• HLIB institutional research has a BUY rating with SOP TP of RM0.81, or 34% upside. Pesona offers investors exposure to a pure construction play with an incoming stream of recurring earnings. Its orderbook stands at a record RM2.3bn, translating to a 9.6x cover on FY15 construction. Its financials are solid with robust earnings growth (FY15-18 earnings CAGR of 60%), increasing ROE and healthy balance sheet.

• Our TP of RM0.81 implies FY17-18 P/E of 19.8x and 12.9x which we reckon is fair for a pure construction play in earnings upcycle with concession exposure. The issuance of 39.5m shares at RM0.70/share (to acquire SEP) should set a new minimum benchmark valuation for the stock (16% upside to this level). On the other hand, there has been talk that Pesona could emerge as one of the concessionaire partners for the proposed SKIP expressway.

• A successful breakout above RM0.64 will spur prices higher towards RM0.73-0.84 in the long term. On the daily chart, Pesona share prices may encounter resistance area at RM0.64 (20 Dec high) but we expect an eventual breakout above this territory after a brief sideways consolidation amid bullish LT outlook as depicted in monthly chart.

• As shown in the monthly chart, Pesona has formed two major rounding bottom patterns since 2010. Such beautiful formation and bullish technicals are expected to spur share prices to surpass 52-week high of RM0.64 (20 Dec) in the near term. A successful breakout above RM0.64 will drive prices higher towards RM0.73 (61.8% FR) and our LT objective at RM0.84 (after breaking the neckline resistance of RM0.585). Cut loss at RM0. 56.

Source: Hong Leong Investment Bank Research - 3 Jan 2017