D&O (Trading Buy)

• D&O primarily manufactures LED for the global automotive market which are sold to countries like China, Europe, USA, Japan, Korea and India.

• Being a trusted supplier of automotive LED lighting of global car brands, D&O’s is on a structural growth trajectory given the rising number of LEDs per vehicle.

• Also, with the gradual global shift from internal combustion engines to battery powered electric motor in vehicles, we note that the adoption of LEDs will be even more pronounced given the low battery consumption of LED lights allowing for longer travel distances for electrical vehicles.

• While 1HFY20 recorded dismal earnings of RM4.6m due to the MCO, consensus is expecting 2HFY20 to come in way stronger and register full year FY20E earnings of RM31.2m as a result of stronger orders delivery owing to the pent up demand from China and Europe car sales.

• Technically, the stock had broken out from an ascending triangle pattern on the 20th of October (last week) and is currently going through a mini pullback towards 2 support levels namely the 9day EMA and previous resistance-turn-support of RM1.13 providing an opportunistic entry.

• We think there is a high chance for the stock to continue its uptrend and break to an all-time high. Our immediate target is pegged at RM1.30 (+13%) while our stop loss is placed at RM1.06 (-8% downside)

Esceram (Trading Buy)

• Esceram manufactures ceramic hand formers (another term for mould) which is used within a glove production line.

• With the increased production of gloves coupled with the rising number of new glove entrants amidst this global pandemic, we understand there is a strong demand of hand formers leading to a shortage within the market.

• We believe this would indirectly benefit Esceram through higher sale prices of formers for the foreseeable future. Case in point, Esceram’s recent 1QFY21 (May YE) results recorded is the highest ever revenue and bottom line of RM11.9m (+36% YoY) and RM3.2m (+320% YoY) since its listing in 2005.

• We note that hand formers can typically last 1-2 years but is susceptible to breakages every month. Hence, glove manufacturers will always need additional replacements for backups.

• Technically, Esceram has seen a sharp sell down over the past 2 weeks and we believe the current levels warrants a relief rebound – especially when the last closing price is hovering at 2 crucial support levels: (i) 50SMA and (ii) previous resistance turn support of RM0.60.

• Also, Esceram has been respecting the 50SMA well and has rebounded off this level 5x over the past 1.5 months. Hence, we see a strong case for a rebound play.

• Our target is pegged at the immediate overhead resistance of RM0.69 (R1: +15% upside) while stop loss is at RM0.54 (-10% downside)

Source: Kenanga Research - 30 Oct 2020