Dufu Technology Corp Bhd (Trading Buy)

• DUFU is involved in the design, development and manufacturing of precision machining, computer peripherals and parts for hard disk drive. The company serves the HDD (Hard Disk Drive) segment which is poised to benefit from rising demand for data centres and cloud storage services.

• QoQ, 2QFY20 revenue increased to RM73.4m (+37%) mainly due to the increase in volume loadings by customers operating in the HDD segment. However, net income declined to RM9.9m (-30%) given the higher overhead costs per unit as the group introduced hard-ship allowances and provision of meals for workers who came back to work during the Covid-19 lockdown.

• The group’s operations have returned to normal in the second half, which is expected to lead to satisfactory results for the full-year.

• On the chart, the stock has declined from a high of RM3.98 on 4th August to its current level of RM3.09. We believe a price reversal could be in sight as the stock’s RSI is near the oversold region. In addition, its shorter key SMAs continue to stay above the longer term key SMAs, indicating that the uptrend remains intact.

• Should the buying momentum resume, our overhead resistance levels are set at RM3.50 (R1, +13% potential upside) and RM3.70 (R2, +20% potential upside).

• On the flipside, our stop loss is pegged at RM2.75 (-11% downside risk).

Kumpulan Powernet Bhd (Trading Buy)

• KPOWER achieved a strong 4QFY20 result with net income increasing to RM7.3m (+273%), which brought its full-year net income to RM12.8m in FY20 vs RM148k in FY19. This also marks the first full financial year performance post the RTO exercise by a new management team led by SERBADK’s founder, Mohd Abdul Karim Abdullah and Grand Deal Vision SB in June 2019, which is viewed positively.

• The group has recently secured a USD46m (RM192m) contract for an EPCC hydropower project in Nepal, which is in-line with its plans to strengthen its regional presence. This has boosted the group’s order book to RM1.37b.

• In a post-result conference call (on 27th August 2020), KPOWER has shared its plans to venture into the healthcare and medical products space focussing on technology applications and solutions, which will form part of the transformation strategy for the group.

• Consensus is currently projecting net incomes of RM30.4m (+137%) in FY21E and RM41.5m (+36%) in FY22E. This translates to forward PERs of 11x and 8x, respectively.

• Since the market crash in March, the stock has rallied to an all-time high of RM3.63 while charting higher highs and higher lows along the way. Despite seeing weaknesses recently, the stock is finding strong support at the 20-day SMA and given the formation of a pennant pattern, we believe the upward momentum shall persist.

• With that, our overhead resistance levels are set at RM3.40 (R1, +13% potential upside) and RM3.60 (R2, +20% potential upside).

• Meanwhile, our stop loss is pegged at RM2.70 (-10%, downside risk).

Source: Kenanga Research - 11 Sept 2020