• SIGN (listed in Jan 08) is Mala ysia’s leading pla yer for branded kitchens. The group provides one-stop solution from the designing to production and installation of kitchen systems and wardrobes. This integrated approach allows SIGN to reap economies of scale, garner consistently high margins and maintain strict quality controls. There are minimal cost pressures, as major raw material costs (particularly medium density fibreboard, or MDF) have been relatively stable and sourced locally.
• Staged a strong 21.5% relief rally from 52-week low. After hitting a 52-week low of RM1.58 on 18 Jan, SIGN’s s hare prices rebounded to end at RM1.92 on 4 Mar, driven by a strong 22.5% qoq improvement in 2QFY16 results, aggressive share buyback program (1.13m shares YTD, boosting its cumulative treasury shares to 1.73m which can potentially be paid out as share dividends in the future) as well as positive sentiment driven by recent corporate exercises of proposed share split & bonus warrant (i.e. subdivision of 1 share into 2 shares, followed by proposed bonus issue of warrant on the basis of 1 warrant for every 4 subdivided shares). Overall, management remained cautiously optimistic of its medium to long term outlook on the back of healthy orderbook of ~RM160m and its ongoing bidding for a few major projects. These include Country Garden’s Iskandar project (contract worth around RM150m) and UK’s Batters ea Phas es 2 and 3 (projects worth about RM200m).
• Overall, job flows remain positive as those property projects launched in 2013- 2014 would likely award the kitchen contracts this year to avoid any delays in completion. More importantly, the long term market dynamics are still intact as upmarket development will continue flourishing due to increasing affluence of population and improvement in transportation infrastructure. This is expected to translate into higher demand for premium lifestyle products, i.e. designer homes, gated & guarded development, and bodes well for SIGN.
• Solid balance sheet after land sale. Balance sheet remained solid with net cash of RM6.3m as at end Dec 15 and is likely to soar at least RM86m or 71.6sen per share (estimated as at end of 3QFY16) following the company’s acceptance of compensation of RM80m (on 3 Mar) for its disposal of 3.3 acres in Kota Damansara (KD) to the Selangor government to build the Damansara- Shah Alam Elevated Expressway (DASH).
• The rebound still has legs. Despite rallying 21.5% from 52-week low, we believe SIGN’s medium to long term outlook remains positive following the bullish downtrend line breakout in daily chart and bottom-up indicators in daily and weekly charts. A decisive breakout above RM2.06 (100-d SMA) is likely to spur prices higher towards the RM2.22 (50% FR) and our long term objective of RM2.38 (61.8% FR) levels. Key supports are RM1.82 (10-d SMA) and RM1.75 (50-d SMA). Cut loss at RM1.72.
• Attractive risk to reward ratio with 24% upside against 11.5% downside. All in, we see an attractive risk to reward ratio for investor with a theoretical entry price of RM1.92 given that the downside to the cut loss zone of RM1.72 is 20 sen (-11.5%) while the upside to the LT price objective of RM2.38 is 46 sen (+24%).

Source: Hong Leong Investment Bank Research - 7 Mar 2016