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If you are looking to invest in Dukang Distillers Holdings Limited’s (SGX:BKV), 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. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Not all stocks are expose 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.
View our latest analysis for Dukang Distillers Holdings
What does BKV’s beta value mean?
Dukang Distillers Holdings’s beta of 0.52 indicates that the company is less volatile relative to the diversified market portfolio. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. BKV’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.
How does BKV’s size and industry impact its risk?
With a market cap of S$23.95M, BKV falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. But, BKV’s industry, beverage, is considered to be defensive, which means it is less volatile than the market over the economic cycle. Therefore, investors can expect a high beta associated with the size of BKV, but a lower beta given the nature of the industry it operates in. This is an interesting conclusion, since its size suggests BKV should be more volatile than it actually is. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
How BKV’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 test BKV’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Given a fixed to total assets ratio of over 30%, BKV 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 BKV indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. However, this is the opposite to what BKV’s actual beta value suggests, which is lower stock volatility relative to the market.