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Isaac Chan

interested to learn much more about investing!

Isaac Chan

Business at NUS

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interested to learn much more about investing!

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Business at NUS

Isaac Chan

Business at NUS

527Upvotes
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Stocks Discussion

Investments

Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Updated on 15 Aug 2019
Frasers Property owns and develops one of my few favouritem malls, Bedok Point. As the property market has grown in Singapore, more attention has been placed on stocks from property developers. ! These data had been takenf rom the SGX website as well as the firm's annual report. In general, the company has relatively strong financial ratios such as the current ratio, but the performance of the company had tapered over time. Output ! Due to the slow down in growth, the F-Score actually awarded less points to the firm. All in all, a score of 4 is a neutral score. As the valuation of the shares are high as well, one might need to pay further attention to future prospects of the firm.
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Stocks Discussion

Investments

Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Updated on 15 Aug 2019
Far East Orchard is a famous property developer in Singapore. Notable properties of the company include Novena Health Centre and Novena Specialist Centre. I had been to these 2 centres lately, and was quite impressed by the work of the firm. Here, I do a brief F-Piotroski analysis on the stock. Inputs ! These numbers were taken from SGX and the annual report. Output ! Based on the F Score, it can be seen that Far East Orchard's financials have neutral financial health. This is because the firm's performance has slowed down lately, despite high profitability margins. Personally, I would prefer to look at a stock with improving financial health, and cheap valuation. Although Far East Orchard's valuation is cheap, certain aspects of their financial performance is left to be desired.
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Stocks Discussion

Investments

Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Updated on 31 Jul 2019
TL;DR The firm has weak financials and poor valuation. This is probably due to Synagie still being in the early growth stage phase. Without a very compelling growth story, I would not bother with investing here at all. ! Source: Aspire Shares Investment Business Profile Synagie provides e-commerce solutions in Southeast Asia (“SE Asia”) in the Body, Beauty and Baby sector. They help Brand Partners to execute their e-commerce strategies by selling their goods or services to consumers online. They do this by providing one-stop services and integrated technology to manage their multi-channel e-commerce operations. ! Source: The Straits Times Income Statement ! For 2018 itself, the profitability is quite low, where earnings were negative. These margins have seemed to worsen since 2017 as well, painting quite a bleak picture for the firm. Despite an increase in revenue, earnings have largely decreased as well. Balance Sheet ! All in all, the balance sheet of the firm looks pretty healthy, with fairly good liquidity ratios as well as no debt to pay off. Furthermore, these ratios have improved since 2017. In short, the balance sheet is strong. Free Cashflow Analysis ! For 2018 itself, free cash flow looks rather bleak, as it was negative. Moreover, free cash flow has also reduced over time. This is quite an unhealthy sign too. This was caused by a decrease in earnings as well as an increase in capital expenditures. Working capital management had improved, however, which helped to improve cashflows. The firm did not pay any dividends, most likely because of the weak cash flows of the firm. Efficiency Metrics ! The firms are very inefficient in their use of assets, and needless to say, this is a very bad sign overall. Their very weak ROE is caused not only by weak earnings but also by a low equity multiplier. Valuation ! The shares of the firm are trading at very low multiples. However, this could be due to the very weak companion variables which accompany these multiples. Hence, I wouldn't bet that the shares of the firm are undervalued at all. Cost of Capital ! As the firm does not hold any debt, there is no cost of debt associated with the firm. Without an estimated beta, it would be quite hard to determine the cost of equity for this instance. Regardless of the WACC, even if we give Beta a value of 0,1, it would be much higher than the ROIC because earnings are negative. This suggests that the firm is destroying value for shareholders.
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Investments

AMA SG Young Investment

Isaac Chan
Isaac Chan
Level 8. Wizard
Updated on 30 Jul 2019
Hello! It would be a great help if you could understand how to read financial statements , such as income statements , balance sheets and cashflow statements . These statements can be found in the annual report of companies listed on stock exchanges. These statements form the basis for quite a good number of investments, as they tell about the financial health of the company! Companies can smoke investors by saying that they their company has performed very well over the last few years, but numbers don't lie . More importantly, asset classes such as stocks, bonds, ETFs and REITs all utilises financial statements to understand what kind of investments to develop. You can read more about financial statements at the following sites: https://www.sec.gov/reportspubs/investor-publications/investorpubsbegfinstmtguidehtm.html https://www.thebalance.com/guide-to-understanding-financial-statements-357512 https://corporatefinanceinstitute.com/certifications/financial-modeling-valuation-analyst-fmva-program/ Video: https://www.coursera.org/learn/financial-statements https://www.youtube.com/watch?v=Jkse-Wafe9U

