They might be small, but they are feisty!
Big companies seem to be all the rage these days. In the U.S., everyone is salivating at the prospects of Nvidia becoming a US$1 trillion company, joining the likes of Microsoft and Apple.
After all, it is the big companies that often make headlines as they generate high revenue and profits for investors. However, small-cap companies also offer attractive investment opportunities for investors out there.
Here are 4 small-cap companies that you could add to your watchlist.
#1 Kim Heng Offshore & Marine
Kim Heng Offshore & Marine (KH) provides offshore marine services which include engineering, procurement, construction, and installation support. It has two shipyards located at 9 Pandan Crescent and 48 Penjuru Road.
Most of KH’s revenue is concentrated in offshore rig services and supply chain management, encompassing about 98% of revenue in 2022.
By geographical exposure, Singapore comes in first at 32% of revenue followed by Malaysia (21%), Taiwan (18%), and Europe (12%).
KH seems to have turned the corner in the past couple of years. Revenue grew by 68% and 26% in 2021 and 2022 respectively, doubling to SG$80 million in 2022 from SG$38 million in 2020.
Meanwhile, after 7 consecutive years of making losses, KH has finally returned to profitability. It registered a net profit of SG$7 million in 2022 compared to a loss of SG$6 million in 2021.
Since the beginning of the year, KH’s share price rose by 14.3% (as of end of June 2023). KH’s share price rose sharply by 22.9% for March 2023 when KH released its annual results for 2022 showing a positive profit.
Currently, KH is trading at a price-to-earnings ratio of 9 times and yields a dividend rate of 3.0%. You can consider adding KH to your watchlist for the following reasons:
- Oil & gas industry is expected to trend higher in 2024 compared to 2023. According to forecasts from EIA, the crude oil price is expected to increase to US$83.5 per barrel in 2024 from US$79.5 per barrel in 2023.
- KH’s return to profitability in 2022 is positive considering that it made losses for 7 consecutive years.
- Higher return on asset of 6.1% compared to its peers’ average of 3.3%.
Avi-Tech Holdings provides solutions for burn-in, manufacturing, and printed circuit board assembly, and engineering services for semiconductors, electronics life sciences, and other industries.
Avi-Tech’s biggest contributor to revenue is the board-testing segment, encompassing 55% of revenue in 2022 followed by its engineering services & equipment distribution segment at 24%.
In the second half of 2022, Avi-Tech registered a revenue growth of 15.8% to SG$18 million from SG$15 million in 1H 2022.
Likewise, profits also doubled to SG$2 million from SG$1 million over the same period.
At the time of writing, Avi Tech is now trading at a P/B ratio of 0.88 times compared to the industry’s average of 1.33 times.
There are a couple of things about Avi-Tech that could make it a worthwhile investment:
- Potential New Revenue Driver
While the services of testing boards are still key to Avi-Tech, its engineering services and equipment distribution segment is becoming more important too. This segment’s contribution to revenue increased from 15% in 2021 to 24% in 2022.
- Strong Dividend Yields
Avi-Tech has an average dividend yield of 6.8%, higher when compared to its bigger competitors such as UMS Holdings (4.7%), Ellipsiz Ltd (3.3%), and AEM Holdings (2.8%).
- Low Beta Stock
Low beta just means that the stock is not as risky as the overall Singapore market. Avi-Tech has a 0.21 5-year beta which is much lower when compared to its competitor’s average of 0.73.
#3 Sim Leisure
Sim Leisure Group (Sim Leisure) designs, develops, and operates theme parks, and holdings assets such as ESCAPE Parks, ESCAPE Challenges, ESCAPE BASE Camp, Kidzania Kuala Lumpur, and Haven XR VR centers.
Sim Leisure mainly derives its revenue from operating theme parks in Malaysia and royalties from its customers.
The theme parks segment is the biggest revenue contributor at 86% of revenue in 2022, followed by royalties (12%).
In terms of financial performance, Sim Leisure’s revenue rebounded at a strong rate, nearly quadrupling to SG$21 million in 2022 from SG$6 million in 2021.
It has also emerged from a loss of SG$3 million in 2021 to register a profit of SG$8 million.
Hence, in light of its strong financial performance in 2022, Sim’s share price has risen by 37.3% (as of end June 2023) since the beginning of the year.
It is currently trading at a PE ratio of 8.6 times which is lower when compared to its peers’ average of 19.3 times and has a high dividend yield of 8.2%.
If you are looking to add Sim Leisure to your watchlist, here are several factors that you can consider:
- Purchase of Kidzania Singapore
Sim purchased Kidzania Singapore for S$110,000 in June 2023, after Kidzania Singapore permanently closed in 2020 during the pandemic. Sim also holds the Kidzania Kuala Lumpur asset from 2020 and would be experienced in managing a similar asset.
- High Efficiency in Utilising its Assets
Sim’s return on assets currently stands at 17.7%, which is much higher when compared to its peers’ average of 2.9%. This gives Sim a competitive advantage in managing theme park assets.
- Full Recovery in 2024 of Tourism Activities
Domestic and international tourism activities in Malaysia and Singapore are expected to fully recover in 2024, continuing their momentum from 2023.
#4 XMH Holdings
XMH Holdings (XMH) is a solutions provider for diesel engines, propulsion, and power-generating equipment, and also distributes products for Mitsubishi, Asakasa, Kamome, Hyundai, Doosan, and Siemens.
The projects segment (which manufactures, sell, and commission power generator sets) is the biggest contributor to revenue at 50% of revenue in 2022, followed by distribution (41%) and after-sales services (9%).
XMH has recovered at a strong rate with revenue growing by 79% to SG$129 million in 2023 (April 2022 to April 2023) from SG$72 million in 2022 (April 2021 to April 2022).
Net profits have also gained by 33% to SG$4 million from SG$3 million over the same period, driven by higher business activities in its projects and distribution segments.
As XMH’s financial performance has been impressive, its share price rose by 22.4% (as of end June 2023) since the beginning of the year.
XMH is trading at a PE ratio of 8.6 times, lower when compared to the industrial average of 15.9 times.
These are the main points about XMH if you are considering investing in it:
- XMH Generated the Most Operating Cash in 2023
For the fiscal year 2023, XMH generated the most cash from its operations at SG$30 million which is much higher when compared to the pre-pandemic historical average of SG$5 million.
- On its Way Out of SGX’s Watchlist
XMH was placed on SGX’s watchlist in December 2019 as it made losses in the fiscal years of 2020 (April 2019 to April 2020) and 2021 (April 2020 to April 2021). Since then, it has managed to return to profitability but will need to register an average daily market capitalisation of SG$40 million or more for 6 months before being removed from the watchlist.
Small doesn’t mean they are bad. If anything, they could offer value to investors that were not known before.
While they can’t compete against bigger players in terms of size, they typically tailor their services and products to niche markets where they could be dominant in smaller industries.
Don’t miss out on these companies and you can do your in-depth research with the help of this article!