Cypark Resources Analysis PDF

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it is individual assessment 2. student need to analysis the company that they choose to know about the performance of the company...

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VALUATION AND ANALYSIS OF EQUITIES (FIN327)

ASSIGNMENT 1 COMPANY ANALYSIS: CYPARK RESOURCES BERHAD

SUMMITED TO: MADAM RUZIAH BINTI A. LATIF

PREPARED BY: AINA BALQIS BINTI JA’AFAR

GROUP: JBA114 4J

DATE: 30 JUNE 2020

2018240594

TABLE OF CONTENT

NO

PAGE

1

INTRODUCTION

2

PART I - RISK AND RETURN ANALYSIS 2.1 Return

4

2.2 risk

4

2.3 regression analysis

5

2.4 Required Rate of Return

3

3

5-6

2.5 SML

6

2.6 Risk and return analysis

7

2.7 Conclusion

7

PART II – FINANCIAL RATIO ANALYSIS 1.0 Introduction

8

2.0 Financial Ratio Analysis 2.1 Liquidity ratio

9

2.2 Activity Ratio

10

2.3 Profitability ratio

11

2.4 Leverage ratio

12

2.5 Market ratio

13

2.6 Summary

13

4

PART III – STOCK VALUATION

5

CONCLUSION

16

6

REFFERENCE

17

7

APPENDIX

14-16

18-44

PART I

1.0 INTRODUCTION

Return on investment is the annual return of an asset over several years. Research analysts and professional investors use historical returns, along with industry and economic data, to estimate future rates of return. You can use actual results and estimated returns to evaluate various assets, such as stocks and bonds, as well as different securities within each asset category. This evaluation process helps you pick the right mix of securities to maximize returns during your investment time horizon. Next risk is the likelihood that actual returns will be less than historical and expected returns. Risk factors include market volatility, inflation and deteriorating business fundamentals. Financial market downturns affect asset prices, even if the fundamentals remain sound. Inflation leads to a loss of buying power for your investments and higher expenses and lower profits for companies. Business fundamentals could suffer from increased competitive pressures, higher interest expenses, quality problems and management inability to execute on strategic and operational plans. Weak fundamentals could lead to declining profits, losses and eventually a default on debt obligations.

Company that I choose to analysis their company is Cypark Resources Berhad. Cypark Resources Berhad is a public listed company on the Main Board of Bursa Malaysia since 2009. The company has been Malaysia's pioneering developer and provider in integrated renewable energy, green technology, environmental engineering solutions, and construction engineering. Cypark's establishment is based on sustainable innovation, progress, and development in providing quality living environment through top-notch professional engineering and environmentally friendly products, maintenance, and services. Expertise, experience and enduring research and development efforts are the essence of the Company's business strategy and transformation. Cypark's value proposition lies in optimising resources, minimising cost and investment, and maximising results, which gives the Company the competitive vantage point. Cost leadership is the core of Cypark's business activities, which has advanced the Company to remain as the pioneer in environmental related industry. Energising sustainability is Cypark's business which is environmentally, economically and socially. It is the business of designing a better future, a cleaner planet, a greener earth for the future generation.

2.0 RISK AND RETURN ANALYSIS

2.1. RETURN The type of return that I used to analysis this company are Holding period return, holding period yield, annualized holding period return, annualized holding period yield and arithmetic means. Holding period return or holding period yield is the total return earned on an investment over its whole holding period expressed as a percentage of the initial value of the investment. It is calculated as the sum capital gain and income divided by the opening value of investment. Holding period return is not a standardized measure of return. A given holding period return might be for a single day or a 5year period and we will not know. Comparison between holding period return on different investments directly is not appropriate. We need to find out the total time over which the return is calculated and then convert it to annualized holding period return. Annualized holding period return is can help you better assess how the investments you currently hold are performing, and can also help you choose future investments. For Arithmetic average return is the return on investment calculated by simply adding the returns for all sub-periods and then dividing it by total number of periods. It overstates the true return and is only appropriate for shorter time periods. The arithmetic return ignores the compounding effect and order of returns and it is misleading when the investment returns are volatile.

