Unusual – Challenging its key resistance $0.270 – 0.280 with volume expansion (4 Nov 2019)

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Last Friday, Unusual Limited (“Unusual”) caught my attention. It is testing its key resistance $0.270 – 0.280, accompanied by an increase in volume for the past three days with above average volume in two out of the past three days. It closed at $0.275 on 4 Nov 2019. Day range 0.270 – 0.280.

Furthermore, as its 2QFY20F results are just around the corner, it may be an opportune time to take a look at this stock.

 

Interesting points

A) Chart looks positive with strengthening indicators and volume

Based on Chart 1 below, Unusual has been challenging its key resistance $0.270 – 0.280 for the past few days with increasing volume. This is a key resistance level, as it is near the lower end of its Feb 2019 – Aug 2019 trading range of around $0.270 – 0.320 (before it broke down in Aug) and its 50D & 100D exponential moving averages (“EMAs”). A sustained breach above $0.280 with volume expansion is positive for the chart. It is noteworthy that some of the small caps have moved quite a bit from their Aug 2019 lows but Unusual has only moved $0.025 – 0.030 from its all-time low of around $0.245 (i.e. still a laggard). Amid the positively placed DIs and low ADX at around 12.2, there is a chance that Unusual may move back to its multi month trading range of around S$0.320. In addition, indicators such as MACD, OBV and RSI are strengthening. MACD has done a bullish MACD line crossover and centreline crossover.

Near term supports: $0.270 / 0.265 / 0.245 – 0.250

Near term resistances: $0.275 – 0.280 / 0.295 – 0.300 / 0.320

Chart 1: Testing key resistance with volume expansion

Unusual chart 4 Nov 2019

Source: InvestingNote 4 Nov 2019

B) RHB target upside of around $0.420, 53% upside!

RHB is the only broker to cover Unusual. At its last close of $0.275, this represents a potential capital upside of around 53%. Based on RHB’s latest report dated 31 Oct 2019 (click HERE), RHB maintains Unusual to be their top small cap pick as it is expected to report good set of results in 2QFY20F and an even better 3QFY20F results based on their pipeline of events. Although I am not familiar with Unusual’s specific company fundamentals, the concerts which they organise typically fetch a good response. RHB estimates one night of JJ Lin concert next month can fetch gross profit of S$3.0m. As JJ Lin is going to do two days in Dec i.e S$6m gross profit! To put this in perspective, Unusual’s entire FY 2019 gross profit was around $23.0m.

C) CGS-CIMB on MM2 corroborates the growth potential in Unusual

I am cognisant that Unusual is covered by only one brokerage house, thus, it may not be extremely representative on Unusual. However, I noted CIMB has a report on MM2 dated 8 Oct 2019 with a target price of $0.32. In the MM2 report, CIMB estimates Unusual to have a 30% topline growth in FY20F. Hence this is rather in line with RHB’s 36% growth in Unusual’s FY20F revenue.

D) Unusual’s share price has suffered post its 1QFY20 results

Unusual has been “bashed down” in the past few months as its 1QFY20 results reported on 13 Aug 2019 was weak. 1QFY20 net profit came in at only S$1.1m. However, according to 1QFY20 press release, management is still confident of maintaining their growth for FY20F. It is noteworthy that FY19 net profit was 13.2m. Hence the next few quarters should be very interesting if management is correct in their assessment.

E) Potential M&A target

Unusual may be a potential M&A target as cited by RHB. This is due to several factors. Firstly, based on RHB report dated 17 Sep 2019 (see Table 1 below) where they compiled Unusual’s peers, Unusual trades at 17.0x PE vis-à-vis the peer average of around 29.8x. Secondly, Unusual has a considerable presence in South East Asia hence it may make sense for some competitors to acquire Unusual to have immediate access to that region.

P.S: Do note Table 1 is derived from RHB’s report dated 17 Sep 2019 hence the figures may vary now. However, it is noteworthy that Unusual’s price has declined half a cent since 17 Sep 2019 to close $0.275 on 4 Nov 2019.

Table 1: Unusual trades at lower valuations, relative to peers

Peer comparison 17 Sep 2019

F) MM2 is also testing its key resistance with volume expansion

Likewise, for MM2, it has been building a base around $0.225 for the past two weeks. It challenged its key resistance $0.235 – 0.240 on 4 Nov 2019, accompanied by a significant surge in volume. Sometimes, MM2 and Unusual may move in tandem especially when MM2 owns 39.2% in Unusual.

With any trades, there is risk. I have outlined some of the risks below but they are not exhaustive.

 

Risks

A) I am not familiar with Unusual.

This is my first time looking at Unusual. Suffice to say that I am not familiar in Unusual’s fundamentals as my main basis is mostly technical. Readers should do their own due diligence and exercise their independent judgement.

B) Usual business risks such as cancellation or postponement of concerts, accidents etc.

As you are aware, Unusual’s performance is based on the concerts or events they actually present. Thus, any cancellation or postponement of concerts, accidents at the concerts may expose the group to additional costs and loss of reputation.

C) Illiquid

Unusual is an illiquid stock. Average 30D volume is around 260K shares traded only. Therefore, it may be subject to large price movements should there be sudden buying or selling interest.

D) Results are usually an event risk

Results are usually an event risk. Share price may not move even if the company beats earnings and outlook expectation as share price may be influenced by other drivers in the short term.

 

Conclusion

Its interesting chart and positive analyst report citing potentially good set of results in the next couple of quarters attracts me to Unusual for a trading play only. I’m vested and only aim for a couple of bids of profit if any. It is noteworthy that I am not familiar with Unusual’s specific company fundamentals. In addition its illiquidity is something readers have to be aware of. Readers, as usual, please do your own due diligence and exercise your independent judgement.

 

P.S: I have already notified my clients to take note of Unusual and MM2 last Thurs and Friday respectively.

 

Readers who wish to be notified of my write-ups and / or informative emails, can consider signing up at http://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, they can consider leaving their contacts here http://ernest15percent.com/index.php/about-me/

 

Disclaimer

Please refer to the disclaimer HERE

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