CAO, Sinarmas among RHB picks of small-cap gems

Among those at the handbook's launch yesterday were (from right) Mr Meng, China Aviation Oil CEO, Mr Hew, Fu Yu CEO, Mr Ong, RHB Research Singapore head, IPS Securex chief operating officer Brandon Lee and Mr Ng, Sinarmas Land executive director. Mr
Among those at the handbook's launch yesterday were (from right) Mr Meng, China Aviation Oil CEO, Mr Hew, Fu Yu CEO, Mr Ong, RHB Research Singapore head, IPS Securex chief operating officer Brandon Lee and Mr Ng, Sinarmas Land executive director. Mr Ong said RHB hopes to unearth previously undiscovered or under-researched companies with hidden potential.ST PHOTO: AZMI ATHNI

Handbook lists 25 firms with steady earnings, strong cash reserves and growth potential

There are a number of hidden gems among the listed small-cap companies, with robust financials and growth prospects.

Companies such as China Aviation Oil (CAO), Fu Yu, IPS Securex and Sinarmas Land are among the pick of the crop due to their steady earnings, strong cash reserves and ability to expand their business, according to an investor handbook from RHB Research that listed the top 25 small-cap firms.

CAO chief executive Meng Fanqiu told the attendees at the book launch yesterday that the jet fuel trader - Asia-Pacific's biggest - is marching ahead just fine despite the impact of volatile energy prices.

"A prolonged oil crash is bad for trade and hence bad for everyone. But as it is, our supply contracts will cushion the profitability, not to mention low energy prices actually help us reduce costs," he told The Straits Times.

This was reflected in a 24.7 per cent year-on-year jump in CAO's 2015 net profit to US$61.3 million (S$82.4 million) even as revenue dropped 47.4 per cent. A cash hoard of US$170.5 million last year - up 80.8 per cent - will give CAO the ability to invest for growth as China's aviation industry continues to boom.

Mr Meng said: "We are ready to deploy US$350 million to US$500 million to acquire downstream assets, such as logistics and refuelling facilities at airports, to enhance our end-to-end supply chain."

READY FOR EXPANSION

We are ready to deploy US$350 million to US$500 million to acquire downstream assets, such as logistics and refuelling facilities at airports, to enhance our end-to-end supply chain.

MR MENG FANQIU, CAO chief executive

Sinarmas Land is also eyeing more global investments to complement its already dominant position in Indonesia's property sector.

The firm is known for its massive township projects, such as BSD City and Kota Deltamas in the Jakarta area. It still has around 5,000ha of undeveloped freehold land near the Indonesian capital.

Executive director Robin Ng said at the event: "Property development revenue, currently around 85 per cent of the group's total, is highly dependent on sale.

"So now we are building up our recurring income - rental income - through investment properties in global gateway cities. With $908 million of cash reserves, we have no issue exploring these opportunities."

Since 2013, Sinarmas Land has bought three Grade A office buildings in London, including the $544.2 million Alphabeta Building last July.

Fu Yu, a producer of precision plastic parts such as the casing of electronic or medical equipment, will focus instead on cost discipline to ensure profitability in a challenging environment for manufacturers.

Slimming down its operations helped the firm secure a 41 per cent rise in profit after tax last year to $14.1 million, despite a 12.5 per cent drop in revenue.

Chief executive Elson Hew said: "Our earnings are diluted by some plants that are not making money, particularly in China. We will focus on right-sizing our capacity there while targeting growth products in the areas of solar energy and medical sciences."

China Everbright Water, Spackman Entertainment, Sheng Siong and Frasers Commercial Trust also made RHB Research's top 25 small-cap list.

RHB Research head Ong Kian Lin said: "We hope to unearth previously undiscovered or under-researched companies and push their hidden potential to be unleashed so they turn from gems to glittering jewels."

A version of this article appeared in the print edition of The Straits Times on April 20, 2016, with the headline 'CAO, Sinarmas among RHB picks of small-cap gems'. Print Edition | Subscribe