Freight Management Holdings Berhad (Trading Buy)

• FREIGHT provides freight and warehousing services on an international scale, covering sea, air & rail freight services, warehousing & distribution, customs brokerage, road transportation and project management.

• Up until the third quarter of 2021, the Group has benefited from a surge in sea and air freight rates, allowing them to raise their rates on their customers. Reflecting this, in the 3-month period ended Sept 2021 (1QFY22), the Group’s net profit rose 74% YoY to RM11m.

• While freight rates have eased since then, there has been a new round of freight rates surge since late November, particularly in some ports in various Southeast Asian countries, mainly driven by US port congestions.

• Moving forward, the Group stands to benefit from an anticipated recovery in global trade flows and potentially higher freight rates, which would drive revenue growth. Consensus is expecting FREIGHT to make a net profit of RM38m (+40% YoY) in FY June 22 and RM40m (+6% YoY) in FY June 23. These translate to forward PERs of 12.7x and 12.1x, respectively.

• Technically speaking, the stock has been forming higher highs and higher lows throughout the year, peaking at RM1.15 in October. Since then, it has fallen 35% to a low of RM0.75 in November.

• As this low is a higher low compared to the previous low of RM0.605, and the stock has also found support along the 200- day SMA, its long-term uptrend is still intact.

• Coupled with the rising MACD and Parabolic SAR indicators, we believe the stock could continue to trend higher ahead.

• On its way up, the stock could potentially challenge our resistance levels of RM0.97 (R1; 12% upside potential) and RM1.08 (R2; 25% upside potential).

• We have pegged our stop loss level at RM0.77 (or an 11% downside risk).

Econpile Holdings Berhad (Trading Buy)

• ECONBHD is a specialised foundation and civil engineer contractor in Malaysia. The Group’s services include foundation and geotechnical works, civil engineering works, structure works and design & build packages.

• In FY June 2020, ECONBHD’s net profit plunged 91% YoY to RM2m likely due to the initial impact of the Covid-19-triggered lockdown. Despite a subsequent 376% increase in FY21 earnings (to RM11m), this was followed by a 3-month period ended Sept 2021 (1QFY22)’s net loss of RM6m (vs a net profit of RM6m in 1QFY21) as the Group continued to be affected by the strict lockdowns imposed during that period.

• Nevertheless, looking ahead, consensus is expecting the Group to achieve a net profit of RM26m (+131% YoY) in FY June 22 and in RM37m (+42% YoY) in FY June 23, on the back of expectations of a swift economic recovery. These translate to forward PERs of 18.0x and 12.6x, respectively.

• Chart-wise, the stock has been forming lower highs and lower lows throughout 2021. The stock hit a low of RM0.30 earlier this month, matching the trough of the March-2020 stock market crash, which may be perceived as the floor price.

• With the stochastic indicator recovering from the oversold area, and both the MACD and Parabolic SAR indicators also showing strengthening momentum, we believe the stock is in a position to stage a trend reversal ahead.

• On its way up, the stock could potentially challenge our resistance levels of RM0.375 (R1; 14% upside potential) and RM0.435 (R2; 32% upside potential).

• We have pegged our stop loss level at RM0.29 (or a 12% downside risk).

Source: Kenanga Research - 10 Dec 2021