Binasat Communications Bhd (Trading Buy)

• After sliding from a high of RM0.515 in February to as low as RM0.30 in mid-July this year, BINACOM shares are in a position to extend its price run-up following a recent technical rebound.

• On the chart, the share price crossover of the 50-day SMA line and the momentum indicator’s rise above the zero-line could propel the stock to higher levels ahead.

• Riding on the renewed strength, BINACOM shares will probably climb towards our resistance targets of RM0.40 (R1) and RM0.44 (R2), which imply upside potentials of 18% and 29%, respectively.

• Our stop loss price is set at RM0.28 (representing a downside risk of 18%).

• Business-wise, BINASAT provides support services for satellite, mobile and fibre optic telecommunications networks in Malaysia to major telecommunication companies (either directly or indirectly through equipment suppliers).

• For the 12-month period ended June 2021, the group reported net profit of RM2.4m (-19% YoY) as its overall performance was dragged mainly by weaker margins amid fewer mobile network maintenance services jobs.

• Financially steady, BINASAT’s balance sheet is backed by net cash & short-term investments of RM14.4m (or 5.0 sen per share) as of end-June this year.

• Meanwhile, via a proposed acquisition of a 51% stake in Borderless Connection Sdn Bhd for a purchase consideration of RM18.4m, the group plans to diversify into the provision of utilities infrastructure services including transmission and distribution network utility services as well as engineering, procurement, construction & commissioning (EPCC) of solar photovoltaic (PV) facilities.

DRB-Hicom Bhd (Trading Buy)

• From a technical perspective, DRBHCOM shares might have already bottomed after slipping from a high of RM2.02 in mid March this year to a 15-month low of RM1.58 recently. The stock was last traded at RM1.61 yesterday.

• With the 50% Fibonacci retracement threshold (at RM1.59) currently providing immediate support, its downside risk appears fairly limited.

• On the upside, the stock could shift higher ahead following the appearance of a bullish MACD divergence pattern as illustrated by the rising MACD lines in the oversold area while the share price shows a slight downward bias.

• That being the case, we have set our resistance targets at RM1.82 (R1; 13% upside potential) and RM1.98 (R2; 23% upside potential). Our stop loss price is pegged at RM1.43 (or 11% downside risk).

• DRBHCOM – which is involved in the automotive, services and properties businesses – is a proxy to Proton car sales. While the number of Proton cars sold only stood at 5,354 units between June and August this year (no thanks to the full movement control order imposed by the government to curb the Covid-19 outbreak), which then took cumulative vehicles sold to 62,637 units (+1.6% YoY) in the first eight months of this year, sales of Proton cars is expected to catch up in the coming months as economic activities resume.

• After posting net loss of RM234.5m 1HFY21 (which was an improvement from the net loss of RM479.4m in 1HFY20), consensus is forecasting that the group would make net earnings of RM7.6m for FY December 2021 and RM255.0m for FY December 2022. This translates to forward PERs of 409.5x this year and 12.2x next year, respectively.

Source: Kenanga Research - 15 Sept 2021