Ann Joo Resources Bhd (Trading Buy)

• The share price of ANNJOO has been trending downwards following a double-top formation in November 2021, which was followed by another leg down to as low as RM0.99 in June 2022. It subsequently treaded sideways before closing at RM1.05 yesterday, which is near the 52-week support level.

• This suggests that the selling pressure has likely eased off, possibly paving the way for the share price to stage a technical rebound soon as the stochastic indicator’s %K line has crossed above the %D line to reverse from the oversold position.

• An ensuing upward shift could then lift the shares to climb towards our resistance thresholds of RM1.22 (R1) and RM1.33 (R2), which translate to upside potentials of 16% and 27%, respectively.

• Our stop loss price level is set at RM0.92 (or a 12% downside risk).

• Fundamental-wise, ANNJOO – which is principally engaged in the manufacturing and trading of steel and hardware products for the building and construction industry – has announced a net profit of RM243m (+243% YoY) in FY December 2021. The robust earnings momentum subsequently carried over to 1QFY22 when its bottomline soared to RM32.9m (+200% QoQ).

• Following which, consensus is currently projecting the group would post net profit of RM120.3m for FY22 and RM137.3m for FY23, translating to forward PERs of 5.1x and 4.6x, respectively.

• Meanwhile, after the steep fall in steel prices, China has recently indicated its plan to cut steel output to provide support for steel prices. And with steel demand likely to improve on the back of China’s pump priming initiatives, this may boost ANNJOO’s earnings outlook.

Sedania Innovator Bhd (Trading Buy)

• After tumbling more than 60% from its previous peak of RM1.20 on 6 July 2021 to RM0.43 currently, SEDANIA’s share price – which is currently hovering near the lower end of a rising price channel – will likely stage a technical rebound ahead.

• On the chart, an upward shift in the share price is anticipated in view of the positive technical signals triggered by: (i) the stochastic %K line crossing above the %D line in the oversold zone, and (ii) a probable bounce-off from the bottom of the ascending channel.

• An ensuing price reversal could then propel the stock to challenge our resistance thresholds of RM0.50 (R1; 16% upside potential) and RM0.54 (R2; 26% upside potential).

• We have placed our stop loss price level at RM0.38 (representing a 12% downside risk).

• Business-wise, SEDANIA – which is involved in the sustainable energy & healthcare, telecommunications and information technology industries – is a potential ESG (Environmental, Social & Governance) play.

• In the latest 1QFY22 results, SEDANIA recorded a net profit of RM0.3m (-75% QoQ, -93% YoY) dragged mainly by lower revenue contribution from the sustainable energy segment and higher operating costs.

• Valuation-wise, based on its most recent book value per share of RM0.11 as of end-March 2022, the stock is currently trading at Price/Book Value multiple of 3.8x.

Source: Kenanga Research - 22 Jul 2022