Stock Investment Analysis Report An Malaysian Economy Economics Essay

Malaysia economic informations provinces that in 2008 financial GDP of Malaysia, as per buying power para, was $ 397.5 billion and GDP, as per official exchange rate, and was $ 214.7 billion. Malayan economic information has besides revealed that in same twelvemonth existent growing rate of Singapore GDP was 5.5 per centum. Agricultural sector of Malaysia contributed 9.7 per centum of national GDP in 2008 and industrial sector came up with 44.6 per centum. Maximal part of 45.7 per centum came from services sector. Economic information in Malaysia suggests that in 2008 aggregative labour force in Malaysia was 11.2 million. Rate of unemployment for that twelvemonth was 3.7 per centum. In 2008 investings made in Malaysia amounted to 20.7 per centum of its gross domestic merchandise. As per economic informations for Malaysia rate of rising prices in Malaysia in 2008 financial, with regard to consumer monetary values was 5.8 per centum. As per information from Malaysia economic informations major industrial merchandises in that state are rubber and oil thenar processing and fabrication, lumber processing, light fabrication, crude oil production, electronics, agribusiness processing, Sn excavation and smelting, crude oil production and refinement and logging.

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As per Malaysia economic analysis emerging market over at that place have shown to be steady and growing has been fast. Several programs have been implemented to update agricultural economic system towards fabricating industry. Malaysia receives different part from assorted sectors of economic system. Contribution of agricultural sector to Malaysia GDP in 2008 was 9.7 per centum. There was a part of 44.6 per centum from industrial sector and 45.7 per centum came from service sector in fiscal twelvemonth 2008.

Economic analysis in Malaysia reveals that province policy of Malaysia focal points on investing in export industries, which chiefly comprise electronics goods, investing in existent estate sector, non tradable sectors and capital intensive substructure. $ 15,700 has been estimated as Malaysia GDP per capita in 2008. Malaysia economic system, now a developing multi-sector economic system was antecedently a mere natural stuffs bring forthing one. Malaysia GDP as per buying power para was estimated to be $ 397.5 billion in 2008. Real growing rate of Malaysia GDP of 2008 was about 5.5 per centum. GDP as per official exchange for 2008 was $ 214.7 billion. In fiscal twelvemonth 2008, Asian Development Bank ( ADB ) shows Malaysia GDP to be 5.7 per centum. There is a financial enlargement in state that has increased domestic income. Recession in planetary economic system has led to decrease of electronics export. These electronic exports were major gross earners for Malaysia. Early on in 2001, Malaysia had a planetary growing in economic system because of Si based merchandises.

As per Malaysia economic analysis a good development for their economic system has been that value added production for has been taken charge of by Prime Minister Abdullah. Investings were encouraged to be made in high engineering industries, medical engineering and pharmaceuticals. For fiscal stableness, a figure of macroeconomic policies have been implemented.

Economic job that is faced by this south Asiatic state, which is revealed by in deepness Malaysia economic analysis, is its dependence wholly on electronic exports. Exports need to be diversified in assorted other sectors including fiscal and service sector. Corporate bond market can be established to advance private domestic investings. This manner, current history excess can be curbed because of high foreign investings. Malaysia made immense net incomes by exporting oil and gas and this has contributed greatly to its economic development.

With the economic system crisis affect sum of concern in Malaysia industry. Such as motor, the Motors Division experienced unprecedented market status as a consequence of the planetary fiscal crisis. The effects of the crisis were most strongly felt in the developed markets like Australia and New Zealand which saw their several automotive industries posting negative growing. Notwithstanding this, the Motors Division was able to profit from its presence in China where the market grew against the worldwide industry downtrend, every bit good as in Malaysia where its earlier attempts to streamline and reconstitute its operations enabled it to demo positive consequences.

The Malayan operations successfully consolidated the Hyundai distribution concern through the acquisition of the staying involvement in Oriental- Hyundai from Oriental Holdings during the twelvemonth under reappraisal. With the full scope of Hyundai vehicles under its umbrella, the Motors Division is well- positioned to turn the Hyundai franchise when the market recovers.

The new Multi- Franchise Group, sime darby Auto ConneXion, performed good and introduced new Alfa Romeo, Land Rover and Ford merchandises in the market. Auto Bavaria market the twelvemonth under reappraisal with the launch of the first BNW Premium Selection Centre in Malaysia every bit good as the gap of a new 4S Centre in Kota Kinabalu, Sabah.

Macroeconomic and industry analysis of Malaysia nexus to the company

Highlight Key index-the twelvemonth 2009

GDP growing rate

5.8 %

Consumer price index

increased by 0.6 per cent to 112.1

Labor cost in industry

Increased by 0.9 %

Unemployment rate

Increased by3.5 %

Investing environment is stable

To hold a expression at the information given, the Malaysia macroeconomy, which is the environment in which Sime Darby operate. Wholly, the environment is non bad.GDP growing rate is 5.8 % , and the unemployment rate is increased by 3.5 % , they are both normal degree, which indicates that Malaysia`s society and economic system are stable.