2.2. RISK For risk, some common measures of risk include standard deviation, variance, the coefficient

of

variation.

The

Standard

deviation

is

a

measure

of

risk

that

an investment will not meet the expected return in a given period. The smaller an investment's standard deviation, the less volatile (and hence risky) it is. The larger the standard deviation, the more dispersed those returns are and thus the riskier the investment is. Variance is a measurement of the degree of risk in an investment. Risk reflects the chance that an investment's actual return, or its gain or loss over a specific period, is higher or lower than expected. There is a possibility some, or all, of the investment will be lost. The coefficient of variation measures volatility in the prices of stocks and other securities, letting analysts contrast the risks associated with different potential investments. This helps financial advisors construct diversified portfolios in an effort to dampen the risk of a single investment tanking a client's net worth.

2.3. REGRESSION ANALYSIS

2.4 REQUIRED RATE OF RETURN R j = RFR + B j (RM – RFR) 1. Average Market Return RM= (IOCO 2017 + ICOC 2018 + ICOC 2019) ÷ 3 RM= (6.96% + 7.32% + 6.75%) ÷ 3 RM = 7.01%

2. Risk Free Rate RFR= DEC 2019 RFR= 3.32%

3. Beta

β = 0.5014

REQUIRED RATE OF RETURN R j = RFR + B j (RM – RFR) = 3.32% + 0.5014 (7.01% - 3.32%) R j =5.17%

2.5 SECURITY MARKET LINE

% SML RM= 7.01 RHL’ RHL is undervalued

E(R)RHL= 5.94 RRHL= 5.17

RHL RFR= 3.32

β β (RHL) = 0.50

βM = 1.00

2.6. SUMMARY OF THE COMPANY RISK-RETURN ANALYSIS

AM for daily return

0.0244

AM for annualized return

5.9442

Variance

1.9146

Standard Deviation

1.3837

Covariance with market return

0.1384

Required rate of return

5.17

Beta

0.5014

2.7. CONCLUSION Based on the analysis, investor should invest in the stock because this company is worth to invest in. When we compare the company’s required rate of return with the expected return, it shown that the expected return (annual return) is higher than required rate of return.

PART II (FINANCIAL RATIO ANALYSIS)

1.0 INTRODUCTION Financial analysis is a method to analysing company performance. An investor should know the performance of the company before they make investment decision. Investor also can determine the best stock of the company to do the right decision for an investment. There are five ratios in fundamental which is liquidity ratio, leverage ratio, activity ratio, profitability ratio and market ratio. Ratio analysis is the process of relating different values from the statement of financial position, statement of comprehensive income and statement of cash flow of Cypark Resources to produce additional value for each year. Liquidity ratio is used to measure the ability of the company to meet its short term obligations and the company ability to pay without having to rely on liquid asset. Leverage ratio is used to measure the performance of the company in managing its debt and how low is the financial risk. This ratio also shows how company performance meets with their interest obligations and provided more funds for the company. Activity ratio is measure how effectiveness and efficiency of the firm in managing their assets. Profitability ratio is used to measure how the company gain their sales revenue, how they obtain better growth prospect and able to generate net earnings to shareholder and maximize the company wealth. Market ratio is used to measure the amount of the earnings available to common stockholder per share of common stock held. These ratios ensure higher value of dividends received per share of common stock. It also indicates the amount of current earnings available to common stockholders paid-out as dividend. This ratio also shows the relationship between the company share and its earnings.

