Is this the end for DRB Hicom Rally?

The recent rally of DRB Hicom ("Drbhcom") makes me think that one can still good money trading in Malaysia market as the current rally of Drbhcom comes with a hugh volume to support the upward move.

The important question now is the rally over for Drbhcom. Well after going through the technical and fundamental analysis, I believe that the rally for Drbhcom is crazily chased up by the irresponsible stock operators.

Lets us start with the long term analysis, based on the long term analysis, it shows that Drbhcom has moved furiously up in 2 stages, the 1st stages is from RM 1 to RM 1.70 for a percentage gain of 70%, the second stage is from RM 1.70 to RM 2.50 for a gain of 47%.  Will Drbhcom continues it's upward move to the 3rd stage which is more than RM 3.00 for a gain of at least 30%. The answer may be yes, but the risk is too high.

The second upward stage move is supported by the news that Drbhcom is acquiring Proton. So is it justifiable for Drbhcom to rally on this news. The answer is a big no. If you tell me that Drbhcom is acquiring the casino operators in Macau, China such as Wynn Resort, Las Vegas Sands or Melco Crown, then I would say that it is justifiable for Drbhcom to experience such an upward rally. However, Drbhcom is only acquiring Proton which is a "ok only lar company, who is trying to stay a float in the automotive market which is very competitive". Moreove, with the Drbhcom acquisition of Proton, will Proton still be consider the National Car and enjoy all those tariff, duty and special treatment from customer, the answer might be a big No!

I do not want to comment much on Proton as I do not do a detail reseach on it, however based on the quarterly earning reported, Proton only show 2.8 cents for the latest quarter. You take that mutiple by four quarter and it will come up to 11.20 cents. At the current price of RM 5.41, it is a whopping price earning ratio of 50 times. Holy cow!

Anyway for the short term analysis, both the MACD and stochastic indicators are pointing to a very overbought position for Drbhcom. I believe over the short term (between 2 or 3 weeks) Drbhcom will correct itself to the RM 2.50 level at least.

Based on the quarterly earning growth for Drbhcom, it does show a good improvement from quarter to quarter. At the current price of RM 2.80, it is trading at an PE ratio of approximately 13 times which is not bad compared to Proton.

If you add up Drbhcom and Proton Quarterly earning, at the average quarterly earning of RM 7.80 cents, at the price of RM2.80, it is more acceptable as the PE ratio is only around 12 times.

Conclusion:

At the current price of RM2.80. Drbhcom appears to be in an overbought position, I believe the short term correction for this stock is inevitable, however, I believe that after aquisition of Proton and consolidating Proton earning into Drbhcom coffers, Drbhcom should be trading at the range of RM 2.00 to RM 2.60.

Disclosure:

I currently do not hold any position in Drbhcom and do not intend to trade Drhhcom for the coming short term unless it correct itself back to the 2009 crisis level at around RM 0.60 cents.