Investments

Stocks Discussion

Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Answered on 14 Jun 2019
! I did a DCF valuation for this stock, which I admit was more for experimental purposes. I was wondering how I could structure the valuation such that I would require minimal inputs. Here is AEM Holdings historical results. As the different metrics show, AEM has experienced quite a few changes over the last few years. Given that AEM has had strong growth, I grant that AEM would continue to grow, but at a slower pace over the next few years. Hence, I allowed 5 years of high growth, before tapering off into the stable period. This is the first variable input. I calculated the Cost of Capital the same manner as other DCF which I have shared about. During the stable growth period, I assumed that COC would equal the Return on Capital (ROC), which is a fair assumption. Once I had the final year ROC, I computed the CAGR from last year's ROC, and reduced the ROC at a constant rate from 2018's figures. The second variable input I used is the growth rate in the stable period. I let this figure be 1%, lower than the inflation rate which demonstrates the low growth that would likely occur from such a mature company. I calculated the reinvestment rate from this figure, and similarly used the "CAGR" method to estimate the reinvestment rate for each year. With these 2 simple inputs, I computed the target price to be $1.025, less than 3 cents higher than the current trading price of $0.995. This represents an upside of only 3%. The targer price should be lower though, as I had not factored in the value of equity options since the annual report had not disclosed the exercise price. Thus, my target price should be even closer to the current trading price. My DCF, though very simplistic, seems to point towards the shares being fairly valued.
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Investments

Stocks Discussion

Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Updated on 14 Jun 2019
TL;DR The company does look like they have strong financials and priced at a cheap valuation. However, EPS growth was negative and the company does have a high beta. ! ! Business Profile AEM provides handling and test solutions to advanced manufacturers in the world. They help deliver different products in the 5G economy such as microprocessors, high-speed communications, IOT devices, and solar cells. They have developed valuable and long-term partnerships with their customers. They also serve them 24/7 and across the entire manufacturing lifecycle using their network of factories and field support locations worldwide. Financials Income Statement ! AEM had total revenue of $262m in 2018, which was almost 20% higher than the previous year. Hence, all the other profitability metric had improved as well, such as EBIT and Net Profit. However, earnings per share had decreased slightly due to an increase in the number of shares outstanding. However, it seemed that the business had weaker profitability over time as all their margins had weakened. This shows that with improved revenue, profitability had dropped although overall profits rose. Overall, the company still has quite a healthy income statement. Their net profit margin of almost 13% is still quite high. The company also has small Depreciation and Amortization, which is surprising for a more capital intensive business. Balance Sheet ! AEM has a very strong balance sheet with very high liquidity ratios and very low debt metrics, relative to earnings and cash. It seems that overall, the company's balance sheet had improved over time. The short-term liquidity of the business had improved, as seen from the table. Their balance sheet had also improved with less debt on their balance sheet and earnings being more than sufficient to cover debt and interest payments. The company has much more cash than debt. Cashflows ! Overall, the company does have quite strong cash flows as well. This is evidenced by their high cash flow from operating activities and low capital expenditures that have generated significant free cash flows. However, this had worsened in 2018, due to weaker working capital conditions and higher capital expenditrues. 2018's free cash flow figures were more than 2 times lesser than 2017 figures. The business does pay out a good amount of dividends as well, as the dividends paid out had almost doubled. The business also looks like they have a relatively low dividend payout ratio. With high free cash flows and cash balance, I do believe that the company can sustain or even pay out more dividends. Efficiency Metrics ! The company does look that they are very efficient in their use of capital, as compared to other businesses. However, these figures had weakened over time significantly, although the figures are still quite good. Market Metrics ! AEM does look like they are trading at a discount based on their P/E ratios. However, their P/B ratio look rather high. This could perhaps be explained by the high Net Asset Value the company has based on strong earnings from previous years and low debt levels. Even their EV multiples look attractive as well. However, I would add 2 caveats. First, is how their PEG was negative due to negative EPS growth in the previous year from an increase in shares outstanding, which had diluted the EPS of shareholders. Secondly, the company does have a very high beta of 2.43. This suggests that the company has significant market risk associated with it. With such higher risk, their shares may thus be valued at a lower level than their peers. Share Price Performance ! Against the STI, AEM shares have underperformed the stock market with a return of almost -40%. As you can see, their share prices are a lot more volatile than the market, which is shown through their high beta. However, AEM's overall return over the past 5 years was more than 600%! This is a wide contrast to the very low returns of the STI. Currently, the shares are trading at 52% of their 52-week high.
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Investments

