HLT Global Bhd (Trading Sell)

• We are recommending a Trading Sell on HLT shares, which have nearly quadrupled since our Trading Buy call on 14 July to close at a record high of RM2.45 yesterday, as investors would be tempted to take profit following the sharp price runup.
• While the Group’s fundamental growth story as a proxy to the gloves sector is still intact – riding on the demand for its glove-dipping machines as glove manufacturers embark on capacity expansion plans – current valuations are overly stretched following the steep share price jump.
• Even after arbitrarily assuming that HLT (which posted net earnings of RM2.6m in 1QFY20) could double its record high historical annual profit to RM24.2m in the coming year, the stock would be trading at a lofty forward PER of 53x.
• From a technical perspective, the stock – which has climbed six days in a row for cumulative gains of ~200% – has entered an overbought territory, as reflected by its high RSI reading of 93.
• On the back of a probable pullback, HLT’s share price could reverse to RM1.78 (S1) (27% downside potential) and RM1.57 (S2) (36% downside potential), which are pegged at Fibonacci retracement levels of 38.2% and 50%, respectively.
• On the upside, we have set our stop loss threshold at RM3.05 (representing an upside risk of 24%).

ES Ceramics Technology Bhd (Trading Sell)

• ESCERAM’s share price jumped to an all-time high of RM1.40 yesterday – up approximately 2.5 times since our Trading Buy call on 14 July – prompting us to recommend a Trading Sell / Take Profit call on the stock now.
• While the Group (as a manufacturer of hand formers or glove moulds) stands to benefit from capacity upgrades by glove manufacturers, fundamentally speaking, its shares are currently trading at an unattractive valuation.
• Assuming ESCERAM (which made YTD net profit of RM2.7m for the 9-month ended March 2020) could hypothetically register annual earnings of RM14.6m going forward (which is already a doubling of its best ever historical profit level), the stock would be valued at a demanding forward PER of 20x.
• Technically speaking, the stock is presently in an overbought position based on its RSI indicator.
• Using Fibonacci retracement levels of 38.2% and 50% as a gauge, on the back of likely share price corrections, ESCERAM shares may pull back to RM1.07 (S1) and RM0.97 (S2). This translates to downside potentials of 24% and 31%, respectively.
• Conversely, we have pegged our stop loss level at RM1.75 (representing an upside risk of 25%).

Source: Kenanga Research - 5 Aug 2020