• SEB is 65% held by Success Transformer (SUCCESS). SEB is principally engaged in the fabrication of pressure vessels and equipment for oil and fats industries, chemical, downstream petrochemical, water treatment and power plants. Share prices tubmled 47% from 52-week high to a low of RM0.405 before closing at RM0.45 yesterday. SEB’s s hare prices s kyrocketed 108% from 52-week low of RM0.37 on 17 Sep to a high of RM0.77 on 28 Oct amid speculations that SUCCESS is planning to dispose its entire stake in SEB (source: the edge daily). However, SEB’s prices took a heavy beating to as low as RM0.405 on 30 Nov after the board of directors said they are not aware of any corporate development, business negotiation rumour or report, or any other possible explanation that could account for the rally coupled with losses in its 9MFY12/15 results mainly due to cost over-run of the Sabah Ammonia Urea (“SAMUR”) project.
• Valuations. At RM0.45, SEB’s P/B of 0.79x is trading at 66% discount to peers ’ P/B of 2.34x. The wide discount probably arises from its smallcap status, net loss of RM16.2m in 9MFY12/2015 and high net debt of 1.1x.
• Refilling the gap. SEB is deeply oversold and ripe for technical rebound after recent slump in share price. Currently, it is building its base near RM0.405 levels. In the near term, share prices are poised to refill the RM0.44-0.47 gap down (30 Nov), showcased by the “Hammer” candles ticks on daily charts and bottoming up indicators. A decisive breakout above RM0.47 (30 Nov low) will spur prices higher towards RM0.50 psychological level and our long term objective of RM0.56 (50% FR and 30-d SMA). Cut loss at RM0.40.
• Good risk to reward ratio with 24.4% upside against 11.1% downside. All in, we see a good risk to reward ratio for investor with a theoretical entry price of RM0.45 given that the downside to the cut loss zone of RM0.40 is 5 sen (- 11.1%) while the upside to the R3 target of RM0.56 is 11 sen (+24.4%).

Source: Hong Leong Investment Bank Research - 2 Dec 2015