ARB Bhd (Trading Buy)

• Post the disposal of its loss-making timber business, the group has transitioned into the IT business mainly focusing on Enterprise Resource Planning (ERP).

• On 24th November 2020, the group has teamed up with China’s state-owned China United Network Communications Group Co Ltd (China Unicom) to undertake smart building projects and other ancillary businesses in Malaysia. Through the collaboration, ARB will leverage on its business network to identify wide business network while China Unicom Malaysia would contribute in terms of its technical expertise. We view this positively, given the industrial revolution 4.0 in Malaysia which is crucial for companies to stay relevant going forward.

• QoQ, the group has experienced an increase in revenue to RM58.3m (+5.4%,QoQ) in 3QFY20 which was mainly contributed by its Enterprise Resource Planning (ERP) and Internet of Things (IoT). Meanwhile its net income remains largely unchanged at RM8.4m in 3QFY20 due to the higher taxation cost.

• Chart-wise, the stock has started gaining momentum after testing a key support level of RM0.245 from late-August to early November this year. Since then the stock appears to be resuming its uptrend with the formation of a “Golden Cross” as its 20-Day key SMA has cross its 50-day key SMA.

• Should the buying momentum persist, our overhead resistance levels are positioned at RM0.330 (R1:+14%, upside potential) and RM0.370 (+28%m upside potential)

• Our stop loss level is pegged at RM0.255 (-12%, downside risk).

Supercomnet Technolgies Bhd (Trading Buy)

• SCOMNET is a cable manufacturer which supplies to the medical devices and automotive cables. Notably, the group’s medical device are supplier to the world’s most reputable medical device manufacturers such as Edward Lifesciences, Ambu and Mermaid Medical.

• With the group’s eight production lines near full capacity at c.70%, the group has decided to allocate RM7m-RM10m in capex to grow its capacity by 80% in 1-1.5 years, which will translate into better earnings going forward.

• Chart-wise, the stock has recently retraced after forming a triple top and is currently finding support near its 50-Day SMA. With its (i) RSI near the oversold region while (ii) shorter-term key SMA continues to respect the longer-term key SMA, we thus believe the stock could rebound from its current level and resume its upward momentum.

• Should the buying interest resume our next resistance levels at RM2.20 (R1; +9% upside potential) and RM2.37 (R2; +17%, upside potential).

• Meanwhile, our stop loss level is pegged at RM1.88 (-7%, downside risk).

• Fundamentally, the group is projected to make a net profit of RM29.5m (+57%, YoY) in FY20E and RM51.6m (+75%, YoY) in FY21E. This also translates to a forward PER of 43x and 25x respectively.

Source: Kenanga Research - 27 Nov 2020