You would have made good money in Indonesia last year if you focused on stocks hovering just below the $1bn mark. That is a critical level as plenty of emerging market funds or listed funds or ETFs have it written that they cannot invest in stocks that have a market cap of less than $1bn.
I know it, the fund managers know it, and seriously, plenty of CEOs know that as well. If you are too far off the mark, no point trying to get there. If you check with international brokers over the last few weeks as to their flow of orders. You will find a significant flow into stocks which are hovering close to the $1bn mark. There are always vultures around, especially smaller funds or hedge funds which do not have those kind of restrictions.
Once that level is breached you will find it attracting a lot of new international investors. Thus it was often that plenty who breached it, moved pretty swiftly to $1.5bn market cap.
Valuation aside, what is premium valuation compared to the usual under valuation of good stocks? Its not that they are not good enough, they are just not big enough for the funds to plough their funds into. They really like some of the smaller stocks but just shrug their shoulders.
What constitutes premium valuation, being investable by large foreign funds would bring about that premium for sure. Consistency in delivery and execution would count as well.
Is it a coincidence that recent strong run ups were seen in the following stocks, note their market cap NOW in brackets:
Hap Seng (RM4bn)
DRB Hicom (RM3.3bn)
Tan Chong (RM3.3bn)
Dialog (RM4.1bn)
Kencana (RM4.2bn)
Sapuracrest (RM4.6bn)
Boustead (RM5.1bn)
You would also have noted that its the recent run up which has pushed them past the $1bn mark. As mentioned before, we can be sure that there were vultures when they were hovering around $800m-900m. Coincidence?
If you were to consider the present landscape, Mah Sing has attracted a lot of vultures as its market cap stands at just over RM2bn. Is it a bit early? Probably not because if you look at their projected EPS growth and PBT this year and next, its sustainable to move to RM3.50, by which then its market cap will be RM2.6bn. For them, its necessary to move the share to RM4.00, hopefully supported by more aggressive land banking or by securing some new influential and value-add jv by issuing new shares, now, that would propel them to the "investable range".
The same strategy looks to be in place for YTL Land, its market cap now stands at nearly RM1.7bn. I think Francis Yeoh is smart enough to know about the $1bn mark having been around those circles for so long. Thats probably why the upcoming asset injections would easily push the stock past the RM3bn mark. Look for a long sustained run in both counters.
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