Add your company slogan

FIN 3102 Investment FIN 3102 Investment Analysis Analysis

Stock Analysis Presentation

Stock Analysis Presentation

Charmaine Yap Chew Jia Yi Leow Wei Xiong Soon Shang Yeh

LOGO

Contents

1 2

Introduction
Macroeconomic Analysis Industry Analysis

3
4 5

Company Analysis
Conclusion

Introduction
Share Valuation

Top Down Approach

3 step, economy level, industry level, company level

Bottom Up Approach
Stock valuation and stock picking

Introduction

Macro-economy

Industry

Company

 Add your company slogan

Macroeconomic Analysis
www.themegallery.com

LOGO

Macro-Economic

Global Outlook 2012

Macroeconomic Analysis

Economic Cycle

Outlook for Singapore

Leading Indicators

Global Outlook 2012

Global GDP growth forecasted at 3.5 percent in 2012 Performance differential between developed economies and developing economies

Global Outlook 2012

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

Other Economies Asia Slower growth as export performance decline Buffer from huge domestic demand in larger economies of the region Cushion negative shocks and provide support

Global Outlook 2012

Takeaway: Firms are likely to observe stagnant growth, profit declines or operating losses in the forecasted period of slow GDP growth.

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 Market & Economy

Stock price decisions reflect expectations for future economic performance

Strong relationship between stock market and economy

Stock prices consistently turn before the 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)

Expansion 50% 42%

Long-term benchmark for economic expansion

Impending Recession

Leading Indicators
Singapore Purchasing Manager Index (PMI)

49.5

48.7

Source: Singapore Institute of Purchasing & Materials Management

Leading Indicators
Singapore Purchasing Manager Index (PMI)
7th consecutive monthly contraction
49.5 Reading for January: 48.7

Marginal dip of 0.8 point from previous month

48.7

Dip in overall PMI attributed to a further contraction in new export orders and Source: Singapore Institute of Purchasing & Materials Management 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

 Add your company slogan

Industry Analysis
www.themegallery.com

LOGO

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 BDIs 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 Chinas shipping orders.

Industry Analysis
Baltic Dry Index

Main reason for the plunge in index: Supply-side factor Growing supply of ships

Industry Analysis Baltic 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 Analysis Michael Porters 5 Forces Model

Bargaining Power of Buyers Threat of Substitutes Industry Rivalry

Bargaining Power of Suppliers

Barriers to Entry

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

LOW MODERATE
Bargaining Power of Suppliers Barriers to Entry

HIGH

INDUSTRY NOTBargaining Industry Power of Rivalry Buyers AS ATTRACTIVE

MODERATE HIGH LOW
Threat of Substitutes

HIGH

 Add your company slogan

Company Analysis
www.themegallery.com

LOGO

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

Group Revenue Mix

Liner Logistics

Company Analysis

Markets Contribution to Sectors

Liner Trade Volume Mix
Latin America Trans-Atlantic Asia-Middle East Trans-Pacific Asia-Europe

Logistics Regional Revenue Mix

Asia-Middle East Europe Americas

Company Analysis SWOT Analysis

Opportunity Strength Threat Weakness

Company 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
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

Company Analysis
Share Valuation Techniques

Discounted cash flow

1. Dividend 2. Free cash flow to equity 3. Operating free cash flow

Relative valuation
1. Price to earnings 2. Price to sale 3. Price to book value 4. Price to cash flow

Company Analysis
Dividend growth model P0 = D1/(k-g) t0 = end of year 2011 D1 = dividend for the year 2012

Company Analysis
Estimating required rate of return k = risk-free rate + beta x market risk premium Risk-free rate: 0.48% Market risk premium: 6% Beta: 1.26 k = 0.0804

Company Analysis Estimating dividend growth rate

g = retention ratio x return on equity

Company Analysis
Year 2004 2005 2006 2007 2008 2009 Retention ratio 0.321822 0.927562 0.678973 0.603736 0.212598 1 ROE 0.54 0.34 0.18 0.23 0.03 -0.28

2010

0.742008

0.16

Estimated retention ratio: 0.65 (average over the years) Estimated ROE: 0.16 g = 0.104

Company Analysis k = 0.0804 g = 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
Declining Growth Period
Year
2012 2013

