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FIN 3102 Investment Analysis
Stock Analysis Presentation
FIN 3102 Investment Analysis
Stock Analysis Presentation
Charmaine YapChew Jia Yi Leow Wei Xiong Soon Shang Yeh
Contents
Macroeconomic Analysis
1
Industry Analysis
2
Company Analysis
3
4
Introduction
Conclusion5
Top – DownApproach
3 – step, economy level, industry level, company level
Share Valuation
Bottom – Up Approach
Stock valuation and stock picking
Introduction
Introduction
Macro-economy
Industry
Company
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Macroeconomic Analysis
Macro-Economic
Global Outlook 2012
Economic Cycle
Outlook for Singapore
Leading Indicators
Macro-economic Analysis
Global Outlook 2012
• Global GDP growth forecasted at 3.5 percent in 2012
• Performance differential between developed economies and developing economies
Global Outlook 2012
Advanced Economies
Sovereign debt issues, weak labour market & fiscal consolidation
Eurozone: Impending recession with fiscal consolidation & bank deleveraging
U.S.:Strength of recovery restrained
Other Economies
Spillover effect through trade and financial channels
Global Outlook 2012
• Slower growth as export performance decline
• Buffer from huge domestic demand in larger economies of the region
• Cushion negative shocks and provide support
Other Economies – Asia
Global Outlook 2012
Firms are likely to observe stagnant growth, profit declines or operating losses in the forecasted period of slow GDP growth.
Takeaway:
Global Outlook 2012
Economic Cycle
Economic Cycle
• Positive gentle upslope for 2012 – 2013
• Recovery from trough at end of 2008
• Improving business cycle
• Firms in industrial capital industry expected to outperform
• Constraint: slow and sluggish growth from 2012
Takeaway: Mild effect on shipping firms
Singapore Outlook ‘12
Forecasted economic growth in 2012: Between 1 to 3 percent
This is before factoring in downside risks emanating from abroad
External-oriented & trade-related sectors likely to face significant headwinds
Singapore Outlook ‘12
• Exports of G&S have always exceeded GDP in Singapore
• Heavy reliance on exports
• Singapore economy likely to suffer a significant hit if external demand were to continue to decline
Does not bode well for shipping industry
Stock price decisions reflect expectations for future economic
performance
Strong relationship
between stock market and
economy
Stock prices consistently turn
before the economy
Stock Market & Economy
Leading Indicators
Singapore Purchasing Manager Index (PMI)
• Reflects purchasing managers’ acquisition of goods and services
• Important sentiment reading for economy as a whole
• Good indicator of future GDP levels since manufacturing sector constitutes 22% of local GDP
Leading Indicators
Singapore Purchasing Manager Index (PMI)
50%
Expansion
42%
Long-term benchmark for economic expansion
Impending Recession
Leading Indicators
Singapore Purchasing Manager Index (PMI)
PURCHASING MANAGERS' INDEX (PMI)
20%
30%
40%
50%
60%
70%
80%
90%
Source: Singapore Institute of Purchasing & Materials Management
49.5
48.7
Leading Indicators
Singapore Purchasing Manager Index (PMI)
PURCHASING MANAGERS' INDEX (PMI)
20%
30%
40%
50%
60%
70%
80%
90%
Source: Singapore Institute of Purchasing & Materials Management
49.5
48.7
• 7th consecutive monthly contraction
• Reading for January: 48.7• Marginal dip of 0.8 point
from previous month
• Dip in overall PMI attributed to a further contraction in new export orders and production output
Leading Indicators
Singapore Purchasing Manager Index (PMI)
Takeaway:
• Not in danger of a recession
• Economy expanding at a declining rate due to decline in external demand
• Lower growth rates for firms in local economy
Leading Indicators
Consumer Confidence Index
• Measures the degree of optimism on the state of the economy that consumers are expressing through their activities of saving and spending
• Reading above 100: Positive consumer sentiment
• Reading below 100: Pessimism towards economy
Leading Indicators
Consumer Confidence Index
Nielsen Consumer Confidence Report (October 2011)
Singapore registered a score
of 94
Lowest point in last 2 years
9 point decline from previous
quarter
Number of people who view the
economy as being in a recession
doubled to 24%
Leading Indicators
Consumer Confidence Index
Nielsen Consumer Confidence Report (October 2011)
• Prospect of a more pronounced global macroeconomic downturn
• Continuing inflationary pressures
• Subtle shift in local politics
• Higher volatility in asset prices
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Industry Analysis
Baltic Dry Index Michael Porters’ 5 Forces Model
Industry Analysis
Baltic Dry Index
index of global freight rates for shipping dry commodities
specific indicator for the shipping industry
Industry Analysis
Baltic Dry Index• BDI plunged 58% since the
beginning of the year 2012
• BDI’s fall may be attributed to either the demand-side factors or the supply-side factors.
