A productive gathering. Kenanga Research organized a corporate day for smalland-mid cap stocks yesterday. This event is market demand driven as we see growing interest in the small-and-mid cap investment space post Budget-2017 when the Prime Minister proposed a special fund allocation of up to RM3b to be invested in small-and-mid-cap stocks. Besides, the Prime Minister also proposed a setup of Capital Market Research Institute with an initial funding of RM75m back then. We strongly believe that these measures have been supporting market sentiment as well as trading/investment activities. For instance, in the 1Q17, we saw Bursa Malaysia Securities registering daily average traded value and volume of RM2.37b and 2.71b shares vis-à-vis RM1.98b and 1.82b shares in 1Q16, representing improvements of +19.7% and +48.9%, respectively. Besides, as of end-Mar 2017, we also noticed that the FBM Small Cap Index (FBMSC) was traded at a narrower Forward PER discount of 23% (vs. 32.4% discount a year ago) at 12.7x against 16.5x for FBMKLCI.

We featured a total of eight small-and-mid-cap stocks, namely, SALUTE, HSSEB, AZRB, IBRACO, ENGTEX, CENTURY, GPACKET and YEN. In the morning session, we kick-started our event with the presentation by Mr Joshua Lim, Director of SALUTE. Management showcased their competitive edge from both qualitative and quantitative perspectives. One of the key differentiating factors of the group vis-à-vis its competitors is its one-stop turnkey solution. Overall, while FY17 appears to be the transition year for the group, the positive trade-off is better, with the exciting pipelines of product developments alongside growing global clientele base; all to be reflected in FY18.

Up next, HSSEB was represented by its COO, Pn IR Sharifah Azlina who explained each of their respective division namely their three pillars of core services: (i) Engineering services which comprise engineering design and construction supervision, (ii) Project Management, and (iii) Building Information Modelling (BIMS). Subsequently, the Group’s General Manager of Finance Ng Kuan Yee came on and presented the jobs executed by HSSEB as well as their on-going projects and the strengths of the group.

Continuing the session, we had Dato Sri Wan Zakaria, Managing Director of AZRB. He remains confident this is the year where their plantation division will stop bleeding losses, providing the group a point of inflexion in FY17E. He is also confident on maintaining the Group's construction top-line of RM1.1b achieved in FY16 driven by their outstanding construction order-book of RM3.9b. Furthermore, he continued to mention that their newly acquired Tok Bali Supply base is one of its kind in the region and is expected to contribute positively to the group in the near future.

IBRACO was presented by its Managing Director - Datuk Chew Chiaw Han who started off introducing his company as one of the premier property developers specializing in township development in Sarawak. He provided the audience with a brief idea on their strategic plans moving forward i.e. moving away from Sarawak to other states, which have larger catchments such as Selangor, Johor and Penang. He remains confident with the Group's prospect and plans to launch up to RM188m of properties from his North Bank Development in Kuching for FY17.

For the afternoon session, we had a presentation by Mr Khoo Chong Keong, the CFO of ENGTEX. Mr Khoo highlighted the strengths of ENGTEX being one of the few local players who have the capability to produce large diameters pipes and also a beneficiary of water sector restructuring.

Up next, Edwin Yeap, Executive Director of CENTURY, gave a brief company introduction, mainly highlighting the synergistic value between CENTURY and CJ Korea, which emerged as its largest shareholder in September last year. Edwin also discussed the future expansionary outlook for CENTURY, which includes an upcoming new multi-storey warehouse to contribute an additional 450k sq ft of warehousing space.

Next GPACKET was represented by Mr. Tan Kay Yen, CEO and Mr. Liew Kok Seng, CFO. As the group’s efforts to streamline business operations have successfully turned around the company from red to black, management declared their forward strategies of setting foot into the IoT and Fintech segments as a step forward to embrace evolving technologies.

We ended our Corporate Day with YEN, represented by Mr. Gerard Lim who is the CEO of Atilze Digital Sdn Bhd. The group is diversifying from its bread and butter business of treating and finishing of jeans wear products into the ICT business. The Group aims to tap into the growing potential and future dependency of IoT solutions as the key driver for this venture. The first step for the company into this segment includes venturing into IoT applications towards Connected Vehicle Platforms and LoRa Technology Platforms.

Source: Kenanga Research - 19 Apr 2017