Growth rate
0.104 0.09

Dividend ()
5.606554 6.111143

Rate of return
0.0804 0.0804

PV ()
5.189331 5.235442

2014 2015
2016

0.08 0.065
0.05

6.600035 7.029037
7.380489

0.0804 0.0804
0.0804

5.233503 5.158905
5.013745

Company Analysis
Constant Growth Period at 5%
Year
2016

Growth rate
0.05

Dividend ()
7.380489

Rate of return
0.0804

P(2016) ()
254.9182

PV ()
173.1721

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 = $66,088,000 Estimate gFCFE following growth rate for dividends

Company Analysis
Declining Growth Period
Year
2012 2013

Growth rate
0.104 0.09

FCFE (USD$000)
80549.11 87798.53

Rate of return
0.0804 0.0804

PV (USD$000)
74554.9 75217.36

2014 2015
2016

0.08 0.065
0.05

94822.41 100985.9
106035.2

0.0804 0.0804
0.0804

75189.51 74117.77
72032.26

Company Analysis
Constant Growth Period at 5%
Year
2016

Growth rate
0.05

FCFE ($000)
106035.2

Rate of return
0.0804

PV (2016) ($000)
3662399

PV ($000)
2487956

Fundamental value of firm = Sum of PV = USD$2,859,068,000 Number of outstanding shares = 2,582,612,000

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

EPS Estimation Procedure

Net Income
Subtract recent tax rate (17%)

EBT
Estimated Interest Expense

EBIT
Estimated Depreciation

Estimated Gross Profit Margin

EBITDA

Sales Estimate

Company Analysis Sales Estimation

Linear regression of % in sales against % in trade volume historically
Sales vs trade volume growth
0.5 0.4 0.3 0.2 0.1 Sales vs trade volume growth 0 -0.15 -0.1 -0.05 -0.1 -0.2 -0.3 -0.4 0 0.05 0.1 0.15 y = 2.4085x - 0.0302 R = 0.7184

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
Depreciation Estimation
Historic Average Sales/PPE ratio Historic Average Depreciation/PPE ratio

Depreciation Estimate

Assume certain relation between PPE required to generate level of sales

Since depreciation is applicable to PPE only

Use 2012 sales estimate and afore mentioned 2 ratios

Company Analysis
Historical averages

TATO turnover

Interest expense estimation

Use 2012 sales estimate and afore mentioned 3 estimations

Borrowings/ total asset

Estimated borrowing cost

Interest expense estimate

Company Analysis

Sales est = $9.776 bil Gross profit margin est = 7% Depreciation est = $0.338 bil

Net profit = $0.226 billion

Interest expense est = $0. 074 bil

Tax rate = 17%

Number of outstanding shares = 2.583 bil EPS = Net profit / Number of outstanding shares = 8.76

Company Analysis
Forward P/E ratio estimate (for 31 Dec 2012) = 16.81 (from yahoo finance) Therefore using various P/E ratio estimates P/E ratio
15

Fundamental share price

16
17

P/E ratio valuation

USD1.49 = SGD1.87

USD1.40 = SGD1.76
USD1.31 = SGD1.65

EPS = 8.76 US cents Forward P/E ratio = 16.81

Company Analysis
Conclusion & Recommendation

Share Price

Dividend Discount

FCFE

P/E

Recommendation

Fundamental Price Current Price

$1.99

$1.39

$1.87

$1.76

$1.65

Buy
$1.34

Company Analysis
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 SWOT Analysis

Opportunity Strength Threat Weakness

Company 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
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

Company Analysis
Share Valuation Techniques

Discounted cash flow

1. Dividend 2. Free cash flow to equity 3. Operating free cash flow

Relative valuation
1. Price to earnings 2. Price to sale 3. Price to book value 4. Price to cash flow

Company Analysis Dividend growth model P0 = D1/(k-g)

t0 = end of year 2011 D1 = dividend for the year 2012

Company Analysis Estimating required rate of return

k = risk-free rate + beta x market risk premium Risk-free rate: 0.48% Market risk premium: 6% Beta: 1.81 k = 0.1134

Company Analysis Estimating dividend growth rate

g = retention ratio x return on equity

Company Analysis
Year 2004 2005 2006 2007 2008 2009 Retention ratio 0.672131 0.727149 0.568501 0.533955 0.481481 0.390244 ROE 0.223 0.381 0.345 0.418 0.29 0.099

