Guan Chong Bhd (Trading Buy)

• After soaring from a trough of RM1.50 in March to peak at RM3.79 in August this year, GCB’s share price has since pulled back 28% to finish at RM2.73 yesterday. Following which, the stock is ready to break out from the consolidation pattern based on our technical readings.

• The recent appearance of dragonfly doji and hammer candlesticks on the chart, together with its share price entering the RSI oversold territory, suggest that a technical rebound could be on the cards for GCB shares.

• On the back of the positive momentum, the stock will probably rise towards our resistance thresholds of RM3.03 (R1; 11% upside potential) and RM3.25 (R2; 19% upside potential).

• Our stop loss price is set at RM2.50 (or 8% downside risk).

• Fundamentally, GCB – which is principally involved in the manufacturing of cocoa-derived food ingredients (namely cocoa mass, cocoa butter, cocoa cake and cocoa powder) – has grown robustly over the years with its annual earnings increasing every year from RM22.8m in FY15 to RM217.9m in FY19.

• For the nine-month ended September 2020, the Group posted net profit of RM175.9m (+1% YoY) against a challenging economic backdrop.

• Going forward, consensus is projecting GCB’s bottomline to come in at RM211m for FY Dec 20 and RM244m for FY Dec 21. This translates to forward PERs of 13.4x this year and 11.6x next year.

Perak Transit Bhd (Trading Buy)

• PTRANS – currently in a consolidation phase after falling from a high of RM0.33 in August this year – could see a resumption of its upward trajectory ahead.

• From a technical perspective, the share price uptrend (which started from a low of RM0.12 in March this year) remains intact as the stock continues to tread above the 125-day SMA line.

• Moreover, with the rising ADX indicating a trending direction while the DMI+ crossing over the DMI- signaling a positive bias, PTRANS will likely bounce higher going forward.

• On the way up, the stock could test our resistance hurdles of RM0.30 (R1; 15% upside potential) and RM0.34 (R2; 31% upside potential).

• We have placed our stop loss level at RM0.22 (or 15% downside risk from yesterday’s closing price of RM0.26).

• PTRANS, which derives its income from: (a) integrated public transportation terminal operations (via the rental of advertising and promotional spaces, rental of shops & kiosks, project facilitation fee etc), (b) the provision of public stage bus, express bus & bus charter services, and (c) petrol stations operations, has registered higher annual earnings in the last four years with net profit climbing from RM19.2m in FY15 to RM40.0m in FY19.

• The Group posted its best ever quarterly net profit of RM12.0m in 3QFY20, which was an increase of 32% YoY and 48% QoQ, lifting its nine-month earnings to RM28.6m (+2.5% YoY).

• With consensus presently expecting PTRANS to log net profit of RM40m in FY20 and RM47m in FY21, the stock is currently trading at forward PERs of 12.4x this year and 10.5x next year.

Source: Kenanga Research - 23 Dec 2020