• demand for shipping of dry commodities may have fallen slightly due to a slowdown on China’s shipping orders.
Industry Analysis
Baltic Dry Index
• Main reason for the plunge in index:
Supply-side factor
• Growing supply of ships
Industry AnalysisBaltic Dry Index
• 2007 to 2008: shortage of large ships, and the Baltic Dry Index soared.
• The response was for shipping companies to order new vessels from shipbuilders.
• lengthy manufacturing cycle for large freighters, many of those ships were only NOW being delivered.
• Resulted in a flood of supply of ships in the market now, accounting for the current plunge in BDI
Industry Analysis
Baltic Dry Index
Impact:
lower market confidence in shipping and shipbuilding industries
corresponding share prices being affected
Industry Rivalry
Bargaining Power of Buyers
Barriers to Entry
Threat of Substitutes
Bargaining Power of Suppliers
Michael Porters’ 5 Forces Model
Industry Analysis
Industry Analysis
Michael Porters’ 5 Forces Model
Barriers to Entry : High
huge capital outlays need to establish strong distribution networks acquire highly specialized equipment requirement of high-skilled labor
Industry Analysis
Michael Porters’ 5 Forces Model
Bargaining Power of Buyers in Shipbuilding Industry : High
knowledgeable and highly sensitive to price purchase in large volumes key buyers place very large orders, giving them
a high bargaining power
Industry Analysis
Michael Porters’ 5 Forces Model
Bargaining Power of Buyers in Shipping Industry : Moderate
many customers, who require shipping services, relative to the number of companies providing shipping services.
Industry Analysis
Michael Porters’ 5 Forces Model
Threat of Substitutes : Low
No real substitutes
Industry Analysis
Michael Porters’ 5 Forces Model
Bargaining Power of Suppliers in the shipbuilding industry : Low
mostly steel manufacturers or parts manufacturers
switching cost of suppliers is quite low low threat of forward integration
Industry Analysis
Michael Porters’ 5 Forces Model
Bargaining Power of Suppliers in the shipping industry : Moderate
forward integration by shipbuilding companies to provide shipping services to clients as well
Industry Analysis
Michael Porters’ 5 Forces Model
Industry Rivalry: High
price competition low product differentiation high exit barriers
Industry Analysis
Michael Porters’ 5 Forces Model
Industry Rivalry: High
matured stage of industry life cycle future growth is limited more intense competition and rivalry among
firms
Industry Analysis
Michael Porters’ 5 Forces Model
Industry Rivalry
Threat of Substitutes
Bargaining Power of Buyers
Bargaining Power of Suppliers
Barriers to Entry
HIGH
LOW
MODERATE - HIGH
LOW - MODERATE
HIGHINDUSTRY NOT AS ATTRACTIVE
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Company Analysis
Neptune Orient Lines Ltd
Core Businesses
Shipping and logistics services Ownership and charter of shipping vessels
Operations in Asia, Americas & Europe
Company Analysis
Sectors’ Contribution to Group
Company Analysis
Group Revenue Mix
Liner
Logistics
Markets’ Contribution to Sectors
Company Analysis
Logistics Regional Revenue Mix
Asia-Middle East
Europe
Americas
Liner Trade Volume Mix
Latin AmericaTrans-AtlanticAsia-Middle EastTrans-PacificAsia-Europe
Company Analysis
Opportunity
Strength Weakness
Threat
SWOT Analysis
Strength
Industry recognition, strong brand image Customer retention, contributing to steadier
revenue Diversified customer base Market leader in product innovations and
service adaptation
Company Analysis
Company Analysis
Weakness
High debt burden Exposure to currency fluctuations
Due to worldwide operations
Company Analysis
Opportunity
