by LYDIA NATHAN / pic by RAZAK GHAZALI

SMALL-CAP stocks on Bursa Malaysia continued to outperform their larger counterparts this year as many are positioned in the right sectors and are more adaptable to change, which brings positive value to investors.

RHB Banking Group MD and CEO Datuk Khairussaleh Ramli (picture) said small-cap companies have shown stronger resilience in challenging times as witnessed throughout last year.

“The performance of the small-cap index has been encouraging, generating returns of 10.7% year-to-date compared to 9.9% in 2020, and we see this trend continuing.

“The technology, industrial products and services sectors continue to dominate the market due to inelastic underlying demand and strong investor interest amid the prevailing low-interest-rate environment,” Khairussaleh said at the virtual launch of the RHB Top 20 Malaysia Small-cap Companies Jewels 2020 yesterday.

The bank’s small-caps top 20 jewels list include Aemulus Holdings Bhd, KESM Industries Bhd, KKB Engineering Bhd, Spritzer Bhd, Star Media Group Bhd and Uzma Bhd.

The list comprises companies with a market capitalisation limit of less than US$1 billion (RM4.12 billion) across seven industry segments.

He said the selection of the companies was based on various factors including their liquidity spread and size, managements’ track record, industry fundamentals, earnings growth potential, the long-term sustainability of the industry and their commitment to environmental, social, and governance principles.

The RHB Top 20 Malaysia Smallcap Companies Jewels 2020 outperformed the broader market with a value-weighted holding period return of 100.1% since its launch in May 2020, against the FTSE Bursa Malaysia Mid-70 Index (+31.1%) and the FTSE Bursa Malaysia Small-cap Index (+49.3%).

“RHB’s equity research analysts have been relentless in stock screening initiatives, employing meticulous fundamental analysis and filtering for governance issues amid a backdrop of extreme market conditions.

“From the selections, 90% were gainers spanning across various sectors and demonstrating the ability to adapt and capitalise on the ‘new normal’ business and economic environment,” Khairussaleh said.

The launch attracted 60 fund managers and buy-side analysts from insurance companies, private asset management companies, unit trust companies, state-owned companies and pension funds from Malaysia and Asean.

“All 20 companies featured in this year’s book are outside RHB Research’s existing coverage portfolio, with the median trailing price-earnings and return on equity of these 2021 Jewels being 21.9 times and 4.8% with an average market cap of RM437 million,” Khairussaleh said.

The 17th edition of RHB’s top 20 jewels is part of a larger RHB Asean Small-cap yearly compendium from the bank’s research teams in Indonesia, Singapore and Thailand, and has had a strong track record in unearthing hidden gems.