Stocks Discussion

Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Updated on 11 Jun 2019
Business Profile ! Source: Next Insight Sino Grandness is an integrated manufacturer and distributor of own-branded juices as well as canned fruits and vegetables in China. They produce loquat fruit juice in China as well as export canned asparagus, long beans and mushrooms. The Group’s products are distributed globally across Europe, North America and in Asia, in renowned supermarkets, discount stores and convenience stores including as Lidl, Rewe, Carrefour, Walmart, Harpenden, Coles, Jusco and Metro. The production plants in China are strategically located in four provinces. Interestingly, the production bases straddle different climatic regions so that production activities can be carried throughout the year. ! Source: The Straits Times Forecasts and Estimates ! I forecasted that Sino Grandness will enjoy high growth in earnings over the next few years. This is supported by higher than industry average ROC historically but lowered to reflect more intense competition over the years. I grant that Sino Grandees will continue to have to some leeway in growing its revenue over the next few years as it had strong revenue growth previously. However as the company matures and the industry becomes more saturated, Sino Grandness will probably find it much tougher to retain customers and its competitive advantage. Leading to pricing pressures and high expenses. During the stable growth period, I project that Sino Grandness will reflect the growth of 1% revenue per year. I believe that this industry will continue to grow and expand, as the global population increases and the need for such staples increase. Sino Grandness just has to ensure that it grows with the industry. However, during the stable growth period, I predict that newer entrants into the market will erode ROC such that the ROC would equal the COC. I don't believe that Sino Grandness has a firm competitive advantage that helps to stave off competition, and thus their advantage over competitors might decrease over time. Hence, growth would not add value to the company's investors through time. The COC is on the lower end due to low cost of debt and high leverage. Cost of Equity is higher however due to the high levered Beta and risk premium from operating in China. Valuation ! Based on this simple DCF, it seems that the shares of the firm could be undervalued. This stock was also singled out by Motley Fool as one of the top few stocks to buy in June based on the Magic Formula.
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Investments

Stocks Discussion

Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Updated on 11 Jun 2019
Business Profile ! Sembcorp has come into the light again with Sembcorp Power in place. Outside of the electricity market they also provide essential energy and water solutions to both industrial and municipal customers. They are also a brand name in urban development in Vietnam, China and Indonesia. Financials ! Income Statement Despite a 30% increase in revenue, gross profit fell by 26% due to a 38% increase in cost of sales. Profit Before Tax as a result also fell, but was buffered by higher operting income, lower non-operating expense and higher finance income. Balance Sheet The company has strong short-term liquidity with a current ratio of close to 5. Morevoer, current assets mainly comprise of cash (75%), which leads to a cash ratio of more than 3 times. The business also seems to have very low leverage with a D/E ratio of 1.35. Due to worsened profitability, Return on Assets, Return on Equity and Interest Coverage had worsened from FY17 to FY18. Cashflow Statements Despite reductions in profit, operating cashflows had improved due to stronger working capital conditions. However, in FY18, Sembcorp had made substantial acquisitions of subsidiaries, associates and joint ventures which led to a 12X increase in cashflow from investing activities. Additionally, capital expenditures of PPE increased by 1.5X as well. Cashflow from financing activities was also negative due to redemption of perpetual securities and payment for non-controlling interest acquired in FY17. Growth Opportunities ! Utilities Performance in India India remains a key growth driver, accounting for 15-20% of earnings of Sembcorp. Utilities earnings achieved grew 23% YOY from improvement in India operations. This expected to continue into 2019 along with the resumption of a plant which had 50% capacity due to technical issues. The power market there is also recovering which can increase tariffs. Marine Sector Improvement The marine subsidiary had attained a surprising net profit in 4Q18, which led to the overall net profit for FY18 being better than expected. With improvement capex, this has led to more contract enquiries which may lead to improving financials, although the gestation period for this might be long. Risks Competitive Power Market ! The opening up of the electricity market had led to a much more competitive environment. The carbon tax could also result in a cost of $15-20m which might be passed on to customers. Profits for this segment had fallen quite a fair bit compared to before in 2013. Find out more about Sembcorp Power here.(http://snip.ly/wl9nuz#https://www.sembcorppower.com/Pages/Home.aspx) Execution of Strategy in India With strong growth potential in India, Sembcorp needs to focus on execution to deliver the results it has promised to shareholders. This venture might be more risky, since India is still a relatively new market and strategies applied in Singapore can't be replicated wholesale there.
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Investments

