Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...
Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...
Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...
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Regional <strong>Small</strong>/<strong>Mid</strong> <strong>Strategy</strong> Q2 2008<br />
Country Assessment<br />
GROWTH AND VALUATION<br />
Our small/mid caps FY08 PE dipped from 11.3x to<br />
10.5x when compared to <strong>the</strong> previous quarter. FY09<br />
PE fell from 9.6x to 7.9x. Growth is projected at 18%<br />
in FY08 <strong>and</strong> 34% in FY09. <strong>Small</strong>/mid caps continue to<br />
trade at a more attractive valuation compared to large<br />
caps as <strong>the</strong> latter are trading at 13.5x (FY08) <strong>and</strong><br />
11.9x (FY09) with earnings growing at 13% <strong>and</strong> 14%<br />
respectively.<br />
The small/mid caps REITS sector trades at DPU yields of<br />
6.4% (FY08) <strong>and</strong> 7.2% (FY09), higher than 5.4%<br />
(FY08) <strong>and</strong> 5.5% (FY09) for <strong>the</strong> large caps. Our pick in<br />
this sector is ARA, an Asian real estate fund<br />
management company that focuses on managing<br />
public listed REITs <strong>and</strong> private estate funds. ARA trades<br />
at an attractive yield of 6.3% (FY08) <strong>and</strong> 8.1% (FY09).<br />
Good value can be found in <strong>the</strong> small/mid caps basic<br />
materials sector as PE has fallen to 8.1x (FY08) <strong>and</strong><br />
5.7x (FY09) post <strong>the</strong> 1Q market correction. This sector<br />
is <strong>the</strong> most attractively valued compared to all <strong>the</strong><br />
o<strong>the</strong>r sectors, both large <strong>and</strong> small caps. Growth rate<br />
of 16% in FY08 <strong>and</strong> 42% in FY09 is also higher<br />
compared to <strong>the</strong> <strong>DBS</strong>V universe of 14% <strong>and</strong> 17%<br />
respectively. Coated steel <strong>and</strong> steel related products<br />
producer Ferrochina is our pick in this sector.<br />
The consumer goods sector is a close second<br />
compared to <strong>the</strong> basic materials sector. PE valuations<br />
have fallen to a very attractive 8.1x (FY08) <strong>and</strong> 6.8x<br />
(FY09) compared to 10.5x <strong>and</strong> 7.9x respectively for<br />
<strong>the</strong> small/mid caps group. The projected sector growth<br />
of 19% in FY08 <strong>and</strong> 20% in FY09 is higher than <strong>the</strong><br />
<strong>DBS</strong>V Universe growth rate of 14% <strong>and</strong> 17%<br />
respectively. Our pick is sports shoes designer <strong>and</strong><br />
manufacturer China Hongxing.<br />
PE valuations for <strong>the</strong> small/mid caps industrials sector<br />
fell from 14.4x (FY08) <strong>and</strong> 12.1x (FY09) in 4Q07 to<br />
11.1x (FY08) <strong>and</strong> 9.4x (FY09) during <strong>the</strong> quarter.<br />
Current valuations are much lower compared to <strong>the</strong><br />
14x (FY08) <strong>and</strong> 12x (FY09) for <strong>the</strong> large caps industrial<br />
sector. Growth for <strong>the</strong> small/mid caps sector is an<br />
impressive 43% for FY08 when compared to 18% for<br />
<strong>the</strong> entire small/mid caps group. Our pick for <strong>the</strong><br />
industrials sector is Ezra, an integrated offshore<br />
solutions provider for <strong>the</strong> O&G industry.<br />
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