This report seeks to analyses the performance of three publicly listed companies and their shares’ values. These companies are Noble Group Limited and China Honoring Sports Limited which are listed on the Inboard and Ocean’s Group Limited which is listed under SASSED. Our group started off with 100,000 hypothetical dollars to create a portfolio of ordinary stocks of three companies and a fixed-return money market fund. Our investment objective was to achieve a 8% annulled return over a five-year investment horizon.
After the creation of the initial portfolio, our group made use of arioso frameworks, accounting principles and the Business Analysis and Valuation (ABA) software to analyses these companies. Apart from that, we conducted an in- depth analysis of the companies’ industry, their external business environments and strategies and also evaluated the companies’ key accounting policies and estimates. Subsequently. Cash flow analysis. Trend and cross-sectional comparisons of key financial ratios were performed under the financial analysis.
Lastly, out group considered the industry outlook, government policies, corporate governance and specific economic and business conditions of the three companies among other elevate information and news to form our outlook on the companies’ prospect. With the obtained findings, our group considered the reallocation of our portfolio In light of new knowledge and development of related events. Re-allocation was eventually made and at the end of the 8-week investment period, our group made a loss of 49%, in comparison to the Straits Times Index which dipped 35% in the same period. Analysis of Noble Group Limited 2. 1. 1 Company Background/laundry Analysis Noble Group Is a market leader In managing the global supply chain of agricultural, Industrial and energy products. They source from low-cost producing countries and supply to high-growth demand markets. They are at the same time supply-chain architects, managers and producers. Glucose and Noble are the only two global companies that play a leading role in global commodity supply chain management. Other companies like Wilma or ADAM have notably different business models.
Noble and Glucose are Identifiable as pure universal supply chain managers dealing with soft and hard commodities and service a global client base. 2. 1. 2 Strategic Analysis Noble is expanding in terms of its size and profitability. This is due to the high barriers to entry for the business, accessibility to its assets and differentiating characteristics. Noble has a strategy of taking up stakes in assets that give guaranteed access to the raw material source and greater control over processing storage. I Nils Is an evolution In ten development AT ten supply canal Dustless Ana further raises the barriers to entry.
Therefore, Noble can now rely on a low cost and stable in-house source of raw material to deliver an improvement in margins as it progresses from a supply chain manager to an integrated entity. 2. 1. 3 Accounting Analysis Nobles logistics revenue recognition and expenditures incurred of vessel chartering and related operations are recognized on the basis of stage of completion of voyage, similar to the industry norm. This reduces Nobles earnings volatility as it will be able to recognize its earnings progressively, as compared to the completion of the service method.
The other key accounting policy relates to mine properties which are unique to Noble. Reliable Judgment is required here in predicting the lifespan of the mines for amortization. It will be advisable for management to provide further disclosure on their basis for estimation. Although this practice does not fall outside the FRR, we will consider this an area of concern for investors. 2. 1. 4 Financial Trend analysis: Noble Group has reported improving sales revenue and PATTI for the past four years, with revenue reaching a record high of US$23. B and PATTI a second highest at S$O. B. Cash flow analysis: Noble Group’s ’07 operating cash flow is currently negative but after analyzing, this is due too 150% increase in their inventories. Operating cash flow should turn positive as profits rise from better margins while working capital requirement should ease on the back of lower inventory values and sales generated due to lower commodity prices. Cross-sectional ratio analysis: Being the only listed pure supply chain operator in Singapore, there is no substantial competitor listed on the SIX. Noble Group attained an ROE of 16. % in 2007, within the same range as financial companies. Nobles low debt-to-equity ratio of 61% also means that it has the financial strength to weather through the uncertain period ahead. 2. 1. 5 Prospective and Valuation Analysis While recent flow indicates weakening commodities prices, it is worth highlighting that Nobles model is built around moving volumes as opposed to assuming price sis. At the end of QUO, 96% of all inventories held were hedged or pre-sold, so it is likely that Noble is protected from current pricing softness in commodities.
A common fear though is that Nobles volumes will decline on the back of an economic slowdown. While we think Noble will be affected, it will not be dramatic . Noble has product diversity and does not fully rely on end-to-end customers. They can choose to generate business through only a part of the supply chain. As long there is a positive spread and credit-worthy customer, Noble can operate and gain market share. These characteristics allow Noble to deliver earnings growth despite declining commodity prices. In our view, the key risks for Noble are cross-hedge risk and a global recession.
While we believe that the company is hedged adequately in absolute terms, there is a risk that imperfect hedges could cause Nobles margins to contract. Furthermore, Noble is resistant but not impervious, to a global recession. If the global economy worsens more significantly than we envision, then we believe there would be some downside risk to our earnings forecast. 2. 2 Analysis of China Honoring Sports Limited many Background/laundry Analyses China Honoring Sports Limited (CHI) is one of China’s leading enterprises in sports gear.
They are involved in design, manufacture and sales of extensive range of sports apparel and accessories under the brand Erik. CHI products target lower to middle market. With the Olympics in UH and a host of upcoming regional games within the country, China is expecting a twenty percent growth in sporting goods market per year . However, CHI will still face with intense competition coming from multiple foreign and local players in the industry. 2. 2. 2 Strategic Analysis To stifle the competition, CHI has embarked on aggressive brand building effort.
