AirAsia Group Berhad (Trading Buy)

• AirAsia is a low-cost airline serving more than 130 destinations across Asia Pacific. Together with its affiliates, it is the largest low-cost carrier in Asia by passengers carried.

• Battered by the Covid-19 pandemic lockdowns, in FY20, AIRASIA’s revenue fell 75% to RM2.9b while its core net loss widened from RM142m to RM4.6b. However, as conditions gradually improved in the airline industry, in 2QFY21, AIRASIA’s revenue rose 24% QoQ to RM371m while its core net loss narrowed from RM1b to RM662m.

• Looking ahead, consensus is expecting AIRASIA’s net loss to narrow to RM2.6b in FY21 and to RM793m in FY22.

• In light of the gradual reopening of borders regionally, we believe investors will continue to favour recovery stocks, including airlines such as AIRASIA, which may see a recovery in earnings from pent-up demand for domestic and international travel.

• Technically speaking, since bottoming at RM0.50 in March 2020, the stock has been trading in an ascending channel, despite a brief revisit of the RM0.50 low in November last year.

• In light of the relaxation of lockdown measures here in Malaysia in recent weeks, the stock has rallied close to 40% from mid-September to mid-October. After its recent peak of RM1.33 earlier this month, the stock corrected 20% to bottom out at RM1.06.

• At the recent trough, the stock formed a bullish hammer candlestick, signifying the rejection of lower prices.

• Moreover, the Heikin Ashi candles suggest that the recent selling pressure has waned, as there are early signals of another rally ahead.

• With the stochastic indicator reversing from an oversold position, we believe the stock could continue trending upwards to challenge our resistance levels of RM1.29 (R1; 13% upside potential) and RM1.48 (R2; 30% upside potential).

• We have pegged our stop loss at RM1.00 (or 12% downside risk).

Ekovest Berhad (Trading Buy)

• Ekovest is principally involved in construction, civil engineering, property development, and infrastructure concession.

• Like other construction firms and property developers, EKOVEST felt the pain of the pandemic-induced lockdowns, which halted construction progress and delayed property purchases. In FYE June 2021, the Group’s net profit fell 8% after having fallen 67% in the prior year.

• However, looking ahead, Ekovest is poised to benefit from the resumption of construction activity and the country’s economic recovery.

• Technically speaking, after rebounding off a low of RM0.285 in March 2020, the stock peaked at RM0.655 in May that year. Since then, the stock has been forming lower highs and lower lows.

• In August this year, the stock seems to have bottomed out at RM0.37, as the formation of a higher low (at RM0.385) in late September suggests that the stock’s long-term downtrend may have reversed.

• Moreover, after the stock broke above the 100-day SMA earlier this month, the stock seems poised to bounce off the dynamic support line in its most recent test.

• Supported by the prospects of earnings recovery and favourable technical outlook, we believe the stock will likely trend upwards to challenge our resistance levels of RM0.47 (R1; 13% upside potential) and RM0.51 (R2; 23% upside potential).

• We have pegged our stop loss at RM0.365 (or 12% downside risk).

Source: Kenanga Research - 28 Oct 2021