Since our BUY recommendation on 23 June at RM0.805, FM's share price rallied 28% to as high as RM1.07 before
closing at RM1.03 yesterday.

We believe the surge was mainly due to the resurgence of appetite in small cap value stocks as well as anticipation of a strong 4QFY10 results and a good final dividend next month. The group already paid 2.5sen gross dividend on 15 July.

Improving prospects
Despite the challenges facing in the freight sector, FM has an astute management on costs, expansion plans and international marketing strategy. The group is a good proxy to expansion in economic activities, with estimated revenue and earnings CAGR of 12% and 17% from FY2005-2011.

Its 9MFYJune 2010 net earnings already surpassed 12MFY09 earnings by 6.3%. This will translate into an uninterrupted 6 year growth since listed in 2005, a commendable achievement for a RM125m market capitalization company.

Given its focus on Intra-Asia freight, impact from recent Eurozone weakness will be muted. FM is also steadily increasing its ASEAN footprint, with five offices in Indonesia and one each in Thailand and Vietnam. With its excellent track record and value added services, FM will garner market share at the expense of smaller logistic players in the industry.

Time to take a breather as technical indicators are overbought
FM enjoyed a good spell over the past two weeks but share prices could face stiff resistance soon as major technical indicators are in the overbought zones whilst the slow stochastic indicator is trending downwards.

While FM's long term prospects is positive and valuations remain undemanding at 7.5x FY11 P/E, a break down below the 5-d and 10-d SMAs of RM1.01 and RM0.955 respectively would accelerate selling pressure. This would drag prices towards more solid support around RM0.90 (61.8% FR from RM0.80 to 52-week high at RM1.07).

Although we cannot discount the possibility of further gains above the RM1.10 zone after surpassing its previous 5-year high situated around RM1.05, we think the odds are slowly turning in favour of the bears. Therefore, traders should do well by adopting SELL INTO STRENGTH.

SELL INTO STRENGTH with a 3-month technical target at RM1.00
Our 3-month technical target is RM1.00, implying a 7.3x FY11 P/E and in line with its average 8x historical P/E since listing.