2.0 FINANCIAL RATIO ANALYSIS FOR CYPARK RESOURCES 2017-2019 2.1 Liquidity Ratio Ratio

2017

2018

2019

Current Ratio

1.06

1.28

2.82

Quick Ratio

1.06

1.28

2.82

Graph 2.1.1 Liquidity Ratio

The current ratios of Cypark Resources for the year 2019 is the highest which is 2.82 times. That means, they have good ability to pay their short term obligation for that particular year. It because the current ratio has increased from 2017 until 2019. This means the company is becoming stronger and has more current assets in relation to its current liabilities. The quick ratio for Cyparks was 2.28 times on the year of 2019 which is the highest. Meanwhile, the lowest ratio was in years 2017. In 2019 the higher of quick ratio was result from the higher amount of current asset that owned by Cypark. Increased from 2017 until 2019, this means the company is becoming stronger and has more current assets in relation to its current liabilities. Therefore, its ability to pay short-term creditors has improved. Liquidity ratio for Cypark Resources is in a good position. Overly the liquidity asset that owned by company throughout this 3year is very liquid.

2.2 Activity Ratio Ratio

2017

2018

2019

1.15

0.88

0.66

301,684.4/1317

337.8847/1514

23376.7392/2175

=0.23

=0.22

=0.17

Account receivable turnover Total asset turnover

Graph 2.2.1 Activity Ratio

Graph above show that account receivable turnover for 2017 to 2019 is decreasing which is in 2017 is 1.15 and 2019 is 0.66. this is show that the company is not well utilizing its asset. The total asset turnover is to measure the efficiency of the firm’s total asset in generating revebue. It also indicatess the effectiveness with which a firm’s management uses it assets to generate sales. A relatively high ratio trends to reflect intensive use of assets. Tottal asset turnover is calculated by dividing firm’s annual sales by its balance sheet. Based on the line graph above, we able to conclute that total asset turnover in 3 year are decresing which is between 0.23 times to 0.17 times.

2.3 Leverage Ratio Ratio

2017

2018

2019

448/507 =0.88 times

476/647 =0.74 times

989/757 =1.31 times

Debt Ratio

809/1317 =61%

866/1514 =57%

1418/2175 =65%

Time Interest Earning

75956.0/10599.8

91032.6/10503.8

126076.8/12046.4

=7.17 times

=8.67 times

=10.47 times

Debt-Equity Ratio

Graph 2.3.1 Leverage Ratio

The company’s debt-equity ratio for 2018 is 0.74 times which is the lowest and the highest is 2019, 1.31 times. It shows that, the company shareholders own more of the company in 2018 then they owned in 2017 and 2019. In 2019, he company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expenses. If a lot of debt is used to finance increased operations, the company could potentially generate more earnings than it would have without this outside financing. For debt ratio, the highest is 65% at 2019 and the lowerst is 2018, 57%. It is not good because of the increased in debt ratio in 2019. It shows that in 2019, it has a higher financial risk. Cypark may have face financial risk in the future. Times interest earning id high for Cypark on 2019 which is 10.47 times, that’s mean that the company net profit s bigger than the interest charge. The company is able to meet its obligation towards the debt. For 2017, it is because the company earnings before interest and taxes has reduce.

2.4 Profitability Ratio Ratio

2017

2018

2019

29.10

29.34

36.02

25.18

26.94

33.47

Gross Profit Margin Operating Profit Margin

Graph 2.4.1 Profitability Ratio

Gross Profit Margin(GPM) looks at cost of goods sold as a percentage of sales. This ratio looks at how well a company controls the cost of its inventory. The larger the gross profit margin, the better for the company. The gross profit margin (GPM) for Cypark Resources shows an increasing in percentage from year 2017 until 2019 that is from 29.10% to 36.02%. Operating Profit Margin (OPM) contains the operating profit that also known as EBIT and found on the company income statement. The operating profit margin ratio is a measure of overall operating efficiency, incorporating all of the expenses of ordinary, daily business activity. Operating profit margin for Cypark shows a rising from the year 2017 until 2019 from 25.18% to 33.47%. The highest percentage that is recorded in the year 2019 is due to the increasing in the earnings before interest and tax (EBIT) from that year compare to other year.

