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3 Well-Run Small-Caps You Should Seriously Consider for Your Portfolio

Most investors perceive smaller companies as riskier, as the business may not have sufficient size or scale to negotiate good deals and forge strong business partnerships. However, experience has taught me that small companies, if chosen well, can continue to grow and compound investors’ wealth. Large companies had to start somewhere, and most of them had humble beginnings as fledgeling companies before growing to their current size.

Of course, the key here is to separate the wheat from the chaff, as some small companies are indeed poorly managed, have a history of eroding shareholders’ capital, and are struggling to stay afloat. This is where the benefits of research and due diligence come in: to identify such gems cheaply before they grow into large corporations, so as to capitalise on their growth over the years.

Here are three promising small-cap companies that are well-managed. In this case, a small-cap company is one with a market capitalisation below S$500 million.

1. Boustead Projects Limited

Boustead Projects Limited (SGX: AVM) is a leading industrial real estate solutions provider with core engineering expertise in the design and build development of industrial facilities for the logistics, aerospace, and healthcare industries. Its clients consist of multinational corporations and local enterprises. The group has a market capitalisation of around S$307 million.

BPL has two main arms: design and build, which has reported a record order book of S$660 million thanks to two sizeable contracts, and a leasing division, which collects rental from tenants for which BPL designs, builds, and then leases custom-made facilities. BPL has always had progressive and forward-looking management, as evidenced by how the group expanded into Malaysia and Vietnam when Singapore’s industrial property sector slowed down a few years ago.

In addition, BPL has also forged new strategic partnerships (with Echo Base joint venture, and a 25% investment in DSCO, a provider of specialised building engineering consulting services) which has kept its knowledge base current and competitive.

2. iFast Corporation Limited

iFast Corporation Limited (SGX: AIY) is a financial technology group that owns a platform for the sale and distribution of various types of securities such as equities, fixed income, and mutual funds (unit trusts). The group collects fees from its assets under administration (AUA) and has operations in Singapore, Malaysia, Hong Kong, India, and China. iFast has a market of around S$300 million.

The group has a vision of growing its AUA to S$100 billion by 2028, from the current S$8.75 billion (as of 31 March 2019). Management believes this is a realistic target as the growth in demand for wealth management services is centred in Asia, and it’s also underpinned by a growing middle-class population in countries such as Indonesia, India, and China.

iFast pays a quarterly dividend, and its full-year dividend for 2018 was 3.15 Singapore cents, translating to a dividend yield of around 2.8%.

3. Valuetronics Holdings Limited

Valuetronics Holdings Limited (SGX: BN2) is an electronic components manufacturer that focuses on the design and development of products to meet the changing needs of its customers. Its clients are global companies involved in consumer electronics as well as industrial and commercial electronic products. The group has a market capitalisation of around S$300 million as well.

Valuetronics sees continued strong demand for its products, despite the outbreak of the US-China trade war. The group has identified Vietnam as a location in which to expand its production outside of China, as it is currently too China-focused and may get hit if the US continues to impose trade tariffs on Chinese exports. The group has a clean balance sheet (i.e., no debt) and also pays a dividend of 25 HK cents (around 4.35 Singapore cents) per year, which translates to a dividend yield of around 6.4%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Boustead Projects Limited and iFast Corporation Limited. Motley Fool Singapore contributor Royston Yang owns shares in Boustead Projects Limited and iFast Corporation Limited.