New orders of larger container ships to replace current fleet to enjoy EOS
High growth potential for container trade and logistics providers in Southeast Asia
Growth through strategic agreements and joint ventures
Company Analysis
Threat
Cost pressures Volatile bunker fuel costs (comprises 15-20%
of costs) Piracy
Discounted cash flow
1. Dividend2. Free cash flow to equity3. Operating free cash flow
Share ValuationTechniques
Relative valuation
1. Price to earnings2. Price to sale3. Price to book value4. Price to cash flow
Company Analysis
Company Analysis
Dividend growth model
P0 = D1/(k-g)t0 = end of year 2011D1 = dividend for the year 2012
Company Analysis
Estimating required rate of return
k = risk-free rate + beta x market risk premiumRisk-free rate: 0.48%Market risk premium: 6%Beta: 1.26k = 0.0804
Company Analysis
Estimating dividend growth rate
g = retention ratio x return on equity
Company Analysis
Estimated retention ratio: 0.65 (average over the years)
Estimated ROE: 0.16g = 0.104
Year Retention ratio ROE2004 0.321822 0.54
2005 0.927562 0.34
2006 0.678973 0.18
2007 0.603736 0.23
2008 0.212598 0.03
2009 1 -0.28
2010 0.742008 0.16
Company Analysis
k = 0.0804g = 0.104
P0 = D1/(k-g)
Since k<g, unable to use single growth stage model.Instead, use 2 stage model of declining and constant growth stages.
Company Analysis
Year Growth rate Dividend (¢) Rate of return PV (¢)
2012 0.104 5.606554 0.0804 5.189331
2013 0.09 6.111143 0.0804 5.235442
2014 0.08 6.600035 0.0804 5.233503
2015 0.065 7.029037 0.0804 5.158905
2016 0.05 7.380489 0.0804 5.013745
Declining Growth Period
Company Analysis
Year Growth rate
Dividend (¢)
Rate of return P(2016) (¢) PV (¢)
2016 0.05 7.380489 0.0804 254.9182 173.1721
Constant Growth Period at 5%
Fundamental share price = Sum of PV= $1.99
Company Analysis
Free cash flow to equity growth model
FCFE = Net Income + Depreciation Expense – Capital Expenditures - ∆NWC – Principal Debt Repayments + New Debt Issues
Fundamental value of firm = FCFE1/(k-gFCFE)FCFE2010 = $66,088,000Estimate gFCFE following growth rate for dividends
Company Analysis
Year Growth rate FCFE(USD$’000)
Rate of return
PV (USD$’000)
2012 0.104 80549.11 0.0804 74554.9
2013 0.09 87798.53 0.0804 75217.36
2014 0.08 94822.41 0.0804 75189.51
2015 0.065 100985.9 0.0804 74117.77
2016 0.05 106035.2 0.0804 72032.26
Declining Growth Period
Fundamental value of firm= Sum of PV= USD$2,859,068,000Number of outstanding shares= 2,582,612,000
Company Analysis
Year Growth rate
FCFE($’000)
Rate of return
PV (2016) ($’000) PV ($’000)
2016 0.05 106035.2 0.0804 3662399 2487956
Constant Growth Period at 5%
Company Analysis
Fundamental share price = Fundamental value of firm / Number of
outstanding shares= USD$1.11
Using current USD to SGD mid-market exchange rate, 1USD = 1.25647SGD
Fundamental share price = SGD$1.39
Company Analysis
P/E valuation
Requires estimations of P/E ratio and EPS to obtain the fundamental price
Company Analysis
EBT
EBIT
EBITDA
Sales Estimate
Subtract recent tax rate (17%)
EstimatedInterest Expense
EstimatedDepreciation
EstimatedGrossProfitMargin
Net Income
EPS EstimationProcedure
Company Analysis
Sales EstimationLinear regression of %∆ in sales against %∆ in trade volume historically
-0.15 -0.1 -0.05 0 0.05 0.1 0.15
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
f(x) = 2.40845481870022 x − 0.0302183282631918R² = 0.718417464960445
Sales vs trade volume growth
Sales vs trade volume growthLinear (Sales vs trade volume growth)
Company Analysis
Sales Estimation
With 2012 estimate of %∆ in trade volume growth, can find %∆ in sales and hence the sales estimate
Sales estimate = USD$9,775,532,000
Company Analysis
Assume certain relation between PPErequired to generate
