Stock Name: APM
Company Name: APM AUTOMOTIVE HOLDINGS BHD
Research House: HLG

APM Automotive Holdings Bhd
(July 27, RM4.77)
Neutral at RM4.75 with target price of RM4.90: Since our accumulate call at RM3.90 on June 16, its share price has already rallied 26% in less than a month to as high as RM4.90 on July 26.

We believe the surge was mainly due to: (i) strong industry TIV (total industry volume) growth ahead, as MAA has revised its FY2010 forecast to 570,000 units (previously 550,000) on a stronger-than-expected 19.8% growth in TIV year to date; (ii) sustained strengthening of the ringgit against the US dollar and yen which would help to reduce the costs of imported materials; (iii) improving consumer sentiment and business conditions; (iv) its diversification to increase sales to sister company Tan Chong rather than overdependence on Perodua and Proton; and (v) reaping the benefits of its restructuring via the streamlining of plants and labour force over the past five years.

APM enjoyed a good spell over the past few days but the share price could encounter some stiff resistance soon as the relative strength index and moving average convergence-divergence readings are heading towards the overbought zones whilst the slow stochastic indicator is trending down.

If the candles break below the five-day simple moving average (SMA) of RM4.56, selling pressure could accelerate. This would drag prices towards more solid supports at RM4.45 (10-day SMA), RM4.33 (20-day SMA) and RM4.20 (50-day SMA). While we think the long-term uptrend channel is still intact, following the positive breakout above the RM4.50 neckline last week, the share price may come under pressure over the next few days as profit taking intensifies following the formation of a bearish shooting star.

Although we cannot discount the possibility of further gains towards the RM5 zone (the upward channel), we think the odds are slowly turning in favour of the bears. Therefore, traders should adopt sell into strength.

We are neutral on APM now after its recent sharp rally. We see limited upside in the short term to our technical target of RM4.90, implying 8.8 times FY2011 PER (in line with its average 10-year PER of 8.5 times). ' HLG Research, July 27


This article appeared in The Edge Financial Daily, July 28, 2010.