We like CCM as a successful turnaround play following the de-merger of CCMDBIO (completed in Dec 2017) and continuous de-gearing plans, transforming the group to become more nimble and efficient with a lighter balance sheet and lower cost base. Valuation are undemanding at 8.5x FY19 P/Ex (32% below peers) and 1.1x P/B (40% discount to peers), supported by positive rerating catalysts, namely (i) capacity expansion (+15% Polymers division, +50% chemicals divisions); (ii) de-leveraging exercise (reducing interest expense by c.52%); (iii) under-appreciated proxy to the robust glove sector (iv) RAPID kicker and (v) a strong FY18-20 EPS CAGR of 20% with attractive FY19-20 DY of 5.8-6.4%. CCM is hovering within the upward channel, targeting RM2.20-RM2.37, followed by RM2.71 (LT target).

A remarkable corporate presence in Malaysia with over 50 years solid track record. CCM has been involved in the chemicals business since 1963, providing the nation with the necessary building blocks for industrialization. The chlor alkali market in Malaysia is essentially a duopoly with the main manufacturers being CCM and Batu Kawan (not-rated, via its subsidiary Malay Sino Bhd), with the rest of the domestic demand being contributed by traders/importers. CCM holds c.26% market share of the domestic caustic soda business, 36% of the domestic chlorine business and ranks top 3 in market position for polymers and coatings in Malaysia. (Kindly refer to 21 Sep report for detailed analysis)

Hovering within the upward channel. CCM has traded towards the recent low of RM1.55 and recovered significantly within an upward channel towards above the SMA200 last week. The surge above the SMA200 and RM2.00 is suggesting a bullish undertone in the price action. Also, the MACD indicator is positive. However, both the RSI and Stochastic oscillators are overbought. Hence, we opine CCM could trade higher around RM2.20 and RM2.37, followed by a LT target of RM2.71 after a mild consolidation. Support will be envisaged around RM1.90-1.95, cut loss at RM1.88.

Source: Hong Leong Investment Bank Research - 26 Sept 2018