Kelington Group Bhd (Trading Buy)

• KGB offers exposure to: (a) the fast-growing semiconductor industry (as a provider of ultra-high purity gas solutions); and (b) the resilient food & beverage business (as a supplier of industrial gases and specialty gases such as liquid carbon dioxide). It is also involved in process engineering and general contracting activities.
• The Group’s bottomline has been rising steadily with net profit growing every year, from RM8.8m in FY Dec 2016 to RM23.9m in FY Dec 2019. Balance sheet is financially strong with net cash backing of RM50.1m (or 16 sen per share) as of end-March this year.
• Based on consensus numbers, KGB – which posted net profit of RM4.1m (-16% YoY) in 1QFY20 – is forecasted to make RM18m in FY Dec 2020 and RM22m in FY Dec 2021. This translates to forward PERs of 20.0x this year and 16.4x next year.
• Technically speaking, the stock – after bouncing sideways since mid-May – has just staged a breakout from its consolidation pattern following a crossover of the negative sloping trendline that stretches back to January this year.
• On the back of renewed buying interest, KGB’s share price – which gained 7.7% to close at RM1.12 yesterday – is expected to trend higher towards our resistance thresholds of RM1.28 (R1) and RM1.40 (R2). This represents upside potentials of 14% and 25%, respectively.
• Our stop loss level is set at RM0.98 (12% downside risk).

Genetec Technology Bhd (Trading Buy)

• GENETEC is principally involved in the designing and building of customised factory automation equipment, supplying to customers who are mainly operating in the automotive and hard disk drive industries.
• The Group reported a slight net loss of RM0.2m in FY Mar 2020 (compared with a net profit of RM5.6m in FY19), dragged down by its final quarter performance (which saw a net loss of RM7.8m) amid the Covid-19 business disruptions. Financially, it is in a slight net cash position of RM5.9m as of end-March this year.
• On the chart, after plotting a sequence of higher lows from a trough of RM1.03 in March this year, the stock could continue its upward trajectory to test our resistance target of RM1.71 (R1). Beyond R1, GENETEC shares may challenge our next resistance level of RM1.89 (R2). This represents upside potentials of 13% and 24%, respectively.
• We have placed our stop loss level at RM1.35 (translating to 11% downside risk).

Source: Kenanga Research - 6 Aug 2020