RHB Research Institute’s Head of Regional Telecommunications Jeffrey Tan (left) and Regional Head Sam Chin during the unveiling of the Top Malaysia Small Cap Companies (30 Jewels 2013 Edition) book.
RHB Investment Bank Berhad recently unveiled the ninth edition of the Top Malaysia Small Cap Companies (30 Jewels 2013 Edition) book which it says is an essential handbook for investors. The book highlights 30 Bursa Malaysia-listed small cap companies that its research division believes would be the best performing and/or have the greatest potential to excel.
RHB Research Institute Head of Research, Alexander Chia, said the research house – covering about 155 stocks – can lay claim to having one of the broadest investment research “universes” among investment banks in Malaysia.
The RHB Top Malaysia Small Cap Companies 30 Jewels, he said, is an essential handbook for investors, especially given the out-performance of the FTSE Bursa Malaysia Small Cap Index (FBM SCI) vis-a-vis the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI).
“Between 24 April 2012 and 12 July 2013, the FBM KLCI advanced 12.9%, but this performance was over-shadowed by the FBM SCI, which posted a 21.7% gain over the same period. Furthermore, while 87% of our selected stocks have market caps below RM1.5 billion, the combined market cap of all 30 stocks in this year’s edition is a healthy RM27.1 billion,” Chia added.
Chia said the RHB Top Malaysia Small Cap Companies (30 Jewels) book endeavours to provide a
good mix across the market spectrum. “Hence, our selected stocks provide a broad representation of 13 sectors vs 12 last year. Other than spread and size considerations, the key screening variables include management credibility, industry fundamentals, earnings growth potential and track record. However, none of the banking stocks – being mostly large corporations – are represented in this edition,” he further said.
“Our 2013 edition also unearths 11 new Jewels, namely Brahim’s Holdings Bhd, Deleum Bhd, Hua Yang Bhd, Instacom Group Bhd, Integrax Bhd, Malton Bhd, Protasco Bhd, Scientex Bhd, TDM Bhd, Uzma Bhd and Wellcall Holdings Bhd,” Chia said.
RHB’s recommended Top 5 small cap Jewels in alphabetical order together with extracts from their respective chapters are reproduced below:
(1) Brahim’s Holdings (Target Price: RM1.41) – Recommendation: We are optimistic that with BACH (Brahim’s Airline Catering Holdings) now being a wholly-owned subsidiary, the Group will likely achieve our FY13 core net profit forecast of RM17m. Our FV (fair valuation) of RM1.41 is based on 18x (the F&B industry’s average P/E [price/earnings]) FY13 core EPS (earnings per share). We believe Brahim’s is on the road to hit the RM1b revenue target by 2017, as it rides on the: i) potentially better contribution from airport F&B outlets upon the opening of KLIA2, ii) stronger performance from its in-flight catering business due to higher passenger traffic, and iii) accretive M&As in the pipeline.
(2) Cahya Mata Sarawak (Target Price 7.55) – Recommendation: We like CMS for its solid fundamentals and our recent visit reaffirmed our bullish view on the Group. We maintain our BUY rating on this stock, with an SOP-based valuation of RM7.55, implying 1.2x P/BV and a 10.3x P/E on FY14 estimate (ex-cash). Our conservative valuation has yet to include the value of its 20% stake in OMS, which is projected at RM421m, or RM1.27 per CMS share, based on our DCF valuation.
(3) Instacom Group Berhad (Target Price: RM0.46) – Recommendation: Our fair value for Instacom is RM0.46, based on a P/E multiple of 13x on FY14F earnings. This implies a forward EV/EBITDA of 12x. We think the valuation is fair, given that local mobile operators are trading at about 20x forward P/E while regional/global tower-related companies are trading at an average forward EV/EBITDA of 11x.
All in all, we like the company for: i) its strong growth prospects within the telecommunications space, ii) its pool of recurring earnings, which provide earnings certainty, and iii) its attractive valuations based on the stock’s current price.
(4) Tambun Indah Land Berhad (Target Price: RM1.71) – Recommendation: WE value TILB at RM1.71, based on a 20% discount to RNAV. In our opinion, a lower discount is deserved due to the limited quality Penang mainland plays in the market, as the other smaller players are either not pure mainland plays or lack a solid track record. We see long-term growth potential in TILB. Based on the current price, its FY14 P/E of 6x is undemanding, considering its above-sector average earnings growth and dividend yield.
(5) Wellcall Holdings Berhad (Target Price: RM3.08) – Recommendation: Our RM3.08 valuation is pegged to a 14.1x FY14F P/E, which is derived from adding two standard deviations of the Group’s five-year historical trading band, assuming Wellcall’s capacity more than double in the upcoming two years. We also like its attractive dividend yield of 6% – 7% per annum. Our target P/E multiple of 14.1x is a 13% discount to the BBMI.
Note: The above recommendations are made by RHB and reproduced here for readers’ information only.