At the same time, they have an innovative design team which keeps track of the trend of the consumers. The company has an extensive sales and distribution network and emphasizes a low cost strategy even with an innovative designing team. The company also strives for good working relation with distributors to ensure smooth sales and valuable feedbacks. 2. 2. 3 Accounting Analysis The company’s revenue recognition policy is within industry norm. It is based on time goods are delivered and whether title has been passed.
A difference CHI has though is that inventory cost is accounted using FIFO basis compared to industry norm of weighted average. Using FIFO method in the current inflationary period will lead to higher earnings. However this is offset by the company’s prudent policies like fully recognizing R&D as expense. Lastly, an issue to take note is Chi’s depreciation policy which varies within the industry. This vast difference will be of investors’ concern of whether the APE economic life is adequately estimated. 2. 2. 4 Financial CHI reported a rising trend for revenue since ’03 to current go’s Arms.
Billion. This is aligned with CHI strategy of increasing brand awareness and extensive penetration which also led to an increase PATTI from ’03 to a ’07 high of ROOM. Billion. However, there is a drop in ratio for return on assets (ROAR) and return on equity (ROE). ROAR dropped from 16% to 10% while ROE dropped from 28% to 12%. This is due to expansion developments made by CHI to increase their capacity for the future. Their extensive expansion has also led to poor operating cash flow ratios compared to the rest in the industry .
CHI price earnings ratio has also decreased since ’05 when it first incorporated. This crease is due to the issuance of shares especially in ’07 which has in turn led to a high current ratio of 14. 7 in ’07 compared to 5. 1 in ’06. This means that in this uncertain situation, CHI will not need to depend on debts and instead have its own financial strength to weather through this period. 2. 2. 5 Prospective and Valuation China’s sporting goods market has been affected with the declining Shanghai market. Chi’s price also dropped 40% over three month despite good performance in IHA .
Thus, there are fears of CHI volume declining given the inflationary landscape and competitive environment. However with Olympics and other upcoming games, companies have an opportunity to Jumpstarted their growth. CHI has also leeched on to post successful figures and orders for its trade fair in UH. Despite tense, tenure still are concerns regarding ‘s plan to expand Ana create brand awareness through a rental finance scheme for 400 mid-sized distributor stores is deemed overly aggressive by analysts. Together with Chi’s inferior operating cash flow ratios , problems may arise if collections in future are in doubt.
Therefore, Chi’s risk comes in the form of strong competitors within the country and a Seibel slowdown in sales due to lower domestic consumption as a result of inflationary pressures and distributor’s bargaining power. These will affect Chi’s financial margins . Lastly, if the global economy worsens more significantly in future than we had forecasted, then there might be some downside to our earnings. 2. 3 Analysis of Ocean’s Group Limited 2. 3. 1 Company Background/laundry Analysis Ocean’s(CO) is a Singapore-based holding company listed onto sassed via a reverse takeover.
CO is a marine aquaculture specialist company that focuses on large scale, land based production and sale of Japanese abalones. The company gathered capital and changed its operations after a heavy snow destroyed majority of its previous biological livestock. Since 1980, governments have increased restrictions on capture and harvesting of wild abalones. This resulted in a sharp loss in abalone supply that has to be replaced by aqua culture . Unfortunately, supply levels have not increased as much as demand levels .
Furthermore, 90% of abalone farms in china are family owned and small scale. With the culmination of theses 2 factors, the large scale operation of CO gives it significant bargaining power both to its suppliers and buyers which results in he potential for supernormal profits. 2. 3. 2 Strategic Analysis Co’s key strategy is to be a low cost provider, giving them a competitive edge in price and quality. Co’s land based aquaculture has a higher initial fixed cost but much lower variable cost. The huge size of CO thus creates economies of scale that competitors cannot replicate.
CO has plans to distribute their own products, effectively increasing their profit margin. 2. 3. 3 Accounting Analysis The sale of Co’s biological livestock is one of its key success factors. But there is no flexibility in choosing revenue recognition accounting policy. CO discloses its sale of abalones in accordance to FRESH using a function of the change in fair value of biological assets less estimated point of sales cost. Therefore, assuming there is a reliable estimate of the fair value of Japanese abalones which is easily attainable; there is not much room for earnings management. 2. 3. Financial Analysis Due to CO changing the core of their business in 2006, it is unfair to compare its financial performance with previous years especially with the lack of cash flow statistics in 05 and 06. However, operating expenses reduced from 06 to 07 which ay indicate economies of scale. 2. 3. 5 Prospective and Valuation Analysis Co’s executives hinted that S$mm has been assigned to increase production capacity (meet the currently unmet global demand for abalone), and automate operations, (decreases variable cost). Management also declared that they plan to invest in processing, increasing their ability to cut costs further.
Co’s key risks include the reliance of Abalone’s demand on disposable income and that funding is fueled by retailer pronto since It Is a stab pup n Limited cans now. Lastly, Walt I diversification, a disease could wipe out their entire livestock. Conclusion With uncertainties in the financial markets, our group decided on initial investment of $50,000 in the three stocks with Noble occupying a larger proportion of the portfolio. This is due to their higher dividend yield. We felt that maxing out the investment in the money market fund would be more stable.