• Business profile. Hevea manufactures and exports particleboard and ready to-assemble (RTA) furniture. Over 90% of its revenues are US$-based, while its cost is RM-based. The recent strength of US$ (average RM/$ YTD: 4.45; 4Q16: 4.35; 3Q16: 4.05; 2016: 4.14) will contribute to the earnings positively. It major markets are Japan, China, Korea, India, Australia and the US.

• Upside bias following the flag breakout formation. After plunging 41% from all time high of RM1.79 (6 Jan 16) to a low of RM1.05 (1 Sep 16), Hevea’s share prices rebounded strongly to a high of RM1.58 (6 Jan) before ending at RM1.46 yesterday.

• At the moment, share price has formed a “Flag” pattern, which augurs well for further advance in the short term. A decisive breakout above RM1.52 will spur prices higher towards RM1.58 and our l ong term target at RM1.65 (Flagpole measurement objective).

• On the flip side, failure to hold at supports level of RM1.43 (100-d SMA) and RM1.39 (6 Dec low) may indicate weakness in the share price towards RM1.32 (200-d SMA) and hence, a cut-loss signal at RM1.37.

Source: Hong Leong Investment Bank Research - 15 Feb 2017