ACO Group Bhd (Trading Buy)

• ACO is primarily involved in the distribution of a wide spectrum of in-house brands and third-party brands for: (i) cables, wires and accessories, (ii) electrical distribution, protection and control devices, (iii) electrical appliances & accessories, and (iv) other products such as water plumbing materials, power tools & accessories and CCTV & alarm systems.

• They have a wide array of customers ranging from: (i) distributors and retailers, (ii) electrical contractors, (iii) electrical product manufacturers, (iv) factory and business owners, and (v) architects etc.

• On the back of the resumption of domestic business activities in CY21, when compared to the previous year, ACO’s net profit came in higher at RM2.5m in 1QFY21 (ended May) driven by higher revenue, versus a net loss of RM1.0m in the same quarter last year.

• On the chart, the stock has declined 35% from a high of RM0.37 (in mid-March 2021) to a low of RM0.24 (in mid-August 2021) before partially recovering to close at RM0.30 yesterday, registering a return of -11.8% YTD.

• We believe a resumption of the upward price trajectory is on the horizon following the stock’s recent crossing above the upper band of the Keltner Channel.

• In addition, given the rising A/D indicator, the stock could advance to challenge our resistance thresholds of RM0.34 (R1; 13% upside potential) and RM0.365 (R2; 22% upside potential).

• We have pegged our stop loss price at RM0.27 (or a 10% downside risk).

Pavilion Real Estate Investment Trust (Trading Buy)

• PAVREIT owns a portfolio of high-quality real estate situated around the golden triangle of Kuala Lumpur, namely: (i) Pavilion Mall, (ii) Pavilion Tower, (iii) Intermark Mall, (iv) Da Men Mall, and (v) Elite Pavilion Mall.

• Riding on a brighter outlook for the REIT sector following the gradual reopening of the domestic economy, PAVREIT stands to benefit from an increase in footfall at its properties.

• Despite the challenging industry landscape thus far, PAVREIT reported net earnings of RM20.4m (+104% YoY) in 2QFY21, driven mainly by higher net property income, taking the half-year net profit to RM51.6m (+22.4% YoY).

• Going forward, consensus is expecting PAVREIT to report a net profit of RM114.3m in FY21 and RM200.4m in FY22.

• Valuation-wise, PAVREIT is currently trading at forward dividend yields of 2.7% and 4.7% based on consensus DPU projections of 3.8 sen for FY21 and 6.6 sen for FY22, respectively.

• The stock has pulled back from a high of RM1.65 in the beginning of July 2020 to a low of RM1.26 end-May 2021 before recovering partially to close at RM1.40 yesterday, registering a 15% decline from its peak.

• Following which, the upward trajectory may continue as: (i) the stock remains above the 55-day Moving Average line (signifying that the positive trend is intact), and (ii) the Parabolic SAR indicator is trending upwards.

• This could set the stage for the share price to rise and challenge our resistance targets of RM1.55 (R1) and RM1.63 (R2), which represent upside potentials of 11% and 16%, respectively.

• Our stop loss price has been set at RM1.29, which represents a downside risk of 8%.

Source: Kenanga Research - 7 Oct 2021