corporate strategic analytics i 021109 utar.pdf · essentials of corporate proposal analysis 2nd...
TRANSCRIPT
EQ03
CORPORATE STRATEGIC ANALYTICS I:
Essentials of Corporate Proposal Analysis
2nd November 2009
UTAR, Kampar
2
Course Overview
• Using accepted analytical techniques,
learners will be able to evaluate the impact
of corporate proposals on investment
portfolios.
3
Learning Objective
• Upon completion of this course,
participants will be able to have an
overview of:
– IPO, share buy back
– Understanding The Nature Of Business
Activities Related To Company Valuation
– Merger and acquisition
4
Career Prospect
• Fund manager
• Analyst
• Remisier
• Financial planner
• Unit trust agent
• etc
5
Financial Objectives
• Maximize the wealth of the ordinary
shareholder
• Shareholder’s return• Capital gain
• Dividends
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7
• Company Act 1965 together with
amendments in 2007
• Capital Markets Services Act 2007
• Bursa Malaysia Listing Requirements
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Reasons for Seeking a Stock
Market Listing (IPO)
• Access to wider pool of finance
• Improved marketability of shares
• Transfer of capital to other uses
• Enhancement of the company image
• Facilitation of growth by acquisition
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IPO
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IPO
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TASCO – IPO price RM 1.10
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TFP – IPO price RM 0.48
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3rd August 2009MAIN MARKET
profit 3 to 5 years > RM20 mil
last year > RM 6mil
NOW
Main Board
Profit 3 to 5 years > RM 30 mil
Last year > RM 8 mil
Second Board
Profit 3 to 5 years > RM 12 mil
Last year > RM 4 mil
ACE
Profit Sponsor
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IPO : Prospectus
• What to look out for in a prospectus ?
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IPO : Prospectus
• What to look out for in a prospectus ?
– About the company
– Competitive strengths
– Financial highlights
– Industry prospects
– Future plans
– Particulars of listing
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Type of Proposal and Rationale
• Public issue
• Offer for sale
• Tender
• Private placement
• SC introduces “green shoe” option and
price stabilization mechanism for IPOs on
11 January 2008
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“Green Shoe”
• The “green shoe” mechanism allows the
issuer to over-allot securities in excess of
the number of shares constituting the
original offer size to ensure that the
demand for shares in an IPO can be met in
an efficient manner and that price volatility
during the period immediately after listing
can be minimised.
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• The mechanism can be used for any IPO
where the total value of shares offered is
not less than RM150 million. It can
commence on the date of listing of the
issuer and continue to be carried out
during the first 30 days of trading from the
IPO date.
“Green Shoe”
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Resorts – Share Buybacks
No of share
buyback
Total amount paid for
Share Purchased (RM) Range
24/3/2009 2,000,000 3,993,140.00 1.99
12/3/2009 1,500,000 2,904,753.50 1.92 to 1.94
10/3/2009 1,200,000 2,387,050.70 1.97 to 1.99
Total 4,700,000 9,284,944.20
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Resorts – Share Buybacks
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Share Buybacks
• Why share buybacks ?
• Motivation ?
• Disadvantages ?
• Impact on share valuation ?
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Share Buybacks
• Share buybacks or share repurchases can be a method of capital reduction
• A share buyback occurs when the listed company uses its own funds to go into the open market and acquire its own shares.
• The shares may or may not be retained by the company.
• The company can choose to keep them as treasury shares, or choose to cancel them.
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Rules Involving Share Buybacks
• Any share buyback or resale of treasury stock must be effected only through the open market;
• May not exceed 10% of its issued and paid-up capital;
• The share buyback must be made wholly out of the company’s retained earnings and/or share premium account;
• A listed company may purchase its own shares on the exchange at a price which is not more than 15% above the weighted average price for the shares five market days immediately prior to the purchase; and
• The company undertaking the share buyback must make the necessary announcements to the stock exchange for the purchase, resale or cancellation of the shares.
