Good time to invest in small caps stocks

MIDF Research says cumulative net foreign inflow into Bursa for 2016 fell to RM2.42bil

KUALA LUMPUR: Now is a good time for investors to take a look at the small caps in the market as smaller cap companies continue to provide superior returns, said RHB Research Institute Sdn Bhd Malaysia Research director Alexander Chia.

This was as measured by the FBM Small Cap Index (FBM SCI) and FBM Fledgling Index (FBM FI), which have generated returns of 11.1% and 19.8% respectively, compared to the 1.1% for the FBM KLCI between April 2016 to April 2017.

“In addition to coming from a smaller base, we believe the strong outperformance of small cap companies are a reflection of their managements’ strong entrepreneurial drive and spirit that encourages innovation and ingenuity,” said Chia during the launch of the RHB Asean Small Cap Compendium today.

With the FBM SCI having outperformed the FBM KLCI between April 2016 to April 2017 by 8.5%, 10 stocks outperformed, with an average outperformance of 69%.

“The top ranking stocks during this period were KESM Industries Bhd (175%), Johore Tin Bhd (111%), Elsoft Research Bhd (93%) and Yong Tai Bhd (80%),” he added.

In the 13th edition of the RHB Top Malaysia Small Cap Companies 25 Jewels 2017 book, which is part the compendium, the largest cap stock featured is AirAsia X Bhd at RM1.7bil, while the smallest is O&C Resources Bhd at RM125mil.

Approximately 76% of the jewels listed in the book have a market cap of less than RM1bil.

The average price-earnings ratio of the 25 Jewels this year is 17.8 times with an average return on equity (ROE) of 16.9%.

The book unearths hidden gems that reside on the local bourse, which include Chin Hin Group Bhd, O&C Resources Bhd and AWC Bhd.

RHB has a sterling track record with over 56% of the counters featured in the 2016 edition of the book recording positive returns as well as outperforming the FBM KLCI by an average gain of 50%.

The RHB Asean Small Cap Compendium is an annual list of stock investment ideas from the bank’s research houses in Malaysia, Indonesia, Singapore and Thailand.