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KUALA LUMPUR (May 14): RHB Investment Bank Bhd has asked investors to analyze the small-cap capitalization space as the shares of small-cap companies have lagged behind in organizing strong rebounds to recover the Fall of March 18, compared to its large -cap peer.
In the virtual launch of RHB Small Cap Jewel 2020 EditionRHB’s head of regional equities research Alexander Chia said, as large-cap companies have rebounded sharply from their March lows, small and mid-cap stocks offer better value at this stage of the market.
“The growing commercial nature of the market also means a strong gravitational pull towards high and small and mid-cap beta stocks,” he said.
Chia added that the launch of RHB Top 20 Malaysia Small Cap Companies Jewels 2020 It is timely as there is strong demand for alpha-rich small and mid-cap stocks that are resilient and can survive the ongoing turmoil.
For this year, the largest representations, nine companies or 45% of RHB’s top 20 choices, come from the technology and industrial products and services sectors. The average price-earnings valuation of RHB’s small-cap picks is 12.6 times, while the companies’ average return on equity (ROE) is 11.7%.
Among the best options, 13 companies, or 65% of the 20, have market limits of less than RM500 million. My Technovation Bhd, with RM1.7 billion, has the highest capitalization, while Advancecon Holdings Bhd, with RM122 million, has the lowest.
The selection process took into account the size and extent of the companies, the credibility of management, the fundamentals of the industry, the potential for earnings growth, the history of the industry, and the level of corporate governance.
Some of the top picks include Kumpulan Powernet Bhd, Omesti Bhd, Solarvest Holdings Bhd, SCGM Bhd, Gabungan AQRS Bhd, and Radiant Globaltech Bhd who have sent representatives to the launch event to share their corporate developments.
In the opening address, RHB Investment Bank Chief Executive Officer Robert Huray expressed hope that small and mid-cap companies that can maneuver faster to capitalize on emerging opportunities may have a chance to outperform their large cap pairs.
Unlike the large limits, the small and medium limit space offered investors a remarkable gain of 27% vs. -4.4% for the FBM KLCI in 2019, although it is still outside its peak by a much wider margin , 23% lower than the previous year date.
“With the fate of many larger companies tied to declining external demand, low commodity prices, and declining ability to spend locally, the chances of finding winners in the new post-Covid-19 standard will be bigger for smaller, nimble companies that can better capitalize emerging economies opportunities, ”said Huray.
Meanwhile, RHB Malaysia Small Cap Research chief Lee Meng Horng noted that stocks in small-cap companies tend to move by a larger magnitude compared to the overall market, both on an uptrend and a downtrend. .
Based on RHB’s base case assumption that the Covid-19 pandemic may be contained in the first half of 2020 (1H20) and the economy to organize a recovery in 2H20, Lee believes this will bode well for space. small cap.
