• Building base above 200-d SMA or near RM1.01. Gadang’s share price hit a low of RM0.915 (13 Dec) from 52-week high of RM1.35 (25 Oct) following a weaker-than-expected 1QFY17 results and profit taking activities post its share split/bonus issues/bonus warrants corporate exercises. However, share prices managed to register higher lows and rallied to a high of RM1.13 before ending at RM1.08 on 17 Feb following a better-than-expected 2QFY17 results and improving market sentiment towards small-cap stocks.

• Limited downside risks. We see limited downside risks for GADANG’s share prices in the short term, supported by netcash/share of 10.4sen (equivalent to 9.4% of marketcap) and improving technical indicators. Sentiment will be further boosted if the company is able to win a slice of its bidding jobs of the MRT line 2, LRT line 3 and hospital projects.

• Potential downtrend resistance breakout. We believe Gadang is at the tail end of its 2-month sideways consolidation and is ripe for a downtrend resistance breakout. A decisive breakout above RM1.10 (downtrend line) will spur prices higher towards RM1.13 and RM1.20 levels before reaching our long term target at RM1.31(RM1.20-RM1.31 gap on 28 Oct).

• On the flip side, failure to hold at supports near RM1.03 (50-d SMA) and RM0.99 (50-w SMA) may indicate weakness in the share price towards 2M low at RM0.915. Cut-loss at RM0.98.

Source: Hong Leong Investment Bank Research - 20 Feb 2017