PETALING JAYA: The RHB Small Cap Top 20 Jewels 2022 Edition for Malaysia features a mix of companies generating stable income and offering earnings visibility and dividends, according to RHB Investment Bank Bhd head of regional equity research Alexander Chia.(pic)

       “This is in addition to turnaround stories, economic reopening plays, and in-trend thematic plays such as exporters, plantations, and oil and gas,” he said during the online launch of the report.

       Chia pointed out that this year, industrial and product names feature prominently in the Malaysia edition and make up about 45% of the stock picks, followed by healthcare, technology and oil and gas (O&G).

       “These 20 companies represent 10 different sectors with a total market cap of RM10.2bil, and we believe sector diversification makes sense given the prevailing market conditions,” he said.

       Also launched were 2022 editions for companies in Thailand, Indonesia and Singapore.

       Chia pointed out that the screening methodology involves shortlisting companies that score above average financial metrics like price-to-book, price-to-earnings (PE), return on equity, quarterly growth and other qualitative metrics.

       , Homeritz Corp Bhd and Kawan Food Bhd." src="https://apicms.thestar.com.my/uploads/images/2022/05/13/1583575.jpg" onerror="this.src='https://cdn.thestar.com.my/Themes/img/tsol-default-image2017.png'" style="width: 620px; height: 418px;">Consumer names that stand to benefit from the recovery play as well as an expansion are Bonia Corp Bhd, Homeritz Corp Bhd and Kawan Food Bhd.

       He noted that this year’s editions also have many new names that are not within the research unit’s existing coverage, as it strives to introduce under-researched companies to investors.

       “In the Malaysia edition, we have names from industrial product services in Dufu Technology Corp Bhd, Samchem Holdings Bhd, Supercomnet Technologies Bhd and Texchem Resources Bhd – tracking the uptick in manufacturing activities as we move towards an endemic phase.

       “Consumer names that stand to benefit from the recovery play as well as an expansion are Bonia Corp Bhd, Homeritz Corp Bhd and Kawan Food Bhd.

       “We also have names from overweight sectors such as oil and gas – Coastal Contracts Bhd and Dayang Enterprise Holdings Bhd, as well as the unloved but high potential technology sectors such as Aemulus Holdings Bhd,” he said.

       Chia noted that the performance of equities in Asean has generally been somewhat lacklustre, with most Asean small-cap index indices underperforming their respective benchmark indices.

       “This is largely a reflection of the difficult operating environment in the past 12 months, coupled with the recent surge of foreign fund inflows into large caps, seeking safe haven from the geopolitical risks arising from the Ukraine crisis as well as spillover from funds exiting North Asia markets,” he said.

       Chia also noted that the FTSE Bursa Malaysia Small Cap Index had outperformed over the past three calendar years, thanks to persistent interest from institutional investors coupled with strong participation of retail investors with a large choice of sectors and industries.

       “Small caps continue to resonate with investors in line with the ongoing rotational plays in tandem with the dynamic market environment. In addition, the valuation discount to the big caps and better earnings prospects are also important factors,” he said.

       Chia pointed out that year-to-date, the FTSE Bursa Malaysia Small Cap Index has outperformed despite the overall range bound market, driven by commodity-related stocks that have benefited from the surge in various commodity prices.

       He added with the recent sell-off, the FTSE Bursa Malaysia Mid 70 Index and the Small Cap Index are now trading below their five-year means and at about a two times PE discount to the composite index, based on RHB’s stock coverage universe.

       “The valuation of the MSCI Malaysia Small Cap Index is now at par with the MSCI benchmark index, reversing the trend of the outperformance of the small cap indices in the past two years.

       “This came as investors refocused on value-oriented big caps, amid rising interest rates and greater market volatility,” he said.

       However, Chia pointed out that the trend could be swiftly reversed as local institutional investors could again redirect their attention towards counters offering alpha returns in this space, should geopolitical risks subside and inflation recede.