Serba Dinamik Holdings Berhad (Trading Buy)

• SERBADK offers operation and maintenance, system integration, training, civil works, planning, procurement, construction and commissioning services with a geographical presence in Malaysia, Indonesia, UAE, Bahrain and the United Kingdom.

• The Group has been gradually reducing its reliance on the oil and gas segment, accelerated by its winning of three ICT contracts in India in March 2021. While ICT contributions made up only ~6% of the Group’s gross profit in FY20, management sees huge growth potential ahead in the ICT segment. Moving forward, consensus expects the Group to achieve net profit of RM697m in FY21 and RM800m in FY22. These translate to forward PERs of 8.8x and 7.7x, respectively. Our research team believes that these are bargain valuations given the Group’s strong earnings prospects (with a 2-year CAGR of 12.5%).

• Technically speaking, the stock enjoyed a healthy rally from Feb 2021 until mid-March 2021 before correcting sharply since then. However, the lower volumes that accompanied the pullback indicates that weak longs were taking profit, rather than a reversal of the uptrend. Moreover, the gradual Feb-March rally comprised numerous bullish hammer candlesticks, which suggest that there were ample of buyers at those prices that could further propel the price upwards.

• The emergence of hammer candlesticks and dragonfly dojis near the recent trough also suggest a rejection of lower prices, setting the ground for a rebound.

• 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 RM1.85 (R1; 11% upside potential) and RM1.93 (R2; 16% upside potential).

• We have pegged our stop loss price at RM1.47 (11% downside risk), which is comfortably below numerous recent swinglows that represent steady support levels on the way down.

Uchi Technologies Berhad (Trading Buy)

• UCHITEC designs, researches, develops and manufactures miniature data terminals, fuzzy logic controllers and control modules. It also assembles electrical components into printed circuit boards (PCB) and trades complete electric module and saturated paper for PCB lamination.

• Consensus expects the Group, which had posted a net profit of RM82.8m in FY20, to achieve net profit of RM86.5m in FY21 and RM87.2m in FY22, implying forward PERs of 16.6x and 16.5x, respectively.

• Technically speaking, the stock rallied from Jan 2021 to March 2021 before correcting from the peak of RM3.52 in early March. Amid the pullbacks, the stock has found support at the 38.2% Fibonacci retracement level on several occasions, each time accompanied by a bullish hammer candlestick. Following the stock’s most recent rebound from the 38.2% retracement level, the appearance of several hammer candlesticks and dragonfly dojis suggest strong rejection of lower prices which signal further upward momentum.

• The stochastic indicator also confirms that the upward momentum is gathering pace, with the %K line continuing its rise.

• 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 RM3.52 (R1; 11% upside potential) and RM3.80 (R2; 20% upside potential).

• We have pegged our stop loss price at RM2.86 (10% downside risk).

Source: Kenanga Research - 30 Apr 2021