Bright World still bright?

BRIGHT WORLD PRECISION MACHINERY LIMITED, incorporated in Singapore in 2004, has seen its fortunes rising and falling over the years. On 11 Nov 09, I posted in a forum about the spectacular results the company reported. Its CEO bought 900 lots in the open market at a price of 16c per share too.

I said: Revenue for 3Q09 improved 73.2% compared to 1Q09 and improved 33.2% compared to 2Q09. Nett profit for 3Q09 improved 282.4% compared to 1Q09 and 235.7% compared to 2Q09. This company is rising once more as its fortunes are closely tied to the recovering manufacturing sector in China.

Unfortunately, it was called up by the CAD and the price crashed a week later on 18 Nov 09: Price touched a low of 13c today. Is currently at 14.5c. Everyone is afraid. What is CAD investigating Bright World for? It is probable that Bright World has been called up regarding an investigation which MAS was conducting over possible breach of disclosure rules. If this is the case, it should not have any material impact on the company's business as a going concern.

On 23 Nov 09, I said: Potential catalyst would come from a benign update from Bright World on details of the call up by CAD. Improving numbers from Bright World's business were reported in the quarterly report prior to the call up. So, the next report, which I expect to be even better, is still a few months away and unable to influence price action in the near term.

I still believe that Bright World's business will continue to improve with the Chinese PMI rising unabated. Its financial numbers are also good. However, transparency is lacking with regards to CAD's investigation. Bright World's weekly chart shows a confluence of 20wMA and 50wMA providing resistance at 17c. On the daily chart, the 50dMA and the 100dMA provide resistance at the same level. The flat 200dMA provides support at 15.5c. So, it doesn't look like Bright World's price will collapse but it's not going to shoot through the roof either.

Strategy: I made a decision to cut my exposure by 65% and move the funds into other more transparent investments. The remaining position in Bright World represents the maximum I am comfortable enough to commit to a clouded waiting game. In the event that the CAD investigation turns out to be a non-issue, coupled with stronger corporate results, overcoming the 17c resistance would see an eventual target price provided by the declining 100wMA, currently at 27.5c.