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Golden Agriculture: Excellent results.

Saturday, May 14, 2011

Golden Agriculture reported a sterling set of results as expected. My faith in the company was not misplaced and my expectations were met. Year on year, revenue increased 134% while net profit increased 161%. Quarter on quarter, net profit increased 47%.

I have mentioned before that I like how the company is expanding its downstream operations to be closer to consumers. I also like how it is expanding its business in China to diversify its customer base away from Indonesia. Its Chinese operations saw a year on year increase in net profit of 220% while its Indonesian operations saw a year on year increase in net profit of 159%.

However, it is clear that its Indonesian business is still the more profitable one as it has a gross profit margin of 43%, up from 33% a year ago, while its Chinese business has a gross profit margin of only 7%, up from 6% a year ago. Could gross profit margin of its business in China be improved further? I am hopeful that it would.

Golden Agriculture's share price formed a white spinning top in the last session on the back of increased volume. This could be in response to the company's excellent results which were announced mid-day. It is easy to see that immediate although weak resistance is at 67.5c. Stronger resistance is at 68.5c and if this were taken out, we could see 70.5c tested next. 70.5c is also where we find the declining 100dMA and the upper Bollinger band. So, I expect this to be a strong resistance.

We want to see 70.5c taken out convincingly and we want to see the price form a higher high. The last high was at 73.5c. If a lower high should be formed, we could see a head and shoulders pattern. That could be ominous.

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