Muda Holdings Bhd

Recovering demand for paper packaging

• Demand for corrugated packaging has been on the rise for packaging of essential products such as groceries, food & beverage, healthcare products and e-commerce transportation. We like Muda Holdings as one of the largest integrated paper mill and corrugated packaging manufacturers in Malaysia.

• At RM1.53, Muda Holdings trades at PE of 11.4x which is below its historical one standard deviation average of 15.7x; implying potential upside in our view. Technically, price is attempting to re-test the RM1.64-RM1.70 target levels following the potential flag-formation breakout above RM1.53.

Trading Catalyst

• Muda Holdings Bhd (Muda) is one of the largest corrugated packaging players in Malaysia equipped with 2 mill paper mills and 5 corrugated plants. We like Muda for the (i) resilient demand of corrugated packaging, (ii) resumption of production to normalcy, (iii) attractive fundamentals and (iv) stable dividends pay-out. Although there will be some weakness in the fundamentals in 1HFY20 due to the temporary closure of operations and supply chain disruption from Covid-19, we reckon that the impact will not be severe as demand for their products remains strong.

• At current price of RM1.53, Muda is trading at PE of 11.4 its historical one standard deviation average of 15.7x; implying potential upside in our view. At the same time, Muda is trading at a steep discount against its book value of RM3.47 with P/B at 0.4x. Meanwhile, Muda has been consistently rewarding shareholders with dividends over the past ten years.

Technical Outlook

• Technically, share price has staged a gradual recovery, bottoming out since mid March 2020. After the recent two-day pullback, price has formed a hammer candle to rebound off the daily EMA20 level. For now, we monitor for a potential flag formation breakout above RM1.53 for price to attempting to re-test the RM1.64- RM1.70 targets with long term target at RM1.82. Support is pegged at RM1.41 and cut loss is located at RM1.40.

Source: Mplus Research - 29 Jun 2020