If you are a shareholder in Manufacturing Integration Technology Ltd’s (SGX:M11), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. The beta measures M11’s exposure to the wider market risk, which reflects changes in economic and political factors. Different characteristics of a stock expose it to various levels of market risk, and the market as a whole represents a beta 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.

View our latest analysis for Manufacturing Integration Technology

What is M11’s market risk?

Manufacturing Integration Technology’s beta of 0.92 indicates that the company is less volatile relative to the diversified market portfolio. The stock will exhibit muted movements in both the downside and upside, in response to changing economic conditions, whereas the general market may move by a lot more. M11’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.

How does M11’s size and industry impact its risk?

A market capitalisation of S$77.03M puts M11 in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, M11’s industry, semiconductor, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. Therefore, investors may expect high beta associated with small companies, as well as those operating in the semiconductor industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both M11’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

Is M11’s cost structure indicative of a high 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 M11’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Considering fixed assets account for less than a third of the company’s overall assets, M11 seems to have a smaller dependency on fixed costs to generate revenue. As a result, the company may be less volatile relative to broad market movements, compared to a company of similar size but higher proportion of fixed assets. This is consistent with is current beta value which also indicates low volatility.