CTOS Digital Bhd (Technical Buy)

• Following a retracement of 16% from a recent high of RM1.51 on 12 September to as low as RM1.27 on 30 September, CTOS’ share price has subsequently moved up to close at RM1.34 yesterday.

• A technical rebound could be on the cards in view of the following bullish indicators: (i) the appearance of an upward Parabolic SAR trend, (ii) the existence of a bullish stochastic divergence pattern (with the %K line forming three rising bottoms while the share price was drifting lower), and (iii) the MACD is on the verge of crossing above the signal line.

• An extension of the positive momentum will likely lift the stock towards our resistance thresholds of RM1.52 (R1) and RM1.62 (R2), which represent upside potentials of 13% and 21%, respectively.

• Conversely, our stop loss level is set at RM1.16 (a 13% downside risk).

• CTOS is Malaysia’s leading credit reporting agency, providing credit information and analytics digital services and solutions that are widely used by banking & financial institutions, insurance and telecommunication companies, large corporations, small medium enterprises and consumers for self-check.

• Earnings-wise, the group posted strong net profit of RM22.5m in 2QFY22 (+80% QoQ), which brought its bottomline to RM35m (+73% YoY) in 1HFY22.

• Going forward, consensus is expecting CTOS to report a net profit of RM78.9m in FY December 2022 before growing further to RM97.1m in FY December 2023. This translates to forward PERs of 39.2x and 31.9x, respectively.

• In terms of recent corporate news, CTOS announced last week its plan to collaborate with Otofacts to provide background screening services on buyers of used vehicles.

Pestech International Bhd (Technical Buy)

• Technically speaking, PESTECH’s share price – which closed at RM0.31 yesterday – is expected to shift higher after overcoming a downward sloping trendline in early October.

• Chart-wise, the stock could extend its technical rebound as the stochastic indicator’s %K line has crossed above the %D line in the oversold zone while the MACD is signalling a positive trend.

• Riding on the upward momentum, the stock is likely to challenge our resistance targets of RM0.35 (R1) and RM0.40 (R2), which represent upside potentials of 13% and 29%, respectively.

• Our stop loss level is pegged at RM0.27 (or a 13% downside risk).

• Business-wise, PESTECH is an integrated electrical power technology company with core businesses in electrical system, transmission line & power cables, infrastructure asset management, power generation and grid engineering solutions.

• The group recorded a net loss of RM13.8m in 4QFY22 (hit by project cost overrun and disruption in equipment shipment from China due to the intermittent lockdowns), which took its full-year net profit to RM13.7m (versus RM66.4m in FY21).

• Going forward, consensus is projecting PESTECH’s net earnings to bounce back to RM33.7m in FY June 2023 and RM44.5m in FY June 2024, which translate to forward PERs of 9.1x and 6.9x, respectively.

Source: Kenanga Research - 21 Oct 2022