• A leading biomass manufacturing industry player. HHGROUP (listed in July 2014) is principally involved in the manufacturing and trading of biomass materials (i.e. oil palm empty fruit bunch ["EFB"] fibre & coconut fibre) as well as other value-added products (i.e. Briquette and Geotextiles). Currently, HHGROUP commands the lion market share of over 40% in the local biomass materials industry.
• HHGroup is also a manufacturer and distributor of its own brands of mattresses and bedding accessories (eg “Fibre Star”, “Xiong Mao”, etc). At present, it is one of the few mattress manufacturers who have fully integrated fibre mattress, divan and headboard manufacturing. In 9MFY15, the biomass materials and related products contributed 69% to revenue whilst the rest was derived from mattress & related product (31%).
• Prospects remain buoyant in the mid to long term. In its 3Q15 results review, China, being the primary market for the Group’s oil palm EFB fibre, had in recent months s hadowed by uncertainties ass ociated with China’s s tock market turmoil, decelerating economic growth and Renminbi devaluation. Nevertheless, the Group is cautiously optimistic that the prospects for biomass materials and value-added products remain promising over the mid to long term horizon. Moreover, the recent banning of new coal -fired plants in Beijing, Shanghai and Guangzhou of China is likely to spur demand for cleaner, alternative source of energy including Briquette.
• Oversold. HHGROUP’s share prices tumbled 37.5% from 52-week high of RM0.88 (25 Nov) to a low of RM0.55 (3 Dec) before ending at RM0.595 yesterday. As daily indicators are yet to show signs of hook-up, HHGROUP’s share prices may continue to trade sideways briefly, before resuming its uptrend amid gradual upticks in hourly indicators.
• A decisive breakout above RM0.62 (100-h SMA) is likely to spur prices higher to retest RM0.69-0.73 levels (gap down on 30 Nov). Key supports are situated at RM0.58 (daily upper Bollinger band) and RM0.555 (61.8% FR). Cut loss at RM0.545.
• Attractive risk to reward ratio with 22.7% upside against 8.4% downside. All in, we see a good risk to reward ratio for investor with a theoretical entry price of RM0.595 given that the downside to the cut loss zone of RM0.545 is 5 sen (-8.4%) while the upside to the LT target of RM0. is 13.5 sen (+22.7%).

Source: Hong Leong Investment Bank Research - 30 Dec 2015