Excel Force MSC Bhd (Trading Buy)

• EFORCE is a proxy to the resurgence of trading activity post the Lunar New Year break on the Malaysian bourse, which saw daily average transaction volume swelling to 11.3b shares valued at RM5.2b so far this week, compared with the daily average trades in January (of 6.9b shares worth RM5.0b) and February month-to-date (of 7.2b shares worth RM4.4b).

• A leading information technology solution provider that is involved in the development, provision and maintenance of application and system solutions for the financial services industry, the Group services stockbroking companies and investment banks and derives part of its income from outsourcing service charge (which is volume and transaction based).

• Just like last year when the Group benefited from the surge in trading interest following the Covid-19 pandemic, its bottomline jumped 43% YoY to RM7.0m for the nine-month period ended September 2020. In addition, its debt-free balance sheet is backed by cash holdings of RM20.7m (or 3.7 sen per share) as of end-September last year.

• Valuation-wise, EFORCE is currently trading at PBV multiple of 2.7x (or at 0.5SD below its historical mean) based on its book value per share of RM0.17 as of end-September 2020.

• From a technical perspective, the stock is poised to extend its upward trajectory after breaking past a negative sloping trendline.

• And the positive momentum is expected to continue following the simultaneous crossovers by the share price of both the 50- day and 100-day SMA lines, as well as the DMI Plus cutting above the DMI Minus indicator.

• Driven by these bullish signals, EFORCE shares could climb towards our resistance thresholds of RM0.55 (R1; 18% upside potential) and RM0.59 (R2; 27% upside potential).

• We have set our stop loss price at RM0.40 (or 14% downside risk from yesterday’s closing price of RM0.465)

N2N Connect Bhd (Trading Buy)

• N2N is a beneficiary of robust trading activity in the stock markets. A capital market solution provider offering application solutions and network & infrastructure services to capital market players (such as financial institutions and securities firms), the Group has a geographical presence stretching across Malaysia, Hong Kong, Singapore, Vietnam, Philippines, Indonesia and Thailand.

• Capturing the positive impact of the transaction-based charging mechanism (following the increased stock market activity last year), the Group registered net profit of RM20.4m (+45% YoY) for the nine-month period ended September 2020 with slightly more than half of its earnings contributed by the Malaysian operation.

• Strengthening in tandem is its balance sheet which is backed by net cash holdings & unit trust investments of RM121.2m (or 20.3 sen per share) as of end-September 2020.

• Meanwhile, the Company is seeking to transfer its listing status from the ACE Market to the Main Market, which would then enhance its investment appeal to a wider pool of investors.

• In terms of PBV valuation, the stock is presently trading at 1.7x (or at 0.5SD below its historical mean) based on its book value per share of RM0.48 as of end-September last year.

• Technically speaking, following the price surge amid strong volume on Monday, N2N shares have broken out from its consolidation pattern that started in the beginning of September last year.

• And with the momentum indicator still rising after cutting above the zero line, the stage is set for the stock to plot higher highs ahead, probably testing our resistance targets of RM0.95 (R1; 14% upside potential) and RM1.00 (R2; 20% upside potential).

• Our stop loss price is set at RM0.73 (or 12% downside risk from its last traded price of RM0.83).

Source: Kenanga Research - 17 Feb 2021