BILLION&BELOW model portfolio: What stocks have "great potential"?

Excerpts from RHB Research report

After a long hiatus, we mark Billion&Below’s (B&B) return with a quarterly update and new remodelled portfolio. The mandate stays the same: to invest in quality small-mid cap names in Singapore with great potential in delivering positive returns.

2018 Top 20 Jewels – how did they fare? April was not a good month for the small-mid cap sector, with the FTSE ST Small Cap Index (FSTS) declining 4.3% since 9 Mar. This was the closing price for the jewels in our Small Cap Book 2018. We have tracked the performance of our jewels since then, and their performances have been rather disappointing – interest within the Singapore market is still focused towards large caps. Out of the 20 jewels, 20% have fared better, with Japfa, HRnetgroup and Yoma Strategic leading the gains. The biggest declines are seen in APAC Realty, Avi-Tech Electronics (Avi-Tech) and Asian Pay TV Trust.

Model Portfolio Price (S$) Quantity Value (S$) GSS Energy 0.152 1,200,000 182,400 HRnetGroup 0.83 350,000 290,500 ISOTeam 0.35 300,000 105,000 Kimly 0.35 300,000 105,000 Moya 0.095 1,000,000 95,000 Silverlake Axis 0.55 240,000 132,000 Valuetronics 0.83 100,000 83,000 Cash     7,100 Total     1,000,000 Model Portfolio – what are the new names and why? With a starting portfolio size of SGD1m, we have an initial 1.2m position in GSS Energy (GSS) at SGD0.152/piece. We remain optimistic on its prospects and expect many potential catalysts to come in the near future, both in the precision engineering (PE) and oil & gas segments. A 350,000 position on HRnetGroup at SGD0.83 a piece is also added, as we like its strong PATMI growth as shown in 1Q18. GSS Energy is expected to reap first revenue soon from its oil production in Indonesia.This is coupled with a SGD290m net cash balance sheet for potential incoming acquisitions to further boost PATMI. We continue to like ISOTeam despite a weak quarter, and include a 300,000 position at SGD0.35/piece. Its orderbook remains at a healthy SGD84.4m level, with ISOTeam still expecting to add to this with a few larger project tender results, which are to be announced over the next few months.

We are more positive on the consumer sector this year, especially on defensive consumer names like Kimly, with its rich cash flow generation. We have added 300,000 shares in the group at SGD0.35/share. Kimly has also reported a positive 2Q18. We think the new outlets it invested in during 2017 – and those coming up in 2018 – are likely to be profitable in 2019-2020. In addition, with M&As in the pipeline, we believe that growth will be exciting in the coming years.

For Silverlake Axis, we have added 240,000 shares at SGD0.55/share, as we believe the removal of the GST will be positive to its margins going forward. In addition, we believe that this should be its earnings cycle’s bottom, as the company has managed to clinch new key banking projects in the last few months. These have bumped up Silverlake Axis’ orderbook quite significantly to >MYR380m, which ought to result in strong earnings growth in FY19-20.

For Valuetronics, we add 100,000 shares at SGD0.83/share, as we think the sell-down is overdone, as its fundamentals and growth remain intact. In addition, with the trade war between the US and China seemingly solved, prospects will be bright for Valuetronics.

Full report here.