Berjaya Sports Toto (Trading Buy)

• BJTOTO principally operates betting games, leases computerised lottery equipment, manufactures and distributes computerised lottery systems, and develops property.

• The Group’s ticket sales have been dealt numerous blows by the numerous Covid-19 induced lockdowns in Malaysia. But moving forward, sentiment on the stock is expected to improve following the easing of lockdowns and the gradual rollout of the vaccination programme.

• Consensus expects the Group to achieve a core net profit of RM212.4m and RM243m in FY21 and FY22, respectively. At the current price, these translate to forward PERs of 13.5x and 11.8x, respectively, which are significantly below its 5-year historical average PER of 16x. This suggests there is value to be picked up in BJTOTO following the recent share price correction.

• Technically speaking, the share price has been recovering steadily from its most recent sell-down caused by MCO 2.0, forming higher highs and higher lows along the way. Over the last few days, the share price has bounced off the 100-day SMA support.

• With the MACD line treading above the signal line and heading upwards, an anticipated upward movement in price could challenge our resistance levels of RM2.36 (R1; 11% upside potential) and RM2.42 (R2; 14% upside potential).

• We have pegged our stop loss price at RM1.96 (8% downside risk).

Lotte Chemical Titan (Trading Buy)

• LCTITAN is principally involved in the production of olefins and polyolefins. For example, they produce different types of resins (e.g. LDPE, LLDPE, HDPE) used by plastic manufacturers to manufacture plastic packaging.

• Since 2H2020, natural disasters (e.g. Hurricane Laura and Texas deep freeze) and higher crude oil prices have caused polymer (e.g. resins) prices to skyrocket, with the supply shortage exacerbated by a strong recovery in demand for polymers. Consequently, LCTITAN has experienced growth in average selling prices (ASPs) of their polymer products, which in turn translated to margins.

• Moving forward, based on expectations of higher polymer prices in FY21 with slightly lower assumptions going into FY22, consensus is projecting LCTITAN to post core net profit estimates of RM301.6m and RM297.3m in FY21 and FY22, respectively, compared with FY20’s net earnings of RM154m.

• These translate to forward PERs of 17.1x and 17.4x, respectively, which are both below its 2-year historical average PER of 20x.

• Technically, the stock has been trending higher in an ascending channel since March 2020. Recently, the price has found support on the lower boundary of the channel.

• While the stock has slipped into the RSI oversold zone twice of late, there appears to be a bullish RSI divergence, where the share price made a lower low but the RSI’s new low remained the same as the previous low.

• With the MACD line treading above the signal line and heading upwards, an anticipated rise in the price could challenge our resistance levels of RM2.62 (R1; 15% upside potential) and RM2.94 (R2; 29% upside potential).

• We have pegged our stop loss price at RM2.00 (12% downside risk).

Source: Kenanga Research - 9 Mar 2021