Small stocks, big growth
• Stronger growth should spur small-mid cap
(SMCs) to outperform
• Pick exposure to external markets; ride on
China’s rebound
• O&M interests continue to cascade and centre
around smaller caps
• Top picks: Tat Hong, China Merchant, Sound
Global, Ezion, Jaya
SMC to grow 13% vs 9% for large caps (LC).
Singapore SMCs and the DBSV SMC universe have
both outperformed the FSSTI’s 20% gain in 2012,
rising 31% and 39% respectively. But, as SMC’s
earnings growth is projected to outpace LC at 13% to
9%, we see SMCs having more legs to run and would
continue to beat the STI, which consensus expects to
have a <10% return.
Bank on external growth. Singapore is expected to
lag behind the rest of Asean with little growth and
high inflation this year. We prefer companies with
external growth, particularly those leveraged on Asean.
Our picks are Petra Food, Super Group, Tiger Airways
and Tat Hong, which generate >50% of their sales
from non-Singapore markets, whereas Bumitama sells
globally. Although 70% of Cordlife’s sales are
domestic, cord blood banking offers a stable pool of
recurring income. Although CDL Hospitality draws
80% of its income domestically, these are mainly
supported by overseas tourists to Singapore. We
expect the re-rating on Super to continue and have
raised its TP to $3.51.
Ride on China’s recovery. With no sign of recovery in
exports to major economies like the US and Europe,
China looks set to accelerate other engines of growth
namely investment and consumption. Our
infrastructure picks Sound Global and United
Envirotech are poised to benefit from China’s will to
improve environmental protection. We believe Midas
will continue to re-rate along with the revival of
China’s high speed railway programme. Our proxies to
a rebound in China’s consumption are PCRT (retail)
and China Merchant (traffic flow).
Small mid cap O&M to remain in favour. We
expect a continuation of robust exploration and
production activities for the oil & gas sector. Hence,
stay invested in OSVs players like Ezion, Jaya, Nam
Cheong and ASL Marine.
Price Mkt Cap Target
Price
Performance (%)
S$ US$m S$ 3 mth 12 mth Rating
Top picks
Tat Hong 1.38 636 1.70 4.2 56.3 BUY
China Merchants Hldgs
(Pacific) 0.82 480 1.20
12.3 32.3
BUY
Sound Global Limited 0.62 647 0.90 18.3 15.0 BUY
Ezion Holdings 1.71 1,246 2.12 31.2 152.6 BUY
Jaya Holdings 0.67 418 0.85 15.7 40.0 BUY
Other stock picks
Asean growth exposure
Bumitama Agri 1.08 1,548 1.25 3.9 N.A BUY
CDL Hospitality Trusts 1.93 1,525 2.11 (7.2) 22.2 BUY
Far East Hospitality Trust 0.985 1,294 1.09 (6.6) N.A BUY
Cordlife Group Ltd 0.56 105 0.65 (3.5) N.A NOT
Petra Food 3.49 1,740 3.97 45.4 88.7 BUY
Super Group Ltd 3.23 1,469 3.51 38.0 136.6 BUY
Tiger Airways Holdings 0.74 492 0.95 (2.7) 13.1 BUY
China Come Back
Midas Holdings 0.46 452 0.50 5.8 30.0 BUY
Perennial China Retail Trust 0.59 544 0.84 17.0 21.9 BUY
United Envirotech 0.52 201 0.69 47.1 68.9 BUY
More Legs to O&M
ASL Marine 0.68 234 0.90 0.0 33.3 BUY
Nam Cheong Ltd 0.27 414 0.30 17.8 96.3 BUY
This message was edited by stand up n wake up on 07-Jan-2013 @ 12:54 PM