level of sales
Since depreciationis applicable to PPE only
Use 2012 salesestimate and
afore mentioned2 ratios
HistoricAverage
Sales/PPEratio
HistoricAverage
Depreciation/PPEratio
DepreciationEstimate
Depreciation Estimation
Company Analysis
Interest expense estimation
Interestexpenseestimate
Estimatedborrowing
cost
Borrowings/total asset
TATOturnover
Historicalaverages
Use 2012 sales estimate andafore mentioned 3 estimations
Company Analysis
Sales est = $9.776 bil
Gross profit margin est = 7%
Depreciation est = $0.338 bil
Interest expense est = $0. 074 bil
Tax rate = 17%
Net profit =
$0.226 billion
Number of outstanding shares = 2.583 bilEPS = Net profit / Number of outstanding shares = 8.76¢
Company Analysis
P/E ratiovaluation
EPS = 8.76 US centsForward P/E ratio = 16.81
15
16
17
USD1.49 = SGD1.87
USD1.40 = SGD1.76
USD1.31 = SGD1.65
Forward P/E ratio estimate (for 31 Dec 2012) = 16.81(from yahoo finance)
Therefore using various P/E ratio estimates
P/E ratioFundamentalshare price
Company Analysis
Share Price DividendDiscount FCFE P/E Recommendation
Fundamental Price $1.99 $1.39 $1.87 $1.76 $1.65
BuyCurrent Price $1.34
Conclusion & Recommendation
Cosco Corporation (Singapore) Ltd
Core Businesses
Ship building Ship Conversion and Repair Offshore Marine Engineering Solutions
Operations based in China
Company Analysis
Sectors’ Contribution to Group
Company Analysis
Company Analysis
Opportunity
Strength Weakness
Threat
SWOT Analysis
Strength
Continual diversification Gradually reducing reliance on ship building
and expanding other sectors Completed Phase 1 of Qidong shipyard which
specializes in offshore marine engineering Improved efficiency
Shortened dry bulk carrier construction period
Company Analysis
Company Analysis
Weakness
Heavy dependence on steel for core activities Highly susceptible to price, quality and supply
fluctuations Small dry bulk shipping fleet Exposure to exchange rate fluctuations and
risks Due to overseas investments and operations
Company Analysis
Opportunity
Positive outlook for offshore and marine industry Due to fundamental demand for oil and
energy especially from emerging economies
Company Analysis
Opportunity
Alternative energy systems and alternative energy offshore exploration growth
Company Analysis
Threat
Cost pressures Potential labour shortages and increases in
raw material price Stiff competition
Against multinational corporations with significant financial resources
Lower trade volumes Subdued Baltic Dry Index
Company Analysis
Threat
Current oversupply of dry bulk carriers Likely to dampen demand for dry bulk carrier
ship building
Discounted cash flow
1. Dividend2. Free cash flow to equity3. Operating free cash flow
Share ValuationTechniques
Relative valuation
1. Price to earnings2. Price to sale3. Price to book value4. Price to cash flow
Company Analysis
Company Analysis
Dividend growth model
P0 = D1/(k-g)t0 = end of year 2011D1 = dividend for the year 2012
Company Analysis
Estimating required rate of return
k = risk-free rate + beta x market risk premiumRisk-free rate: 0.48%Market risk premium: 6%Beta: 1.81k = 0.1134
Company Analysis
Estimating dividend growth rate
g = retention ratio x return on equity
Company Analysis
Estimated retention ratio: 0.6 (average over the years)
Estimated ROE: 0.2 (lower than 2010 in the face of challenging times ahead)g = 0.12
Year Retention ratio ROE2004 0.672131 0.223
2005 0.727149 0.381
2006 0.568501 0.345
2007 0.533955 0.418
2008 0.481481 0.29
2009 0.390244 0.099
2010 0.639964 0.218
Company Analysis
k = 0.1134g = 0.12P0 = D1/(k-g)
Since k<g, unable to use single growth stage model.Instead, use 2 stage model of declining and constant growth stages.
