INARI Amerton Bhd (Trading Buy)

• INARI is a company involved in the outsourced semiconductor assembly and test services, with operations located internationally.

• With the latest launch of the 5G phone of a U.S. Company, the group is positioned to tap into the overdue replacement cycle of the old phones, which have been in circulation in the market for the past 4-5 years. Management had also highlighted that it has added new RF SiP (system-in-package) assembly lines, which is a 2.57x increase in capacity from its 8 SiP lines in FY20.

• YoY, the group experienced a decline in net income to RM155.8m (-19%, YoY) in FY20, mainly due to a shift in product mix and lower production volume as the market awaits for the latest 5G phone cycle.

• Chart-wise, the stock has been on a continued uptrend since the March melt-down this year. With the shorter-term key SMA which continues to trend above the longer-term key SMA while forming a healthy uptrend, we thus believe the uptrend shall persist.

• Based on the Fibonacci projection our overhead resistance levels are positioned at RM2.80 (R1: +10% upside potential) and RM2.90 (R2: +14% upside potential).

• Meanwhile, our stop loss is pegged at RM2.35 (10% downside risk)

ELSOFT Research Bhd (Trading Buy)

• ELSOFT is in company involved in the (i) research, (ii) design, and (iii) development of test and burn-in systems. Majority of the company’s products are used in image sensors and automotive lightings.

• With the rise in (i) Electrical Vehicle trend in China and U.S., and (ii) phone replacement cycle given the 5G trend, the group intends to develop a new series of ATE (Automatic Test Equipment) to ride the trend.

• The stock is currently forming a “Saucer Pattern” after retracing from a high of RM0.83 as of 6th August 2020. In addition, the (i) higher high formed in the group’s RSI and (ii) bullish MACD formed, gives us reason to believe the uptrend could persist.

• Based on our Fibonacci projections, the stock is set to test our resistance levels at RM0.735 (R1: +16% upside potential) and RM0.770 (R2: +21% upside potential).

• Meanwhile, our stop loss is pegged at RM0.550 (or 13% downside risk).

• Fundamentally, consensus is currently projecting a net income of RM16.3m (-8%, YoY) in FY20E and RM27.7m (+70%, YoY) in FY21E. This translates to a forward PER of 26x and 15x respectively

Source: Kenanga Research - 27 Oct 2020