Denko shares surge as company returns to profitability

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KUALA LUMPUR (June 1): Shares of Denko Industrial Corp Bhd jumped as much as 58.33% or 14 sen today, after the company returned to the black in its fourth financial quarter ended March 31, 2015 (4QFY15).

The stock hit an intraday high of 38 sen, before paring its gain to trade at 33 sen at 4pm, with 9.31 million shares done, giving it a market capitalisation of RM34.47 million.

Denko returned to profitability in 4QFY15 with a net profit of RM2.83 million, compared with a net loss of RM143,000 a year ago.

Quarterly revenue rose 34.77% to RM22.76 million, from RM16.89 million in 4QFY14.

Denko said in a filing with Bursa Malaysia last Friday that the revenue rebound was mainly due to its manufacturing division, especially at the plastic parts sub-segment.

For the full FY15, Denko posted a net profit of RM3.1 million, compared with a net loss of RM3.1 million in FY14. Revenue rose 7.57% to RM80.08 million from RM74.45 million in FY14.

Alliance Investment Bank Bhd remisier Raymond Foo told theedgemarkets.com it is common for share price to surge after a "turnaround story", but he said the share price rally may not be sustainable. 

"The share price rally may not be sustainable as the profit is not really great,"  he said via telephone, adding that Denko will need more catalysts for the share price to perform. 

Denko (fundamental: 2.1; valuation: 0.2) is involved in the manufacturing plastic injection moulding and high precisions plastic parts as well as packing material and vacuum foams. It also trades consumer goods.

It was highlighted by theedgemarkets.com as one of the stocks with positive momentum today.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)