When To Sell Coastal Contracts

When to sell Coastal Contracts?

Koon Yew Yin

30^th May 2011

A few months ago, I recommended a buy Coastal Contracts. It has been going up to its historical high of Rm 3.82 and closed at Rm 3.77 yesterday. Of course the most important question is when do you sell to make the profit?

Coastal Contracts just announced its Q1 result. Its EPS for Q1 2011 was 15.48 cents compared with its EPS for Q1 2010 of 11.45 cents, an increase of 35%. This shows that the Company is continuing to make more and more profit. Its record shows that the company has been making increasing profits in the last few years.

Its revenue and EPS for FY 08, FY 09 and FY10 were 347million, 27 cents; 466m,46c and 672m,56cents.

There are many criteria such as P/E ratio, NTA, revenue growth etc for stock selection. Profit growth prospect is the most important criterion for share selection. I will never buy any share without this quality because its share will definitely drop as soon as it shows reduced profit. In other words- buy on solid evidence of growth of profit and not on the basis of speculation or hot tips! The best time to sell any share is when the reason to buy the share is no longer valid, that is, no more profit growth.

In fact, for 5 consecutive year, the Company was awarded Forbes’ “Asia’s 200 Best Under a Billion” from 2006- 2010 and I do not think there is any other Malaysian Company which has achieved this honour. In addition, the Company was also awarded “KPMG Shareholder Value Award” for 5 straight years from 2006 to 2010.

Yesterday the share price closed at Rm 3.77 and its historical high was Rm 3.82. Assuming that its earnings for the next 3 quarters are the same, its whole year’s earning will be 4 X its Q1 EPS 15.48 = 58 cents. It is still very cheap for a stock with such good quality. Basing on its historical high price of Rm 3.82, it is selling at P/E ratio of Rm 3.82 divided by 58 cents = 6.6.

After you have bought some stock that you think can perform well, you will have to decide when and which stock to sell. Often many investors make the mistake of selling the good ones to lock in profit early but retain those that are not performing because of their aversion to taking losses on these. Some regret their action later and may even jump back into the market to buy the same stock that they had just sold but at a higher price. Most of them do not jump back into the market for the stock and they can only watch the stock go higher and higher.

I am obliged to tell you that this stock forms a major portion of investment portfolio and if you decide to buy, hold or sell it, you are doing it at your own risk.

Koon Yew Yin