MUI Properties Bhd (Trading Buy)

• MUIPROP is a proxy to soaring gold prices (which has risen 7% the past week to USD1,940/oz currently, taking its YTD gain to 28%). The stock is a laggard play following the sharp share price run-ups in listed jewellers POHKONG and TOMEI (up 36% and 52%, respectively since our Trading Buy calls on 9 July).
• The Group’s gold exposure is via its 40.7% stake in Nex Metals Explorations Ltd, a listed company in Australia which is involved in gold exploration.
• On the chart, the stock has been in a range-bound phase after rebounding from a trough of RM0.145 in March this year.
• As buying interest returns (the stock was up 8% on strong volume to close at RM0.195 yesterday), its share price may be on the verge of breaking out from a sideways trading pattern. If so, then MUIPROP shares could be on the way to test our resistance thresholds of RM0.24 (R1) and RM0.28 (R2), which implies upside potentials of 23% and 44%, respectively.
• Our stop loss level is pegged at RM0.16 (or 18% downside risk).
• MUIPROP’s core business is primarily in property development. The Group – which barely broke even in 3QFY20 – made a net profit of RM3.9m (-41% YoY) for the 9-month ended 31 March 2020.
• Financially sound, the Group is debt-free with cash holdings of RM99.7m (as of end-March 2020), translating to 13.5 sen per share or slightly more than two-thirds of its current share price.
• Based on its book value per share of RM0.37 (as of end-March this year), the stock is currently trading at an undemanding P/BV multiple of 0.53x (or 1SD below its historical mean valuation).

Pestech International Bhd (Trading Buy)

• PESTECH is an integrated electrical power technology company which is involved in: (a) power transmission infrastructure; (b) power generation and rail electrification; (c) transmission assets; and (d) power products and embedded system software.
• The Group’s short-term fundamentals have been affected by the Covid-19 pandemic-related effects as billing delays had caused its 9-month net profit ended 31 March 2020 to come in slower-than-expected at RM39.3m (-15% YoY).
• From a technical perspective, the share price pullback represents a timely buying opportunity. After sliding from RM1.19 in early March to as low as RM0.60 on 19 March, the stock has likely bottomed after recovering on strong volume subsequently to hit a high of RM1.00. It closed at RM0.85 yesterday.
• Riding on the positive momentum, the stock is expected to reach our resistance target of RM0.98 (R1) before challenging the next resistance barrier of RM1.08 (R2). This translates to upside potentials of 15% and 27%, respectively.
• We have set our stop loss level at RM0.76 (which represents 11% downside risk).
• Based on our research team’s net profit forecasts of RM69m (-14% YoY) in FY June 2020 and RM82m (+18% YoY) in FY June 2021, PESTECH is currently trading at forward PERs of 9.4x this year and 7.9x next year.
• In terms of corporate development, PESTECH is planning to list its wholly-owned subsidiary PESTECH Cambodia PLC soon, which will unlock the value of the Group’s investments in Cambodia.

Source: Kenanga Research - 28 Jul 2020