Following the sector outlook by CIMB Research and our previous article on four gems, we zero in on four small caps that CIMB Research recommends as potential value plays that could give investors decent returns in the rest of 2017.
1. Health Management International
Among the healthcare stocks in Malaysia, CIMB Research highlights Health Management International as the prime company to benefit from the macro trend of increasing patient load and medical tourism boom in Malaysia.
Its quality hospital assets (Mahkota Medical Centre, Regency Specialist Hospital) also enables them to ride the higher revenue potential of its patients. As a regional healthcare play, Health Management International has been overlooked by the market.
At 24x CY18F Price-Earnings ratio (P/E) and 13x CY18F Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortisation (EV/EBITDA), it is notably lower than peers’ average of 40x CY18F P/E and 19x CY18F EV/EBITDA.
CIMB Research: Health Management International Limited (SGX: 588) – BUY, Target Price $0.83
2. mm2 Asia Limited
mm2 Asia Limited has just successfully negotiated to purchase Village Cinemas’s 50 percent stake in the Golden Village cinemas in Singapore. Golden Village owns 11 cinemas that house 91 screens, has 44 percent market share in the cinema segment.
CIMB Research believes that this deal will be a key catalyst for mm2 given that it will increase FY18F net profit by 40 percent. mm2 is also expanding its concert business through subsidiary UnUsUal, which debuted in an IPO recently.
UnUsUal has been expanding the number of concerts in the North Asian region and is set to double its earnings in FY18F. Valuation wise, CIMB Research views mm2 as slightly undervalued given that it is still trading at ~20x CY18F P/E. This is still significantly lower than peers’ 27x forward P/E.
Furthermore, the potential GV shares acquisition has not been factored in CIMB Research’s estimation yet.
CIMB Research: MM2 Asia Limited (SGX: 43D) – BUY, Target Price $0.65
Memtech managed to put in strong results in its recent 1Q17. Its core net profit improved 425 percent from 1Q16 (US$0.4 million vs US$1.7 million). Memtech also managed to improve on its gross profit margin (18.1 percent vs 15.9 percent).
CIMB Research views this as a positive sign that Memtech could be headed for a better outlook in FY17. CIMB Research is also confident that the earnings momentum could be sustained into FY17-18F, given that growth in both automotive and consumer electronics segments are still strong.
Memtech should be in good position to secure more customers in the two segments, which could be a potential catalyst to re-rate the stock. Based on its historical dividend payout, Memtech could offer a four- to six-percent dividend yield in FY17.
CIMB Research: Memtech International Limited (SGX: BOL) – BUY, Target Price $1.09
4. Valuetronics Holdings Limited
Similar to Memtech, Valuetronics also had a strong quarter. Valuetronics managed to surpass the street expectations and grew its net profit by 25.1 percent year-on-year.
This growth is largely attributed to the strong sales performance in the industrial and commercial electronics (ICE) segment (14.1 percent growth year-on-year) and consumer electronics (CE) segment (19.7 percent growth year-on-year).
According to CIMB Research, the double-digit sales momentum could be further sustained heading into FY18F – the automotive connectivity modules and smart lighting are still at early stages of their product lifecycle.
That means that there is still ample opportunities for Valuetronics to tap onto to drive its revenue. Valuetronics is currently valued at 11.2x FY18 PE and 6.3x PE excluding cash.
With expectations of three-year earnings per share (EPS) to face a CAGR of around 13.5 percent, CIMB opines that Valuetronics could reach a share price of $0.89. This is on top of the dividend yield of a four- to five- percent that Valuetronics could offer to shareholders.
CIMB Research: Valuetronics Holdings Limited (SGX: BN2) – BUY, Target Price $0.89