Company Analysis
Year Growth rate Dividend (¢) Rate of return PV (¢)
2012 0.12 5.0176 0.1134 4.506556
2013 0.095 5.494272 0.1134 4.432081
2014 0.08 5.933814 0.1134 4.299127
2015 0.065 6.319512 0.1134 4.112242
2016 0.05 6.635487 0.1134 3.87808
Declining Growth Period
Company Analysis
Year Growth rate
Dividend (¢)
Rate of return P(2016) (¢) PV (¢)
2016 0.05 6.635487 0.1134 61.4397 35.9082
Constant Growth Period at 5%
Fundamental share price = Sum of PV= 57.14 ¢ = $0.57
Company Analysis
Free cash flow to equity growth model
FCFE = Net Income + Depreciation Expense – Capital Expenditures - ∆NWC – Principal Debt Repayments + New Debt Issues
Fundamental value of firm = FCFE1/(k-gFCFE)FCFE2010 = $601,961,000Estimated gFCFE following growth rate for dividends
Company Analysis
Year Growth rate FCFE($’000)
Rate of return PV ($’000)
2012 0.12 755099.88 0.1134 678192.8
2013 0.095 826834.37 0.1134 666985
2014 0.08 892981.12 0.1134 646976.7
2015 0.065 951024.89 0.1134 618852.3
2016 0.05 998576.13 0.1134 583613.2
Declining Growth Period
Fundamental value of firm= Sum of PV= $8,598,446,000Number of outstanding shares= 2,239,245,000
Company Analysis
Year Growth rate
FCFE($’000)
Rate of return
PV (2016) ($’000) PV ($’000)
2016 0.05 998576.13 0.1134 9246075 5403826
Constant Growth Period at 5%
Company Analysis
Fundamental share price = Fundamental value of firm / Number of
outstanding shares= $3.84
Company Analysis
P/E valuation
Requires estimations of P/E ratio and EPS to obtain the fundamental price
Company Analysis
EBT
EBIT
EBITDA
Sales Estimate
Subtract recent tax rate (17%)
EstimatedInterest Expense
EstimatedDepreciation
EstimatedGrossProfitMargin
Net Income
EPS EstimationProcedure
Company Analysis
Sales EstimationLinear regression of %∆ in sales against %∆ in GDP historically
-0.01 0 0.01 0.02 0.03 0.04 0.05 0.06
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
f(x) = 11.8147281304763 x − 0.208682675630301R² = 0.371137181661836
Sales growth vs GDP growth
Sales growth vs GDP growthLinear (Sales growth vs GDP growth)
Company Analysis
Sales Estimation
With 2012 estimate of %∆ in GDP, can find %∆ in sales and hence the sales estimate
Sales estimate = $4,787,359,000
Company Analysis
Assume certain relation between PPErequired to generate
level of sales
Since depreciationis applicable to PPE only
Use 2012 salesestimate and
afore mentioned2 ratios
HistoricAverage
Sales/PPEratio
HistoricAverage
Depreciation/PPEratio
DepreciationEstimate
Depreciation Estimation
Company Analysis
Interest expense estimation
Interestexpenseestimate
Estimatedborrowing
cost
Borrowings/total asset
TATOturnover
Historicalaverages
Use 2012 sales estimate andafore mentioned 3 estimations
Company Analysis
Sales est = $4.787 bil
Gross profit margin est = 10%
Depreciation est = $0.215 bil
Interest expense est = $0. 079 bil
Tax rate = 17%
Net profit =
$0.152 billion
Number of outstanding shares = 2.239 billionEPS = Net profit / Number of outstanding shares = 6.81¢
Company Analysis
EPS = 6.81 centsForward P/E ratio = 17.57
16
17
18
$1.22
$1.16
$1.09
Forward P/E ratio estimate (for 31 Dec 2012) = 17.57(from yahoo finance)
Therefore using various P/E ratio estimates
P/E ratioFundamentalshare price
P/E ratiovaluation
Company Analysis
Share Price DividendDiscount FCFE P/E Recommendation
Fundamental Price $0.57 $3.84 $1.22 $1.16 $1.09
SellCurrent Price $1.21
Conclusion & Recommendation
Sembcorp Marine Ltd
Core Businesses
• Rig Building• Ship Conversion and Offshore• Ship Repair
Company Analysis
Sectors’ Contribution to Group
Company Analysis
Company Analysis
Opportunity
Strength Weakness
Threat
SWOT Analysis
Strength Innovative processes
3 projects were duly recognized at 13th Marine Industry Workplace and Safety and Health Innovation Convention.
