CCK Consolidated Holdings Bhd (Trading Buy)

• CCK is involved in retailing and poultry farming with an integrated supply chain consisting of feed mill, breeder farms, hatchery, broiler farms, layer farm, abattoirs and retail stores. Its businesses are carried out in Sarawak, Sabah and Indonesia.

• Being in an essential industry (selling fresh dressed chicken & chicken parts, frozen products, table eggs, fresh fruits and vegetables), the Group’s bottomline is relatively resilient. Reflecting this, CCK reported higher year-on-year earnings (ranging between RM13m and RM33m) in three of the last four years.

• CCK’s just released 2QFY20 results saw its net profit coming in at RM7.6m (-15% YoY), lifting first half earnings to RM15.7m (-4% YoY). This is on track to meet consensus full-year expectations of RM33m in FY20 and RM35m in FY21, which would then value the shares at forward PERs of 10.2x this year and 9.6x next year.

• Meanwhile, the stock’s technical outlook is bullish according to our trading system, which is built on a 2-period moving average (MA) indicator to trigger buy signals when the fast MA crosses above the slow MA. Using an exit rule of either a 10% profit or 8% stop loss (whichever comes first) from the trigger levels, its back-tested results showed that 13 of the 15 alerts generated by the trading system since 2015 were profitable trades (i.e. it has correctly predicted the ensuing share price gains of 10% or more), representing a hit rate of 87%.

• Assuming history repeats itself, the latest buy signal that appeared on 6 August this year would indicate that CCK’s share price could climb to at least RM0.605 going forward. On the chart, we have pegged our resistance thresholds at RM0.61 (R1) and RM0.67 (R2), which represents upside potentials of 14% and 25%, respectively. • Our stop loss level is set at RM0.49 (8% downside risk from yesterday’s closing price of RM0.535)

KKB Engineering Bhd (Trading Buy)

• KKB’s business segments consist of: (a) engineering (namely steel fabrication and civil construction); and (b) manufacturing (of LP gas cylinders and steel pipes).

• KKB is a potential beneficiary of the Sarawak state’s master plan to implement the water supply grid programme, hoping to secure jobs from a pipeline of RM4.0b worth of contracts. So far, it has clinched water-related contract values totalling RM214m since 2019.

• Yesterday, the Group was awarded a contract to undertake an engineering, procurement and construction (EPC) works for a flare platform for the Kasawari gas development project, to be completed by the first half of 2022. The contract value was not disclosed pending the signing of a formal agreement.

• The Group posted net profit of RM4.4m (-21% YoY) in 2QFY20, taking 1HFY20’s earnings to RM11.2m (+28% YoY). Based on consensus net profit forecasts of RM28m in FY20 and RM33m in FY21, the stock is currently trading at forward PERs of 15.0x this year and 12.7x next year.

• Chart-wise, KKB’s share price has been moving sideways, oscillating between RM1.55 and RM1.73 since mid-June. The shares, which closed at RM1.63 yesterday, will be traded ex-dividend (@ 6.0 sen per share) today.

• On the back of renewed buying momentum, the stock is expected to challenge our resistance thresholds of RM1.73 (R1) and RM1.83 (R2). Using its ex-dividend share price as a reference, this translates to upside potentials of 10% and 17%, respectively.

• Our stop loss level is set at RM1.47 (or 6% downside risk from the ex-dividend price)

Source: Kenanga Research - 26 Aug 2020