IOI Corporation Berhad (Trading Buy)

• IOICORP is principally involved in: (i) the cultivating and processing of oil palm and rubber, and (ii) property development and investments.

• In FY June 2021, the group’s net profit rose 132% YoY to RM1,394m as revenue was up by 44% YoY, mainly driven by higher CPO price. The earnings momentum continued in the latest quarter, with revenue rising 21% QoQ and core net profit jumping 114% QoQ, fuelled by higher CPO price and higher fresh fruit bunch output.

• Moving forward, based on consensus estimates, analysts are predicting that IOICORP’s net profit will decline by 17% to RM1,152m in FY22 and 6% to RM1,081m in FY23 on the back of lower CPO price assumptions. Despite the lower earnings expectations, these represent forward PERs of 20.4x and 21.7x, respectively, which are below its 5-year average of 33.9x.

• Technically speaking, with the recent low of RM3.68 forming a higher low, we see the potential for a short-term share price rally despite the weaker long-term earnings outlook.

• Over the past few trading days, there has been the formation of numerous hammer candlesticks, which signifies the rejection of lower prices, thus laying the grounds for an ensuing rally.

• With the Parabolic SAR signalling an uptrend and MACD indicator showing waning downward momentum, an anticipated upward movement in the share price could challenge our resistance levels of RM4.22 (R1; 12% upside potential) and RM4.49 (R2; 19% upside potential).

• We have pegged our stop loss at RM3.41 (or a 10% downside risk).

Ann Joo Resources Bhd (Trading Buy)

• ANNJOO is primarily involved in the manufacturing and trading of steel and steel-related products.

• After a loss-making FY20 (with a core net loss of RM54m), ANNJOO is on track to post a turnaround. In 1HFY21, it registered a core net profit of RM157m compared to a core net loss of RM51m in 1HFY20. Its sequential quarterly earnings has been picking up momentum too, with 2QFY21 core net profit coming in at RM84m or up 14% QoQ.

• Looking ahead, consensus is forecasting ANNJOO to earn a net profit of RM259m in FY21, mainly driven by elevated steel prices. Thereafter, as steel prices will likely decrease in the longer term, consensus is expecting ANNJOO’s net profit to decline to RM191m (-26% YoY) in FY22. These earnings estimates translate to undemanding forward PERs of 5.1x and 6.9x, respectively.

• Technically speaking, after breaking above the 150-day SMA in November last year, the stock has been treading above the dynamic support line with recent swing lows finding support along the way, suggesting that the long-term uptrend is intact.

• With various indicators suggesting that the recent sell down (from a high of RM2.99 in September) is overdone, the stock is poised for a technical rebound.

• Firstly, the Heikin Ashi candles are showing that: (i) the short-term downtrend has ended, and (ii) the stock is in the early stages of an anticipated rally.

• Secondly, the MACD indicator is showing waning downward momentum.

• Lastly, the stochastic indicator is gradually reversing from an oversold position.

• With the aforementioned bullish technical signals, an anticipated upward movement in the share price could potentially challenge our resistance levels of RM2.74 (R1; 13% upside potential) and RM3.09 (R2; 28% upside potential).

• We have pegged our stop loss at RM2.14 (or an 12% downside risk).

Source: Kenanga Research - 1 Oct 2021