RHB Research notes that valuations of the rate-sensitive growth companies, mainly in the small-cap space, appear to have bottomed out.
KUALA LUMPUR: The small-cap space on Bursa Malaysia could present some investment opportunities on expectations that US interest rates could peak sometime this year and the improved investor sentiment could spur fund flow into emerging market-listed companies.
RHB Research, in its recent Small Cap Corporate Access 2023 event, points out that valuations for these rate-sensitive growth names mainly in the small-cap space appear to have bottomed out.
“Also, the divergence of the state of the economy in China post-reopening versus the decelerating global economic growth could lend the support to global demand and benefit Asean players,” the research house said.
The key investment themes it advocates include exporters, value stocks and election play.
RHB Research said global wafer fabrication companies such as QES Group Bhd
are still ordering equipment for their ongoing expansion, despite the cyclical slowdown in the semiconductor industry.
“This is supporting the orders for QES’ various equipment, especially for its automated handling system, wafer identification and sorting machines,” it said.
QES is looking to further penetrate the China market and aiming to at least double its contribution from this geographical market to more than 10% of its revenue, it said.
The company aims to do this by capitalising on the manufacturing division by selling semiconductor equipment for automotive end-usage. “Currently, QES is working on establishing the sales channels and the necessary partnerships in China,” RHB Research said.
It also noted that QES will see improving profitability in the medium term.
This is as its manufacturing division, which produces higher margin products, moves towards its targeted revenue mix of 35% in two to three years from the current 10% to 18% of revenue contribution.
“The margin improvement will be further aided by economies of scale as QES continues to expand,” it said.
RHB Research also highlighted that Scicom (MSC) Bhd had recently been experiencing a strong recovery in business process outsourcing (BPO) contracts from its leisure and hospitality customers.
The momentum in this recovery is offsetting the drop in BPO contracts from its eCommerce customers, it noted.
RHB Research said Scicom has created new customer offerings to move up the value chain with a recent provision of higher-value operations services such as social media support, text support, fulfilment and robotic automation.
This is differentiated from the conventional customer care services, it said.
“This should increase stickiness with its customers and bode well for the group’s income growth. Scicom’s reasonable pricing, with more than 20 years of experience, gives it a firm position in the market, especially foreign markets,” RHB Research said.
It also noted that foreign markets are believed to be providing higher margins to Scicom since competitors there have pushed up the floor price, partly due to currency differences.
Meanwhile, Tune Protect Group Bhd is another company that had been highlighted, given that it had secured new businesses recently.
“In 2022, the group secured two new insurance partnerships in Vietnam, on top of a new digital payment partnership with one of the country’s largest fintech players of 15 million active users and more than 150,000 corporate clients,” it said.
These partnerships will help expand Tune Protect’s health, lifestyle and travel insurance segments, the research house noted.
