A Case Study: ACROMETA Group Limited (Stock Symbol 43F.SI), See InvestingNote.


On SGX, micro-caps can be generally defined as companies with a market capitalization of less than S$20 million. There are investors who are attracted to this category of stocks for their potential for quick and high capital gains. But they also know they must balance the potential for high returns with the volatility and low trading liquidity of many of these stocks. Some investors may use technical analysis, poring over charts to study such stocks while others may use fundamental analysis, poring over Profit & Loss, Balance Sheets, and Cash Flow statements.

But numbers and charts are not able to fully reflect the potential or non-potential of the company’s business. Analyst research can give a better understanding of the company’s business. But unfortunately, there are very few research reports on micro-caps.

We will first do a case study on this topic, using the example of Catalist-listed ACROMETA Group Limited (“ACROMETA”), before recommending resources that will help you to have an in-depth understanding of a company’s business.

#Note that even an in-depth understanding of the company’s business does not guarantee success for the investor. The quality and efficiency of the company’s Management are also factors to study.

Case Study: What is ACROMETA’s business?

On SGX, ACROMETA is categorized under Industry: Industrial & Commercial Services, Business Support Services. On Yahoo Finance, ACROMETA is categorized under Industrials: Engineering and Construction. On Bloomberg, the short description of ACROMETA is still lacking in the description of ACROMETA’s core business: AcroMeta Group Limited operates as an investment holding company. The Company focuses on engineering services, facility management, bio-waste to energy, and life science companies. AcroMeta Group serves customers in Singapore.

Thus, by relying on the description and categorizations above, investors may tend to lump ACROMETA together with general construction companies and analyze it in the context of the construction industry. Even if ACROMETA is analyzed as a construction engineering company, this fails to really understand the nature of the company’s business.

On its press releases, ACROMETA’s boiler plate states: ACROMETA (Previously known as ACROMEC Limited) is an established specialist engineering services provider with more than 20 years of experience in the field of controlled environments. The Group has over the years acquired expertise in the design and construction of facilities requiring controlled environments such as laboratories, medical and sterile facilities, and cleanrooms.

Controlled Environments Engineering (“CEE”) is what ACOMETA really does.

CEE is a high-value area of construction engineering. ACROMEC Engineers Pte Ltd (“ACROMEC”) a wholly owned subsidiary of ACOMETA is one of the few companies in Singapore established in the field of Controlled Environments Engineering (“CEE”) where it designs and constructs facilities for companies that require a controlled physical environment for their production and processes.

The ability to control physical variables such as temperature, air purity, humidity, and pressure in the product manufacturing space is a mission-critical requirement for new economy industries such as semiconductors, biotechnology, and renewable energy. Examples of CEE include Semiconductor wafer fab production, biotechnology R&D laboratories, animal-manure-to-energy pyrolysis chamber, and the operating theatre of hospitals.

To put the Group in the same category as general construction or even common construction engineering services (mechanical, electrical & electronic, civil, piping) does not do it justice. CEE serves the industries of the future economy and its margins are higher as there are not many companies with an established reputation in this field. However, like most project-based businesses, it needs to grow to a level where economies of scale can take off, and the lumpy nature of project-based revenue means that project financing and project management need to be tight.

Who understands ACROMETA’s business and potential?

On 30 January 2023, ACROMETA appointed veteran investor Mr. Levin Lee Keng Weng as its Executive Chairman. ACROMETA’s press release on 1 Feb 2023, https://links.sgx.com/1.0.0/corporate-announcements/1INFR5DGSA6YYIAC/53c2e3c5479635e2de0369530623d3f5111fb0a6c9e2aabcf5c5077010fa9faf and the new Chairman’s remarks on CEE are worth noting“SMEs in Singapore with good potential are often neglected by investors who do not understand their business. As a result, such small caps are often overlooked and thus hampered in their operations through a lack of financial resources and a good business strategy.

My role is not only to help ACROMETA in its business strategy and financials but also to let the investing public understand the company’s business and potential.

The controlled environments engineering business is truly a future-ready business as the R&D and production processes of many industries in the future economy such as biotechnology, semiconductors, and renewable energy take place in controlled environments.”

Really doing the business or just capitalizing on the business flavor of the month?

We have used the example of ACROMETA to illustrate the importance for micro-cap investors to have a thorough understanding of their target company’s business. ACROMETA was founded for the CEE business and on the CEE business, and it is not just capitalizing on the business flavor of the month.

But investors should also be cautioned that some micro-caps to avoid being delisted or to try and revive their fortunes may resort to getting into businesses that are the flavor of the month in the stock market without having the proper resources and expertise. Whether it’s the production of Covid-19 masks, bubble tea, gold mines, water treatment, or backpacker hotels. In such cases, monitoring the new business for at least a year or two must be done before making a decision.

Resources for an in-depth understanding of a company’s business

  • Company Annual Reports: However quite often in highly technical businesses the description of the company’s business lacks clarity due to excessive use of industry jargon.
  • Company visits by Investing Note.com where you get a tour of the company’s operations and a talk by the CEO/CFO with a Q&A session at the end of the talk.
  • Googling: When you want to know about an industry or a type of business, good Googling can be rewarding. The “scholarly articles on….” pop-up will be able to give you an in-depth grasp of the industry/business.
  • Investor-One: Right here. We hope to feature more articles such as the one you are reading now in the future.
  • ShareInvestor’s SG30 Gems (https://www.sg30gems.com/page/home)
  • Annual editions of securities top picks such as RHB Small Cap Jewels and the research reports of its pool of small-cap analysts.

This article is contributed by ShareInvestor and Waterbrooks Editorial team.
See www.waterbrooks.com.sg for more information.

For original article, please visit: https://www.investor-one.com/editorial/22617-Micro-Cap-Investors-Why-Really-Understanding-the-Companys-Business-Makes-a-Big-Difference