Stocks Discussion

Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Updated on 07 Jun 2019
Business Profile The Hour Glass is a luxury watch retail groups with an established presence of 40 boutiques in 11 key cities in the Asia Pacific region. The Hour Glass’ network of multi-brand and standalone boutiques are all strategically located in the key luxury retail corridors of Singapore, Kuala Lumpur, Bangkok, Phuket, Ho Chi Minh, Hanoi, Hong Kong, Tokyo, Sydney, Melbourne and Brisbane. Growth Profile I have a few concerns regarding this company. Firstly, luxury watches have taken to online retailing, which The Hour Glass has not explored yet. This could be due to the exclusive distribution agreement they have with the different watchmakers. Secondly, the demand for luxury watches has been propped up by Chinese consumers. However, The Hour Glass does not have a physical retail presence in China yet. Thirdly, there seems to be a change in consumer taste for watches, as smartwatches and fitness watches are increasingly popular, as cited by several studies. My fourth reasons are similar to that of the second and third. I'm worried that The Hour Glass has not responded to such changes in the retail environment yet. This could either reflect the lack of management foresight or the restrictions by placed on The Hour Glass. The reasons I mentioned probably led to the low revenue growth that The Hour Glass has. In fact, revenue CAGR since 2015 was less than 1%. Estimates ! Moving forward, I project that CAGR for the next 5 years would be negative 2%, due to the reasons I mentioned earlier. I also don't believe that The Hour Glass has strong competitive advantages, that set it apart from other luxury watch retailers. Part of it could be due to the nature of the business that it is in since there doesn't seem to be much value add that they bring to customers. I project that operating margins would also decrease, mainly due to the reduced economies of scales but also due to high fixed costs involved. I also lowered the Sales/Capital ratio to reflect the fact that the same amount of capital is still required to support declining sales. The cost of capital for the firm due to the slightly lower cost of debt and low leverage. As the firm matures, I leave the cost of capital lower during the later years to reflect the servicing of debt and lower cost of equity. During the stable period, I gave the revenue zero growth rate. I still think that there is a place for luxury watches in the offline retail space. I gave the firm a 30% probability of failure, in which case 50% of the current book value of capital will proceed to shareholders. I gave this probability as there is a chance that Valuation ! I thought that I was pessimistic enough with such a valuation, but the target price that I received was still showed that the shares were undervalued! I am not entirely sure how the market has been pricing the shares, but given a very conservative outlook I took, I might be buying The Hour Glass. Piotroski F-Score The F-Score for this stock is 8 out of 9! Hence, it has also attained a positive rating independent from my valuation. It also has a Price/Book ratio of less than 1 (0.98).
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Investments

Stocks Discussion

Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Updated on 07 Jun 2019
TL;DR The firm has surprisingly strong financials, and there is a good chance the shares could be undervalued. I think that it is worth a closer look. Business Profile ! Source: Yangzijiang Group YZJ is a large corporate group, with shipbuilding and offshore engineering as its core business. They also have four additional sections: financial investment, metal trading, real estate and shipping combined ship-leasing as supplementary businesses. Interestingly, shipbuilding output from 2009 was continuously ranked top 5 of the Chinese shipbuilding industry. The average output, profit and tax were also impressively ranked at the top of Chinese shipbuilding companies. ! Source: Singapore Business Review Income Statement ! The profitability of the firm is very strong, with a net margin of more than 15%. Moreover, these margins have also substantially improved over time as well. The revenue and earnings of the firm also had quite a growth over the past few years, with the most significant change being for net profit. As a result, earnings per share have also risen. Balance Sheet ! The firm also has quite a strong balance sheet, with both very good short-term liquidity metrics as well as debt ratios. These ratios have also improved over time, which is a testament to the strength of their balance sheet. Free Cashflow ! Free Cashflow to the firm for 2018 was quite high, with the FCF margin being a high of 23.2%. This was a result of several factors. The NOPAT of the firm had improved over the last few years, while a decrease in working capital also result in more free cash flow. With lower debt levels, there is also more free cash flow available for shareholders. Given their strong cash flow position, I do believe that the firm will be able to sustain their dividends in the long run with a stable payout ratio. Efficiency Metrics ! The firm's efficiency is also surprisingly good. These metrics have also improved quite a bit since 2016. The high ROE can be attributed primarily to the high net profit margin, but also due to the good asset turnover as well. As the change in net working capital had been negative, the reinvestment rate was negative for the year. If we hold ROC as constant, this would lead to a decrease in the earnings for the firm the next year. Valuation ! The P/E ratio of the firm is on the lower end, which could be good indicator for value investors. For slightly higher multiples, such as P/B ratio, have good companion variables such as the ROE that might justify a higher valuation. For firm value multiples, the companion variables also support the different forms of valuation. All in all, there could be a chance that the shares of these firm are undervalued. Cost of Capital ! The cost of capital for the firm is high due to the company being more exposed to higher country-specific risk (China). This leads to a high cost of equity which then results in a higher cost of capital despite a low cost of debt. However, due to the company's high ROIC, the ROIC exceeds the cost of capital significantly. This suggests that the firm is generating much more capital than it costs for investors. Global Market-Wide Regression ! As the title suggests, a regression had been carried out on the different multiples based on each multiples fundamentals. Interestingly the shares of the firm seem undervalued when we look at both P/B and P/S ratio. Conversely, the firm seems potentially undervalued when we pay attention to the EV/Invest Capital ratio. The other multiples seem to fall quite neatly near the range of their estimates.
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