MARKET REVIEW

Asia. Asian markets ended mixed on profit taking amid surging Covid-19 cases worldwide as winter approaches and fading vaccine enthusiasm as experts have cautioned that the data from the trials conducted are not final, and there remain plenty of unknowns. Overnight, the Dow fell 23 pts at 29397 whilst the Nasdaq rebounded 2% to 11786 as investors switched back to technology stocks and away from economically sensitive sectors. Overall, investors continue to assess the recent wave of positive vaccine news amid signs of further restrictions in parts of the US to curb the resurgence of Covid-19.

Malaysia. KLCI plunged as much as 25 pts intraday to 1550 on strong profit taking (after rallying from a low of 1452 on 2 Nov) before paring the losses to 5 pts at 1570, as the vaccine optimism is partially offset by lingering concerns of Budget 2021 approval (current parliament sitting ends on 5 Dec) as well as weaker 4Q20 economy and corporate earnings following the expansion of CMCOs to 9 of its 13 states (9 Nov-6 Dec).

TECHNICAL OUTLOOK: KLCI

As the KLCI is hovering comfortably above the 1535 (50% FR) and 1555 (61.8% FR) territory, more upside is possible to retest 1580 (76.4% FR) and 1600 zones before strong profit taking consolidation emerges near formidable resistance at the YTD high of 1618 amid steeply overbought daily stochastic. Key pullback supports are situated at 1555-1535 levels. A decisive breakdown below 1535 will attract further selling pressure towards 1515 (38.2% FR) and 1500 level. (38.2% FR) and 1500 level.

MARKET OUTLOOK

Although the less combative Biden (vs Trump), expansionary Budget 2021 and Covid-19 vaccine optimism are conducive for Bursa Malaysia to gain further ground on recovery optimism, the recent sharp pandemic recovery plays should be prone to profit-taking as overbought momentum increase. Overall, risk off mode will prevail amid in the wake of nagging worries about Budget 2021 approval, weaker 4Q20 economy and corporate earnings following the expansion of CMCOs coupled with unabated Covid-19 infections worldwide (as the mass deployment of a vaccine remains months away). Key supports are pegged at 1555-1535-1515 whilst resistances are situated near 1580-1590-1600 levels.

Stock wise, being well-positioned in the HDDs supply chain, JCY (RM0.705-Not rated) is one of the largest global precision engineering manufacturers of HDD mechanical components, with decades of working relationship predominantly with Western Digital. It poised for a huge upcycle on rising demand for HDDs, supported by the growing emphasis of social distancing and home-based working since Covid-19 lockdowns coupled with the continuous upgrading of the data center with increased storage capacity as more companies are preparing themselves for 5G technology rollout, big data, powerful analytics, artificial intelligence and other key innovations to drive growth. IDC predicts that the global datasphere will grow from 33 Zettabytes (ZB) in 2018 to 175 ZB by 2025. Throughout the 2019-2024 forecast, IDC expects the installed base of storage capacity to achieve a compound annual growth rate (CAGR) of 17.8%.

Valuation is undemanding at 9.9x FY21E P/E (52%below peers), supported by a net cash position of RM302m or 14.3sen. The stock is ripe for a triangle breakout soon after consolidating near the RM0.65-0.68 levels. A decisive breakout above RM0.735 (downtrend line) will lift prices higher towards RM0.77 and our long term price objective of RM0.87 (6 Aug high). Cut loss at RM0.645.

Source: Hong Leong Investment Bank Research - 12 Nov 2020