Insas Bhd (Trading Buy)

• INSAS shares (up 12% since end-June 2021) could play catch-up ahead after lagging the price performance of 14.3%-owned semiconductor service provider Inari Amertron, which has extended its rally by 27.5% since mid-2021 to RM3.99 currently.

• Moreover, INSAS’ share of Inari Amertron’s existing market cap (14.3% of RM14,772.3m which amounted to RM2,112.4m) is already more than tripled the former’s overall market valuation of RM633.2m currently. In comparison, their market cap gap previously stood at 2.2x back in July last year.

• The divergence in share price performance (and market valuation) presents a trading buy opportunity in INSAS shares, which have pulled back from a high of RM1.19 in mid-November last year to close at RM0.955 yesterday.

• With the MACD crossing above the signal line and the stochastic indicator set to climb out from an oversold position, an upward shift in the share price is anticipated while its downside risk is supported by an ascending trendline that stretches back to March 2020.

• Technically speaking, the stock could advance towards our resistance thresholds of RM1.05 (R1; 10% upside potential) and RM1.11 (R2; 16% upside potential). Our stop loss price level is pegged at RM0.87 (or a 9% downside risk).

• Earnings-wise, the group – which also wholly owns stockbroking company M&A Securities with other businesses in investment holding & trading, retail trading & car rental and property investment & development – made a net profit of RM26.7m (-59% YoY) in the first quarter ended September 2021.

• To monetise its investment in M&A Securities, INSAS has proposed to undertake a backdoor listing exercise by injecting its entire interest in M&A Securities into SYF Resources Bhd for a total consideration of RM222m to be satisfied via the issuance of new SYF Resources shares at an issue price of RM0.14 each.

JHM Consolidation Bhd (Trading Buy)

• After slipping from a high of RM2.45 in early August last year, a double-bottom reversal pattern could be in the making as JHM’s share price has bounced up from a trough of RM1.58 in end-November (a level that coincided with the 50% Fibonacci retracement line) to close at RM1.77 yesterday.

• A continuation of the price increase is currently anticipated following the bullish technical signals triggered by: (i) the DMI Plus crossing above the DMI Minus, and (ii) the momentum indicator (which has cut above the zero-line and is on the rise).

• With that, JHM shares will probably climb to challenge our resistance thresholds of RM2.03 (R1; 15% upside potential) and RM2.13 (R2; 20% upside potential).

• We have placed our stop loss price level at RM1.53 (or a 14% downside risk).

• Fundamentally, JHM is a proxy to buoyant global car sales (which translates to increased demand for automotive LED lighting modules) and the rolling out of 5G technology (which requires various electronic components).

• The group’s business operation is segregated into 2 key segments: (a) electronics business unit, which is involved in the manufacture and assembly of surface mount technology of automotive rear, interior and front headlamp lighting (for the automotive industry) and motor controller (for the industrial sector), and (b) mechanical business unit, which provides one stop solutions from fabrication of tooling, design to final assembly and test of LED lighting modules/applications, microelectronic components as well as precision mechanical parts.

• After posting net profit of RM3.2m (-39% YoY) in 3QFY21, which brought 9MFY21’s bottomline to RM21.6m (+62% YoY), the group is expected to show stronger earnings performance going forward.

• Consensus is forecasting JHM to log net earnings of RM23.8m in FY December 2021 and RM43.0m in FY December 2022, which translates to forward PERs of 41.5x and 23.0x, respectively.

Source: Kenanga Research - 5 Jan 2022