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If you are a shareholder in TIH Limited’s (SGX:T55), 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 T55’s exposure to the wider market risk, which reflects changes in economic and political factors. Not all stocks are expose to the same level of market risk, and the broad market index represents a beta value of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
See our latest analysis for TIH
What is T55’s market risk?
TIH’s beta of 0.68 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in T55’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. Based on this beta value, T55 appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
How does T55’s size and industry impact its risk?
A market capitalisation of S$116.01M puts T55 in the category of small-cap stocks, which tends to possess higher beta than larger companies. Moreover, T55’s industry, capital markets, 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 capital markets industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by T55’s size and industry relative to its actual beta value.
Is T55’s cost structure indicative of a high beta?
During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I examine T55’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 is virtually non-existent in T55’s operations, it has low 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. Similarly, T55’s beta value conveys the same message.