• OctoMaster (gold award) • Sembawang Shipyard’s CSI: Next Gen 2 Team• Hull Team B
Company Analysis
Strength Industry collaboration
Work closely with tertiary institutions (NUS) Yard Development
Upgrade new facility recently. Effective internal control
Launch the Control Self Assessment Programme
Company Analysis
Company Analysis
Weakness None
Company Analysis
Opportunity Moderation of Singapore Economy Demand for Oil at High Level Exploration and Production Spending
on the Rise Positive Outlook for Production Floater Global Market Development
Company Analysis
Threat External Environment Risk Financial Risk Inflation
Company Analysis
Financial Summary Risk Free Rate = 0.48% Market Risk Premium = 0.06% Beta = 1.73 Required Rate of Return = 11% ROE = 0.387 Retention Ratio = 0.131 Growth Rate = 5% Outstanding Share = 2077902979
Company Analysis
First Approach Dividend Growth Model (DGM)
Company Analysis
High Growth Period
Year Growth rate Dividend Rate of return
PV
2012 0.05 0.4124 0.11 0.4124
2013 0.05 0.4331 0.11 0.3912
2014 0.05 0.4548 0.11 0.3711
2015 0.05 0.4776 0.11 0.3519
2016 0.05 0.5015 0.11 0.3338
SUM 1.8605
Company Analysis
Declining Growth Period
Year Growth rate Dividend Rate of return
PV
2017 0.049 0.5261 0.11 0.3136
2018 0.048 0.5514 0.11 0.2995
2019 0.047 0.5774 0.11 0.2832
2020 0.046 0.6040 0.11 0.2676
2021 0.045 0.6313 0.11 0.2527
2022 0.044 0.6591 0.11 0.2383
SUM 1.6576
Company Analysis
Constant Growth Period at 4.4%
Year Growth rate
Dividend Rate of return
PV (2022) PV (2012)
2022 0.044 0.6881 0.11 10.9227 3.9488
Company Analysis
DGM Summary
Periods PVsHigh Growth Period 1.8605
Declining Growth Period 1.6576
Constant Growth Period 3.9488
Total 7.4669
Current Market Price 5.27
Difference 2.20
Status Undervalued by 29.46%
Recommendation Strong Buy
Company Analysis
Operating Free Cash Flow (OFCF)Year 2012 (‘000) Year 2012 ('000)
Net Income 985685.483 EBIT 1180726.556
Depreciation 91741.807 Tax Rate 0.170Change in Working
Capital 76353.799 Total Capital 5682508.279
Capital Expenditure 72547.049 RR 0.131Change in other
Asset - ROIC 0.173
OFCF('000) 928526.443 Growth rate 0.023
Debt/Asset 0.495 Cost of Equiy 0.11
Equity/Asset 0.505 Cost of Debt after tax 0.035714
R wacc 0.072
Company Analysis
Year Growth rate FCFF (‘000) R wacc PV (‘000)
2012 0.023 928526.4425 0.07 928526.4425
2013 0.023 949444.6369 0.07 885887.5603
2014 0.023 970834.0843 0.07 845206.6991
2015 0.023 992705.4012 0.07 806393.9446
2016 0.023 1015069.4434 0.07 769363.5114
SUM 4235378.158
High Growth Period
Company Analysis
Year Growth rate FCFF (‘000) R wacc PV (‘000)
2017 0.022 1036922.2418 0.07 733315.6922
2018 0.021 1058208.5732 0.07 698272.6339
2019 0.020 1078873.6699 0.07 664252.6536
2020 0.019 1098863.4487 0.07 631270.3468
2021 0.018 1118124.7422 0.07 599336.7066
2022 0.017 1136605.5303 0.07 568459.2553
SUM 3894907.2883
Declining Growth Period
Company Analysis
Year Growth rate
FCFF (‘000)
R wacc PV (2022) (‘000)
PV (2012)(‘000)
2022 0.017 1155391.786 0.07 20925105.71 10465433.86
