MTAG Group Bhd (Trading Buy)

• MTAG is an indirect proxy to the fast-growing electronics manufacturing services (EMS) industry in Malaysia. According to its listing prospectus, the Group’s customers (such as VS Industry and ATA IMS) who are suppliers for Dyson contributed 77%- 81% of total revenue in the past four years.

• Listed on the ACE Market in September last year, MTAG is in the business of: (a) printing of labels & stickers and customised converting services; and (b) distribution of industrial tapes, adhesives and other products.

• For FY June 2020, the Group made a net profit of RM30.2m (-8% YoY) as its final quarter was hit by the Covid-19 triggered business disruptions. Going forward, consensus is expecting its net profit to grow to RM37m (+23% YoY) in FY21 and RM40m (+8% YoY) in FY22, which translates to forward PERs of 13.3x and 12.3x, respectively.

• Financially, MTAG’s balance sheet is strong with zero debt and cash holdings of RM109.7m (16 sen per share or nearly onequarter of its existing share price) as of end-June 2020.

• On the chart, amid signs of renewed buying interest, a technical rebound could be on the cards following the share price pullback from a high of RM1.22 on 7 August to yesterday’s close of RM0.72.

• With its uptrend still intact as guided by the positive sloping trendlines, the stock is expected to swing towards our resistance thresholds of RM0.81 (R1) and RM0.89 (R2). This represents upside potentials of 13% and 24%, respectively.

• We have placed our stop loss level at RM0.65 (or 10% downside risk).

I-Stone Group Bhd (Trading Buy)

• ISTONE is primarily involved in the manufacturing automation business (with a focus on specialised automation machines) and distribution of manufacturing automation hardware and software.

• These products are mainly sold to brand owners (such as Dyson, which contributed about half to two-thirds of its historical revenue) and contract manufacturers (including VS Industry and ATA IMS, which accounted for a combined 3%-5% of total sales) of home appliances, industrial products and automotive parts and components.

• Dragged by the Covid-19 induced business disruptions, the Group announced a net profit of RM1.5m (-28% YoY) in 2QFY20, taking its first half’s earnings to RM4.4m (-31% YoY).

• The Group has a debt-free balance sheet that is backed by cash holdings of RM31.3m (or 3 sen per share) as of end-June 2020.

• Chart-wise, ISTONE’s share price has retraced from a peak of RM0.33 on 12 August before slipping into a consolidation since then. On the back of rising price momentum, the stock (which saw higher-than-average trading interest yesterday) could test our resistance levels of RM0.28 (R1) and RM0.31 (R2), respectively. This translates to upside potentials of 12% and 24%, respectively.

• Our stop loss level is set at RM0.22 (or 12% downside from yesterday’s closing price of RM0.25).

Source: Kenanga Research - 27 Aug 2020