GHL Systems Bhd (Technical Buy)

• After swinging broadly sideways since mid-January this year, GHLSYS’ share price – up 2.7% to end at RM0.935 yesterday amid strong trading interest – could plot a technical breakout ahead.

• An upward shift is now anticipated by our trading system, which is built on the stochastic indicator to trigger buy signals when the %K line crosses above the %D line in the oversold zone. Based on an exit rule of either a 13% profit or 10% stop loss (whichever comes first) from the trigger levels, the back-tested results showed that 56 of the 89 buy alerts generated by the trading system since 2015 were profitable trades (i.e. it has correctly predicted the ensuing share price gains of 13% or more), representing a hit rate of 63%.

• And following the appearance of three buy alerts around mid-February this year, the trading system is currently signalling that the stock could advance to the RM1.03 – RM1.05 price range or higher going forward.

• On the chart, we have placed our resistance thresholds at RM1.05 (R1; 12% upside potential) and RM1.15 (R2; 23% upside potential) while our stop loss price level is pegged at RM0.83 (or an 11% downside risk).

• Fundamental-wise, as a leading ASEAN payment solutions provider offering multiple payment services (physical, e-commerce and QR pay), GHLSYS stands to benefit from increased regional consumer spending via its footprint of more than 380,000 payment touchpoints across Malaysia, Philippines, Thailand, Indonesia, Singapore and Australia.

• The group has just announced a steady set of quarterly financial results with net profit rising to RM9.7m (+12% YoY) in 4QFY22, which then lifted FY December 2022’s bottomline to RM28.2m (flat YoY).

• Reflecting the robust earnings momentum, consensus is projecting GHLSYS to make stronger net earnings of RM33.1m in FY23 and RM39.6m in FY24, which translate to forward PERs of 32.2x this year and 27.0x next year, respectively (with its 1- year rolling forward PER currently trading at slightly below the minus 1SD level from its historical mean).

• An added appeal is the group’s healthy balance sheet that is backed by net cash holdings & other short-term investments of RM141.1m (or 12.4 sen per share) as of end-December 2022.

JF Technology Bhd (Technical Buy)

• Following its pullback from a recent high of RM0.97 in late January this year, JFTECH’s share price has probably hit a bottom already after bouncing off from a low of RM0.78 (which coincided with the 50% Fibonacci retracement line). The shares closed 5% higher at RM0.84 yesterday.

• With the stochastic indicator in the midst of climbing out from the oversold zone after plotting a bullish crossover and the 50- day SMA still treading above the 100-day SMA (suggesting the upward trajectory remains intact post the recent golden cross), the stock could advance to challenge our resistance targets of RM0.93 (R1; 11% upside potential) and RM1.00 (R; 19% upside potential).

• We have pegged our stop loss price level at RM0.75 (representing a downside risk of 11%).

• A leading manufacturer of high-performance test contacting solutions for global integrated circuit (IC) makers, JFTECH reported net profit of RM2.9m (-48% YoY) in 2QFY23 to take its 1HFY23 bottomline to RM7.3m (-31% YoY).

• In terms of valuation, the stock is presently trading at a Price / Book Value multiple of 6.0x (or at 1SD below its historical mean) based on a book value per share of RM0.14 as of end-December 2022.

• Moreover, the group’s balance sheet is backed by a net cash position of RM79.5m (or 8.6 sen per share) as of end-December 2022.

• Meanwhile, following the transfer of JFTECH’s listing status from the ACE Market to the Main Market effective 19 December last year (which in turn has raised its investment appeal to a wider group of investors), daily average trading volume of its shares has increased to 1.27m shares since then (versus a daily average of 0.79m shares in the first 11 months of 2022).

Source: Kenanga Research - 7 Mar 2023