2.5 Market Ratio Ratio EPS Dividends Per Share

2017

2018

2019

12.36

15.10

19.58

2.86

-

-

Graph 2.5. Market Ratio

The higher earning per share for Cypark is in 2019 which is RM19.58 per share earning by shareholder. This is due to the increasing in revenue through high turnover. Turnover represents the value of goods sold by the company. The lowest earning per share is in the 2017 which is RM12.36 per share. The decrease in EPS of te company means the performance of the company is getting worse. For dividend per share, it is a total dividends paid by company into a per share figure. It can be used to determine the dividend yield. The higher dividend is in 2017 which is 2.86 and for 2018 and 2019 the dividend per share is zero.

2.6 Summary Overall, Cypark Resources is facing a lot of problem with regard to activity ratio and leverage ratio. Cypark is facing a higher debt and the company cannot manage their company so well in utilizing its asset.

PART III (SHARE VALUATION) Stock Valation Stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit from price movement – stocks that are judged undervalued (with respect to their theoretical value) are bought, while stocks that are judged overvalued are sold, in the expectation that undervalued stocks will overall rise in value, while overvalued stocks will generally decrease in value. There are several methods that can used to value common stock which are dividend valuation model, P/E multiplier model and price-to-book value. Dividend valuation model is a common stock’s value is equal to the present value of all future cash flows expected to be received by the stockholders. Therefore, the dividend valuation model is a model that values a stock on the basis of the future dividend streams it is expected to offer. P/E multiplier is a simpler approach compares to dividend valuation model. This ratio, along with estimated EPS, is used to determine a reasonable stock price. Price-to-book value to compare a firm's market capitalization to its book value. It's calculated by dividing the company's stock price per share by its book value per share (BVPS). An asset's book value is equal to its carrying value on the balance sheet, and companies calculate it netting the asset against its accumulated depreciation. Book value is also the net asset value of a company calculated as total assets minus intangible assets (patents, goodwill) and liabilities. For the initial outlay of an investment, book value may be net or gross of expenses, such as trading costs, sales taxes, and service charges. Some people may know this ratio by its less common name, price-equity ratio.

Intrinsic Value Intrinsic value is a measure of what an asset is worth. This measure is arrived at by means of an objective calculation or complex financial model, rather than using the currently trading market price of that asset. In financial analysis this term is used in conjunction with the work of identifying, as nearly as possible, the underlying value of a company and its cash flow. In options pricing it refers to the difference between the strike price of the option and the current price of the underlying asset. Intrinsic value is an umbrella term with useful meanings in several areas. Most often the term implies the work of a financial analyst who attempts to estimate an asset's intrinsic value through the use of fundamental and technical analysis. There is no universal standard for calculating the intrinsic value of a company, but financial analysts build valuation models based on aspects of a business that include qualitative, quantitative and perceptual factors. Qualitative factors such as business model, governance, and target markets, are those items specific to the what the business does. Quantitative factors found in fundamental analysis include financial ratios and financial statement analysis. These factors refer to the measures of how well the business performs. Perceptual factors seek to capture investors’ perceptions of the relative worth of an asset. These factors are largely accounted for by means of technical analysis. Creating an effective mathematical model for weighing these factors is the bread and butter work of a financial analyst. The analyst must use a variety of assumptions and attempt to reduce subjective measures as much as possible. In the end, however, any such estimation is at least partly subjective. The analyst compares the value derived by this model to the asset's current market price to determine whether the asset is overvalued or undervalued. Some analysts and investors might place a higher weighting on a corporation's management team while others might view earnings and revenue as the gold standard. For example, a company might have steady profits, but the management has violated the law or government regulations, the stock price would likely decline. By performing an analysis of the company's financials, however, the findings might show that the company...