Telekom Malaysia Bhd (Technical Buy)

• A recent drop from a high of RM6.04 on 20 September that was followed by a subsequent recovery from a trough of RM5.10 early this month suggests that a technical rebound may be underway for TM’s share price (which ended at RM5.44 yesterday).

• On the chart, the strengthening momentum is backed by: (i) the rising Parabolic SAR trend, (ii) the DMI Plus crossing over the DMI Minus, and (iii) the MACD indicator cutting above the signal line.

• Riding on the upward trajectory, the stock is expected to climb towards our resistance thresholds of RM5.96 (R1; 10% upside potential) and RM6.20 (R2; 14% upside potential).

• Our stop loss price level is set at RM4.93 (representing a 9% downside risk).

• From a fundamental perspective, TM – Malaysia’s leading integrated telco which offers a comprehensive suite of communication services and solutions – is a defensive index-linked stock with fairly resilient domestic-centric earnings outlook.

• The group reported net profit of RM378.0m (+73%YoY) in 2QFY22, bringing 1HFY22 bottomline to RM717.9m (+32% YoY).

• According to consensus expectations, TM is forecasted to make net earnings of RM1.26b for FY December 2022 and RM1.44b for FY December 2023.

• Valuation-wise, this implies forward PERs of 16.5x this year and 14.4x next year, respectively (with its 1-year rolling forward PER currently hovering at 1.5SD below its historical mean).

Magni-Tech Industries Bhd (Technical Buy)

• After plunging from a recent high of RM1.92 in mid-September to as low as RM1.68 in mid-October, MAGNI’s share price has probably found an intermediate support already.

• Amidst the short-term sideways price channel, MAGNI shares – which were last traded at RM1.70 yesterday – may attempt to break out in view of the following positive technical signals: (i) the reversal from an oversold position by the RSI and stochastic indicators, and (ii) the recent appearance of bullish dragonfly doji candlesticks.

• With that said, the stock could be making its way to challenge our resistance thresholds of RM1.90 (R1; 12% upside potential) and RM2.02 (R2; 19% upside potential).

• We have placed our stop loss price level at RM1.51 (representing an 11% downside risk).

• Business-wise, MAGNI is involved in the manufacturing and sale of: (i) garments, and (ii) flexible plastic packaging goods and corrugated cartons.

• After posting net profit of RM91.7m (-28% YoY) for FY April 2022, the group’s quarterly performance saw a jump to RM24.0m (up 14% YoY) in 1QFY23.

• Going forward, consensus is projecting MAGNI to make net earnings of RM113.0m in FY23 and RM131.0m in FY24, translating to forward PERs of 6.5x and 5.6x, respectively (with its 1-year rolling forward PER currently hovering at 2SD below its historical mean).

• An added positive is the group’s debt-free balance sheet, which is backed by cash and cash equivalents amounting to RM410.8m (or 95 sen per share translating to more than half of its existing share price) as of end-July 2022.

Source: Kenanga Research - 26 Oct 2022