This article first appeared in Capital, The Edge Malaysia Weekly, on December 21 - 27, 2015.    

IT’S been a tough year for stock pickers with markets around the world experiencing unprecedented volatility — from the Shanghai roller coaster stock market and surprise renminbi depreciation to the guessing game on when the US Federal Reserve would finally begin normalising interest rates. Volatile oil prices and a sharply weaker ringgit also made it harder to generate gains from the equity market.

“2015 was a difficult time for stocks, with external headwinds coupled with domestic issues. It was a perfect storm. But as our results have proven, one can still make money by choosing the right stocks. That is our challenge — discovering these stocks,” says Linda Koh, head of research at independent research outfit Asia Analytica Sdn Bhd, or better known as InsiderAsia.

“The most satisfying is, of course, discovering the hidden gems. Our recommendations are freely available, thanks to our collaboration with The Edge. We are particularly happy to level the playing field — where the average man or woman can make money,” she adds.

“A number of stocks we recommended in 2015 — we wrote about them in The Edge and The Edge Financial Daily — performed well, not only delivering capital gains but also rewarding shareholders with dividends and bonus shares.”

The top performers on share price appreciation alone were SCGM Bhd, Lii Hen Industries Bhd and Focus Lumber Bhd — each rising some 120% to 140% since they were featured by InsiderAsia. All three stocks are not actively tracked by any other brokerage house, according to Bloomberg data.

In fact, if one were to include the bonus issue, dividends and stock split at wooden furniture-maker Lii Hen (fundamental: 2.50; valuation: 2.10), total returns are a whopping 500%, back-of-the-envelope calculations show. In a Feb 16 report, InsiderAsia said Lii Hen’s net assets saw a RM34.9 million boost from the revaluation of land and buildings in Johor and despite the payout of 30% to 50% of its profit as dividends, the company still had RM22.7 million net cash in January.

Other furniture-related businesses featured by InsiderAsia that did well include Homeritz Corp Bhd and Poh Huat Resources Holdings Bhd, with sales benefiting from the recovery in the US as well as the weaker ringgit.

Investors who caught on early when coverage was first initiated on upholstered home furniture-maker Homeritz (fundamental: 3.00; valuation: 2.10) in January this year could have seen their investment grow about 115% on stock price appreciation as well as dividends, bonus shares and bonus options declared. The company exports 99% of its products to more than 50 countries. With a minimum 40% dividend payout policy, Homeritz is trading at a price -earnings ratio (PER) of 13.5 times and has a strong balance sheet with RM51.8 million net cash.

Closing at RM2.66 on Dec 14, shares of Sabah wood-based products seller Focus Lumber were up nearly 120% in just over six months from when InsiderAsia first wrote about it. On May 27, InsiderAsia pointed out that 98% of the company’s revenue was derived from exports, with 65% of sales coming from the US, putting it in a good position to benefit from the strong greenback and economic recovery in the country. Focus Lumber’s (fundamental: 1.95; valuation: 2.40) key differentiating factor is its focus on obtaining US environmental and quality accreditation and certification for its products, InsiderAsia says.

Focus Lumber shares are trading at a higher PER multiple of 10.56 times versus 8.65 times before InsiderAsia reported on the stock. Nevertheless, its dividend yield continues to look attractive at 8.61% with the balance sheet lined with RM85.5 million net cash.

InsiderAsia was the first to initiate coverage on SCGM (fundamental: 2.60; valuation: 1.70) on Jan 5, when the stock fetched RM1.17 apiece and had a market capitalisation of RM154 million. Having gained 140% to RM2.82 as at Dec 14, the company is now worth some RM374.9 million.

The maker of thermo-vacuum formed plastic packaging benefited from the lower cost of plastic resin as well as the US dollar’s strength as it derived 44% of sales from export markets. Although valuations have turned pricier, trading at 20.02 times earnings, InsiderAsia said in a November report that it continues to like the stock because of its defensive earnings with growth potential and yield of 3.1%.

Another interesting find is SAM Engineering & Equipment (M) Bhd, a subsidiary of Singapore Aerospace Manufacturing Pte Ltd, which is in turn wholly owned by Singapore’s Temasek Holdings Private Ltd.

When InsiderAsia first initiated coverage on the stock on June 10, it had raised its dividend payout ratio to 51% in FY2014 compared with 22% in FY2012 and its share price of RM3.78 apiece offered a yield of just over 4%. But within four months, it surged to RM8 on Oct 23 before retracing to RM6.92 on Dec 14, up 83% in just six months.

SAM Engineering (fundamental: 2.80; valuation: 2) started off in equipment manufacturing and precision engineering, making components for the semiconductor and hard disk drive industry, but diversified into manufacturing engine casings for aircraft in 2012. The diversification was perhaps why the company could afford to increase its dividend payout ratio as earnings improved nearly 50% in FY2014, thanks to the contribution from the aerospace division.

When it discovered SAM Engineering, InsiderAsia thought the company’s trailing 12-month PER of 10 times was low relative to its double-digit growth. Currently, it is trading at a PER of 10.26 times. Earnings continue to grow each quarter. Closing at RM6.92 on Dec 14, SAM Engineering’s market capitalisation stood at RM597.2 million, not that much more than the revenue of RM451.5 million it raked in for the year ended March 31, 2015 (FY2015).

To be sure, some of these stock discoveries are small in terms of market capitalisation and have remained small even after their stock price gains this year. Others are tightly held and a small free float can limit trading activity.

For Koh, small is only a place to start. “Well, thin free float and small market caps are not static metrics. Companies grow. A RM100 million company today can grow into a RM1 billion company tomorrow. Wouldn’t you like to buy it today? The most important question for us is: ‘Is this a good company that will endure and grow in the long run?’ We are not short-term traders,” she says.

“We look at the entire universe of stocks, not just the largest 50 by market cap. To do this, we built our own database and created screeners to help us separate the wheat from the chaff. In 2016, we would like to share these with you, so that you too can discover your own hidden gems. Check us out on theedgemarkets.com.”

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