OCK Group Berhad (Trading Buy)

• OCK is principally involved in the provision of telecommunication services equipped with the ability to provide full turnkey services. The Group has three other major business divisions: (i) Trading of Telco and Network Products; (ii) Green Energy and Power Solutions; and (iii) M&E Engineering Services.
   
• For much of 2020, the Group’s trading and M&E engineering services segments suffered due to movement restrictions implemented locally and regionally to curb the Covid-19 pandemic. Moving forward, the Group’s asset portfolio continues to provide a high level of recurring income (c.70%) from tower leasing and solar farms. The Group could also benefit from future developments in JENDELA (Malaysia’s national digital infrastructure plan), 5G and green energy tenders.
   
• Going forward, consensus is expecting OCK to make net profit of RM27.3m in FY Dec 2020 and RM32.8m in FY Dec 2021, which translates to forward PERs of 15.6x and 13.0x, respectively.
• Technically speaking, the stock appears to be gaining upward momentum as the MACD line is approaching the signal line. The long tail wicks in the most recent swing low also suggests that the stock will find strong support at RM0.40.
   
• In addition, a bullish OBV divergence signal is seen where the price bounced up from a previous support level while the OBV formed a higher low.
   
• Riding on the recent strong positive momentum, OCK’s share price could hit the resistance levels of RM0.55 (R1; 24% upside potential) and RM0.61 (R2; 37% upside potential).
   
• We have pegged our stop loss price at RM0.36 (19% downside risk).

Thong Guan Industries Berhad (Trading Buy)

• TGUAN is principally involved in the manufacturing of plastic products, with stretch films making up a bulk of their sales (c.45%). The Group also produces tea and coffee products.

• In recent years, the Group has been transforming itself from a volume-driven to a value-driven business by producing nanostretch films and courier bags to achieve higher margins. Their courier bag segment is poised for high growth as they serve blue-chip e-commerce clients in the United States.

• Since the sharp market correction in March 2020, the stock has had a fantastic run thanks to multi-year low plastic resin prices (their main cost component). However, the stock subsequently took a beating after resin prices started rising and the MYR started strengthening against the USD.

• Fundamentally, the business remains sound and promising. Plastic resin prices have also started falling, which should lift investor sentiment for plastic manufacturers like Thong Guan.

• Going forward, TGUAN is expected to post net profit of RM79.6m in FY Dec 2020 and RM86.8m in FY Dec 2021 based on consensus numbers, which translates to forward PERs of 11.9x and 11.1x, respectively.

• Technically speaking, the stock has recently reversed from the RSI’s oversold zone. It is currently testing the 20-day SMA, a breakout of which could push the stock to higher levels.

• With the MACD line crossing above the signal line, the stock will probably continue to rise and challenge our resistance targets of RM2.83 (R1; 14% upside potential) and RM3.15 (R2; 27% upside potential).

• We have pegged our stop loss at RM2.21 (11% downside risk).

Source: Kenanga Research - 14 Jan 2021