ride (up and down). This is because, my original purpose of buying ONASTEL is based on fundamental considerations (and not technical), although I use technical considerations to assist me in my entry and exit timing. If I believe the fundamentals are deteriorating, then, I would not hesitate to exit (despite good technicals), but chances are the technicals are probably going to show me danger signals first, if past experience is indicative of the future.

I am probably unlikely to sell yet, as today's closing is rather bullish and there's no immediate danger sign yet (although with TA, the signals can easily change potentially overnight).

I am unlikely to pyramid up tomorrow, but that's only because I prefer to buy during pullbacks, even if it means missing an opportunity. Nevertheless, it will be interesting to see if there are many (or any?) buyers buying on this "triangular break-out" tomorrow.

The stock has a reasonably sound set of fundamentals, although bear in mind the stock price has run up signficantly since Jan 2006 (but so has the stock market). The risk/reward is no longer as favorable as last year, although steel prospects still looks good, and the company looks set to produce a spectacular 2007 earnings result over the next 3 quarters, compared to 2006.

Disclaimer: I own ONASTEL, and so, my views can naturally be biased. Please use your own judgement and invest (buy, hold, sell) at your own risks.

1 comment:

stocktube said...

i agreed that volume is crucial in giving the right signal ... without volume, it's like a mulfunction traffic light - dunno really the actual direction ...