Consumer price index

The CPI of entire sectors is increased by 0.6 % to 112.1, there are 6 sectors in Sime darby, they are Plantation, health care, industry, motor, belongings, Energy & A ; Utilities. we refer to the CONSUMER PRICE INDEX FOR MAIN GROUPS, MALAYSIA, following is,

Sectors

% alteration Jan-Dec2009/08

wellness

2.3

Housing, Water, Electricity, Gas & A ; Other Fuels

1.4

Those alterations will act upon the gross in the hereafter twelvemonth 2010. Because under the high rate of those, some consumers may take the low-priced health care unit or governmental infirmary instead than Sime darby private health care unit. And for lodging, fuels changed, in the hereafter, possibly, less consumers than earlier are traveling to purchase autos and belongings such as flat. As if, our gross revenues will diminish, many possible face to high cost of house or auto, they merely may take waiting.

Labor cost is increased

The index indicates all labour cost, as the entire CPI additions, evidently, the cost of life has been up, and as to that the labours need more capital to pay for his or her indispensable day-to-day cost. Base on the alteration, disbursals of most companies will be more than earlier, which affects the Sime Darby plantation and industry more for which are need more labours than other sectors in the company. Therefore, we predict the earning of the company will travel down.

Key stock statistics

RM million

FYE Dec

2005

2006

2007

2008

2009

EPS

33.7

0.379

Roe

10.592

P/E ratio

15.28

11.89

15.46

13.87

19.32

P/BOOK VALUE

1.09

0.76

1.19

1.35

1.24

P/CASH FLOW

16.92

11.49

13.82

12.66

47.00

P/SALES

0.66

0.66

1.12

1.43

1.42

BETA VS KLSE

1.1450

SHARES

6009.5

Ratio analysis

P/E ratio

Theoretically, a stock ‘s P/E tells us how much investors are willing to pay per dollar of net incomes. Therefore, for the twelvemonth of 2005, 2006.2007,2008 and 2009, a P/E ratio of 15.28, 11.89,15.46,13.87,19.32 suggests that investors in the stock are willing to pay $ 15.28, $ 11.89, $ 15.46, $ 13.87, $ 19.32 for every $ 1 of net incomes that the company generates severally.

P/Book ratio

IfA aA P/B ratioA is less than one, the portions are selling for less than the value of the company ‘s assets. From the twelvemonth of 2005 to 2009 except 2006, the P/B ratios are transcending one. However, for the twelvemonth of 2006, the P/B ratio is 0.76 which is less than one. It indicates that in the worst-case scenario of bankruptcy, the company ‘s assets will be sold away and the investor will still do a net income. Failing bankruptcy, other investors would ideally see that the book value was worth more than the stock and besides purchase in, forcing the monetary value up to fit the book value.

P/ Cash flow ratio

The lower a stock ‘s P/CF ratio, the better the value ( the more undervalued ) . From 2005 to 2009, the P/CF ratios are 16.92, 11.49, 13.82, 12.66 and 47.00 consequently. These mean that investors think every $ 1 in hard currency flow generated by the company is deserving $ 16.92, $ 11.49, $ 13.82, $ 12.66, and $ 47.00.

P/Sales ratio

Much like P/E, the P/S figure reflects the value placed on gross revenues by the market. The lower the P/S, the better the value, at least that ‘s the conventional wisdom. A lower P/S ratio is typically viewed as a better investing chiefly because the investor is paying less for each unit of gross revenues. The P/S ratio is increasing steadily from 2005 to 2009. This implies that the value of the stock is acquiring worse as the investor is paying more for each unit of gross revenues.

Collect informations and CAPM application

We choose informations of the fiscal twelvemonth Jan.2005-Dec 2009, from which we get the historical hebdomadal adjusted shutting monetary values and KLSE hebdomadally shuting monetary value to cipher the beta, so the consequence of beta is 1.1450. That means there is a strong positive relation between the company concern and market. Since subprime crisis happened in US, the universe economic have been a recession for several old ages that includes Malaysia surely. So with that, we choose the norm of Malayan t-bill rate from the twelvemonth 2004-2009 as riskless rate, Rf=2.92 % . CAPM, of which expression is E ( P ) =Rf + ? ( Rm – Releasing factor ) , we got the E ( P ) is negative 0.36 % .

The monetary value is overvalue

This portion, we introduce two statistics analysis engineerings

1. Comparison between intrinsic value and current market value

Refer to the one-year repot 2009 of Sime Darby bhd. Net assets per portion attributable to ordinary equity holders of the Company ( RM ) or existent monetary value is RM 3.56. But now the current market monetary value is RM 8.97, which is much more than the common portion monetary value. So the stock of Sime Darby is overvalued now.

