Techbond Group Bhd (Trading Buy)

• As a manufacturer of industrial adhesives (comprising water-based and hot melt adhesives which are mainly used for woodworking, paper & packaging and automotive applications) and industrial sealants (for building and construction applications), TECHBND has been delivering steady earnings performance since its listing in December 2018.

• After being profitable in all four quarters, the group logged a record high net earnings of RM11.5m (+7% YoY) in FY June 2021 as overall results was lifted by better demand and recovery of sales orders from the domestic and overseas markets.

• In its latest earnings commentary, management has highlighted that TECHBND could see profit margins improvement going forward, which together with tax incentives, would bring the group’s earnings to the next level. This comes as its game changing upstream polymerization plant in Vietnam has recently commenced production of polyvinyl acetate polymer (a raw material used to manufacture industrial adhesives) while customer orders have remained robust.

• With a debt-free balance sheet that is backed by cash holdings of RM38.0m (or 7.2 sen per share) as of end-June this year, TECHBND is in a financially strong position to pursue its business growth strategies going forward.

• From a technical standpoint, after sliding from a recent high of RM0.58 in late August this year to as low as RM0.44 in early October, the stock – which jumped 4.4% on heavy trading interest on Monday – is showing signs of a trend reversal.

• An upward shift in TECHBND shares is anticipated based on: (i) the Parabolic system SAR’s initial acceleration, (ii) the positive crossover of the DMI Plus above the DMI Minus, and (iii) the bullish divergence pattern in the stochastic indicator (which saw the %D line forming rising bottoms in the oversold area while the share price was drifting sideways).

• On the way up, the stock could advance towards our resistance thresholds of RM0.54 (R1; 14% upside potential) and RM0.61 (R2; 28% upside potential).

• Our stop loss price is placed at RM0.42 (representing a downside risk of 12% from the last traded price of RM0.475).

Excel Force MSC Bhd (Trading Buy)

• A leading information technology solution provider that is involved in the development, provision and maintenance of application and system solutions for the financial services industry – servicing specifically the stockbroking companies and investment banks – EFORCE (which derives part of its income from outsourcing service charge based on transaction volumes) is a proxy to trading activity on the Malaysian bourse.

• Earnings-wise, for the first half ended June 2021, the group saw its net profit soaring 59% YoY to RM6.9m.

• Backed by a debt-free balance sheet that included cash holdings of RM34.6m (or 6.2 sen per share) as of end-June 2021, EFORCE is currently trading at PBV multiple of 3.0x (or at 0.5 SD below its historical mean) based on its book value per share of RM0.17 as of end-June this year.

• On the chart, in light of the appearance of a double-bottom pattern, EFORCE shares will probably challenge to overcome a negative sloping trendline that stretches back to late May this year.

• With the bullish crossings by the DMI Plus over the DMI Minus and the momentum indicator above the zero line recently, the share price could climb towards our resistance targets of RM0.59 (R1; 15% upside potential) and RM0.63 (R2; 22% upside potential).

• We have set our stop loss price at RM0.46 (or 11% downside risk).

Source: Kenanga Research - 20 Oct 2021