Pestech International Bhd (Trading Buy)

• Following a 45% retracement from a high of RM1.02 in November last year to as low as RM0.56 early this month, PESTECH shares (which ended at RM0.62 yesterday) offer an attractive risk-versus-return trade-off.

• An uptrend reversal in the stock price is anticipated by our trading system, which is built on the RSI indicator to trigger buy signals when the RSI value crosses above the pre-set oversold level. Based on an exit rule of either a 9% profit or 9% stop loss (whichever comes first) from the trigger levels, the back-tested results showed that 14 of the 19 alerts generated by the trading system since 2015 were profitable trades (i.e. it has correctly predicted the ensuing share price gains of at least 9%). This represents an accuracy rate of 74%.

• Therefore, given the recent appearance of two buy signals on 10 March and 17 March, our trading system is now predicting that PESTECH shares could climb to at least RM0.68-RM0.70 going forward.

• On the chart, we have positioned our resistance thresholds at RM0.68 (R1; 10% upside potential) and RM0.80 (R2; 29% upside potential). Our stop loss price level is pegged at RM0.56 (or a 10% downside risk).

• A niche utility infrastructure play, PESTECH is an integrated electrical power technology company that offers solutions for high voltage and extra high voltage electrical systems. It reported net profit of RM21.0m (-9% YoY) in 1HFY22.

• Our fundamental research team is forecasting the group would make net profit of RM75.7m in FY June 2022 and RM87.0m in FY June 2023, translating to undemanding forward PERs of 7.8x this year and 6.8x next year, respectively (which range between -0.5SD and -1SD from its historical mean).

• In terms of recent corporate development, in late December last year, PESTECH has secured a contract worth RM743m to design, supply, install, test and commission for the Automated People Mover project (including Operation & Maintenance Services) at KL International Airport. The contract win has consequently lifted its outstanding orderbook to RM2bn as of end-Dec 2021.

Kelington Group Bhd (Trading Buy)

• After bouncing up from the 50% Fibonacci retracement line recently, an uptrend price reversal could be currently underway for KGB shares.

• On the chart, the share price is expected to climb further as: (i) the Parabolic SAR is signalling an upward bias, (ii) the RSI indicator is in the midst of unwinding from an oversold position, and (iii) the DMI Plus has crossed over the DMI Minus.

• With that, the stock will probably swing towards our resistance targets of RM1.43 (R1; 9% upside potential) and RM1.63 (R2; 24% upside potential).

• We have pegged our stop loss price level at RM1.19 (representing a 9% downside risk from its last traded price of RM1.31).

• An integrated engineering services provider with a niche in ultra-high purity (UHP) gas and chemical delivery solutions for the high technology industry, KGB offers exposure to the front-end semiconductor supply chain, riding on the expansion of wafer fab capacity amid the prevailing chips shortage. It is also involved in the industrial gases business (providing on-site gas supply & manufacturing of liquid carbon dioxide), process engineering and general contracting activities.

• After announcing a record net profit of RM31.8m (+82% YoY) in FY21, consensus is expecting the group to make net earnings of RM45.0m in FY December 2022 and RM38.1m in FY December 2023 (backed by an outstanding orderbook of RM1.1b as of end-2021). This translates to forward PERs of 18.7x this year and 22.1x next year, respectively.

• Its balance sheet is financially sound with a net cash position of RM54.3m (or 8.4 sen per share) as of end-December last year.

Source: Kenanga Research - 23 Mar 2022