Good time to buy small caps, says RHB Research

PETALING JAYA: RHB Research Bhd believes that the recent correction in small-cap stocks could be timely, giving rise to opportunities to accumulate quality growth stocks at lower levels.
"We think market conditions continue to favour equities given the strong liquidity environment. A pull back could be just the breather needed at this juncture to support more sustained gains," head of RHB Research Alexander Chia said in a recent research report in conjunction with the launch of its 2014 Top Malaysia Small Cap Companies book.
Chia said this despite negative market developments this week where two small cap stocks hit limit down, and another two fell sharply, on Monday and profit taking on lower liners on Tuesday.
He was encouraged by the bigger turnout at the book launch than previous years given the cautious market sentiment on lower liners following the limit down of four small cap stocks on Monday.
Chia said the market has been somewhat nervous of late given the recent strong run up in the FBM Small Cap Index (year-to-date +10.8%; 12-months +43.2%).
"We believe the strong client attendance indicates continued high demand for fresh stock ideas," he said.
RHB's recommended Top 5 small cap Jewels were Berjaya Auto Bhd, Inari Amertron Bhd, OCK Group Bhd, SBC Corp Bhd and Press Metal Bhd.
Berjaya Auto, the exclusive distributor of Mazda vehicles in Malaysia, is planning to deliver double-digit volume growth in the coming years and has plans for five new models in three years as well expanding its completely knocked down (CKD) operations.
"Its fourth quarter results will be announced in early June. We should expect superior margins from its completely built unit (CBU) sales as well as its CKD sales, which will enjoy higher tax rebates due to rising localization," RHB said.
Inari Amertron, an electronic manufacturing services provider, expects growth for its radio frequency integrated circuit (RFIC) segment to be driven by smartphones and tablets segment.
Fibre optic products will be the future growth plan of Inari Amertron which should be driven by the demand for faster internet, which will require more fibre optic infrastructure as the current copper infrastructure will be unable to deliver.
"We expect data centres, content heavy internet websites and a proliferation of cloud computing to be the next growth driver for this segment. Avago Technologies is also its main customer for this segment and, in turn, it counts IBM and CISCO - big players in data centres and cloud computing – as its major customers as well," it said.
OCK Group which now has about 240 telco sites, plans to increase it to about 300 by year-end, thus enhancing its recurring income stream.
OCK, a tier-1 player in providing telco network services and has a solid track record in building towers for U Mobile and Packet One, is one of the frontrunners for the contract to build 400 telco sites.
" We believe OCK's outlook is positive, with good growth prospects in telco site leasing and maintenance, as well as solar renewable energy. Management has in place a RM150 million sukuk facility with only RM4 million drawn down so far. This implies that the group adequately funded to carry out its expansion plans," RHB said.
Meanwhile, SBC Corp a Klang-based property company, is involved in the RM1.8 billion Jesselton Quay (JQ) project in Kota Kinabalu, Sabah.
JQ's is expected to launch the first phase in three months consisting of commercial and retail lots as well as a possible en-bloc sale of its hotel tower with a total GDV of about RM600 million.
RHB also noted that investors were generally impressed with Press Metal being a world-class low-cost smelter, which is sitting in the first quartile of the cost curve amongst global players.
It said that Press Metal will benefit from a global upturn in aluminium prices and premium and enjoy the fruits of aggressively investing in world-class low-cost aluminium smelter technology.