GPA Holdings Bhd (Trading Buy)

• GPA was in the news recently, reportedly being identified as a reverse takeover (RTO) target by data centre operator Regal Orion. In its reply to a query from the stock exchange, the Company confirmed that Tan Sri Dato' Tan Hua Choon (its major shareholder who owns a 28.3% stake) has been approached by several interested parties (including Regal Orion) for possible asset injection into GPA although there has not been any material development yet.

• GPA – which is principally involved in the marketing of automotive batteries, sealed lead acid batteries and motorcycle batteries – has a fairly clean balance sheet. As of end-March this year, the Group is debt-free with cash holdings of RM63.5m (6.5 sen per share or 41% of its current share price) and shareholders’ equity of RM105.3m (11 sen per share).

• The Group registered net loss of RM2.3m in the last quarter (mainly dragged by impairment charges for slow-moving inventories & fixed assets and provision for doubtful debts totalling RM2.2m), which wiped out the YTD earnings of RM1.2m already made in the preceding nine months, pushing FY ended March 2020 to a marginal net loss of RM1.0m.

• Following the RTO news, the stock jumped to as high as RM0.24 on 10 August before pulling back to RM0.16 yesterday. Nonetheless, with its share price still treading above the 50-day SMA line, the uptrend remains intact.

• Riding on the positive momentum, GPA shares could bounce up to our resistance thresholds of RM0.21 (R1) and RM0.24 (R2), which represent upside potentials of 31% and 50%, respectively.

• We have placed our stop loss level at RM0.12 (or 25% downside risk).

Cuscapi Bhd (Trading Buy)

• CUSCAPI is involved primarily in the provision of restaurant management solutions, as well as IT solutions to businesses in the retail, hospitality and automotive industries.

• With a plan to tap on new business opportunities in the wake of the Covid-19 pandemic, it has recently formed a strategic alliance with Presto (a lifestyle app owned by listed PUC which has various cashless payment features) and Hungry (an app-based food delivery service provider) to offer a fully integrated and digitalized solution for food ordering, cashless payment and delivery service for the food & beverage industry.

• This new business initiative is expected to contribute positively to its future earnings. The Group was in the red in the most recent quarter, posting net loss of RM4.8m to take its 15-month result to -RM13.7m.

• Financially though, CUSCAPI is fairly stable with net cash holdings of RM16.8m (2.0 sen per share) and shareholders’ equity of RM81.7m (9.5 sen per share) as of end-March 2020.

• From a technical perspective, the stock – which is presently hovering at the lower end of an upward sloping channel – is expected to continue its climb towards our resistance thresholds of RM0.16 (R1) and RM0.20 (R2), respectively. This represents upside potentials of 23% and 54%, respectively.

• Our stop loss level is set at RM0.10 (or 23% downside risk from yesterday’s closing price of RM0.13).

Source: Kenanga Research - 19 Aug 2020