Guan Chong Bhd (Trading Buy)

• GCB is a chocolate processing company which manufactures a wide range of cocoa products. Despite its premium segment sales in Europe being impacted by the pandemic, the group’s earnings remained resilient at RM72.2m (+61% QoQ) in 1QFY20. This was due to the strong demand for its chocolate powder which is used in baking and beverage, which are still consumed at home. Moreover, we are comforted as the group has locked in 90% of its revenue in FY20 from forward sales.
• The share price has recovered from the March market sell-down, as displayed in its 50-day SMA which is now trending above its 100-day SMA, indicating a healthy uptrend.
• Coupled with a “Pennant pattern” and an uptick in RSI, we believe the stock should continue its upward movements. With that, our overhead resistance levels are seen at RM3.05 (R1;+9% potential upside) and RM3.30 (R2;+17%, potential upside).
• Meanwhile, our stop loss is pegged at RM2.60, representing a downside risk of 7%.
• Fundamentally, consensus is projecting the Group would make a net profit of RM217m (-0.01% YoY) in FY20 and RM230m (+5.9% YoY) in FY21, which translates to forward PERs of 14.0x and 12.2x, respectively.

Sarawak Consolidated Industries Bhd (Trading Buy)

• Dato’ Mohd Abdul Karim (who is Serba Dinamik’s founder) has emerged as the largest shareholder in SCIB with a 38.3% stake. Post the exercise, the group has tapped on Dato Karim’s network and accumulated an order-book size of RM1b, which includes local and international projects (in Qatar, Oman and Indonesia).
• In addition, with SCIB being the largest precast concrete and IBS manufacturer in East Malaysia, the group is well-positioned to participate in the award of infrastructure jobs ahead of the Sarawak 2021 state elections amid increased allocations in the state budget.
• Chart-wise, the stock has completed the formation of the “Cup and Handle” pattern and is likely to continue its upward momentum backed by encouraging volume. With that, our resistance levels are set at RM3.30 (R1) and RM3.50 (R2), which represent potential upsides of +12% and +19%, respectively.
• Meanwhile, our stop loss is pegged at RM2.65 (-10% potential downside).
• Fundamentally, the group has generated a profit of RM4.3m (+268% YoY) in 1QFY20. Meanwhile, consensus estimates a projected net profit of RM20.4m in FY20 and RM55.5m in FY21, which represent forward PERs of 14.2x and 5.2x, respectively.

Source: Kenanga Research - 24 Jul 2020