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If you are looking to invest in Hu An Cable Holdings Ltd’s (SGX:KI3), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. KI3 is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not every stock is exposed to the same level of market risk, and the broad market index represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
Check out our latest analysis for Hu An Cable Holdings
An interpretation of KI3’s beta
With a beta of 1.34, Hu An Cable Holdings is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn. Based on this beta value, KI3 can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.
Could KI3’s size and industry cause it to be more volatile?
KI3, with its market capitalisation of S$6.07M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the electrical industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect higher beta for small-cap stocks in a cyclical industry compared to larger stocks in a defensive industry. This is consistent with KI3’s individual beta value we discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.
How KI3’s assets could affect its beta
An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I examine KI3’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given a fixed to total assets ratio of over 30%, KI3 seems to be a company which invests a big chunk of its capital on assets that cannot be scaled down on short-notice. As a result, this aspect of KI3 indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. Similarly, KI3’s beta value conveys the same message.