WestComb : Buy Valuetronics (BN2.SG)

WestComb starts a buy call for Valuetronics Holdings (BN2.SG) with a S$0.28 target, pegged at 7X FY09 P/E. In a report in Dow Jones Newswire, WestComb mentioned that the company less vulnerable to economic downturn than peers, as about 90% of its cost of goods sold comes from raw material costs, hence most expenses variable; "higher fixed cost and external financing cost implies greater operating risk and vice versa. As Valuetronics has no debt and a lean structure, the company will be able to withstand an economic downturn."

Realistically, it is difficult to trade this counter because of liquidity weakness:

1) Volume is very low. Average at about 100,000 shares traded daily with sometimes only two to five transactions done in a day. With the current price of $0.205 (as at 22 July 2008), the average daily value traded is only about $20,000.

2) The counter is not traded every day (it was not traded yesterday).

Technically, this stock price is in a strong down trend. The short to long term (30 to 90 days) moving averages are declining and price is below the moving average price range of $0.215 and $0.225. Momentum indicators are not showing any signs of weakening down trend momentum. Therefore, there is a high chance of price going lower than to rally upwards.


Trading this counter would be like trying to "milk an old cow".

Perhaps, a better time to look at this counter (remember, you have to trade small because lack of liquidity) is when price goes to the previous support level at $0.17 to $0.18. Or perhaps it's better to look at other "cows".

Commentary and analysis by Benny Lee