Kawan Food Bhd (Trading Buy)

• KAWAN, as a manufacturer and exporter of frozen food products, is a beneficiary of the shift in consumer behaviour to eat more at home following the re-imposition of movement restrictions to curb the spread of the Covid-19 infections around the world.

• This was reflected in its quarterly results last year when the Group reported net profit of RM8.8m (+222% YoY) in 2QFY20 and RM6.2m (+129% YoY) in 3QFY20, lifting its bottomline to RM21.6m (+208% YoY) in the nine-month period ended September 2020.

• The Group is also in a strong financial position with net cash holdings and quoted investments of RM55.1m (or 15.3 sen per share) as of end-September 2020.

• From a technical perspective, after sliding from a high of RM2.88 in late August last year to as low as RM1.89 last Thursday (which was near its 50% Fibonacci retracement level), the stock has likely hit a bottom and could plot a trend reversal ahead.

• With the momentum indicator (which has just cut above the zero line) on the rise currently, KAWAN’s share price appears eager to ride on an upward trajectory towards our resistance thresholds of RM2.36 (R1; 15% upside potential) and RM2.54 (R2; 23% upside potential).

• We have pegged our stop loss price at RM1.83 (or 11% downside risk from the last traded price of RM2.06).

GDEX Bhd (Trading Buy)

• GDEX, which provides express delivery and logistics services, is set to benefit from rising e-commerce activities with demand for courier services from on-line business activities anticipated to increase following the re-imposition of movement control order to bring under control the Covid-19 outbreak.

• In terms of recent corporate development, GDEX has on 8 December last year entered into a Memorandum of Understanding with TASCO (a global logistics group listed on Bursa) to enhance the logistics delivery services between end-consumers in Malaysia with domestic and international destinations across the globe.

• After reporting net profit of RM18.8m (-42% YoY) in FY June 2020, which was hit by the Covid-19-related disruptions, the absence of gain on redemption of convertible bonds (FY19: RM8m) and the accounting impact on lease recognition (RM17.7m), the Group rebounded with net earnings of RM7.2m (+51% YoY) in 1QFY21. With net cash holdings & short-term funds standing at RM249.6m end-September 2020 (or 4.4 sen per share), the Group is financially strong too.

• On the chart, following the share price correction from a peak of RM0.55 in early November last year to close at RM0.40 yesterday, GDEX shares (which saw a surge in trading interest yesterday) could stage a technical rebound as the stock crosses back above the lower Bollinger Band.

• On the way up, GDEX will probably climb to test our resistance thresholds of RM0.47 (R1; 18% upside potential) and RM0.53 (R2; 33% upside potential).

• Our stop loss price is set at RM0.33 (or 18% downside risk).

Source: Kenanga Research - 13 Jan 2021