RGT Berhad (Trading Buy)

• RGT is an Original Design Manufacturer (ODM) for hygiene care, air care and medical device products, including soap and sanitizer dispensers, which have seen a strong surge in demand during the Covid-19 pandemic.

• In the 6-month period ended 31 Dec 2020, the Group’s net profit rose 275% to RM8.4m from the corresponding period a year earlier, mainly due to the strong increase in demand for its sanitizer and soap dispensers.

• Increased hygiene awareness and the US-China trade war have brought new customers and expanded the Group’s product range. Thus, the Group is installing more production lines and machineries to increase production capacity to meet the higher demand for its products.

• Technically speaking, the stock has recently rebounded off the 50% Fibonacci retracement level, with the bottom candle forming a hammer candlestick pattern. There have also been numerous hammer candlesticks at the RM0.42 level, signalling the rejection of lower prices to set the stage for a possible price reversal. Yesterday’s large green candlestick also confirms that the rebound may be gaining momentum.

• With the MACD line rising further than the signal line and poised to break above the zero line, we believe that the stock could continue its positive momentum.

• The anticipated upward movement could lift the share price to challenge our resistance levels of RM0.50 (R1; 12% upside potential) and RM0.54 (R2; 21% upside potential).

• We have pegged our stop loss price at RM0.39 (12% downside risk).

REDTone International Berhad (Trading Buy)

• REDTONE provides telecommunications and digital infrastructure services. The company offers data, voice and managed telecommunications network services to the government and enterprises.

• About 54% of the Group’s revenue is derived from telecommunications network services, where they build, maintain and operate large scale WiFi hotspots, base stations and fibre optic infrastructure. Another 44% of its revenue comes from telecommunication services, where it offers data, voice and managed services to government, enterprises and SMEs. The remaining of the revenue (c.2%) is derived from cloud services & applications, data centre and IoT solutions. Note that this segment is currently loss-making.

• With the government’s JENDELA initiative to improve connectivity across the country, and with the rolling out of 5G networks requiring more telecommunication equipment (such as base stations), REDTONE stands to benefit from potential new recurring revenues from maintaining and operating such equipment.

• Technically speaking, the chart has formed a rounding bottom pattern, which represents a convincing sign that the stock has bottomed out in the near term. Since hitting a trough of RM0.30 in November 2020, the stock has been forming higher lows, indicating buying interest at increasingly higher prices.

• The previous resistance of RM0.40 has now turned into a support level, which was tested by the most recent swing low that was followed by a price uptick.

• With the MACD line treading above the signal line and heading upwards, an anticipated upward movement in the share price could challenge our resistance levels of RM0.50 (R1; 14% upside potential) and RM0.56 (R2; 27% upside potential).

• We have pegged our stop loss price at RM0.38 (14% downside risk).

Source: Kenanga Research - 16 Apr 2021