Genting Malaysia Berhad (Trading Buy)

• GENM operates a tourist resort in Genting Highlands that includes hotels, restaurants, casinos and recreational & amusement facilities. The group, through its subsidiaries, also develops and leases property and operates leisure & hospitality services.

• In FY20, GENM was battered by the pandemic as it suffered a core net loss of RM1.4b (vs core net profit of RM1.3b in FY19). The prolonged lockdowns in the first half of 2021 continued to weigh on GENM’s earnings, as it recorded a core net loss of RM773m in 1HFY21.

• However, analysts are expecting GENM’s earnings to recover in 2HFY21 and beyond, with a core net loss estimate of RM1.2b for FY21 before turning around with a core net profit forecast of RM798m in FY22.

• GENM stands to benefit from the re-opening of borders and relaxation of lockdown measures, as tourists’ pent-up spending could boost GENM’s revenue, which analysts expect will more than double from RM4.1b in FY21 to RM9.5b in FY22. Moreover, we think the year-end peak season’s tourism spending and recovery optimism could be a re-rating catalyst for the stock.

• Technically speaking, GENM’s share price has been forming higher lows since bottoming out at RM1.83 in March 2020. Throughout 2021, the swing-lows have consistently found support along the 200-day SMA, indicating that its long-term uptrend remains intact.

• As the stock continues to tread comfortably above the 50-day SMA, despite recently failing to break above the near-by resistance of RM3.27, the subsequent formation of two long-wicked bullish candlesticks suggests the rejection of lower prices for GENM.

• Having bounced off its most recent higher low and with the 50-day SMA approaching to provide support, we think the stock could continue trending higher in the near term.

• On its way up, the stock could potentially challenge our resistance levels of RM3.51 (R1; 11% upside potential) and RM3.73 (R2; 18% upside potential).

• We have pegged our stop loss at RM2.84 (or a 10% downside risk).

Sarawak Oil Palms Berhad (Trading Buy)

• SOP cultivates oil palms and operates palm oil mills.

• In FY20, SOP achieved a net profit of RM204m, up 128% YoY, driven mainly by higher crude palm oil (CPO) prices. The strong earnings momentum continued in 1HFY21, with its bottomline jumping 62% YoY to RM177m.

• On the back of expectations of higher CPO prices in FY21, consensus is expecting SOP to achieve a higher net profit of RM291m (+43% YoY) in FY21 before easing to RM239m (-18% YoY) in FY22, likely on lower CPO price assumptions.

• These translate to forward PERs of 7.1x and 8.7x respectively, a steep discount relative to its 5-year historical average of 15.9x.

• After peaking at RM4.44 in Jan this year, the stock corrected 26% to bottom out at RM3.30 in July, likely driven by ESG concerns surrounding the plantation sector, which also hit other listed planters during the period.

• However, since then, the stock has been forming higher highs and higher lows.

• Based on the past reversal pattern by the stochastic indicator from the oversold territory, which has on numerous occasions throughout 2021 (as pointed out by the purple arrows on the chart) coincided with a corresponding price rebound in the stock, an ensuing rally could be on the cards as the stochastic is currently hovering in the oversold area.

• We anticipate that an upward movement in share price could potentially challenge our resistance levels of RM4.06 (R1; 12% upside potential) and RM4.31 (R2; 19% upside potential).

• We have pegged our stop loss level at RM3.24 (or an 11% downside risk).

Source: Kenanga Research - 12 Nov 2021