Continue to shine. Hevea risk-reward profile is more attractive now after tumbling 22% from its 52-week high of RM0.835 to RM0.65 last Friday, supported by undemanding valuations of 12.3x (ex NCPS of 18.5sen or ~28% to share prices) FY21E P/E (vs 5Y mean of 15.1x) and 0.88x P/B (20% below 5Y mean of 1.1x), coupled with a strong 19% EPS CAGR from FY19-22. We expect Hevea to post a seasonally better 4Q20 results particularly in the RTA division, benefitting from pent-up demand, stocking up activities and work-from-home arrangements as a result of disruption of supply chain and trade diversions. However, growing pressures from stronger RM, higher freight costs and raw material prices remain a challenge to the group

More upside if the downtrend line is taken out successfully. After hitting a 52- week high of RM0.835 (2 Dec), HEVEA share prices dived 28% to a low of RM0.60 (12 Jan) before staging a recovery to close at RM0.65 last Friday. As long as the stock is able to maintain its posture above 100D SMA or RM0.60 psychological support, HEVEA is poised for a potential downtrend line breakout above RM0.665 soon. A decisive breakout from the sideways zone will sour prices advance further towards above RM0.69 (38.2% FR) and RM0.72 (50% FR) before reaching our LT objective at RM0.80 barrier. Key supports are situated near RM0.61 (lower BB) and RM0.60. Cut loss at RM0.58.

Source: Hong Leong Investment Bank Research - 25 Jan 2021