Kawan Food Berhad (Trading Buy)

• KAWAN is a manufacturer and exporter of frozen convenience foods.

• In the financial year ended Dec 2020, the Group achieved net profit of RM28m, a 130% increase from FY19’s RM12m, as frozen foods saw a boom in sales during the various MCOs imposed in 2020.

• On the back of continued strong growth in frozen food demand, consensus expects the Group to achieve net profit of RM40.3m in FY21 and RM47.1m in FY22. This translates to forward PERs of 19.2x and 16.4x, respectively, which are below its 5-year historical average of 33x.

• Technically speaking, the stock began to rally in May 2020, charting a double top pattern in August 2020. After the stock failed to break above the resistance barrier of RM2.63 in October 2020, the share price has been falling since then.

• Amid the pullbacks, in February 2021, the price found support on the 50% Fibonacci retracement level to bounce up gradually from this threshold.

• From the decline that started in October 2020, the price has subsequently formed a rounding bottom pattern, which represents a convincing sign that the stock has bottomed in the near term.

• 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 RM2.40 (R1; 12% upside potential) and RM2.63 (R2; 22% upside potential).

• We have pegged our stop loss price at RM1.90 (12% downside risk).

Uzma Berhad (Trading Buy)

• UZMA is involved in the provision of oil and gas services in the areas of geoscience & reservoir engineering, drilling & operations and project management.

• In FY20 (ended June 2020), the Group achieved a core net profit of RM2.7m. Moving forward, consensus expects the Group to achieve higher net profit of RM23.2m in FY21 and RM30.9m in FY22, translating to forward PERs of 9.7x and 7.3x, respectively.

• Since February 2021, the share price started to rally in tandem with the rise in oil price before facing resistance at RM0.87 in March 2021 when crude oil peaked at USD70 a barrel. Following the subsequent crude oil price weakness, UZMA’s share price then fell in the latter half of March 2021.

• With the latest US crude oil inventories falling short of market’s expectations, crude oil price could remain elevated at the current USD70 a barrel or even rise further on demand recovery as economies reopen. This may then boost sentiment on oil and gas stocks and help lift UZMA’s share price.

• Technically speaking, the stock has found support at the 50% Fibonacci retracement level in April 2021. And given yesterday’s emergence of a bullish hammer candlestick and rising momentum, as indicated by the MACD and stochastic indicators, an anticipated upward movement in the share price could challenge our resistance levels of RM0.78 (R1; 11% upside potential) and RM0.87 (R2; 23% upside potential).

• We have pegged our stop loss price at RM0.64 (9% downside risk), slightly below the 50% Fibonacci retracement level of RM0.68.

Source: Kenanga Research - 7 May 2021