Is HaiKe Chemical Group (SP=32p) about to take off?

Is Haike Chemical Group (AIM: HAIK), about to start another short term uptrend?

Over the past 4 years, HAIK has been in a downtrend, characterised by very volatile short term moves (see graph below).

Is there any reason to expect the shareprice to turnaround? Well I believe the answer may well be yes. The recent positive news about both turnover and profitability, coupled with the commencement of production at the jointly owned Ruilin Refinery, could well be the reason. The increase in gasoline and diesel prices,by the PRC Government in December, may also have a positive effect going foreward.

Analysing the recent news, it appears that the full year Turnover, for the year ended 31/12/2010, will be around £780m. On the current shareprice of 32p and with 38.4m shares issued, the MCAP is currently around £12.3million. This gives a PSR of only 0.016. This appears to be extremely low for a Company with such a large turnover and located in such a growing market. Note also that, for the years ending 2005 to 2007, HAIK managed an operating profit of between 5 and 7%. Any slight improvement in profitability, coupled with the rapidly increasing turnover, will be likely to lead to a massive increase in profit and hence eps (based on the current 38.4m shares issued). A re-rating is therefore quite likely!

What about the recent chart action? Well, here too there are grounds for some optimism (see below):

As you can see, since the last RNS (20th January 2011), the shareprice has dropped from 73p to 32p (a fall of 56%). However, note that the 200 day moving average is sloping up and providing support to the price. Also, there appears to be buy signals on both MACD and stochastic secondary indicators. RSI is also oversold but the OBV is very strong. The recent decline has also taken the price back to about the level where it broke (laterally) out of the 4 year downtrend, at the end of November 2010. In my opinion, this could be the last buying opportunity at this level, as the full year results (expected at the end of June 2011) are likely to show huge growth in turnover, and a "modest profit" (as per the RNS of 20th January).

What do you think?

Usual warnings DYOR etc.