Kenanga Research & Investment

Daily technical highlights – (SDRED, LYC)

Publish date: Tue, 31 Jan 2023, 08:49 AM

Selangor Dredging Bhd (Technical Buy)

• Via its iron ore mining business in Terengganu held under 31%-owned Singapore-listed Fortress Minerals Ltd (FML), SDREDis a proxy to the strengthening iron ore price, which has jumped 43% from a trough of USD79/t in end-October last year toUSD113/t currently (or back to where it was in end-June last year).

• Interestingly, based on FML’s existing share price of SGD0.36 (up 20% since the beginning of November 2022), whichtranslates to a current market value of SGD180m (or c.RM582m) for FML, SDRED’s 31% stake in FML is now worthRM180.4m. This accounts for a significant 86% of its own entire market cap of RM208.8m.

• The group is also involved in property development activities in Malaysia and Singapore as well as the hospitality business.

• Earnings-wise, after encountering two straight quarter of losses, SDRED turned around with net profit of RM5.3m (+120%YoY) in 2QFY23, lifting 1HFY23 bottomline to RM1.2m (-88% YoY) as the iron ore (an essential ingredient for steelproduction) mining segment contributed pretax profit of RM11.6m (-14% YoY) in the first half period.

• In terms of valuation, the stock is presently trading at a Price/Book Value multiple of 0.25x (or at 0.5 SD below its historicalmean) based on its book value per share of RM1.99 as of end-September 2022.

• On the chart, after overcoming a descending trendline that dates back to mid-October 2021, SDRED’s share price isanticipated to shift higher ahead backed by the golden cross by the 50-day SMA above the 100-day SMA and an emergingParabolic SAR uptrend.

• An extension of the price run-up could then propel the stock to advance towards our resistance targets of RM0.56 (R1; 14%upside potential) and RM0.60 (R2; 22% upside potential).

• We have pegged our stop loss price level at RM0.43 (representing a downside risk of 12%).

LYC Healthcare Bhd (Technical Buy)

• Following a slide from the high of RM0.68 in early August 2020 to as low as RM0.16 in early September last year, a technicalrebound may be currently underway for LYC shares (which have since bounced up to close at RM0.215 yesterday).

• From a charting standpoint, after breaching a negative sloping trendline in December last year, the share price is expected tocontinue its upward shift as the 50-day SMA has staged a golden cross above the 100-day SMA while the stochastic indicatoris in the midst of moving out from the oversold territory.

• With that said, the stock could climb further to challenge our resistance targets of RM0.25 (R1; 16% upside potential) andRM0.28 (R2; 30% upside potential).

• Our stop loss price level is set at RM0.18 (or a 16% downside risk).

• A niche player in the healthcare industry, LYC is a provider of mother and child care related services such as postnatal &postpartum care and post-delivery confinement care. It is also involved in other healthcare segments (such as senior livinghomes, family clinic, childcare services, cosmetic & aesthetic and fertility services) as well as the operation of medical centresin Singapore.

• Earnings-wise, the group made net loss of RM4.4m (-48% YoY) in 2QFY23, bringing 1HFY23 cumulative net loss to RM8.9m(-48% YoY).

• Based on its latest book value per share of RM0.07 as of end-September 2022, the stock is presently trading at a Price/BookValue multiple of 3.07x (or slightly below the minus 1SD level from its historical mean).

• In terms of recent corporate development, LYC is currently considering a listing plan for its healthcare business on theCatalist board of the Singapore Stock Exchange.

Source: Kenanga Research - 31 Jan 2023

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