Lotte Chemical Titan Holding Berhad (Trading Buy)

• LCTITAN is principally involved in the production of olefins and polyolefins. For example, they produce different types of resins (e.g. LDPE, LLDPE, HDPE) used by plastic manufacturers to make plastic packaging.

• In FY20, the group achieved revenue of RM6.9b (-18% YoY) and net profit of RM149m (-66% YoY) mainly hit by lower average selling prices (ASPs) and lower volumes. Nevertheless, ASPs have risen drastically in 1HCY21 and would likely remain at elevated levels for the rest of CY21, potentially boosting LCTITAN’s FY21 earnings as 1QFY21 already saw its bottomline turning from a net loss of RM169m previously to a net profit of RM441m.

• Looking ahead, consensus is expecting LCTITAN to achieve net profit of RM846m (+469%) in FY Dec 21 and RM558m (-35%) in FY Dec 22. These translate to forward PERs of 7.4x and 11.3x, respectively.

• Technically speaking, the stock has been trending higher in an ascending channel since March 2020. Recently, the price has found support at the lower boundary of the channel.

• Moreover, the stock has also rebounded off the 200-day SMA, indicating that its long-term uptrend pattern remains intact.

• With the MACD indicator showing signs of upward momentum, we believe the share price could potentially challenge our resistance levels of RM3.09 (R1; 12% upside potential) and RM3.42 (R2; 24% upside potential).

• We have pegged our stop loss at RM2.50 (9% downside risk).

United U-Li Corp Berhad (Trading Buy)

• ULICORP manufactures and trades cable support systems, integrated ceiling systems, steel roof battens, electrical lighting & fittings and related industrial metal products.

• With the Covid-19 pandemic hitting the smaller industry players hard, ULICORP has benefited from market share gains at their expense. With less competition, this has also given ULICORP better product pricing power.

• Moving forward, our research team is estimating ULICORP to make a net profit of RM48.8m in FY Dec 21 (+771%) and RM44.2m in FY Dec 22 (-9%). These translate to forward PER of 5.0x and 5.5x, respectively.

• Technically speaking, the stock has corrected from a recent high of RM1.45 in mid-June. Two trading days ago, at the most recent swing low, the stock rebounded off the 200-day SMA while forming a hammer candlestick, suggesting the rejection of lower prices.

• With the MACD indicator showing waning downward pressure while the stochastic is signalling rising momentum, an anticipated upward movement in the share price could potentially challenge our resistance levels of RM1.28 (R1; 14% upside potential) and RM1.40 (R2; 25% upside potential).

• We have pegged our stop loss at RM1.00 (11% downside risk).

Source: Kenanga Research - 16 Jul 2021