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Motivation Behind Share Buybacks
• Underlying belief that their shares are undervalued.
• Company is able to control, to some extent, the trading of the shares in the open market, and ensure that the price of the share is stabilized and supports the fundamentals of the company.
• Available dividend payment is spread between fewer shares, so the dividend per share is higher for the remaining shareholders. This also means that the net profit is spread over fewer shares, thereby raising net EPS and increasing value for existing shareholders.
• If shares are kept as treasury shares, they may be paid out as stock dividends to existing shareholders. Can choose to sell shares which are purchased and kept in treasury at a higher price in the future resulting in capital gains to the company.
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Disadvantage
• Reflects that the management can think of
nothing better to do with company money than
buy its own shares
• This could result in a reduction in the financial
resources of the company
• May increase the risk of the company having to
forego profitable investment opportunities in the
future.
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Impact on Share Valuation
• Hence, a share buyback is usually welcomed by
existing shareholders as a positive corporate action to
enhance shareholder valuation
• A tax efficient vehicle to minimize tax liabilities of
investors.
• Usually when companies announce intentions to buy
back own shares, investors perceive that the
company’s share price will be well supported, hence
resulting in a subsequent rise in share prices.
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Restructuring Exercise
Case Study 1 – UEM World
• New organization structure
– Why ?
– Future development ?
• Options
– Good or bad ?
• Existing shareholder
– What to do ?
– etc
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Session Two
Understanding The Nature Of Business
Activities Related To Company
Valuation
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Nature of Business Activities
– Who are their competitors
– Industry study
– Risk associated with the business, its merits
and demerits – systematic risk, beta, barrier
to entry & exit
– Track record
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Industry Study / Porter’s 5 Forces
The industry
boundary
Buyers
Substitutes
Suppliers
Entry
Actual competition
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Nature of Business Activities
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Nature of Business Activities
• Refer to research report <Plantation> by
HDBS – 13 January 2009
• Refer to research report on <Public Bank>
by HDBS – 21 January 2009
• Refer to research report on <Telco> by
OSK – 12 January 2009
37
Financial Analysis [EQ02]
• Ratio analysis
• Trend analysis
• Segmental analysis
• Cash flow analysis
• Notes to the account
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Company Valuation
– Comparative analysis
– Target price (fair value)
– Quality of sector PE
– Market PE
– Discount/premium etc.
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Company Valuation(DCF method - TM by ecmlibra - 13 March 2008)
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• Key questions
• Why merge?
– What benefit?
• Centralization of management
– Good or bad?
• Impact
– % in KLCI?
– Influence on Bursa
– Possible of take over smaller company?
Case Study 2 – Synergy Drive (SIME)
41
Reasons for M&A
• Operating economies
• Management acquisition
• Diversification
• Asset backing
• The quality of earning
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Reasons for M&A
• Finance and liquidity
• Growth
• Tax factors
• Defensive merger
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Reasons for M&A
• The aims of a M&A should be to
make profit in the long term as
well as the short term.
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Rules and Regulations
• Malaysian code on Take-Overs and
Mergers 1998
• Capital Market Services Act 2007
• Company Act 1965
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– What would the cost of acquisition be
– Would the acquisition be worth the price (what
is the highest price that it would be worth
paying to acquire the business?)
• Value of a business could be assessed in term of:
– Its earning
– Its assets
– Its prospects for sale and earning growth
– How it would contribute to the strategy of the “predator
company”
Factors in a Takeover Decision
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• Other factors
– Would the takeover be regarded as desirable
by the predator company’s shareholders and
the stock market in general?
– Are the owners of the target company
amenable to a takeover bid? Or would they be
likely to adopt defensive tactics to resist a
bid?
Factors in a Takeover Decision
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• Other factors
– What form would the purchase consideration
take ?
– How would the takeover be reflected in the
published accounts of the predator company?
– Would there be any other potential problems
arising from the proposed takeover, such as
future dividend policy and service contracts
for the key personnel?
Factors in a Takeover Decision
Thank You