2010

0.639964

0.218

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

Company Analysis
k = 0.1134 g = 0.12 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
Declining Growth Period
Year
2012 2013

Growth rate
0.12 0.095

Dividend ()
5.0176 5.494272

Rate of return
0.1134 0.1134

PV ()
4.506556 4.432081

2014 2015
2016

0.08 0.065
0.05

5.933814 6.319512
6.635487

0.1134 0.1134
0.1134

4.299127 4.112242
3.87808

Company Analysis
Constant Growth Period at 5%
Year
2016

Growth rate
0.05

Dividend ()
6.635487

Rate of return
0.1134

P(2016) ()
61.4397

PV ()
35.9082

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 = $601,961,000 Estimated gFCFE following growth rate for dividends

Company Analysis
Declining Growth Period
Year
2012 2013

Growth rate
0.12 0.095

FCFE ($000)
755099.88 826834.37

Rate of return
0.1134 0.1134

PV ($000)
678192.8 666985

2014 2015
2016

0.08 0.065
0.05

892981.12 951024.89
998576.13

0.1134 0.1134
0.1134

646976.7 618852.3
583613.2

Company Analysis
Constant Growth Period at 5%
Year
2016

Growth rate
0.05

FCFE ($000)
998576.13

Rate of return
0.1134

PV (2016) ($000)
9246075

PV ($000)
5403826

Fundamental value of firm = Sum of PV = $8,598,446,000 Number of outstanding shares = 2,239,245,000

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

EPS Estimation Procedure

Net Income
Subtract recent tax rate (17%)

EBT
Estimated Interest Expense

EBIT
Estimated Depreciation

Estimated Gross Profit Margin

EBITDA

Sales Estimate

Company Analysis Sales Estimation

Linear regression of % in sales against % in GDP historically
Sales growth vs GDP growth
1 0.8 0.6 0.4 0.2 0 -0.01 -0.2 -0.4 0 0.01 0.02 0.03 0.04 0.05 0.06 y = 11.815x - 0.2087 R = 0.3711 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
Depreciation Estimation
Historic Average Sales/PPE ratio Historic Average Depreciation/PPE ratio

Depreciation Estimate

Assume certain relation between PPE required to generate level of sales

Since depreciation is applicable to PPE only

Use 2012 sales estimate and afore mentioned 2 ratios

Company Analysis
Historical averages

TATO turnover

Interest expense estimation

Borrowings/ total asset

Use 2012 sales estimate and afore mentioned 3 estimations

Estimated borrowing cost

Interest expense estimate

Company Analysis

Sales est = $4.787 bil

Net profit = $0.152 billion

Gross profit margin est = 10% Depreciation est = $0.215 bil

Interest expense est = $0. 079 bil

Tax rate = 17%

Number of outstanding shares = 2.239 billion EPS = Net profit / Number of outstanding shares = 6.81

Company Analysis
Forward P/E ratio estimate (for 31 Dec 2012) = 17.57 (from yahoo finance) Therefore using various P/E ratio estimates Fundamental share price

P/E ratio 16

17
18

P/E ratio valuation

$1.22

$1.16
$1.09

EPS = 6.81 cents Forward P/E ratio = 17.57

Company Analysis
Conclusion & Recommendation
Share Price Fundamental Price Dividend Discount $0.57 FCFE P/E Recommendation

$3.84

$1.22

$1.16

$1.09

Sell
Current Price $1.21

Company Analysis Sembcorp Marine Ltd Core Businesses Rig Building Ship Conversion and Offshore Ship Repair

Company Analysis

Sectors Contribution to Group

Company Analysis SWOT Analysis

Opportunity Strength Threat Weakness

Company Analysis

Strength Innovative processes

3 projects were duly recognized at 13th Marine Industry Workplace and Safety and Health Innovation Convention.
OctoMaster (gold award) Sembawang Shipyards 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

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 0.11 0.11 0.11 0.11 PV

2012 2013 2014 2015

0.05 0.05 0.05 0.05

0.4124 0.4331 0.4548 0.4776

0.4124 0.3912 0.3711 0.3519

2016

0.05

0.5015

0.11
SUM

0.3338
1.8605

Company Analysis
Declining Growth Period
Year Growth rate Dividend Rate of return 0.11 0.11 0.11 0.11 0.11 0.11 SUM PV

