In contrast to FBM KLCI, the FBM Small Cap Index gained 21.4% or RM12.2b in market capitalisation during the period of January to end-April 2019

by MARK RAO / pic by MUHD AMIN NAHARUL

The laggard performance of Malaysia’s benchmark KLCI index which continued to extend losses into the first half of 2019 has somehow detracted from the robust performance of small-cap stocks.

Poor corporate earnings and lack of market catalysts amid a slew of external risks dragged the FTSE Bursa Malaysia (FBM) KLCI into the negative territory this year.

From January 2019 till end-April, the FBM KLCI declined 1.5% and shed some RM20 billion in value.

In contrast, the FBM Small Cap Index gained 21.4% or RM12.2 billion in market capitalisation during the same period, as foreign dumping of equities was largely limited to composite index-linked counters.

Investors’ perpetual quest for value often sees them turning to the lower end of the market. Small-cap stocks, often perceived as a vehicle for quick gains due to their comparatively cheaper buy-ins, provide good returns even in the mid to longterm.

This was proven by the numerous ACE and LEAP (Leading Entrepreneur Accelerator Platform) Market listings in 2018 (20 against only two on the Main Market) — offering some of the better growth stories that year.

Here are some of the small-cap stocks turned gems this year in terms of market value gained.

Ekovest

Ekovest Bhd gained close to RM1 billion in market capitalisation over the first four months of 2019 on news that the multibillion Bandar Malaysia project is to be revived.

The construction and civil engineering firm’s shares doubled in value to 88 sen, or RM946 million increase in value, over the four-month period with the bulk of gains noted in the middle of April — around the time the news first broke.

Ekovest is seen as a direct beneficiary of the resurrected Bandar Malaysia project as IWH-CREC Sdn Bhd was reinstated as the master developer of the RM140 billion transit-oriented mixed development.

IWH-CREC is a joint venture between Iskandar Waterfront Holdings Sdn Bhd (IWH) and China’s state-owned China Railway Engineering Corp (CREC). Ekovest chairman Tan Sri Lim Kang Hoo is the controlling shareholder in IWH.

Ekovest has since clarified that it is not involved in the reinstatement for the Bandar Malaysia project. Nonetheless, its shares continue to gain traction this year — last closing at 4.5 sen lower at 91 sen yesterday.

Dayang Enterprise

Dayang Enterprise Holdings Bhd was among the best-performing oil and gas (O&G) stocks this year as rallying crude oil prices renewed buying interest in the previously maligned sector.

Shares in the company rallied 171.1% from the start of the year up to the end of April for an RM858.68 million gain in market value.

This was largely in line with the performance of Brent crude oil prices which rose 32.6% to US$72.80 (RM298.48) per barrel over the same period.

The upstream O&G service provider is primarily dependent on Petroliam Nasional Bhd (Petronas) for work, and the national energy company is allocating RM30 billion in upstream spend this year.

This bodes well for Dayang Enterprise who returned to profitability in 2018 on higher work order volume for its topside maintenance business.

A sustained rally in crude oil prices coupled with higher Petronas-led activity should provide sufficient buying support for the company for the remainder of the year.

Frontken

Often overlooked by investors, Frontken Corp Bhd has steadily been growing its earnings since 2015, creating positive returns and value for shareholders over the years

The service provider for the semiconductor, O&G, power generation and marine industries saw its shares rally 97.1% over the first four months of 2019, gaining RM714 million in market value.

This was supported by strong fiscal showings, with net profit for the company rising 75% year-on-year to RM52.26 million and revenue growing 10.3% to RM327.22 million for the financial year ended Dec 31, 2018.

The growth in the semiconductor industry coupled with cost management efforts underpinned the performance that year.

Frontken chairman and CEO Nicholas Ng also foresees further growth in the O&G sector as Petronas’ multibillion downstream facility in Pengerang, Johor, gradually moves closer to full production.

Halex

Halex Holdings Bhd was among the notable small-cap performers in 2019, having grown its market capitalisation by approximately RM589 million over the first four months of the year.

This was due to the agrochemical player merging with its competitor Hextar Chemicals Ltd in a RM596.79 million deal which was completed at the end of April and resulted in an enlarged share base.

Investors, however, are positive on the development as it should translate into the merged entity commanding approximately 30% of the domestic market share for agrochemical-based products.

Halex’s plans to grow the enlarged group’s market share to 40% over the next three to four years (organically and via merger and acquisition) should provide further value in the future for shareholders.

The deal will also provide the much-needed lift for Halex who will return to the black following the merger. This is after it accumulated over RM45 million in losses from 2015 to 2018.

WCT

WCT Holdings Bhd became a dollar-stock again at the end of April when its shares gained 55.9% or RM524.4 million in value over the four-month period this year.

The construction and property company is perceived as among the beneficiaries of the resurrected Bandar Malaysia project, as well as the East Coast Rail Link (ECRL) which it reportedly secured a subcontract prior to the rail link’s suspension.

Since coming into office in May last year, the Pakatan Harapan-led government acted fast to suspend several mega projects initiated by the former administration due to escalating project costs.

This caused investors to ditch their shares in construction-linked stocks or adopt a wait-and-see approach to fears that major projects are to be deferred due to the current government’s fiscal strain.

The revival of Bandar Malaysia and the ECRL coupled with the approval of close to RM14 billion in infrastructure projects have since sparked renewed interest in construction stocks.

WCT is among the companies poised for further value after securing RM2.3 billion in new orders in 2018.