As a yearly affair, RHB publishes its research on interesting small cap gems. In summary, the dismal performance in 2018 has led to correction in many small-mid caps, which in turn created opportunities as valuations are now attractive. According to RHB, here are four interesting small caps that investors should be keeping tabs on.
Investors Takeaway: 4 Interesting Small Caps That Investors Should Keep Watch By RHB
- Silverlake Axis
Silverlake Axis is a provider of digital economy solutions and services to the banking, insurance, payment, retail, and logistics industries. In 2Q19, Silverlake Axis saw its revenue and net profit grow by double digit figures, thanks to an increase in project-related revenue and recurring revenue. Gross margin also improved from contribution of higher margin revenue.
Moving forward, RHB foresees the strong earnings growth and margins improvement to continue into the rest of 2019 as RHB expects Silverlake Axis to add new projects through potential new and existing customers.
Another case for investing in Silverlake Axis is the possibility of higher dividend payout in 2H19. According to RHB, management of Silverlake Axis has already indicated its keen interest to reward shareholders with better dividends, further noting that that Silverlake Axis can also do more by share buybacks to catalyse its share price.
BUY, TP $0.65; Current share price $0.535
- Hong Leong Finance
Hong Leong Finance is Singapore’s largest non-bank finance company with a network of 28 branches and 11 SME Centres island-wide. Last year, Hong Leong Finance recorded its best net profit with a 38 percent year-on-year revenue growth. This came on the back of rising net interest income as the group reduced its book of low-yield property development loans. The rise in SIBOR also contributed to rising interest income on its floating rate loans. Moving forward, RHB believes that loan yields should continue to climb with the rising SIBOR.
- Oxley Holdings
Oxley Holdings is one of the hidden gems in the property sector. As a home grown property developer, Oxley has a diversified portfolio of property development, property investment and project management across 12 geographical markets: Singapore, the United Kingdom, Ireland, Cyprus, Australia, Cambodia, Malaysia, Indonesia, China, Japan and Myanmar.
Recently, Oxley has been weighed down by concerns over its ability to pay down its debt. By 2020, $1.5 billion worth of debt will be due. However, RHB notes that Oxley will be able to repay its debt by selling some of its key assets.
For example, Oxley’s Chevron House is undergoing due diligence process by an interested party. Oxley has also appointed CBRE and JLL Hotels & Hospitality to look for buyers for the Stevens Road hotels. These hotels are attractive propositions for investors given that the replacement cost of constructing a similar hotel in the same area costs will be much higher due to the surge in development charge.
With a deep discount of 65 percent to RNAV, Oxley is trading at a bargain. The wide discount stemming from doubts over its repayment abilities should easily be addressed by the sale of valuable assets.
- Riverstone Holdings
Riverstone Holdings (Riverstone) is a global market leader in the manufacture of nitrile and natural rubber clean room gloves used in highly controlled and critical environments. It also produces premium nitrile gloves used in the healthcare industry. The industry has been riding from global demand for rubber gloves which has been growing steadily. The newly minted US healthcare guidelines (USP800) has also driven demand for nitrile gloves and provided strong tailwinds for Riverstone.
To enable itself to ride on the global demand, Riverstone has been expanding its capacity. It recently completed phase 5 of its expansion, which saw its capacity increase by 18.5 percent. The next phase of expansion is underway to raise capacity by 1.4 billion to a total of 10.4 billion pieces by end-2019. It is even looking beyond FY19 with eyes on acquiring 14.6 acres of land in Taiping for expansion.