Constant Growth Period at 1.7%
Company Analysis
Periods PVs (‘000)High Growth Period 4235378.158
Declining Growth Period 3894907.2883Constant Growth Period 10465433.86Total 18595719.311Estimated Price 8.95
Current Market Price 5.27
Difference 3.68
Status Undervalued by 41.12%
Recommendation Strong Buy
OCFC Summary
Company Analysis
Relative Valuation RatioDataFWD P/E ratio 16.56EPS estimated ($) (2012) 0.4744
Estimated Price per share 7.86
Current Market 5.27Difference 2.59Status Undervalued by 32.95%Recommendation Strong Buy
Company Analysis
ConclusionModel Status Difference ($) Recommendation
Dividend Growth Model
Undervalued by 29.46%
2.20 Strong Buy
Operating Free Cash Flow Model
Undervalued by 41.12%
3.68 Strong Buy
Relative ratio-P/E Undervalued by 32.95%
2.59 Strong Buy
Overall Conclusion
Strong Buy
Yangzijiang Shipbuilding Ltd
Core Business: Shipbuilding Based in China Product: commercial vessels, containerships,
bulk carriers and multi-purpose cargo vessels. 3 subsidiaries
Jiangsu Yangzijiang Shipbuilding Co., Ltd. Jiangsu New Yangzi Shipbuilding Co., Ltd. Jiangsu Yangzi Changbo Shipbuilding Co., Ltd
Company Analysis
Company Analysis
Opportunity
Strength Weakness
Threat
SWOT Analysis
Strength Research & Development Breakthrough Strong Financial Support from PRC
government Advanced Expertise and Experience Technologies Facility Upgrade
Company Analysis
Company Analysis
Weakness Not diversified business operations
Company Analysis
Opportunity Shrinking Competition in the Industry
• due to a consolidation of the shipbuilding industry’s markets
Company Analysis
Threat Oversupply of Ships and Containers Price Pressure Stiff Competition
• Fewer Shipbuilding Orders• Bulk Carrier Expansions
Inflation• Labor Cost increases
Company Analysis
Financial Summary Risk Free Rate = 0.48% Market Risk Premium = 0.06% Beta = 1.87 Required Rate of Return = 12% ROE = 0.293 Retention Ratio = 0.209 Growth Rate = 23.16 % Outstanding Share = 3837077000
Company Analysis
First Approach Dividend Growth Model (DGM)
Company Analysis
Year Growth rate Dividend (RMB)
Rate of return
PV (RMB)
2012 0.23 0.244390059 0.12 0.24
2013 0.23 0.300986983 0.12 0.27
2014 0.23 0.370690871 0.12 0.30
2015 0.23 0.456537092 0.12 0.33
2016 0.23 0.562263959 0.12 0.36
SUM 1.50
High Growth Period
Company Analysis
Year Growth rate Dividend (RMB)
Rate of return
PV (RMB)
2017 0.20 0.6756 0.12 0.39
2018 0.17 0.7915 0.12 0.41
2019 0.14 0.9036 0.12 0.42
2020 0.11 1.0044 0.12 0.41
2021 0.08 1.0864 0.12 0.40
2022 0.05 1.1424 0.12 0.38
SUM 2.41
Declining Growth Period
Company Analysis
Year Growth rate
Dividend(RMB)
Rate of return
PV (2022)(RMB)
PV (2012) (RMB)
2022 0.05 1.1995 0.12 18.36 6.07
Constant Growth Period at 5%
Company Analysis
Periods PVsHigh Growth Period (RMB) 1.50
Declining Growth Period (RMB) 2.41
Constant Growth Period (RMB) 6.07
Total (RMB) 9.98
Convert to SGD 2.00
Current Market Price (SGD) 1.36
Difference 0.64
Status Undervalued by 32%
Recommendation Strong Buy
DGM Summary
