Harbour Link, KKB among MIDF’s Top 20 Under a Billion in 2016
KUCHING: Sarawakian players Harbour Link Group Bhd (Harbour Link) and KKB Engineering Bhd (KKB) are among 20 companies picked by MIDF Amanah Investment Bank Bhd (MIDF Research) for its 20 Under a Billion: 2016 edition list released on Tuesday.The “20 under a billion stocks” were selected largely based on bottom-up screenings, the firm said, Each of the 20 companies possesses its own unique company-specific factors.
“These so-called Alpha factors, we believe, will help to propel the stock to achieve relative outperformance vis-à-vis the broader market going forward,” it said in the prelude to the report.
MIDF Research selected these small cap stocks, it said, because they exhibited markedly higher beta since mid-2013, and that investors can profit from the small cap swings.
“The continuation of small cap swings may be dependent on liquidity dynamics,” it added. “We reckon continued net purchases among local investors are necessary to support the small capitalisation swings, as without which the market momentum may eventually narrow down again towards higher capitalised stocks.
“Hence for as long as the suitable liquidity dynamics remain present, we foresee recurring interest in the forerunners among the small capitalised stocks, as well as rotational plays that may lift some of the laggards.
“On this score, we expect the liquidity dynamics to remain supportive of the small capitalised stocks at least up to after the initial or even a few US Federal Reserve rate hikes.”
However, while the markedly higher beta among small capitalised stocks may result in massive outperformance during a cyclical market upturn, MIDF forewarned that the reverse is equally true in a market correction phase.
“Sustainable gains may only be achieved via fruitful short-term trading or careful stock picking,” it affirmed. “With regard to the latter, it must be highlighted that small capitalised stocks generally trade at comparatively lower valuations vis-à-vis its bigger peers.
“Hence, judicious stock selection may unearth compelling bargains which would be able to generate more genuine gains and that are less susceptible to the possible adverse shift in underlying liquidity dynamics.”
MIDF Research picked Harbour-Link on its position as a dominant logistics provider in East Malaysia with more than 50 per cent market share, riding on the rise of economic activities in Sarawak.
“Logistics services and machineries, its key earnings driver, contributed more than 60 per cent to Harbour-Link’s earnings growth in FY15. The division rides on the construction of the RM1.8 billion Samalaju Industrial Park, which is now 40 per cent complete and scheduled to be completed by 2017.
“Harbour-Link is now in net cash position, suggesting room for higher dividends or acquisitive growth.”
The research house also picked KKB as it has made a mark in East Malaysia by providing the niche specialisation in the supply of galvanised piping, steel fabrications, civil engineering and construction.
“KKB is divided into two core businesses which are engineering of steel related products for example hot dip galvanising and, manufacturing of gas cyclinders.
“Its largest revenue generating segment is engineering and construction contributing more than 70 per cent. This segmentincludes hot dip galvanising, steel fabrication and civil engineering especially the steel structure for bridge.”
KKB would also potentially be the recipient of infrastructural largesse from potential practical consequences of upcoming Sarawak election in 1QFY16, Sarawak FY16 State Budget, Samalaju and Pan Borneo Highway projects.