Public Packages Holdings Bhd (Trading Buy)

• PPHB is a total packaging solutions provider that focusses on the production and sale of paper packaging products such as cartons boxes.
• The Group’s bottom-line has shown year-on-year growth in three of the last four years with net earnings increasing from RM14.2m in FY Dec 2015 to RM23.6m in FY Dec 2019 (or a CAGR of 14%).
• In the most recent quarterly result, the Group turned in a net profit of RM2.6m (-44% YoY) as its performance was hit by weaker demand due to the Covid-19 disruptions. Nonetheless, its balance sheet remains financially strong, backed by net cash & short-term investments of RM21.1m (translating to 11 sen per share) as of end-March this year. 
• Assuming a net profit base of RM19.4m (which is derived from its average earnings over the past three years), the stock is currently trading at an undemanding PER of 7.2x (or just slightly above its historical mean valuation).
• From a technical perspective, PPHB’s share price – which has been inching up on high volume in recent days to close at RM0.74 yesterday – could see a breakout from its sideways trading pattern after cutting above the 100-day SMA line.
• Riding on the positive momentum, the stock is expected to test its recent high of RM0.84 (which is our resistance target, R1) before climbing further to close the price gap (that was opened in February this year) and challenge the next resistance threshold of RM1.09 (R2). This represents upside potentials of 14% and 47%, respectively.
• We have pegged our stop loss level at RM0.65 (12% downside risk)

Ornapaper Bhd (Trading Buy)

• ORNA is involved in the business of manufacturing: (a) paper packaging (namely corrugated boards and cartons boxes, catering mainly to the food & beverage, electricals & electronics and furniture industries); and (b) paper-based stationery products.
• Its bottomline has grown steadily from RM7.0m in FY Dec 2015 to RM13.2m in FY Dec 2019, representing a CAGR of 17%.
• The Group was profitable in its latest quarterly result, registering a net profit of RM1.5m (-31% YoY) in 1QFY20, which was dragged down by slow demand amid the Covid-19 outbreak. As of end-March 2020, net debt stood at RM29.7m (translating to a low net gearing of 16.8%).
• Based on the past three years’ average net profit of RM12.7m, the stock is presently trading at an undemanding PER valuation of 6.9x (or 0.5SD below its historical mean).
• On the chart, ORNA’s share price has posted higher lows following its recovery from a trough of RM0.70 on 19 March this year.
• After closing at RM1.18 yesterday, the stock – which saw renewed buying interest in recent weeks – could trend higher to test the resistance levels of RM1.33 (R1) and RM1.43 (R2), implying upside potentials of 13% and 21%, respectively.
• Our stop loss level is set at RM1.04 (or a downside risk of 12%)

Source: Kenanga Research - 11 Aug 2020