DRB-Hicom Berhad (Trading Buy)

• DRBHCOM is a diverse conglomerate with businesses spanning across the automotive, services and properties sectors. However, the Group derives over 90% of its revenue from its automotive business, which owns national icons such as Proton Holdings Berhad.

• During this sales tax exemption period, the Group’s marques are expected to boost their sales performance by featuring new or revised models (e.g. Proton X50, face-lifted Honda BR-V and all-new Honda City).

• Moving forward, consensus expects the Group to achieve a core net profit of RM264m and RM330m in FY21 and FY22, respectively. At the current share price, these imply forward PERs of 14.4x and 11.5x respectively, both of which are below our ascribed 15x PER.

• Technically speaking, the share price has formed a cup and handle pattern as of late, suggesting that the uptrend (started March 2020) could continue.

• Any anticipated upward moment in the share price could challenge our resistance levels of RM2.19 (R1; 11% upside potential) and RM2.33 (R2; 18% upside potential).

• We have pegged our stop loss price at RM1.75 (11% downside risk).

SLP Resources Berhad (Trading Buy)

• SLP is principally involved in the manufacturing of plastic packaging products, as well as trading of plastic resins.

• Along with the shares of other plastic manufacturers, SLP’s shares rose as resin prices fell to historical lows around May 2020. However, as resin costs recovered and continued to skyrocket due to the supply disruption caused by natural disasters, the shares of SLP and its peers were beaten down.

• On the bright side, our channel checks with plastic manufacturers and resin suppliers indicate that resin prices will peak soon, as resin supply recovers from the winter storm in the U.S., which ravaged global resin supplies.

• We believe that SLP may stand to gain from the improved sentiment on the plastics manufacturing sector.

• Moving forward, consensus expects the Group to achieve core net profit of RM19.7m and RM21.6m in FY21 and FY22, respectively. These imply forward PERs of 13.5x and 12.3x, below its 5-year historical average of 19.9x.

• Technically speaking, its share price is hovering above the support level of RM0.83. During the share’s most recent test of the support level, there appears to be a strong price rejection.

• The stochastic oscillator has also been on a steady uptrend, with the %K above the %D line, suggesting improving momentum.

• A rebound in share price could challenge our resistance levels of RM0.93 (R1; 10% upside potential) and RM0.97 (R2; 16% upside potential).

• We have pegged our stop loss price at RM0.76 (10% downside risk).

Source: Kenanga Research - 31 Mar 2021