Indonesian small cap top picks to watch out for
by Anna Chidambar. Posted on June 21, 2012, Thursday
KUCHING: Indonesian mid-cap and small cap companies offer high return potential given their high-beta nature as the country’s attracts more interest from global investors scouring the region for new opportunities.
According to the research arm of OSK Investment Bank (OSK Research), its Indonesian research team added five more companies in its second edition of ‘OSK Top Indonesian Small Cap Companies – 30 Jewels’ 2012 edition.
It showcases 30 Indonesian companies which it believed were fundamentally sound and whose future growth prospects were shining brightly. “As the Indonesian market attracts more attention from global investors, the demand for new ideas and alternatives are all the more relevant,” OSK Research highlighted.
Despite the challenges faced by the Indonesian market this year, it believed that the strong companies would be able to weather any economic valatility and continue to generate robust earnings growth and would offer potentially high returns.
Joining the second edition were five more companies bringing the total number of companies featured to 30 with the edition also adopting new concepts and themes as the number of small caps had increased paving the path to unearth under-appreciated and under-researched companies that proffered potential hidden value.
It maintained focus on company specific strengths such as robust growth and market positioning in the industry, heralding the emergence of 14 new companies that included Mitrabahtera Segara Sejati (MBSS), Ramayana Lestari (RALS), Selamat Sempurna (SMSM), Jaya Agra Wattie (JAWA), Ciputra Surya (CTRS), Modernland Realty (MDLN), Indospring (INDS), Clipan Finance (CFIN) and Central Omega Resources (DKFT).
Others on the list were Surya Eka Perkasa (ESSA), ABM Investama (ABMM), Astra Graphia (ASGR), Erajaya Swasembada (ERAA) and Energi Mega Persada (ENRG).
In the meantime, nine companies from the previous edition were dropped including Bank Jabar Banten, AKR Corporindo, BW Plantation, Media Nusantara Citra, Mitra Adiperkasa, Pelat Timah Nusantara, Indopoly Swakarsa Industry, Tempo Scan and Surya Citra Media.
The research team pointed out that the new additions came from diverse sectors and offered relatively similar catalysts such as exciting earnings growth, good positioning in the industry and undemanding valuations.
The list of sectors included automotive parts, banks, building materials, coal, construction, consumer, glass manufacturing, heavy equipment, liquid petroleum gas (LPG) refinery, office automation and equipment, plantation, poultry, shipping as well as tyre manufacturing.
In the consumer space, OSK Research was fielding retailer RALS, ERAA and distributor of office equipment and Goods ASGR, multi-finance company CFIN as well as auto components makers IDNS and SMSM.
While in the commodities related sector it favoured rubber and crude palm oil (CPO) producer JAWA, LPG producer ESSA, energy related producer ENRG, ABMM and nickel mining company DKFT.
Representing the property sector were CTRS and MDLN while MBSS stood in for the coal barging business. Besides the diversity of the sectors they represented per se, a common attribute amongst the companies was that they all offered ample positive upside potential.
As of OSK Rsearch’s cut-off date of March 22 2012, these 30 companies were trading at a combined price earnings multiple of 13.3 times for financial year 2012 forecast (FY12f) earnings with a return on equity (ROE) of 24.6 per cent and earnings growth of 55.3 per cent.
This was attractive compared with the overall Jakarta Composite Index (JCI) which was trading at 14.3 times FY12f earnings with a ROE and earnings growth of 28.8 per cent and 13.6 per cent respectively.
The research team’s favourite top five picks included CTRS, JAWA, largest mass bread maker Nippon Indosari, ceramic tile manufacturer Arwana Citramulia.