‘Dreadful’ Catalist performance, but hidden gems remain, say analysts
DESPITE the Catalist board’s “dreadful” performance over the last decade, there remain “hidden gems” for investors on Singapore’s junior board, analysts have said.
Of particular interest are stocks in the healthcare and food and beverage (F&B) sectors.
The Catalist board, which caters to small-cap companies with potential for growth, has performed dismally in the last decade.
Paul Chew, head of research at Phillip Securities Research, described the Catalist’s performance as “dreadful”, noting that the index has fallen 40 per cent in the past five years, and 80 per cent in the last decade.
“Many (companies on the Catalist) are too sub-scale to attract any interest. Even the additional cost of independent directors and Catalist sponsorship fees can dent their earnings,” he said.
Sectors with potential for growth, such as technology, are not well represented on Catalist, he noted.
Many Singapore-only funds have also moved their allocations out of small caps because of liquidity concerns, which in turn limit their share-price performance, added Jarick Seet, an analyst with Maybank Securities Singapore.
Worth considering
Nevertheless, analysts believe that there are “many good, solid gems” in the small- to mid-cap space.
Terence Wong, the chief executive officer of fund management company Azure Capital, said that some of the small-cap companies that have been listed for a long time are “definitely worth considering”.
“They have a good track record, their balance sheets are robust, they have cash in their coffers and they have been growing steadily and giving out dividends,” he said.
Chew said companies in the healthcare, consumer staples and F&B sectors are less affected by downturns in the economy because they supply goods or services that people need – even amid economic slowdowns.
RHB Research’s report titled “Singapore Small Cap Jewels in 2023” also noted that more than half the companies it surveyed were from the consumer and healthcare sectors.
The report highlighted small-cap companies listed on either the mainboard or the Catalist that have shown “great probability of generating good returns for investors”. On RHB Research’s roll of Catalist-listed stocks is Singapore Paincare , for growth that is expected to be driven by a rise in the number of patients and overseas expansion.
The research house also identified F&B operator RE&S and coffeeshop operator Kimly Group as having scope for expansion post-Covid.
Apart from the healthcare and F&B sectors, RHB flagged names such as car dealership Trans-China Automotive , which could benefit from rising wealth levels and an appetite for luxury cars in parts of China.
Seet of Maybank Securities suggested that investors look at small- and mid-cap companies on the mainboard that have outperformed the broader Catalist market. These include Food Empire , CSE Global , Marco Polo Marine and Dyna-Mac .
However, Chew warned that undervalued small-cap stocks may remain in that state indefinitely if they do not attract interest or attention from other investors. With such stocks, returns to investors take the form of dividends or buybacks, or privatisation deals, he added.
