There are plenty of hidden gems in the small-cap segment, offering investors the opportunity to buy into companies with good growth potential and unique market positions.
These often undervalued stocks are worth a closer look in what is expected to be an uncertain year ahead, market watchers said.
Singapore Exchange market strategist Geoff Howie, looking back at 2016, said: "While the STI represents half of Singapore's market capitalisation, there were plenty of opportunities for more risk and more return beyond the STI. In fact, many mid-cap and small-cap stocks fared better than the 30 STI stocks."
One of the popular small-cap picks last year was Singapore Myanmar Investco (SMI), a company with retail, auto services and logistics businesses in Myanmar.
The bulk of its revenue comes from the 35 duty-free shops it operates at the Yangon International Airport, where the company is the sole retail operator.
SMI shares have gained 52.5 per cent over the past 12 months, closing at 61 cents last Friday. Its chief executive Mark Bedingham expects the company's performance to firm up this year, following two years of initial business investments.
"We are one of the very few ways to invest in Myanmar; we're an international management firm listed in Singapore, and we're in the goods and services business, which is easy to understand. So investors get exposure to one of the last frontier markets, transparency and clarity," he told The Straits Times.
It will be companies like SMI that will offer retail investors a bigger payoff in 2017, RHB head of small-mid caps Jarick Seet said.
"Similar to last year, benchmark and big-cap stocks will not provide good returns to retail investors, as compared with niche stock picking.
"As the saying goes, one man's meat can be another man's poison. However, I feel there's value in the medical and entertainment space at the moment, which is sort of defensive towards the weaker macro environment ahead."
STRONG PROSPECTS IN HEALTHCARE
Singapore O&G (SOG) has been among the outperformers in the medical and healthcare segment. Shares of the women's clinic operator have surged almost 70 per cent in the past 12 months to $1.185 at last close.
Its four key businesses - obstetrics, gynaecology, dermatology and women cancer treatment - are all growing well, said its chief executive Ng Koon Keng.
"I believe our biggest percentage revenue growth will be from the cancer portion, which we started from a low base with just two surgeons for most of last year."
That team has since grown to three specialists, alongside the addition of renowned dermatologist Joyce Lim, who joined in late 2015.
Dr Ng said recruitment of new specialists will remain a business focus. "Hopefully this year we can progress further in building paediatrics as our new business pillar. We have interviewed several specialists in this area."
Mr Seet's favourite in the segment is specialist clinic operator Singapore Medical Group (SMG): "They are also trading at a discount compared to peers and can grow through many specialist practices, instead of just one like SOG... We believe SMG could continue its strong net profit after tax growth for the next two to three years."
OTHER GROWTH SECTORS
Rounding up Mr Seet's top small-cap picks are film company Spackman Entertainment, Isoteam in the construction space, satellite equipment provider Global Invacom and plastic manufacturer Fu Yu Corporation.
Companies like Fu Yu present another appeal of the small-cap segment: smaller firms offering good yield and the tantalising potential of privatisation.
"We expect an attractive dividend yield of 7.9 per cent for financial year 2016. With a net cash of 13 cents a share and zero debt... we believe Fu Yu is an attractive privatisation candidate," Mr Seet added.
DBS analyst Paul Yong, meanwhile, named CNMC Goldmine, Cityneon, Ezion, mm2 Asia and Japfa as his top five picks.
"Cityneon's earnings are directly correlated with the number of exhibits it has, and it is set to register explosive growth in earnings per share by a compound annual rate of around 150 per cent between financial year 2016 and 2019," he said.
"Ezion had 10 service rigs withdrawn for repairs, upgrades or conversions. The resumption of these rigs in 2016 should drive earnings recovery. Its balance sheet has been strengthened by rights issues of US$100 million (S$142.5 million) completed in July 2016."