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Wednesday, December 7, 2011

Smallcaps (CIMB)

We remain NEUTRAL on small caps as they continued to disappoint in 3Q11. While there is no denying that their valuations are cheap, investors currently have a small appetite for risk. Perisai Petroleum remains our top small-cap pick.

The sector’s average CY12 P/E of 9x looks attractive, being at a 30% discount to the KLCI’s P/E. The small-cap sector usually trades at discounts of between 25% and 35% to the KLCI. But we think that the discount could widen if the flight to quality accelerates over the next few months.

Perisai remains our top small-cap pick. At 6.2x P/E, it is also the cheapest stock in our oil & gas coverage. In addition, it offers the most share price upside in the oil & gas sector.

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