Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...

Regional Small/Mid Cap Strategy Q2 2008
Country Assessment
Singapore
Bet on value
On the backdrop of heightened market uncertainties, our
5 small cap picks in 1Q fell 23.2% on a price-weighted
basis, slightly less than the 25.2% decline suffered by the
FTSE Small Caps Index. Looking ahead into 2Q, our
strategy is to selectively accumulate oversold value
opportunities, which have emerged in the aftermath of
the 1Q sell down.
Fundamentally sound companies were dumped together with the speculative
counters as investors slashed their expectations across the board. While we
continue to adopt a defensive stance as the general nervous market sentiment
should still persist into 2Q, selective trading opportunities have presented
themselves post the 1Q correction. We pick ARA for its earnings quality, stability
and visibility. We would be selective in going for oversold rebound plays and
recommend companies that can (i) continue to grow its bottom line strongly
over the next two years; and/or (ii) have a high level of net cash. Our picks are
Ferrochina, Ezra and China Hongxing
ARA offers investors an opportunity to invest in a stable fee-income business
backed by real estate asset performance and valuation. We pick Ezra as one of
the rebound plays for its strong earnings growth in FY08 (+70%) and FY09
(+76%). Ferrochina is our second pick given the expected near-trebling in net
profit in FY08 and resultant low PE multiples. Lastly, China Hongxing’s attractive
valuation versus peers and its strong net cash backing of 20Scts per share makes
it a viable pick.
Yeo Kee Yan · (65) 6398 7955 · keeyan@dbsvickers.com
Ling Lee Keng · (65) 6398 7970 · leekeng@dbsvickers.com
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Refer to important disclosures at the end of this report