The real ‘Value Unlock’ lies in Smids, where mispricing holds stocks hostage

SINCE the thoughtful roll-out of recommendations from the Equities Market Review Group in the second half of 2025, there has been increasing conviction that the persistent pall of undervaluation of stocks in our local market, especially Smids (small and mid-caps), is gradually lifting.

Beyond the demand catalyst of the S$6 billion Equity Market Development Programme, or a more caveat emptor regulatory regime, listed companies have slowly been converted to “Equip and Elevate”, armed with S$30 million in grants from the Value Unlock programme announced in November 2025.

After all, without better communication with investors and clearer sharing of growth strategies – including clarifications from SGX RegCo on getting forward guidance right – much of the longer tail of our market has laboured under the yoke of “good company, bad stock”. With little to no sell-side coverage to preach, a lack of belief resulted in self-fulfilling prophecies of sub-optimal liquidity.

The results, even prior to the launch of a much hoped for dual listing SGX-Nasdaq bridge to “the promised land”, have been encouraging.

Big caps in the Straits Times Index (STI) led the way. New highs above 5,000 were breached, in spite of the energy blockades in the Middle East. A shallow ease of just over 4 per cent at its lowest point since missiles started firing was politely attributed to safe haven buying. Perhaps.

North Asian markets were often as volatile as oil prices, hitting daily limits in South Korea.

A roughly 30 per cent one-year STI price return – excluding a 3.5 per cent dividend yield – has brought in institutional converts from afar, and even a few retail sceptics have shed US tech for local bank stocks, buying the dip here.

However, the real Value Unlock to come is in the Smid space. With research coverage still patchy in this segment, there appears room for more, or at least for the diligent to spot mispricing among related companies.

Take for instance, Oiltek. A successful expansion into renewable energy solutions since its Catalist listing in March 2022 has produced a 3,000 per cent return for early investors, from the initial public offering price of S$0.23 to a current price of around S$2.40 and post a 2:1 bonus issue last May on transfer to mainboard. Recent April price targets from CGS International, UOB Kay Hian and Philip Securities put potential reach at S$2.72 to S$3.38, following a US$350 million contract for sustainable aviation fuel.

Its market capitalisation has crossed S$1 billion, propelling this four-year-old S$35 million Catalist listing into the mid-cap range.

Interestingly, it has left its parent companies in its wake. Koh Brothers Eco Engineering (KBE) which owns 68.14 per cent of Oiltek, is valued at just over S$315 million. The paper value of its stake in Oiltek itself is worth more than twice as much, excluding the S$72 million of cash on KBE’s balance sheet in December 2025.

Rolling up one more level, Koh Brothers Group (KBG) owns 54.81 per cent of KBE. Its market cap of about S$160 million is two-thirds backed by S$114 million of cash at end-December 2025.

The implied market value of its indirect stake in Oiltek is more than double its current market capitalisation.

Little wonder then, that KBG shareholders have been asking for a distribution of Oiltek shares in-specie upstream to KBE shareholders, which would also unlock value for KBG minorities.

Last week, KBG declined to even put this shareholder request to a vote.

In 2025, a similar proposed shareholders resolution was tabled “to promote open engagement with shareholders”, according to the board, even if it was voted down by the majority shareholders.

At the time, the board explained its desire to retain control over the strategy and future growth of Oiltek. It is understandable, even if it may be perceived as a traditional approach resulting in a big holding company discount to the sum of its parts.

At current pricing, KBG’s cash, property development arm and construction business (with a S$1.1 billion order book) and its hotel operations essentially are priced at a negative value after accounting for the implied value of its indirect Oiltek stake – which is over twice its market capitalisation.

This is not an entirely unique situation. After the successful spin-off of Lum Chang Creations (LCC) last year, parent Lum Chang Holdings (LCH), which owns 71.1 per cent of its listed subsidiary, trades at two thirds LCC’s market capitalisation. The rest of the parent’s business is also priced negatively.

Either KBG, KBE and LCH minorities may have to keep the long-suffering faith in future realisation of value by hanging on, or the market may awaken to these anomalies and narrow the gap.

In in the case of Low Keng Huat, a privatisation was completed earlier this year at a premium to prevailing market prices, but at a discount to asset value.

Or perhaps there is still a missing link or two in the “modernisation” of our local market.

Would a regulatory rod like Tokyo Stock Exchange’s Value-Up programme, nudging listed companies to disclose concrete, actionable initiatives for improving corporate value or be named and shamed, help pressure boards?

There may now be enough meat on some of these tables to attract activist investors to, well, get active.

The writer is chairman of Shan De Advisors. He retired in 2021 from SGX, where he was a senior managing director.