ShareTradeForumGuest Blog by: sharesinv.com
Local investors often lament that our local stock market offers little growth stocks to ride on. That is perhaps due to the fact that local investors often shun small-cap counters. According to studies from Nobel Laureate Eugene Fama, small-caps often outperform their large-cap counterparts in the long run – on average. Here are 3 small-cap stocks that delivered growth in the latest quarter earnings season.
China Aviation Oil (CAO)
China Aviation Oil (CAO)’s latest 1Q18 net profit exceeded Phillip Securities’ analysts’ expectations by a significant 11.8 percent, driven by strong contributions from associates. CAO is looking forward to enlarging the size of its trading business to enjoy economies of scale, in so achieving a “lower break-even point”.
Associates reported great performance and were the key drivers of growth for CAO this quarter. Primarily, Shanghai Pudong International Airport Aviation Fuel supply company reported a profit of US $18.9 million which was a significant 46 percent growth from last year, arising from “higher refuelling volume, foreign exchange gain and investment income”.
Another associate Oilhub Korea Yeosu also saw their reported profit rising by 6.9 percent year on year, contributing another US$1.4 million to CAO’s bottom line.
The only drag from the associates came from Hong Kong Refuelling which reported losses of US$0.2 million. However, the net loss has shrunk to the lowest level ever since its acquisition in 2014, showing signs of a potential turnaround.
Given the uncertainties in geopolitics and the spike in oil prices, we see that backwardation (where spot price is higher than agreed forward price) “could continue for another one or two quarters”. Nevertheless, the higher profits from associates should continue to be strong drivers of growth ahead for CAO.
Phillip Securities has a Buy call on the stock with a target price of $2.00. Currently CAO is trading at $1.63.
Cityneon Holdings
Cityneon Holdings (Cityneon) saw an impressive leap in its first-quarter performance, reporting an 80.5 percent growth in net profit to $4 million, largely due to a significant increase of 38 percent in its revenue.
The star of the show is Cityneon’s Intellectual Property business which is now contributing 62 percent of the group’s revenue, as compared to 44 percent the same time last year. The IP business is seeing significant growth, and widening net profit margins from this segment has been largely beneficial to the firm’s bottom line growth.
Going forward, Cityneon’s plans include having “at least nine to ten permanent and travelling exhibition sets”, which is in-line with DBS analysts’ expectations (five for Avengers, two each for Transformers and Jurassic World, and one for The Hunger Games) according to the report.
Cityneon is expected to continue to do well and has a Buy call from DBS with a target price of $1.60.
Japan Foods Holding
Japan Foods Holding (JFH)’s recent briefing on its results for Financial Year 2018 has seen strong confidence from the management, brought by higher revenue from the newly launched Shitamachi Tendon Akimitsu brand, as well as growth reported from its joint venture in Indonesia.
JFH has set its aspirations high and is trying to achieve higher net margins, despite already being the market leader in the Food and Beverag (F&B) space, commading a gross margin of 85 percent. This will be done with optimising cost keeping labour and rental costs within control.
JFH is attempting to change its existing brands to suit the changing consumer preferences. One of its pioneers attempted to do so with “Den by Ajisen Ramen” project. The project has seen some positive results, growing 13 percent in FY2018 as compared to 4 percent last year.
The new brand Shitamachi Tendon Akimitsu has also reported significant contributions, accounting for 6 percent of the group’s revenue despite only being in operation for eight months. This gives investors more confidence in the performance of the next two franchise brands that are expected to be introduced by the group in 2019.
Overall, RHB finds that JFH’s stock is still currently trading at a discount to its peers. However, given its high dividend yield, gross profit margin, and healthy growth prospects, the discount seems unnecessary and provides investors with an attractive entry point.
RHB has a buy call on the stock with a target price of $0.63.
