FIN355: You are a Security Analyst Working for a Global investment Fund and have Recently been Assigned to cover the Singapore Equity Market: Equity Securities Assignment, SUSS, Singapore

You are a security analyst working for a global investment fund and have recently been assigned to cover the Singapore equity market You have been tasked to recommend securities to a core investment fund, which is looking at stable income-producing assets limited to the Finance, Manufacturing, and Real Estate sectors.

The fund has an annual investment total return objective of 8%. Your fund charges a 3% flat fee on assets under management. You have been reprimanded by your fund manager in the last appraisal discussion for forgetting that the total return objectives demanded are net of fees.

You are now in the Phase 2 circuit breaker environment and working from home. The Covid-19 pandemic was first identified as an infectious outbreak in Wuhan, China in late 2019 and within months, this viral infection quickly crossed borders and impacted countries in an unprecedented manner. Governments found that they had to shut down borders and restrict movements within their country to try to contain this disease as infection rates soared, overwhelming hospitals, resulting in mounting death rates. Singapore was not spared, and you observed the negative sentiments reflected in very erratic stock market movements.

You have been assigned to identify one listed company for investment in Singapore. Your fund manager has asked you to evaluate the continued suitability of Singapore as an investment destination as well as to select one listed company within a target industry to invest USD10M for a period of not less than 12 months.

The selected company should be listed on the Main Board of the Singapore Stock Exchange. You are to assume that the yield on Singapore Government Bonds is 2% on a short-term horizon.

Question 1

The fund that you work for described previously is still in its initial year of drawing down on committed capital. You have been allocated up to $50 Million to invest in one stock at the start.

You must submit a recommendation paper to your Investment Committee within a month. You started framing your approach which you divided into the following areas:

(a) Appraise Singapore as an investment destination against the backdrop of the covid pandemic and geopolitical tensions between the USA and China.

(b) Use an appropriate empirical approach to compute the required rate of return for investing in Singapore listed equities.

(c) Indicate a suitable industry to invest in and support your recommendation with appropriate economic facts and statistics.

(d) Identify and compare three (3) companies within the selected industry for comparison using appropriate financial ratios and recommend the company which you are selecting to carry out further analysis.

(e) Distinguish between top-down analysis and bottom-up analysis and which method you would use in the context of the Covid pandemic within the next 12 months for the market which you are covering. Justify your selection of methods used.

Question 2

You are quite convinced that your initial filtering to focus on this target listed company is correct. You then proceed to carry out a full valuation of this company by downloading the most recent annual report and analysing the financial standing and indicative fair value of this company. You are to download the relevant financial statements from the listed company website to carry out the following financial computations for the selected company. To help you arrive at the fair market valuation of the Company, your approach is as follows:

(a) Compute the Free Cash Flow to Finance and Free Cash Flow to Equity.

(b) Compute the projected growth rate for this company using a suitable method

(c) Design an appropriate discounted cash flow valuation method to value the fair market value of the company and justify the reasons

(d) Value the company on a per-share basis.

Question 3

You are satisfied with your fundamental analysis of the selected company. Now, you want to assess whether the market pricing is at the right level for you to invest in the company. (Refer to the market price on the day (state date in your report) for the last done transaction for this company and then decide what investment actions you can take). You break down your approach in the following steps:

(a) Explain the use of a suitable Stock Investment Rating System. Based on this rating system and the stock price of this company on the day of your analysis (quote the market price and state the time and date of reference), propose an Investment Rating for this company and compute its Investment Yield and its projected Total Return.

(b) Regardless of the recommendation in (a), you have been instructed to invest in this company, compute the total number of shares you can acquire with the funds allocated for you?