A key factor to consider when investing is whether a company has its own area of niche. Having its own area of niche is indicative of a company’s success, which further translates to better share price performance. We zoom into three companies, operating in their areas of niche expertise.
Investors Takeaway: 3 Niche Plays That Investors Should Consider By RHB
As the largest recruitment agency in Asia Pacific, HRnetGroup runs 11 brands in 10 Asian growth cities from Singapore to Shanghai. In FY18, HRnetGroup reported an all-time high net profit on the back of record revenue which grew 9.3 percent year-on-year. The growth came from the flexible staffing business in Singapore and Hong Kong and professional recruitment in China as well as Hong Kong.
While the ongoing trade war could see companies hold off on hiring and impact HRnetGroup’s business, RHB remains optimistic for FY19. The management shared that it is in talks for a potential M&A likely to be in Vietnam. RHB foresees this acquisition to be earnings accretive, similar to HRnetGroup’s previous acquisition REForce. With a net cash of $290 million and 3-plus percent dividend yield, RHB recommends HRnetGroup as a buy for investors.
BUY, TP $1.06; Current share price $0.705
- Hyphens Pharma
Hyphens Pharma is one of Singapore’s leading specialty pharmaceutical and consumer healthcare groups. It leverages on its diverse footprint in ASEAN countries and is supplemented by a marketing and distribution network covering Hong Kong, Myanmar, Brunei, Cambodia, Oman and Bangladesh. RHB believes that this gives Hyphens Pharma the edge to leverage on existing channels to market more products, e.g. marketing more products through chain pharmacies.
Moving forward, one of Hyphens’ business strategies is to expand and strengthen its proprietary brands. Its existing range of proprietary products include dermo-cosmetics under Ceradan® and TDF® brands, and health supplements under the Ocean Health® brand.
While Hyphens Pharma does not have a fixed dividend policy, the board has stated its intention to distribute at least 30 percent of profit after tax to shareholders for FY18 and FY19. Right now, Hyphens Pharma is trading at 8.2 times FY18 PE, which is a significant discount to the industry average of 19 times PE. Coupled with the group’s strategic plan to grow its specialty pharma principals and proprietary brands segments, RHB thinks that it is time for the stock to play a valuation catch up.
- Memtech International
Memtech International (Memtech) is a global components solution provider working with its partners in the business of automotive components, industrial & medical, mobile communications, and consumer digital devices. In FY18, Memtech managed to secure a few key and sizeable contracts on the consumer front. These projects include a fan-based project and a next generation headphones project. RHB forecasts growth in FY19F to be bumped up by the new contracts. Having endured a tough FY18, it appears that Memtech is now ready to bounce from the bottom as lucrative margins from new projects kick in from 2Q19.
According to RHB, Memtech is an undervalued proxy to any trade war recovery between the US and China. As all its factories are located in China, a lift in trade tariffs will likely benefit Memtech directly, thus improving margins. RHB also thinks that Memtech is attractively priced at just 8 times FY19F PE, which is well below the peer valuation of 12 times FY19F PE.