RHB: Better value offerings in small-cap space now compared to large-cap

KUALA LUMPUR (May 14): Despite the elevated risk environment resulting from Covid-19, RHB Investment Bank Bhd has begun to see value in the small-cap market from a longer-term perspective.

In the virtual launch ofRHB Small Cap Jewel 2020 Edition, RHB’s head of regional equity research Alexander Chia said given large-cap companies having staged solid rebounds off their March lows, small- and mid-cap stocks offer better value at this stage of the market.

"The increasing trading nature of the market also means strong gravitational pull towards the high beta small and mid-cap stocks,” he said.

Chia added that the launch ofRHB Top 20 Malaysia Small Cap Companies Jewels 2020is well-timed as there is strong demand for alpha rich small-mid caps stocks that are resilient and can survive the ongoing turmoil.

For this year, the biggest representation, nine companies or 45% of RHB’s 20 top picks, come from the technology, and industrial products and services sectors. The median price-earnings valuation for RHB’s small-cap picks is 12.6 times, while the median return of equity for the companies stood at 11.7%.

Among the top picks, 13 companies, or 65% of the 20, have market caps of less than RM500 million. Mi Technovation Bhd, at RM1.7 billion, has the largest capitalisation, while Advancecon Holdings Bhd, at RM122 million, has the smallest.

The screening process took into consideration the companies’ spread and size, managements’ credibility, industry fundamentals, earnings growth potential, industry track record and its level of corporate governance.

In the opening address, RHB Investment Bank chief executive officer Robert Huray expressed hope that small mid cap companies that are able to manoeuvre faster to capitalise on emerging opportunities may stand better chance to outperform their large-cap peers.

“In contrast to large caps, the small mid cap space had offered investors a remarkable 27% gain vs -4.4% for FBMKLCI in 2019, although still off from its peak by a much wider margin, down 23% year-to-date.

“With the fate of many bigger companies tied to waning external demand, low commodity prices and dwindling capacity to spend locally, chances of finding winners in the new norm post-Covid-19 will be higher for smaller and nimbler companies that can better capitalize on emerging opportunities,” Huray said.

Other than the book launching, there were also representatives from six companies, namely Kumpulan Powernet Bhd, Omesti Bhd, Solarvest Holdings Bhd, SCGM Bhd, Gabungan AQRS Bhd and Radiant Globaltech Bhd, at the launching event to share about their corporate developments.