2017 2018 2019 2020 2021 2022

0.049 0.048 0.047 0.046 0.045 0.044

0.5261 0.5514 0.5774 0.6040 0.6313 0.6591

0.3136 0.2995 0.2832 0.2676 0.2527 0.2383 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 High Growth Period Declining Growth Period Constant Growth Period Total Current Market Price Difference Status Recommendation PVs 1.8605 1.6576 3.9488 7.4669 5.27 2.20 Undervalued by 29.46% Strong Buy

Company Analysis

Operating Free Cash Flow (OFCF)

Year 2012 Net Income Depreciation Change in Working Capital Capital Expenditure Change in other Asset OFCF('000) (000) 985685.483 91741.807 76353.799 72547.049 928526.443 Year 2012 EBIT Tax Rate Total Capital RR ROIC Growth rate ('000) 1180726.556 0.170 5682508.279 0.131 0.173 0.023

Debt/Asset
Equity/Asset R wacc

0.495
0.505 0.072

Cost of Equiy Cost of Debt after tax

0.11
0.035714

Company Analysis
High Growth Period
Year Growth rate FCFF (000) R wacc PV (000)

2012 2013 2014 2015

0.023 0.023 0.023 0.023

928526.4425 949444.6369 970834.0843 992705.4012

0.07 0.07 0.07 0.07

928526.4425 885887.5603 845206.6991 806393.9446

2016

0.023

1015069.4434 0.07
SUM

769363.5114
4235378.158

Company Analysis
Declining Growth Period
Year Growth rate FCFF (000) R wacc PV (000)

2017 2018 2019 2020 2021 2022

0.022 0.021 0.020 0.019 0.018 0.017

1036922.2418 1058208.5732 1078873.6699 1098863.4487 1118124.7422 1136605.5303

0.07 0.07 0.07 0.07 0.07 0.07 SUM

733315.6922 698272.6339 664252.6536 631270.3468 599336.7066 568459.2553 3894907.2883

Company Analysis
Constant Growth Period at 1.7%

Year

Growth rate 0.017

FCFF (000) 1155391.786

R wacc

PV (2022) (000)

PV (2012) (000)

2022

0.07

20925105.71 10465433.86

Company Analysis
OCFC Summary
Periods High Growth Period Declining Growth Period Constant Growth Period Total Estimated Price Current Market Price Difference Status Recommendation PVs (000) 4235378.158

3894907.2883 10465433.86 18595719.311

8.95 5.27 3.68 Undervalued by 41.12% Strong Buy

Company Analysis

Relative Valuation Ratio

Data FWD P/E ratio EPS estimated ($) (2012)
Estimated Price per share Current Market Difference Status Recommendation

16.56
0.4744 7.86 5.27 2.59 Undervalued by 32.95% Strong Buy

Company Analysis

Conclusion
Model Status Difference ($) Recommendation Dividend Growth Model Operating Free Cash Flow Model Undervalued by 29.46% Undervalued by 41.12% 2.20 Strong Buy

3.68

Strong Buy

Relative ratio-P/E

Undervalued by 32.95%

2.59

Strong Buy

Overall Conclusion

Strong Buy

Company Analysis 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 SWOT Analysis

Opportunity Strength Threat Weakness

Company Analysis

Strength
Research & Development Breakthrough Strong Financial Support from PRC government Advanced Expertise and Experience Technologies Facility Upgrade

Company Analysis

Weakness
Not diversified business operations

Company Analysis

Opportunity
Shrinking Competition in the Industry due to a consolidation of the shipbuilding industrys 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
High Growth Period
Year Growth rate Dividend (RMB) Rate of return PV (RMB)

2012 2013 2014 2015

0.23
0.23 0.23 0.23 0.23

0.244390059
0.300986983 0.370690871 0.456537092 0.562263959

0.12
0.12 0.12 0.12 0.12 SUM

0.24
0.27 0.30 0.33 0.36 1.50

2016

Company Analysis
Declining Growth Period
Year Growth rate Dividend (RMB) 0.6756 0.7915 0.9036 1.0044 1.0864 Rate of return 0.12 0.12 0.12 0.12 0.12 PV (RMB)

