China Milk Technical BUY

On 18th March, China Milk issued a statement to assure shareholders that the Company's cash position as set out in its 2008 Annual Report and the unaudited financial results of the third quarter and nine months ended 31 December 2008 is accurate as stated.

This morning, China Milk took a further step forward in allaying investors’ fears by announcing that it was inviting convertible bond holders to tender their bonds to the Company in return for cash. The offer opens at 9.00am Singapore time on 31st March and will close at 11.59pm on 1st April unless extended.

The zero coupon bonds amounting to US$150m are due in 2012 and China Milk is redeeming a maximum of US$40m worth of bonds. As at end December 2008, China Milk had cash of RMB1,964.7m and the convertible bond liability was RMB1,004.5m.

On the charts, China Milk looks technically attractive. The stock has recovered from its Mar lows of S$0.20 and is now testing to break above the 30- day SMA. We see opportunities to accumulate as the congestion phase over the past one week suggests that a base building formation is in the making.

Although MACD is still negative, it has broken out of its downward channel, which is a sign of recovery. In addition, RSI is still rising towards the upper band of the neutral zone.

There is a minor resistance at its 30-day SMA (S$0.31). Next upside target is at S$0.335 and S$0.35. Immediate support is at S$0.28. Cut losses if it breaks below S$0.26.

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