KUCHING: Despite FBM Small Cap Index’s (FBM SC) high performance against the FBM KLCI, analysts believe small and mid-cap stocks are poised to continue its growth trajectory in the near future in line with more active retail participation.
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) said so far, the retail participation on Bursa in terms of foreign average daily trade on a weekly basis value remains moderate above the RM800 million, more than 33 per cent higher that levels seen in 2016.
“In our recent visit note to Bursa Malaysia, the bourse noted that more younger investors aged 25 years and below are participating in the market, as evident by the 36 per cent year-on-year (y-o-y) jump of the number of Central Depository System (CDS) account holders, to circa 30,000 in 2016.
“Moreover, Bursa’s recently launched Mid and Small-cap Research Scheme (MidS) has the potential to attract retailer participants and in turn boost traction, both in terms of volume traded and value traded, for small and mid-cap stocks,” it said.
It opined, “Despite concerns over the future of the bull run, we think that there is still room for growth for the mid and small cap stocks, particularly selected ones with strong potential upside, owing from the positive corporate developments, presence of strong strategic foreign shareholder, and favourable commodity prices.”
It also highlighted that mid and small cap stocks have outperform the benchmark index, doubling the latter’s return at 17 per cent.
With that, MIDF Research listed its top 10 mid and small cap stocks which includes Sarawakian-based Hock Seng Lee Bhd (HSL) and Ta Ann Holdings Bhd (Ta Ann).
Under the construction sector, its top mid and small cap stock picks include HSL. It explained that this was in view of the commendable spread between five-year Malaysian Government Securities (MGS) and earnings yield as well as the company’s ability to stay persistent against the tide of market volatility.
For plantation, Ta Ann was listed as MIDF Research’s mid and small cap stock pick.
“The reason being is that its plantation division earnings growth should remain strong due to high fresh fruit bunches (FFB) volume expected at 10 per cent, and timber division is expected to remain profitable due to the support from high export logs price,” it added.
Meanwhile, on trading activities on the local bourse, MIDF Research believed that this year has so far, seen a significant increase in activities compared to last year. It explained that on the year to date basis, average daily trading volume has reached 2.5 billion shares a day, up 39 per cent from the 2016 average (1.8 billion shares per day) and average daily traded value has rose a staggering 73 per cent to RM2.8 billion a day (compared with RM1.6 billion per day in 2016).
It also noted that the increase in value traded coincided with foreign funds inflow as the cumulative foreign net inflow into Malaysia this year is approximately RM10 billion, offsetting 30 per cent of the total net outflow in the last three years.
KLCI’s performance also reached an intraday high of 1,796.75 points recently. The research team noted that year-to-date, as of June 21, 2017, the benchmark index has gained 8.2 per cent on the back of the strong foreign inflows.
“Furthermore, earnings of FBM KLCI is expected to grow in FY2017 and FY18 as per the (Bloomberg consensus) FBM KLCI 2017 estimate of 106.6 points, the earnings integer is expected to increase further, albeit slightly.
“Nonetheless, the FBM SC even gained more with a year-to-date gain of 17.1 per cent indicating a high potential for small cap stocks to grow,” it added.