KUB (RM0.46/Vol:1.4m)

• Shaping up for more rewarding years ahead. Listed in 1997, KUB (being a GLC-linked company with MoF owns a 22.6% stake) has a diverse range of businesses in Liquified Petroleum Gas (LPG), Agro, ICT, food, property, power, construction and engineering. Overall, the LPG, Agro and ICT divisions are the anchor operating profit contributors (average 85-90%). It also has a 40% interest in KUB-Berjaya Enviro Sdn Bhd (KUB-BE) which will build, operate, maintain and manage the Bukit Tagar sanitary landfill over a 40-year concession period. In 2014, KUB-BE was also awarded a 30-year concession (expiring in 2044) to handle municipal solid waste and otehr non-toxic waste for the Central region of Selangor and KL.

• Having mostly suffered erratic performance in the last decade, KUB has been undergoing restructuring over the past 5 years in an effort to turn around the company. With its transformation plan starting to show tangible results, KUB is concentrating its efforts via core businesses in LPG, ICT and agro to anchor further earnings growth in the next 3 years.

• Undemanding valuation. As management has started to demonstrate sharper strategic focus and deliver a more convincing turnaround story in the company, downside should be limited with risks largely priced in, cushioned by a 13 sen netcash/share (RM70m). The stock is currently trading at 0.87x P/B (about 13% below its 5-year average of 1x) and ex cash FY16 P/E of 8.3x.

• Building base near RM0.42-0.44 before heading towards RM0.50-0.61 in the medium to long term. After hitting 52-week high of RM0.495 (23 & 24 Feb), share prices retraced 11% on a healthy profit taking pullback to a  low of RM0.44 (28 Feb) before ending at RM0.46 yesterday. On the back of a bullish long term downtrend breakout (monthly chart), we remain optimistic after a brief sideways consolidation, KUB is poised to resume its upward trajectory. A strong breakout above RM0.475 (10-d SMA) will push share prices towards RM0.50 barrier and our LT objective at RM0.61 (38.2% FR). Key supports are RM0.44 and RM0.42 (YTD low). Cut loss at RM0.415.

Source: Hong Leong Investment Bank Research - 3 Mar 2017