2. Application of PEG ratio

The PEG ratio is a rating metric for finding the comparative tradeoff between the monetary value of a stock, the net incomes generated per portion, and the company ‘s expected growing. In general, the P/E ratio is higher for a company with a higher growing rate. Thus utilizing merely the P/E ratio would do high-growth companies overvalued comparative to others. It is assumed that by spliting the P/E ratio by the net incomes growing rate, the ensuing ratio is better for comparing companies with different growing rates.

Here, we use the norm of five twelvemonth 2005-2009 EPS growing rate as the expected EPS rate of the twelvemonth 2010, g=7.52 % , P/E ratio of 2009 is 19.32, following is the expression

, we get PEG ratio is 2.57.

The consequence is greater than 1, and we assume the expected EPS growing rate is equal to the norm of last five twelvemonth EPS growing rate, from old portion that analyze the 2010 economic will be worse than five old ages earlier, so the growing rate for 2010 will be less than earlier. So we can reason the PEG ratio for 2010 is at least 2.57. Under the theory of PEG ratio, the consequence 2.57 is greater than 1, so we can find that the Sime Darby stock is overvalued now. As our anticipation, even in the twelvemonth 2010, the stock will be overvalued, excessively.

3. Phenomenon analysis

The undermentioned chart was Sime Darby market monetary value per portion from the twelvemonth 2005 to 2009.

Why is it overvalued? Last portion, we merely find that by theories. Now let`s analyze I think Sime Darby is one of the biggest companies in Malaysia, and it`s good diversifiable company with six sectors, which are Plantation, health care, industry, motor, belongings, Energy and Utilities. At the beginning of the twelvemonth 2005, it was a roar in the universe, particularly in South of Asia, so stock in every state is become more popular than earlier, many people start to concentrate to stock, bond and the similar. And beside that, the twelvemonth 2008 there will be an Olympic athletics meeting held in Beijing metropolis. As to that, states around China are sensitiveness to the immense athletics meeting fondness. Base on that, many people who have non invested in stock market invested their capital to the stock market ; they have much assurance that the monetary value will be increase in the hereafter. Back to Sime Darby stock, Sime Darby invested much in China, such as belongings, motor retail and so on. So as a investor, he or she would believe over the part of that, Sime Darby would be considered as a possible stock. Then the monetary value of Sime Darby before 2008 was ever increasing. That could be overvalued excessively much, from the twelvemonth 2008 to 2009, the stock monetary value went down, but it was besides overvalued, but less than that before the twelvemonth 2008. In the hereafter twelvemonth 2010, the Sime Darby stock monetary value will be traveling down or toward to the intrinsic value.

Recommendation

Do n’t conceive of Sime Darby stock will force up, everything is possible, but Sime Darby. It is an overvalued stock, now it is go throughing through a adjusted period ( travel down to intrinsic value ) . Return to all market in Malaysia, since the beta is 1.1450, which tells us it has a strong positive relation with the market. Then we can analyse the market and the economic system, so base the relationship between this stock and market, as is know to us from the economic system and industry analysis portion, securities past through the bull market 2007-2008, so in 2009, with the influence of US subprime crisis, Malaysia and planetary economic system went into recession, the expected return rate for the market will be less than the norm of the past five old ages, surely, that effects assurance of most investors, I forecast there will be many stock investors who hold Sime Darby stock will sell the stock at lower monetary value at the beginning of the twelvemonth 2010. Until so with the recession, the stock monetary value will diminish at least 0.36 % ( from CAPM ) , because there is a big gait to diminish as other analysts think. Reasoning that because of the recession, cut downing the assurance of investors, so most of them choose selling or cut downing keeping, hence, for the short-run investors, I suggest u strongly to sell. And for the long-run, it`s better to cut down keeping.

Comparison: Sarawak plantation.Bhd.

Company name

Sarawak plantation.Bhd.

Stock monetary value

Rm 2.11

Market capitalisation

RM593.60 million

Market

Main market

Stock codification

5135.KL

sector

Plantation

Recommendation

Buy

Key statistics table

Beta

0.78

Number of portions

280.00 million

P/E ratio

15.05

Book value per portion

RM 1.79

CAPM

0.69 %

Sarawak plantation got a same sector plantation as Sime Darby. As followers is a tabular array to compare the two stocks.

Sime Darby

Sarawak plantation

Beta

1.1450

0.78

P/E ratio

19.32

15.05 ( better )

CAPM

-0.36 %

0.69 % ( better )

PEG ratio

2.57

15.05/7.52=2.00 ( better )

From the tabular array, utilizing last several analyses, we can reason that Sarawak plantation stock will be increase, you can put this stock to derive more than keeping Sime Darby.

Decision and proclamation

After a series of analyzes, which are economic and industry analyze, ratio analyze, beta and CAPM application analyze, PEG ratio analyze and comparing intrinsic value and current market monetary value, we reach to a decision, which is sell or cut down keeping. Beside that, an proclamation to every investor that this study is merely a mention, we won`t be responsible for any loss which is cause by our study. At last, to every investor, good fortune and have a nice stock journey.

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