Kelington Group Berhad (Trading Buy)

• KGB designs, fabricates and installs ultra-high purity gas and chemicals delivery systems for the semiconductor industry and food & beverage businesses. It is also a supplier of dry ice which is required in the storage of Covid-19 vaccines.

• On Tuesday, KGB announced a set of commendable 1QFY21 results with a core net profit of RM5.5m (+37% YoY), marking its highest-ever first quarter earnings.

• Moving forward, consensus expects KGB to achieve net profit of RM28m in FY21 and RM30.6m in FY22. At the current price, these translate to forward PERs of 23x and 21x, respectively, which are below our fundamentally ascribed fair valuation of 26x, which is +0.5SD of its 3-year historical mean.

• Technically speaking, after the recent correction from a high of RM2.37 that began mid-April, the stock has recently found support at the 50% Fibonacci retracement level and subsequently staged a rebound.

• The MACD and stochastic indicators are also showing signs of strengthening upward momentum.

• Backed by the just released robust earnings performance and bullish technical indicators, an anticipated upward movement in the share price could challenge our resistance levels of RM2.29 (R1; 14% upside potential) and RM2.48 (R2; 23% upside potential).

• We have pegged our stop loss price at RM1.76 (12% downside risk).

Tomypak Holdings (Trading Buy)

• TOMYPAK manufactures and trades plastic packaging materials, polyethylene, polypropylene films & sheets and thermoforming sheets. The Group serves large MNCs including the likes of Nestle.

• Since 4QFY18, the Group has been making quarterly losses except for a few rare profitable quarters in FY20. Coming off a barely profitable FY20 (which posted core net profit of RM0.1m), the Group turned around in 1QFY21, with the first quarter alone (core net profit of RM2.9m) already exceeded our research team’s previously conservative FY21 estimate of RM2.3m.

• Technically speaking, the stock saw a large gap down from RM0.70 in late February when the Group announced a poorer than-expected 4QFY20 results. Since then, the stock has been gradually declining to reach a low of RM0.53. However, we believe that the share price has recently bottomed out with the emergence of signs of a rebound.

• In particular, both the MACD and stochastic indicators have started to turn up which signal a strengthening upward momentum ahead.

• On account of the just released commendable financial results and bullish technical signals, an anticipated upward movement in the share price could challenge our resistance levels of RM0.63 (R1; 13% upside potential) and RM0.70 (R2; 25% upside potential).

• We have pegged our stop loss price at RM0.50 (11% downside risk).

Source: Kenanga Research - 27 May 2021