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Small and mid-cap stocks offer better value at the moment, says RHB
May 15, 2020
KUALA LUMPUR: Small and mid-cap stocks offer better value at the moment given that their large-cap peers have staged solid rebounds off their March lows, RHB Investment Bank Bhd (RHB IB) said.
Shares of small-cap companies had lagged behind in staging strong recovery rebounds from Bursa Malaysia's March 18 dip, the bank said.
RHB IB chief executive officer Robert Huray said alpha hunting remained a daunting task for most investors against the backdrop of heightened uncertainties in light of Covid-19.
This was given the fact that Bursa's key index FBMKLCI had rallied vigorously, narrowing its year-to-date (YTD) losses to 13 per cent.
This had ultimately raised the question of further upside potential for big liquid stocks, Hurray said at the virtual launch of RHB Top 20 Malaysia Small Cap Jewels 2020 (RHB Top 20) book here today,
He said the small-mid cap space had offered investors a 27 per cent gain versus a -4.4 per cent for FBMKLCI last year.
The segment, though, is still off from its peak by a much wider margin, down 23 per cent YTD.
"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 capitalise on emerging opportunities," Huray said.
RHB Top 20 features 20 names for investors to consider during this challenging period in the wake of the Covid-19 pandemic.
Hurray said its top 20 firms had collectively outperformed the FBM KLCI and the FBM Small Cap Index with a holding period return of 20 per cent since the book's launch last May.
RHB IB head of regional equity research Alexander Chia said it had begun to see value in the market in a longer-term perspective, despite the elevated risk environment as the result of Covid-19.
"We believe the launch of the book is well-timed as we are seeing strong demand for alpha rich small-mid caps stocks that are resilient and can survive the on-going turmoil," Chia added.
In this year's book, the largest stock by market cap, at RM1.7 billion, is Mi Technovation, while the smallest is Advancecon Holdings Bhd at RM122 million.
Of the top 20 "jewels", 65 per cent have a market cap of less than RM500 million.
The trailing median price-to-earnings-ratio and return on equity of this year's pick are 12.6 times and 11.7 per cent respectively.
The RHB Top 20 forms part of the larger RHB Regional Small Cap Compendium that annually lists stock investment ideas from RHB IB's research teams in Malaysia, Indonesia, Singapore and Thailand.
RHB IB said companies in this year's book have market capitalisation of below RM2 billion, from 10 different industry segments with the biggest representation coming from the technology and industrial products and services sectors.
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.

2020-05-19 15:36

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Pandemic Covid
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2020-05-20 15:37