DRB-Hicom Bhd (Trading Buy)

• DRBHCOM was hit hard by the economic lockdown triggered by the Covid-19 outbreak as the Group – which is involved in the automotive, services and properties businesses – registered a net loss of RM215.8m in 1QFY20.
• Its share price tumbled in tandem with the March stock market meltdown, plunging to as low as RM0.98 before staging a steady recovery to close at RM1.85 yesterday.
• Riding on the positive momentum, the stock could be on the move to overcome a long-term downtrend line soon. An ensuing breakout is expected to lift the stock to our resistance target of RM2.10 (R1; +14% upside potential) before testing the next resistance barrier of RM2.22 (R2; +20% upside potential).
• Conversely, we have set our stop loss level at RM1.65 (representing a 11% downside risk) in the event of renewed share price weakness.
• DRBHCOM is a proxy to the strong recovery in Proton car sales (which has jumped 26.3% YoY and 69.5% MoM to 9,623 units last month). Based on consensus earnings forecasts of RM87m for FY20 and RM232m for FY21, the stock is presently trading at forward PERs of 41.1x this year and 15.4x next year

UEM Edgenta Bhd (Trading Buy)

• EDGENTA is involved in the business of providing: (i) healthcare support (comprising both concession and commercial segments, serving over 300 hospitals in Malaysia, Singapore, Taiwan and India); (ii) property & facility solutions; (iii) infrastructure services; and (iv) asset consultancy.
• It has recently clinched contracts (worth between RM265m to RM284m) for the provision of hospital support services (including housekeeping and portering services) to the Ministry of Health of Singapore’s hospitals.
• Technically speaking, its share price – which has slumped from a high of RM2.70 on 26 February to as low as RM1.88 on 19 March – appears to have bottomed and is poised to bounce up from an existing consolidation pattern.
• A resurgence in buying momentum could propel the stock (which closed at RM2.04 yesterday) to climb to our resistance target of RM2.30 (R1) before challenging our next resistance threshold of RM2.40 (R2). This represents upside potentials of 13% and 18%, respectively.
• Our stop loss level is set at RM1.85 (or 9% downside risk).
• In terms of fundamental outlook, consensus is forecasting that the Group – which saw its 1QFY20 earnings come in at RM11.2m (-66% YoY) – would make a net profit of RM99m in FY20 and RM152m in FY21. This translates to forward PERs of 17.1x and 11.2x, respectively.
• Backed by a sound balance sheet (with net cash of RM33.2m as of end-March 2020), EDGENTA has been paying dividends (ranging between 7.0 sen and 31.0 sen per share) in the past five years. Based on consensus DPS estimate of 8.9 sen for FY20, the stock is currently trading at an attractive dividend yield of 4.4%.

Source: Kenanga Research - 21 Jul 2020