Top 8 small cap stocks to invest in Singapore for 2017

Stocks can be ranked based on their market capitalization – or market value – defined as the price per share multiplied by all shares outstanding. In general there are 3 main categories of market capitalization namely small cap, mid-cap and large cap (or blue chip stocks). While there is no precise market valuation range for a stock belonging under the small cap umbrella, the general consensus would be that stocks under small cap category have market capitalizations of less than S$500 million.

The case for buying a small cap stocks would be its low P/E ratio and higher future growth from earnings growth and  potential P/E expansion. Institutional investors and retail investors alike are constantly on the hunt for small cap stocks to be added to their investment portfolio.

In our previous articles, we highlighted our favourite blue chip stock picks and REIT picks for the year.

Unlike blue chip stocks, small cap investors must be able to stomach higher price volatility due to its lower market valuation and lower absolute free float. It is good practice to fall back on underlying earnings trend and business conditions of the operating company to determine the valuation of the company. 

Here, we highlight our top 8 small cap stock picks that could potentially bring capital gains and solid investment returns.

 

1. Hock Lian Seng Holdings

Hock Lian Seng is mainly involved in the construction industry and also operates a property development business segment. It is highly specialized in infrastructure construction and is one of the few reputable players in the market. It has solid financials and fundamentals as well to back up the stock. Its P/E currently stands at an undemanding 7 times historical earnings and is a consistent dividend paymaster. Its orderbook stands at S$915 million which will keep it busy for the next few years.

 

2. IFast Corporation

IFast is an online distributor of investment products and investors are able to purchase mutual funds or other investment products via iFast platform. It is a truly one of a kind company operating in the Fintech space. IFast has solid financials as well with uninterrupted net profit track records. Its recent 1Q 2017 financials showed promising growth where revenue and net profit grew 20% and 56% respectively compared to 1Q 2016. The stock sparked investor’s interest when its subsidiary was approved as trading member of SGX. It has rewarded shareholders in the form of consistent dividends since listing as well.

 

 

3. Valuetronics Holdings Limited

Valuetronics is an integrated electronics manufacturer with 2 main business segments ie Consumer Electronics and Industrial Electronics. Its annual results from FY2016 to FY2017 performed outstandingly with a growth of 16% in topline revenue and 28% of net profit growth. Valuetronics is also cash rich and has been rewarding shareholders with uninterrupted dividend payouts. Planned bonus issue which is on the cards has attracted investor scrutiny on this small cap powerhouse.

 

4. China Sunsine Chemical Holdings

China Sunsine is a manufacturer of rubber chemical products with plants in China. It boasts global renowned tyre maker Bridgestone as its customer. The small cap once considered de-listing due to the lack of interest from Singapore investors in China based listed companies – also known as S-Chips. However, the group's solid financials with generous dividends slowly made investors take notice. Both revenue and net profit registered healthy growth from 1Q 2017 compared to 1Q 2016. Production capacity is planned to increase with increased demand for its specialty chemical products and investors may consider this small cap which is trading at a very reasonable P/E of 7.5 times historical earnings.

 

5. Boustead Projects

Boustead Projects is engaged in the design, developing and building of custom special purpose facilities such as commercial buildings for companies in the aerospace, oil and gas and high-tech manufacturing sector. The company is independently profitable and is currently trading at a P/E range of 8 times. A key catalyst as highlighted by CIMB's analysts is the launching of a REIT within the next few years, given Boustead's expertise in building and development.

 

6. United Overseas Insurance

Want a relatively stable sector exposure? United Overseas Insurance would be your choice. It is a subsidiary of local banking giant UOB and is engaged in the provision of general insurance products and reinsurance services. Its key investment merit is the stability of dividends where without fail it has been paying 17 cents in annual dividends for the past 5 years. Financials are starting to see improvement where gross premium and underwriting profit registered growth in Q4 2016.

 

7. BreadTalk Group

Source: Shutterstock

Local favourite restaurant and bakery operator Breadtalk is actually owned and operated by a listed company Breadtalk Group. This F&B operator has multiple solid F&B brands under its umbrella namely Toast Box, Food Republic and Din Tai Fung. It has presence in Singapore, China and Hong Kong, with ambitious for expansion plans. A key catalyst which may drive share price higher would be the potential sale of Breadtalk’s stake in AXA Tower and Chijmes. Nevertheless, its underlying financials remain rock solid with healthy dividends.

 

8. Tat Seng Packaging Group

This little small cap gem manufactures corrugated paper products and packaging materials in Singapore and China. Its profit had grown tremendously over the 5 year period at a CAGR in excess of 20%  and this stock is still currently trading a super low P/E of 6 times. It is also a great dividend stock with latest payout SGD 4 cents per share translating into a mouth-watering 5% yield on current prices. This market has starting to notice its earnings power and growth and still remains a strong small cap stock to invest for this year.

 

 

  

(By Chee Hoong Chan)

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