Kenanga Research & Investment

Daily technical highlights – (SIMEPLT, HEXZA)

Publish date: Wed, 01 Dec 2021, 09:39 AM

Sime Darby Plantation Bhd (Trading Buy)

• A technical rebound may be in the offing for SIMEPLT shares after tumbling from a high of RM4.42 in mid-October this year to RM3.68 currently.

• On the chart, the stock will probably bounce off from a positive sloping trendline following: (i) the appearance of a bullish stochastic divergence pattern (as the %D line has formed two rising bottoms in the oversold area while the price drifted lower), and (ii) an anticipated reversal by the RSI from an oversold territory.

• An ensuing climb in the share price could lift SIMEPLT towards our resistance thresholds of RM4.10 (R1; 11% upside potential) and RM4.40 (R2; 20% upside potential).

• Our stop loss price level is placed at RM3.26 (which represents an 11% downside risk).

• As a fully integrated global plantation group, SIMEPLT stands to benefit from rising CPO price (with the spot month futures price up 33% YTD to RM5,188 per MT currently).

• For the nine-month period ended September 2021, the group’s net earnings soared 73% YoY to RM1,789m mainly driven by higher average CPO price of RM3,545 per MT versus 9MFY20’s RM2,485 per MT.

• Based on consensus estimates, SIMEPLT’s net profit is expected to come in at RM2,286m (+93% YoY) in FY December 2021 before dropping to RM1,701m (-26% YoY) in FY December 2022. This translates to forward PERs of 11.1x this year and 15.0x next year, respectively.

Hexza Corporation Bhd (Trading Buy)

• After plotting a shape of rounding bottom reversal, HEXZA’s share price is in a position to extend its upward trajectory ahead.

• With the shares currently treading close to an ascending trendline and the 50-day SMA, a technical rebound is in sight as the stock attempts to clear our resistance hurdles of RM1.35 (R1) and RM1.43 (R2). This represents upside potentials of 12% and 19%, respectively.

• We have pegged our stop loss price level at RM1.05 (or a 12% downside risk from yesterday’s close of RM1.20).

• Fundamentally speaking, HEXZA is involved in two principal businesses: (i) the production and sale of ethanol for industrial and potable purposes, and (ii) the manufacture and sale of formaldehyde-based liquid adhesive resins to wood related industries in Sarawak. The group is ranked as the largest manufacturer of ethanol in Malaysia and one of the largest producers of resins in East Malaysia.

• After posting net profit of RM10.2m (-34% YoY) in FY June 2021, its underlying performance continued to be affected by lower sales and margins squeeze (arising from higher raw material costs) as the group logged net earnings of RM1.4m (-61% YoY) in 1QFY22.

• Nonetheless, with a debt-free balance sheet that is backed by cash & cash equivalents of RM94.0m (46.9 sen per share or more than one-third of the existing share price) as of end-September 2021, HEXZA’s healthy financial position should appeal to risk-averse investors.

Source: Kenanga Research - 1 Dec 2021

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