• An established domestic household brand: CCMB has a remarkable corporate presence in Malaysia that has grown significantly for over 50 years with the following core business activities: 1) Chemicals: Leading industrial & specialty chemicals company in Malaysia; 2) Polymers: One stop centre providing polymer coating solutions for rubber gloves industry and 3) Pharmaceuticals: Leading pharmaceutical manufacturer with ~300 Halal certified products, via its 73.4% owned CCM Duopharma (CCMD). However, this division will be split from CCMB through a demerger exercise by 1H18.

• Unlocking values. On 2 Aug, CCMB announced its intentions to undertake a corporate exercise which will culminate in several outcomes: (i) a private placement (ii) proposed land sale (iii) proposed distribution of CCMD shares (for every 1 CCMD shares investors will receive 1.219 CCMD shares) and capital reduction and (iv) share consolidation of every 3 existing ordinary shares into 1 ordinary share (refer Appendix A). The proposed corporate exercise is expected to be completed by 2H18.

• The main objectives of the corporate activity are to demerge its chemicals and its pharmaceuticals business and to consolidate and improve their balance sheet. The demerger will enable shareholders to better manage their exposures to either entity whilst the separation of the two entities will allow CCMD to pursue its growth strategy without being tied to debt covenants at the CCMB level. The distribution will allow for a demarcation of the different business segments whilst allowing investors to evaluate each company on its own merits. The de-leveraging activity will result in improved gearing post consolidation of its total portfolio which began with the exit from the fertilizer business that was completed in 2016 and eventuate to the demerger of its chemicals and pharmaceutical business. To recap, HLIB Research had on 15 Nov published a Not-Rated report on CCMB with SOP Fair Value of RM2.10.
• Poised for a bullish triangle breakout. CCMB has moved back above all its key SMAs since end Oct and is poised to penetrate above the ST downtrend channel near RM1.64 soon, supported by a strong pick-up in volume yesterday and upticks in RSI and stochastic indicators. A decisive move above RM1.64 is likely to spur the stock higher to RM1.70 and RM1.85 next (measurement of neckline resistance breakout) before advancing to our LT objective at RM2.00 psychological barrier.
• On the flip side, key supports are situated near RM1.56 (20-d SMA) and RM1.52 (30-d SMA). A breakdown below RM1.52 will trigger further retracement towards RM1.41 (support trend line). Cut loss at RM1.49.

Source: Hong Leong Investment Bank Research - 30 Nov 2017