N2N Connect Bhd (Trading Buy)

• N2N is a capital market solution provider offering application solutions and network & infrastructure services to capital market players (such as financial institutions and securities firms) with a geographical presence stretching across Malaysia, Hong Kong, Singapore, Vietnam, Philippines, Indonesia and Thailand.

• N2N is a proxy to the increased trading activity on the Malaysian bourse following the resurgence in daily average trading volume (which coincided with the re-imposition of the conditional movement control order in the Klang Valley since last Wednesday).

• The impact from the robust trading activity was initially reflected in the Group’s 2QFY20 earnings (up 136% YoY to RM7.0m), taking its 1HFY20 bottomline to RM10.7 (+26% YoY), of which slightly less than half came from the Malaysian operation.

• On account of its strong financial position (with net cash holdings & unit trust investments of RM115.2m or 19.3 sen per share as of end-June 2020), the Company is seeking to transfer its listing status from the ACE Market to the Main Market by the end of this year (which would then enhance its investment appeal to a wider pool of investors).

• Technically speaking, the stock – which has bounced up from the Fibonacci retracement line of 50% after pulling back from a peak of RM1.00 in early August this year – could see a trend reversal ahead.

• Continuing its upward journey, N2N’s share price will likely climb further towards our resistance thresholds of RM0.80 (R1; 11% upside potential) and RM0.91 (R2; 26% upside potential).

• Our stop loss level is set at RM0.65 (or 10% downside risk from its last traded price of RM0.72).

Excel Force MSC Bhd (Trading Buy)

• As a leading information technology solution provider that is involved in the development, provision and maintenance of application and system solutions for the financial services industry – servicing specifically the stockbroking companies and investment banks – EFORCE stands to benefit from the return of trading interest in Malaysian stocks.

• With the Group deriving part of its income from outsourcing service charge (which is volume and transaction based), the recent pick-up in trading activity on the local stock exchange is expected to boost its earnings outlook.

• This was the case when its 2QFY20 earnings jumped 79% YoY to RM2.6m, thus lifting 1HFY20 net profit by 31% YoY to RM4.4m. The Group’s debt-free balance sheet with cash holdings of RM17.6m (or 3.1 sen per share) as of end-June 2020 is an added investment merit in the stock.

• On the chart, EFORCE shares – which ended at RM0.465 yesterday – could be turning up after plotting a double bottom pattern recently.

• This may then set the stage for the share price to chart higher highs ahead, probably rising to test our resistance hurdles of RM0.52 (R1) and RM0.62 (R2), which translates to upside potentials of 12% and 33%, respectively.

• We have pegged our stop loss level at RM0.42 (or 10% downside risk).

Source: Kenanga Research - 22 Oct 2020