Company Analysis
Operating Free Cash Flow (OFCF)Year 2012 ('000) Year 2012 ('000)
Net Income 2012 4477982.262 EBIT 5505084.982Depreciation of
2012 255755.253 Tax Rate 0.187
Change in Working Capital 1434167.654 Total Capital 35959937.233
Capital Expenditure 2069537.011 RR 0.791Change in other
Asset - ROIC 0.125
OFCF('000) 1230032.850 Cost of Equity 0.117
Debt/Asset 0.584 Cost of Debt after tax 0.062
Equity/Asset 0.416 Growth rate 0.098
R wacc 0.084
Company Analysis
Year Growth rate FCFF (‘000) (RMB)
R wacc PV (‘000) (RMB)
2012 0.098 1230032.8501 0.08 1230032.8501
2013 0.098 1351129.0016 0.08 1245535.2844
2014 0.098 1484147.0119 0.08 1261233.0999
2015 0.098 1630260.5822 0.08 1277128.7592
2016 0.098 1790758.9643 0.08 1293224.7558
SUM 6307154.749
High Growth Period
Company Analysis
Year Growth rate FCFF (‘000)(RMB)
R wacc PV (‘000)(RMB)
2017 0.088 1949150.7465 0.08 1297602.0508
2018 0.078 2102060.6994 0.08 1290032.2461
2019 0.068 2245945.7586 0.08 1270614.4676
2020 0.058 2377220.2244 0.08 1239775.8372
2021 0.048 2492395.4183 0.08 1198256.8341
2022 0.038 2588226.8416 0.08 1147082.1618
SUM 7443363.5976
Declining Growth Period
Company Analysis
Year Growth rate
FCFF (‘000)
R wacc PV (2022) (‘000)
PV (2012)(‘000)
2022 0.038 2687742.938 0.08 58015199.82 25711888.84
Constant Growth Period at 3.8%
Company Analysis
Periods PVs (‘000)High Growth Period (RMB) 6307154.749
Declining Growth Period (RMB) 7443363.5976Constant Growth Period (RMB) 25711888.84Total (RMB) 39462407.183Estimated Price (RMB) 10.28Convert to SGD 2.06Current Market Price (SGD) 1.36
Difference 0.7
Status Undervalued by 33.98%
Recommendation Strong Buy
OCFC Summary
Company Analysis
Relative Valuation RatioDataFWD P/E ratio 1.47EPS estimated ($) (2012) 1.17
Estimated Price per share 1.72
Current Market 1.36Difference 0.36Status Undervalued 20.93%Recommendation Buy
Company Analysis
ConclusionModel Status Difference ($) Recommendation
Dividend Growth Model
Undervalued by 32%
0.64 Strong Buy
Operating Free Cash Flow Model
Undervalued by 33.98%
0.7 Strong Buy
Relative ratio-P/E Undervalued by 20.93%
0.36 Buy
Overall Conclusion
Buy
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Conclusion
Conclusion
Strong BuySembCorp Marine
BuyNOL
SellCosco
BuyYangzijiang Shipbuilding
Conclusion
Macro level Uncertainty in Europe Recovery in US
Industry level Porter’s 5 forces indicates fairly competitive
industry BDI bottoming out?
Conclusion
Company level High sensitivity of the valuation models, hence
quantitative values only serve to give a rough indication
Difference in recommendations despite similar industry is due to specific SWOT of the companies.
SembCorp Marine’s focus on oil-rig building positions it well for continual thirst for oil and energy
Cosco’s over-dependence on gloomy dry bulk ship building business will weigh down on future profits
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Charmaine Yap . Chew Jia Yi . Leow Wei Xiong . Soon Shang Yeh
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