Targeting 101 for Asian small caps

Finding new investors can be a daunting task for smaller-sized, Asia-based companies. With a reduced free float, low liquidity in their stock and often the presence of a majority owner, most small caps will have to take matters into their own hands when marketing themselves.

‘As opposed to large caps, which are treated as bellwethers for the market and get a fair amount of meeting requests through their brokers, small caps will probably have to do things a bit more independently,’ explains Vivek Aranha, CEO for Asia at IR advisory Orient Capital.

This will first involve crafting a short email highlighting a company’s key strengths and contacting investors directly. ‘In Asia, brokers lead most of the meetings, however in the case of small caps, you’ll need to reach out to potential targets and give them a good, brief understanding of who you are and what you can do,’ Aranha points out. ‘So you have to be able to provide a quick snapshot of your company and why it would make sense for targets to review it.’

He recommends casting as wide a net as possible in the outreach phase. ‘The more people know about you, the better for small caps,’ he says, adding that even hedge funds are beneficial in providing some liquidity in the stock. IROs should subsequently aim for quality, not quantity when arranging meetings.

‘If you book three or four meetings a day instead of seven or eight, you can spend more time explaining the business and the market to some of these investors, which may not have the resources to do a lot of research on your region,’ he explains. ‘You’ll need to be continuously speaking to them throughout the year, highlighting the growth of the company. At the end of the year, you can evaluate whether they’ve taken a position in your company, so it’s more about consistency as well.’

Firms should also give investors time to absorb company information and get a good understanding of the market. ‘You’ll want to measure your success over a period of one year, rather than one quarter,’ Aranha highlights.

In terms of destinations, Singapore-based companies will most likely do a roadshow in Hong Kong and vice versa, with a potential yearly trip to Japan, as ‘these are the biggest markets for DRs and targeting in Asia.’ Small caps, however, are often keener to reach out to overseas funds.

While there are plenty of small-cap funds in the US and Europe, international funds flowing into Asia are more emerging markets-driven, sector-specific or Asian market-driven, with the rare global small-cap funds often requiring a minimum capitalization size ‘much bigger than what is considered to be a small cap in these local markets.’

Consequently, Aranha advises small caps to look beyond the traditional big fund house names for successful targeting. ‘If you’re planning a roadshow, you might want to think out of the box for institutions that don’t have offices locally because you’ll likely get more value from those relationships,’ he says. 'This is why we provide bespoke targeting lists customised to the city a company wishes to visit.'

Well-connected IROs can also tap the pool of capital held by private clients. ‘In China, some companies are able to use their own network to get in front of family offices or high-net-worth individuals, but it’s hard to build a database of information on these people,’ Aranha warns. ‘So it’s a difficult market to reach.’