Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 22 Oct 2021, 9:44 AM


Daily technical highlights – (REDTONE, GAMUDA)

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Redtone Digital Berhad (Trading Buy)

• After bottoming out at RM0.295 in November last year, REDTONE’s share price has been forming higher lows, indicating sustained buying interest at rising price levels.

• Since the stock broke above the 125-day SMA in February this year, it has trod above the dynamic support line with recent swing lows finding support along the way, suggesting that the long-term uptrend is intact.

• The MACD indicator is also signalling that the upward momentum will likely continue in the near term.

• With the Heikin Ashi candles signalling strengthening momentum too, an anticipated upward movement in the share price could challenge our resistance levels of RM0.56 (R1; 14% upside potential) and RM0.60 (R2; 22% upside potential).

• We have pegged our stop loss at RM0.43 (or a 12% downside risk).

• Fundamentally speaking, REDTONE is a provider of telecommunications and digital infrastructure services, offering data, voice and managed telecommunications network services to the government, enterprises and SMEs.

• In FY June 21, it earned a net profit of RM25m (-21% YoY) mainly due to weaker contributions from the telco services segment, which was hit by loss of customers from the hospitality and leisure sectors. Kenanga’s research team has forecasted that the group will post net earnings of RM30m in FYE June 22 and RM34m in FYE June 23, which translate to forward PERs of 12.8x and 11.3x, respectively.

• Looking ahead, as a participant in the government-led RM4.6b JENDELA Phase 1 tender and having won a market share of 25-70% of previous large-scale government projects, REDTONE is well-positioned to secure at least some of the upcoming JENDELA contracts. Should REDTONE be among the winners of the tender, which will likely be announced in the next 4 weeks, this is expected to give the stock price a boost.

• Aside from JENDELA, REDTONE also stands to benefit from Malaysia’s 5G network rollout as it: (i) may clinch more engineering jobs for 5G sites, and (ii) can offer 5G-enabled connectivity services.

Gamuda Bhd (Trading Buy)

• GAMUDA is Malaysia’s leading engineering, infrastructure and property group.

• In FY July 20, GAMUDA achieved a core net profit of RM520m (-28% YoY). Looking ahead, consensus is expecting GAMUDA to achieve a net profit of RM489m (-6% YoY) in FY July 21, mainly due to lower construction and property progress billings, as well as weaker tolled highway traffic flows, before increasing to RM595m (+22% YoY) in FY July 22. These translate to forward PERs of 16x and 13x, respectively.

• With its FY July 21 results slated to be announced on September 29, we believe that the weaker earnings expectations have already been priced in as investors look ahead to a year of recovery.

• In terms of news flow, we believe that the Prime Minister’s tabling of the 12th Malaysia Plan (12MP) in Parliament next Monday (September 27) – which may mention a list of upcoming mega infrastructure projects to pump prime the economy – could give a boost to construction stocks such as GAMUDA. Thus, we think it is timely now for investors to accumulate its shares ahead of the 12MP announcement.

• Technically speaking, the stock has formed a lower low in mid-August, which hit a bottom at RM2.60. Since then, the stock has rallied as much as 24% in less than a month before correcting subsequently to form a higher low of RM2.95, thus signalling an end of the downtrend that began in April 2021.

• The strong price rally also broke above the 50-day SMA. And with the latest swing low sitting comfortably above the 50-day SMA, the stock could be resuming its uptrend ahead.

• In addition, the MACD indicator shows that the downward momentum from the recent correction is waning while the stochastic indicator is reversing from an oversold position.

• With the aforementioned bullish signals, an anticipated upward movement in the share price could potentially challenge our resistance levels of RM3.45 (R1; 12% upside potential) and RM3.59 (R2; 17% upside potential).

• We have pegged our stop loss at RM2.73 (or an 11% downside risk).

Source: Kenanga Research - 24 Sept 2021

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Related Stocks

Chart Stock Name Last Change Volume 
REDTONE 0.545 -0.03 (5.22%) 8,703,200 
GAMUDA 3.19 -0.03 (0.93%) 1,232,700 

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