• An established former manufacturer in Malaysia. ES Ceramics (ESCERAM) started with production of formers for examination gloves. Today, the group has expanded its product range to surgical, household, industrial, ballons and specialty formers, and had successfully grown to be a heavyweight former manufacturer in Malaysia and Southern Thailand.
• Cautiously optimistic of a favourable 2HFY16 results. Despite recording only a 7.9% growth in 1H16 revenue, net profit surged 31.3% amid improved operational efficiency and synergistic cost savings, better product mix and higher output volume. Correspondingly, net profit margin expanded 4.2% to 23.4% in 1H16 from 19.2% a year ago. Given the superior profit margins and strong balance sheet with netcash of RM17m (or 7sen/share), the group is wellpositioned to brace for the challenges of rising production costs due to increase in various essential cost components and fluctuation in forex. At RM0.475, ESCERAM is trading at trailing P/E of 14.8x (Ex-cash 12.7x).
• Pending for a downtrend line breakout. The stock is extremely oversold following a plunge in share price from 52-week high of RM0.605 on 14 Jan 2016 to a low of RM0.445 (7 Mar low) before closing at RM0.475 yesterday. We expect share price to gain buying momentum in near term to stage a resistance trend line breakout amid bottoming up indicators . A decisive break above RM0.485 (23.6% FR) will spur prices higher towards RM0.50 psychological barrier and eventually our LT objective near RM0.565 (76.4% FR). Supports are pegged at RM0.455 (uptrend line) and RM0.445, with cut loss at RM0.44.
• Attractive risk to reward ratio with 18.9% upside against 7.3% downside. We see a good risk to reward ratio for investor with a theoretical entry price of RM0.475 given that the downside to the cut loss zone of RM0.44 is 3.5 sen (-7.3%) while the upside to the LT target of RM0.565 is 9 sen (+18.9%).

Source: Hong Leong Investment Bank Research - 16 Mar 2016