As we head into 2H18, investors are now carrying out portfolio rebalancing to shed off some of the dead wood stocks. Following which, investors will be looking for stocks to replace those deadwood stocks to beat the market. Here are five of the small caps that CIMB have identified to have potential double-digit returns in 2H18.

Investors Takeaway: 5 Small Caps With Potential Double Digit Returns In 2H18

  1. China Sunsine Chemical Holdings (China Sunsine)

China Sunsine delivered record earnings and topped CIMB’s forecasts for the past two quarters amid consolidation in the domestic supply of rubber accelerators in its favour. According to ground checks by CIMB analysts, domestic prices of rubber accelerators have risen sharply while aniline (bulk of its raw material) costs stayed flat. If the momentum continues, China Sunsine is expected to deliver strong earnings for the rest of FY18. It could even sound another positive earnings alert for its 2Q18.

BUY, TP $1.87

  1. mm2 Asia (mm2)

mm2 possesses a strong presence across the entire value chain, which include cinema assets, events production (UnUsUal) and postproduction businesses. As such, CIMB views mm2 as a proxy for growing media and entertainment business in Asia. More recently, mm2 announced a film partnership with Korea’s CJ E&M.

Based on its current valuation of 14 times forward-FY19F price-to-earnings (P/E), the market might have underestimated mm2’s growth prospects and potential synergies. This presents a buying opportunity for investors looking to gain exposure to a growth stock. One key potential near-term catalyst is the possible spin-off of its Vividthree subsidiary, which could set it off on a stronger earnings trajectory.

 BUY, TP $0.74

  1. Riverstone Holdings (Riverstone)

With strong demand for its gloves amid the shift away from PVC towards nitrile gloves and new customer acquisitions in China and Vietnam, CIMB foresees Riverstone to maintain its overall utilisation level. This is despite Riverstone’s 18 percent rise in existing production capacity. Riverstone is currently trading at 27 percent discount to its peer average of 18 times. With a stronger US dollar expected and the ability to pass on higher raw material costs in 1Q18, Riverstone should see some recovery in its gross margin in FY18.

BUY, TP $1.28

  1. Yongnam Holdings (Yongnam)

Yongnam’s joint venture with Leighton has just won a major North-South Corridor project worth $553.8 million. CIMB believes that this would significantly boost its order book from $142 million to $308 million, which will be above its 3-year average ($290 million) based on its 30 percent stake in the joint venture. Significant revenue contribution from the joint venture is expected to start in 1Q19.

Apart from the North-South Corridor project, Yongnam is also actively pursuing the Melbourne Metro project and other civil engineering and strut orders. Yongnam is targeting infrastructure projects in Singapore, Australia, Hong Kong and the Middle East. Further contract wins could act as key catalyst for the share price of Yongnam, according to CIMB.

BUY, TP $0.56

  1. Sunningdale Tech (Sunningdale)

Sunningdale’s valuation has taken a dip to 0.62 times forward-FY18 price-to-book value (P/B) after its disappointing 1Q18 results. However, CIMB believes that Sunningdale’s 1Q18 earnings disappointment is priced into its current share price, given that the long-term average P/B is 0.55 times. CIMB notes that potential catalysts that could re-rate the stock includes a better quarter-on-quarter performance as new projects in the consumer/IT segment ramp up production.

BUY, TP $2.50

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