“Our 2013 edition has ‘unearthed’ 11 new jewels: Brahim’s (consumer), Deleum Bhd (oil and gas or O&G), Hua Yang Bhd (property), Instacom (telecommunications), Integrax Bhd (ports), Malton Bhd (property), Protasco Bhd (construction), Scientex Bhd (consumer), TDM Bhd (plantations), Uzma Bhd (O&G) and WellCall Holdings Bhd (industrials),” it said.
It said that the rest of the companies, while familiar to those who followed its guidance, were still “jewels”, as these companies were still endowed with strong growth potential and solid fundamentals.
“The average financial year 2013 price-to-earnings ratio of our 2013 small-cap stocks is 11.7 times, with a two-year net profit compounded annual growth rate of 13%,” it said.
For top pick Brahim’s, RHB Research believes that the company could be on the road to hit its RM1bil revenue target by 2017, as it rides on the potentially better contribution from airport food and beverage outlets upon the opening of KLIA2, the stronger performance from its inflight catering business due to higher passenger traffic, and accretive mergers and acquisitions in the pipeline.
Instacom has the second-lowest market capitalisation among the Top 30 picks, with the company poised to benefit from the rollout of long-term evolution services, with the operators looking to invest between RM400mil and RM500mil each over the next three years.
Property developer Tambun Indah Land is also on RHB’s radar, with the company’s value underpinned by its strategic anchor land-bank, capable management, quality products, solid balance sheet and attractive dividend yields.
“While liquidity concerns are almost always an issue among the smaller-cap stocks, we are of the belief that as a stock grows in stature in the manner we expect, the issue of illiquidity should fade in due course,” it said.
It said its small-cap selection was influenced by its view on the market, with key overweight sectors being banks, O&G and construction, while telecommunications was an “underweight”.
“As banking stocks are all large corporations, none are represented in the current edition, but we have five representatives from the O&G sector and five from construction,” it said.
It said its 2012 picks had performed decently, with 18 (an average gain of 81%) outperforming the FTSE Bursa Malaysia KL Composite Index (12.9%), while 16 (an average gain of 89%) beat the FBM Small Cap Index (21.7%) between the launch of the 2012 Small Cap Book on April 24, 2012 and the price close for the 2013 book.
The top performer was Perdana Petroleum Bhd, which gained 219.3% during the period, while the worst-performing stock was Adventa Bhd. For Adventa, it sold its glove business for RM320.9mil in January with a capital repayment of RM1.70 per share. It said if the capital distribution was added back, there would be an implied 55% adjusted gain.
Publish date: 08/08/13