Cypark Resources Berhad (Trading Buy)

• CYPARK is a developer and provider of renewable energy solutions. They are also involved in: (i) assessing, remediating and restoring contaminated grounds, and (ii) waste management.

• In FYE Oct 2020, the Group achieved a net profit of RM71m (-23% YoY). Since then, amidst an economic recovery, the Group’s net profit rose 1% YoY to RM49.7m in the 9-month period ended July 2021.

• Nevertheless, consensus is expecting CYPARK’s FYE Oct 2021 net profit to dip slightly by 3% YoY to RM69m before rebounding 21% to RM84m in FYE Oct 2022. These represent forward PERs of 7.9x and 6.5x, respectively.

• Technically speaking, the stock has almost halved from a peak of RM1.67 in March 2021 to a low of RM0.85 in July this year. Since then, the stock has been forming higher highs and higher lows, indicating that the downtrend is likely over.

• In September, the stock trod above the 50-day SMA with a recent swing low finding support along the way, suggesting that an uptrend reversal has probably started.

• With the parabolic SAR indicating that the stock could continue trending upwards, we believe the stock could challenge our resistance levels of RM1.12 (R1; 14% upside potential) and RM1.28 (R2; 30% upside potential).

• We have pegged our stop loss at RM0.87 (12% downside risk).

DRB-Hicom Berhad (Trading Buy)

• Since forming a double-top pattern (with peaks at RM2.25) in December last year, the stock has corrected 30% to find support around the RM1.58 level.

• From July this year, the stock has been treading within a range of RM1.58 and RM1.71. As illustrated from the highlighted section on the chart, this rectangle box could represent an area of support where investors have been accumulating the stock.

• After breaking above the 50-day SMA earlier this month, a subsequent test saw the stock bouncing off the same dynamic support line, indicating the existence of buying support for the shares.

• With the Parabolic SAR indicator signalling strengthening momentum, we believe the stock could attempt to break out of the accumulation range soon to stage an uptrend reversal.

• On its way up, we believe the share price could potentially challenge our resistance levels of RM1.86 (R1; 13% upside potential) and RM2.03 (R2; 23% upside potential).

• We have pegged our stop loss at RM1.48 (or 10% downside risk), offering a risk-reward ratio of 1.24x.

• Fundamental-wise, DRBHCOM is a conglomerate with businesses spanning across the automotive, services and property sectors. That said, the Group derives over 90% of its revenue from the automotive business, led by Proton car sales. With the automotive sector seen as a laggard economic recovery play, this may lift investor sentiment in the shares.

• In 1HFY21, the Group’s core net loss shrank from RM327m in the year-ago period to RM185m. Looking ahead, consensus is expecting the Group to achieve a narrower net loss of RM5m in FY Dec 2021 (vs a core net loss of RM193m in FY20) before rebounding to a net profit of RM272m in FY Dec 2022. The FY22’s net profit estimate translates to a forward PER of 11.7x.

• This comes as consumers’ pent-up demand and their desire to practice social distancing could drive car sales in the near future, thus giving DRBHCOM’s earnings a boost.

Source: Kenanga Research - 22 Oct 2021