Dagang Nexchange Berhad (Trading Buy)

• After rising 453% from RM0.19 to peak at RM1.05 in March this year, DNEX’s share price has subsequently corrected 39% to bottom out at RM0.64 in May. Since then, the stock has formed higher lows.

• Since August, amid the higher lows pattern, the stock has faced resistance around RM0.83 on three occasions, which led to the formation of an ascending triangle.

• With the Parabolic SAR showing strengthening upward momentum, we believe the stock is poised to break above the ascending triangle to continue its climb.

• On its way up, DNEX could potentially challenge our resistance levels of RM0.95 (R1; 14% upside potential) and RM1.05 (R2; 26% upside potential).

• We have pegged our stop loss level at RM0.73 (or 13% downside risk).

• Business-wise, DNEX is principally involved in the provision of information communication services, which include the supplying, delivering, installation, testing, commissioning and maintenance of IT hardware. The group has also ventured into the semiconductor industry via its acquisition of a 60% stake in chip maker SilTerra Malaysia in July this year.

• In the 18-month period ended June 2021, DNEX achieved a revenue of RM330m and a net profit of RM120m. There are no comparisons with the previous financial year due to a change in financial year-end from Dec 31 to June 30.

Flexidynamic Holdings Berhad (Trading Buy)

• FLEXI provides chlorination systems to glove manufacturers for the production of powder-free gloves. In Malaysia, its key customers include Hartalega Group and Kossan Group. In the six-month period ended June 2021, 53% of FLEXI’s sales were derived in Malaysia with the remainder coming from Vietnam, Thailand and Sri Lanka.

• In FY20, FLEXI recorded a revenue of RM56.9m (+14% YoY) mainly driven by higher contributions from the design, engineering, installation and commissioning of glove chlorination systems. However, its net profit of RM4.6m remained flat YoY, mainly dragged by higher labour costs arising from higher overtime charges.

• Moving forward, despite the ongoing falling glove ASPs, the glove industry’s continued capacity expansion and volume growth should bode well for FLEXI, which will be using part of its IPO proceeds to expand its production capacity.

• Chart-wise, after peaking at a high of RM0.72 on its first listing day in late-March this year, the stock saw a subsequent slide before bottoming out at RM0.285 in September. Since then, the stock has been oscillating between a range of RM0.29 and RM0.32 amid emerging buying interest.

• However, the stock convincingly broke above the 50-day SMA yesterday, suggesting that its long-term downtrend has ended, thus setting the stage for an uptrend reversal.

• With both the MACD and Parabolic SAR indicators signalling that the stock is gaining upward momentum, an anticipated shift in share price could challenge our resistance levels of RM0.43 (R1; 21% upside potential) and RM0.48 (R2; 35% upside potential).

• We have pegged our stop loss level at RM0.29 (or an 18% downside risk), as we recommend cutting loss should the share price fall below the aforesaid support area of RM0.29 - RM0.32.

Source: Kenanga Research - 19 Nov 2021