Solarvest Holdings Bhd (Trading Buy)

• SLVEST provides engineering, procurement, construction and commissioning (EPCC), as well as management, operation & maintenance services for solar photovoltaic (PV) projects.

• Recently, SLVEST has been: (i) appointed by Lagenda Properties Berhad to install at least 1,000 residential solar PV systems across three township projects in Perak, and (ii) selected as the main EPCC contractor for the development of a large-scale solar photovoltaic plant in Perak. And yesterday, the group has signed a 21-year Power Purchase Agreement with Tenaga Nasional Bhd (TNB) for the purpose of construction and operation of solar photovoltaic energy generating facility for connection to TNB’s medium voltage distribution network.

• In FY March 21, SLVEST achieved a net profit of RM16.1m, a 3% YoY growth. Looking ahead, consensus is expecting SLVEST to achieve rising net profit of RM20m (+24% YoY) in FY March 22 and RM37m (+85% YoY) in FY March 23. These translate to forward PERs of 45x and 24x, respectively.

• Technically speaking, the stock has nearly halved from a high of RM2.00 in early February to a low of RM1.02 in mid-July. Since the July low, the stock has formed a higher low of RM1.18 in August to negate a pattern of lower highs that started in March.

• From the July low, the stock has been on an uptrend, as suggested by: (i) the numerous bullish Heikin Ashi candles, and (ii) the stock crossing above the 50-day SMA.

• The bullish MACD and Parabolic SAR indicators also support our view that the stock could continue trending upwards ahead.

• We anticipate that an upward movement in the share price could potentially challenge our resistance levels of RM1.54 (R1; 13% upside potential) and RM1.68 (R2; 24% upside potential).

• We have pegged our stop loss at RM1.21 (or an 11% downside risk), offering a risk-reward ratio of 1.20x.

Sarawak Oil Palms Berhad (Trading Buy)

• SOP cultivates oil palms and operates palm oil mills.

• In FY20, SOP achieved a net profit of RM204m, up 128% YoY, driven mainly by higher crude palm oil (CPO) prices. The strong earnings momentum continued in 1HFY21, with the just released results showing its bottomline jumping 62% YoY to RM177m.

• On the back of expectations of higher CPO prices in FY21, consensus is expecting SOP to achieve a higher net profit of RM263m (+29% YoY) in FY21 before easing to RM242m (-8% YoY) in FY22, likely on lower CPO prices

• These translate to forward PERs of 8.2x and 8.9x respectively, a steep discount relative to its 5-year historical average of 15.9x.

• Despite the prospects of positive earnings growth in FY21, the stock has faced resistance near the RM4.21 level on numerous occasions. From a high of RM4.30 in May, the stock has corrected 23% to bottom out at RM3.30 in July, likely driven by ESG concerns surrounding the plantation sector, which also hit other planters during the period.

• However, since the beginning of August, the Bursa Plantation Index has come roaring back, rising 13% since then with notable strong share price gains over the last 3 trading days following the announcement of above-expectations earnings from the planters.

• Technically speaking, SOP is in the midst of a strong rally after staging a breakout above the 100-day SMA, which is further supported by bullish signals from the Parabolic SAR and MACD indicators.

• The Heikin Ashi candles also show numerous consecutive bullish candlesticks, suggesting further upside to the rally.

• On its way up, the stock could potentially challenge our resistance levels of RM4.21 (R1; 12% upside potential) and RM4.51 (R2; 20% upside potential).

• We have pegged our stop loss at RM3.33 (or a 11% downside risk), near the July trough of RM3.30.

Source: Kenanga Research - 27 Aug 2021