• Current share price is 18.3% below our Institutional target price of RM1.09. In our opinion, current sideways consolidation in share prices offers investors good bargain hunting opportunity. We remain positive on HOMERIZ due to: (1) Favourable global consumption of upholstered furniture, (2) Lower leather price which will boost its margin; (3) Beneficiary of a weak RM as over 90% of its products sold in US$ while an estimated one-thi rd of production cost is in ringgit; (4) Strong net cash per share of 17 sen and attractive estimated FY17 yield of 5.5% with 50% dividend payout ratio.

• Export-oriented stocks back to limelight again? In the short to medium term, RM (vs US$) is expected to weaken in the wake of recent hawkish Fed officials statement, which support the case for an imminent Fed rate hike at least once by end 2016. Thus, we believe rotational plays on export-oriented sectors such as gloves, E&E, packaging, furnitures-related will gain momentum.

• Poised to test RM1.01 price objective after a brief sideways consolidation. HOMERIZ’s share prices ret raced 14.8% from a hi gh of RM1.01 (2 June) to a low of RM0.86 (27 June) before trading sideways to close at RM0.89 yesterday. The stock is ripe for imminent technical rebound following the formation of Tweezers bottoms and a long-legged Doji patterns, signaling that selling pressure is starting to diminish.

• A decisive breakout above RM0.915 (38.2% FR) will spur prices higher towards RM0.955 (200-d SMA) and our LT objective at RM1.01. Key supports are situated near RM0.87 (1 Sep low) and RM0.86. Cut loss at RM0.84.

Source: Hong Leong Investment Bank Research - 2 Sep 2016