2017 2018 2019 2020 2021 2022

0.20 0.17 0.14 0.11 0.08

0.39 0.41 0.42 0.41 0.40

0.05

1.1424

0.12 SUM

0.38 2.41

Company Analysis
Constant Growth Period at 5%

Year

Growth rate

Dividend (RMB)

Rate of return

PV (2022) (RMB) 18.36

PV (2012) (RMB) 6.07

2022

0.05

1.1995

0.12

Company Analysis
DGM Summary
Periods High Growth Period (RMB) Declining Growth Period (RMB) Constant Growth Period (RMB) Total (RMB) Convert to SGD Current Market Price (SGD) Difference Status Recommendation PVs 1.50 2.41 6.07 9.98 2.00 1.36 0.64 Undervalued by 32% Strong Buy

Company Analysis

Operating Free Cash Flow (OFCF)

Year 2012 Net Income 2012 Depreciation of 2012 Change in Working Capital Capital Expenditure Change in other Asset OFCF('000) Debt/Asset Equity/Asset R wacc ('000) 4477982.262 255755.253 1434167.654 2069537.011 1230032.850 0.584 0.416 0.084 Year 2012 EBIT Tax Rate Total Capital RR ROIC Cost of Equity Cost of Debt after tax Growth rate ('000) 5505084.982 0.187 35959937.233 0.791 0.125 0.117 0.062 0.098

Company Analysis
High Growth Period
Year Growth rate FCFF (000) (RMB) R wacc PV (000) (RMB)

2012 2013 2014 2015

0.098
0.098 0.098 0.098 0.098

1230032.8501
1351129.0016 1484147.0119 1630260.5822 1790758.9643

0.08
0.08 0.08 0.08 0.08 SUM

1230032.8501
1245535.2844 1261233.0999 1277128.7592 1293224.7558 6307154.749

2016

Company Analysis
Declining Growth Period
Year Growth rate FCFF (000) (RMB) 1949150.7465 2102060.6994 2245945.7586 2377220.2244 2492395.4183 R wacc PV (000) (RMB) 1297602.0508 1290032.2461 1270614.4676 1239775.8372 1198256.8341

2017 2018 2019 2020 2021 2022

0.088 0.078 0.068 0.058 0.048

0.08 0.08 0.08 0.08 0.08

0.038

2588226.8416

0.08 SUM

1147082.1618 7443363.5976

Company Analysis
Constant Growth Period at 3.8%

Year

Growth rate 0.038

FCFF (000) 2687742.938

R wacc

PV (2022) (000)

PV (2012) (000)

2022

0.08

58015199.82 25711888.84

Company Analysis
OCFC Summary
Periods High Growth Period (RMB) Declining Growth Period (RMB) Constant Growth Period (RMB) Total (RMB) Estimated Price (RMB) Convert to SGD Current Market Price (SGD) Difference Status Recommendation PVs (000) 6307154.749

7443363.5976 25711888.84 39462407.183

10.28
2.06 1.36 0.7 Undervalued by 33.98% Strong Buy

Company Analysis

Relative Valuation Ratio

Data FWD P/E ratio EPS estimated ($) (2012)
Estimated Price per share Current Market

1.47
1.17 1.72

1.36 0.36 Undervalued 20.93% Buy

Difference Status Recommendation

Company Analysis

Conclusion
Model Status Difference ($) Recommendation Dividend Growth Model Operating Free Cash Flow Model Undervalued by 32% Undervalued by 33.98% 0.64 Strong Buy

0.7

Strong Buy

Relative ratio-P/E

Undervalued by 20.93%

0.36

Buy

Overall Conclusion

Buy

 Add your company slogan

Conclusion
www.themegallery.com

LOGO

Conclusion

Strong Buy
SembCorp Marine

Buy
NOL

Sell
Cosco

Buy
Yangzijiang Shipbuilding

Conclusion

Macro level
Uncertainty in Europe Recovery in US Industry level Porters 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 Marines focus on oil-rig building positions it well for continual thirst for oil and energy Coscos over-dependence on gloomy dry bulk ship building business will weigh down on future profits

 Add your company slogan

THANK YOU!
www.themegallery.com

LOGO Charmaine Yap . Chew Jia Yi . Leow Wei Xiong . Soon Shang Yeh