KGB has declined sharply since end February from RM1.19 to recent low of RM0.59 following the negative sentiment amid the Covid-19 outbreak. However, we believe the recent fall is overdone and share price should be supported by its decent outstanding orderbook of RM363m, accompanied by tenderbook of RM860m as at Feb. Moreover, KGB’s raw material from Japan and South Korea is intact and faces no major disruption at this juncture. We believe the oversold status could warrant accumulation and decent rebound towards RM0.85-0.95, followed by a LT target of RM1.00, while support will be located around RM0.71 - 0.725, followed by RM0.70.

Decent outstanding orderbook and tenderbook. After securing contracts totaling to RM105m in Jan-Feb 2020, the total outstanding orderboook stood at RM363m. Meanwhile, its tenderbook as at Feb 29 stood at RM860m (KGB’s past success rate is around 20-25%). Hence, it should bode well for FY20’s revenue and earnings as management believes most of the projects will be delivered within 6-9 months even with the delay under MCO period.

No raw material supplies disruption. Despite KGB sourcing its raw materials from Japan and South Korea, there are no signs of companies shutting down in that region at this moment. Furthermore KGB has enough inventories on hand for now.

Recovering momentum oscillators. KGB has fallen 50% from end-Feb amid the negative sentiment following the Covid-19 outbreak, The MACD Indicator is below zero, but both the RSI and Stochastic oscillators are recovering after trending around the oversold region. Resistance will be located around RM0.85-0.95 with a LT target set around RM1.00. Support is pegged around RM0.71-0.725, with a cut loss set around RM0.70.

Source: Hong Leong Investment Bank Research - 31 Mar 2020