CI Holdings replaces Perisai Petroleum as CIMB Research's top pick this month, citing the management's openness to merger and acquisition opportunities
KUALA LUMPUR: Smallcapi-talised stocks have received a timely backing from one of the country's most influential research houses, which says that it is overweight on the sector.
In a research report, CIMB Research said it is overweight on the sector as it sees value in selected small-cap stocks.
"CI Holdings Bhd replaces Perisai Petroleum Bhd as our top pick this month," analyst Nigel Foo wrote in the report.
"We like CI Holdings for its market leadership, its increasing marketable product line and the management's openness to merger and acquisition opportunities, especially in the snack segment," Foo said.
Nevertheless, he noted that small-cap shares continued to disappoint in the first-quarter reporting season.
"Some 53 per cent of the companies in our coverage failed to meet our expectations compared with 41 per cent in the fourth quarter of 2010 and 27 per cent in the third quarter of 2010, which was probably the best quarter for small caps," said Foo.
Among the small-cap stocks highlighted in the report are Hua Yang Bhd, Berjaya Food Bhd, Harrisons Holdings Bhd, Malaysia Steel Works Bhd, Digistar Bhd and Asia Media Group Bhd.
CIMB values Hua Yang and Malaysia Steel Works at RM2.76 and RM2.95, while Harrisons, Digistar and Asia Media are valued at RM6.49, 86 sen and 53 sen respectively.
"The average dividend yield of our small-cap universe is 4.4 per cent, with the top four - Wellcall Holdings Bhd, Uchi Technologies Bhd, Daibochi Plastic & Packaging Ind Bhd and Tomypak Bhd - offering yields of above 7 per cent," Foo said.
He added that the top four were the same as in CIMB's previous update in March.
"Wellcall continues to offer the highest yield of 13.1 per cent for 2011. Uchi, Tomypak and Daibochi are 'outperforms' while Wellcall is a 'neutral' mainly because of its limited earnings growth prospects due to the absence of major capex (capital expenditure) in the past two years," he said.
Meanwhile, the research house also has "underperform" recommendations for Adventa Bhd, Cocoaland Holdings, MTD-ACPI Bhd and Malaysian Genomics Resource Centre Bhd.