Small stocks, big growth

• Stronger growth should spur small-mid cap

(SMCs) to outperform

• Pick exposure to external markets; ride on

China’s rebound

• O&M interests continue to cascade and centre

around smaller caps

• Top picks: Tat Hong, China Merchant, Sound

Global, Ezion, Jaya

SMC to grow 13% vs 9% for large caps (LC).

Singapore SMCs and the DBSV SMC universe have

both outperformed the FSSTI’s 20% gain in 2012,

rising 31% and 39% respectively. But, as SMC’s

earnings growth is projected to outpace LC at 13% to

9%, we see SMCs having more legs to run and would

continue to beat the STI, which consensus expects to

have a <10% return.

Bank on external growth. Singapore is expected to

lag behind the rest of Asean with little growth and

high inflation this year. We prefer companies with

external growth, particularly those leveraged on Asean.

Our picks are Petra Food, Super Group, Tiger Airways

and Tat Hong, which generate >50% of their sales

from non-Singapore markets, whereas Bumitama sells

globally. Although 70% of Cordlife’s sales are

domestic, cord blood banking offers a stable pool of

recurring income. Although CDL Hospitality draws

80% of its income domestically, these are mainly

supported by overseas tourists to Singapore. We

expect the re-rating on Super to continue and have

raised its TP to $3.51.

Ride on China’s recovery. With no sign of recovery in

exports to major economies like the US and Europe,

China looks set to accelerate other engines of growth

namely investment and consumption. Our

infrastructure picks Sound Global and United

Envirotech are poised to benefit from China’s will to

improve environmental protection. We believe Midas

will continue to re-rate along with the revival of

China’s high speed railway programme. Our proxies to

a rebound in China’s consumption are PCRT (retail)

and China Merchant (traffic flow).

Small mid cap O&M to remain in favour. We

expect a continuation of robust exploration and

production activities for the oil & gas sector. Hence,

stay invested in OSVs players like Ezion, Jaya, Nam

Cheong and ASL Marine.

Price Mkt Cap Target

Price

Performance (%)

S$ US$m S$ 3 mth 12 mth Rating

Top picks

Tat Hong 1.38 636 1.70 4.2 56.3 BUY

China Merchants Hldgs

(Pacific) 0.82 480 1.20

12.3 32.3

BUY

Sound Global Limited 0.62 647 0.90 18.3 15.0 BUY

Ezion Holdings 1.71 1,246 2.12 31.2 152.6 BUY

Jaya Holdings 0.67 418 0.85 15.7 40.0 BUY

Other stock picks

Asean growth exposure

Bumitama Agri 1.08 1,548 1.25 3.9 N.A BUY

CDL Hospitality Trusts 1.93 1,525 2.11 (7.2) 22.2 BUY

Far East Hospitality Trust 0.985 1,294 1.09 (6.6) N.A BUY

Cordlife Group Ltd 0.56 105 0.65 (3.5) N.A NOT

Petra Food 3.49 1,740 3.97 45.4 88.7 BUY

Super Group Ltd 3.23 1,469 3.51 38.0 136.6 BUY

Tiger Airways Holdings 0.74 492 0.95 (2.7) 13.1 BUY

China Come Back

Midas Holdings 0.46 452 0.50 5.8 30.0 BUY

Perennial China Retail Trust 0.59 544 0.84 17.0 21.9 BUY

United Envirotech 0.52 201 0.69 47.1 68.9 BUY

More Legs to O&M

ASL Marine 0.68 234 0.90 0.0 33.3 BUY

Nam Cheong Ltd 0.27 414 0.30 17.8 96.3 BUY

This message was edited by stand up n wake up on 07-Jan-2013 @ 12:54 PM

Fw: OSPL - MARKET PULSE: Nam Cheong, CDLHT, CSE Global (7 Jan 2013)

   Inbox

• Small Mid Caps Strategy - Stronger growth should spur SMCs to outperform. Top picks: Tat Hong, China Merchant, Sound Global, Ezion, Jaya
• CDL Hospitality Trust – Opportunistic venture into Maldives; upgrade to BUY, TP raised to S$2.11

  Today’s Focus

• Small Mid Caps Strategy - Stronger growth should spur SMCs to outperform. Top picks: Tat Hong, China Merchant, Sound Global, Ezion, Jaya
• CDL Hospitality Trust – Opportunistic venture into Maldives; upgrade to BUY, TP raised to S$2.11

Best of Luck  

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