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US markets ended mixed on Wednesday as corporate deal activities were overshadowed by concerns that a fixed-income sell-off has not ended and a set of weaker-than-forecast retail sales figures also disappointed market investors. The S&P 500 Index inched down 0.64 points to 2,098.48 points while the Dow declined 7.74 points to end at 18,060.49.

In Malaysia, the FBM KLCI moved in a narrower range of 19.08 points for the week with lower volumes of 1.69 billion to 1.54 billion traded. The index closed at 1,807.55 yesterday, up 4.53 points from the previous day as blue-chip stocks like CIMB Group Holdings Bhd, Genting Bhd, KLK Bhd, Petronas Chemicals Group Bhd and Tenaga Nasional Bhd caused the index to rise on some nibbling activities. The ringgit was a touch firmer against the US dollar at 3.581 as Brent crude oil was slightly firmer at US$66.30 (RM236.69) per barrel.

The index rose on a rally from the 801.27 low (October 2008) to its 1,896.23 all-time high (July 2014) and it represents an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. The next few months’ index price movements since July 2014 comprised of key swings of 1,837.28 (low), 1,879.62 (high), 1,766.22 (low), 1,858.09 (high), 1,671.82 (low), 1,810.21 (high), 1,706.18 (low), 1,831.41 (high), 1,774.30 (low) and 1,867.53 (high).

All the index’s daily signals are negative for now, with its CCI, DMI, MACD and Oscillator indicators showing weaker readings. As such, the index’s weaker support levels are seen at 1,770, 1,774 and 1,795-points, while the resistance areas of 1,808, 1,842 and 1,867 will cap any index rebound.

The KLCI’s 18- and 40-day simple moving averages (SMA) depict an emerging downtrend for its daily chart. The recent price bars of the index have just turned below the 50- and 200-day SMA. As such, the index had continued on its downturn from its recent 1,867.53 high in late April.

Despite the poorer tone for the KLCI, we are recommending a chart “buy” on Heng Huat Resources Group Bhd. On May 11, Heng Huat announced that the company is proposing to undertake a one-for-two bonus issue, a proposed transfer listing from the ACE Market to the Main Market and proposed amendments to its Articles of Association. The transfer is to be implemented upon completion of the proposed bonus issue while the transfer and amendments are inter-conditional upon each other.

For its most recent fourth quarter financial year 2014 (4QFY14) results, Heng Huat’s revenue inched up to RM23.21 million from RM23.08 million in 4QFY13 and represented a marginal increase of approximately RM130,000. Further to the positive quarter, Heng Huat also recorded a 24.3% increase in revenue for FY14 of RM17.9 million to RM91.6 million. The increase in revenue was mainly attributed to the improved revenue from the biomass materials and related products segment arising from higher demand for palm oil empty fruit bunch fibre, particularly from the China market, coupled with improved margins.

Further to the announcement, Heng Huat’s board of directors is of the view that the group’s growth momentum is sustainable for FY15, as the recent ban on new coal-fired plants in Beijing, Shanghai and Guangzhou is likely to spur demand for cleaner, alternative sources of energy, including briquettes.

A check on Bloomberg consensus reveals that no research house covers the stock. Heng Huat currently trades at a reasonable price-earnings ratio of 12.5 times. Its price-to-book value ratio of 2.19 times indicates that its share price is trading at a premium to its book value.

Heng Huat’s chart trend on the daily, weekly and monthly time frame is very firmly up. Its share price made a good surge since its major daily Wave-2 low of 46 sen on March 5 2014. Since that low, Heng Huat surged to its recent all-time high of 73.5 sen in May 2015.

As prices broke above its recent key critical resistance levels of 62 sen and 67 sen, look to buy Heng Huat on any dips to its support areas as the moving averages depict very firm short- to long-term uptrends for this stock.

The daily indicators (like the CCI, DMI, MACD, Stochastic and Oscillator) have issued buy signals and now depict very firm indications of Heng Huat’s eventual surge towards much higher levels. It would attract firm buying activities at the support levels of 62 sen, 67 sen and 72.5 sen. We expect Heng Huat to witness some profit-taking at its resistance area and all-time high of 73.5 sen. Its upside targets are 78 sen, 88 sen , 98 sen and RM1.02.


Lee Cheng Hooi is the regional chartist at Maybank Kim Eng. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgment or seek professional advice for your investment decisions. Technical report appears every Wednesday and Friday.

 

This article first appeared in The Edge Financial Daily, on May 15, 2015.

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