Analysts

Analysts

Postby financecaptain » Wed Mar 11, 2009 1:16 pm

Want to start this topic as many may find the quality of equity research really not up to the mark. Especially counters that are not well covered and have to depend on the SGX Research Incentive Scheme. The objective is not to criticise but discuss them and hopefully increase the overall research standard in Singapore.

Obviously we are not advocating sophisticated analyses, in-dept study of company or intensive market intelligence (because it may not make economic sense); but just plain simple desktop research to raise relevant business and financial issues.

Take for example, the most recent report on IFS Capital by CIMB on 10 March 2009 :-

-----------------------------------------------------------------------------------------
Salient points
• Net profit decline was primarily due to the severe economic downturn
coupled with the cautious approach taken by IFS in its lending and
insurance activities.
• While Singapore business saw declines, regional performances were
satisfactory with the Thailand associate turning in better profit and
Malaysia and Indonesia turning around with full year profits.
• Group leverage ratio was reduced to 2.0x from 2.7x in 2007.
Subsidiary ECICS’s capital adequacy ratio at over 500% was
substantially above the regulatory requirement of 120%.

Outlook – cautious
• IFS expects lower volumes for its factoring, loans and risk underwriting
business in FY09.
• On the cost side, the Company has frozen headcount and senior staff
salaries as well as cut down on discretionary expenditures.
• Dividends have also been slashed to a final proposed dividend per
share of 1.0cts versus 3.25cts per share last year. The Company paid
an interim dividend per share of 1.0cts versus an interim dividend per
share of 3.0cts last year.

Recommendation – HOLD
• To be conservative, we have assumed zero dividend payout for FY09-
FY11 as the Company seeks to “continue to maintain liquidity”.
• Based on Bloomberg price to book value data, the share price hit a
low price to book ratio of 0.33x in FY08 and 0.21x in 1998 during the
Asian Financial Crisis.
• If the share price were to retest these two price to book value
supports, the CY09 target prices could be S$0.22 (56% downside
based on 0.21x) and S$0.34 (30.9% downside based on 0.33x).
• However, having gone through the baptism of the Asian Financial
crisis, we believe the Company is better equipped to meet the
challenge of this down turn. As such, we are setting our target price at
S$0.53 based on 0.52x CY09 P/BV. This is derived based on the
average low P/BV that the shares have traded at since the Company’s
valuation went under 1.0x ( 1995 – 2008).

[Low price to book ratio chart]

[Forecast Table : FY2008 NI = 8m; F2009 NI = 6.6m; F2010 NI = 6.3m; F2011 NI = 5.9m; obviously no discussion of basis]

Technical view
• Technical SELL. Its short term uptrend appears to be losing
momentum. A break below S$0.46-0.47 could see the stock fall back
to its 30-day SMA at S$0.435. We do not discount that it could even
fall back to its S$0.32 low if the 30-day SMA fails to hold off the selling.
• MACD is starting to lose steam suggesting that the buying momentum
is weak. RSI is also beginning to hook downwards.
• As the uptrend channel appears steep, the bears are likely to pounce.
Sell now with resistance seen at S$0.52 and S$0.57.
-------------------------------------------------------------------------------------------

My criticisms :-

(1) Given that the economy is deteriorating, it makes more sense to look at performance of companies by quarter. For example, GDP for Singapore's economy in 2008 was +1.2%, but Q4 contraction was large at 16.8% ! Most banks suffer Q4 large losses that may continue in Q1 and Q2 2009.

In IFS Capital's case, its managment obviously did not want to present to you Q4 numbers when announcing the FY2008 result. However, if you compare FY 2008 and Q4 2008 numbers, Q4 was a loss of S$1.8 million pre-tax and S$350k post tax !

(2) From the financial statements, You can see that it is because of large provision in Q4 of S$4.3 million in Q4 and there was very little provisions in Q1 to Q3. So is it therefore Managment's policy to make provision only in Q4 or loan quality has actually deteriorated sigificantly in Q4 ? Either way, it is not good news. For the former, his means you cannot use the first 3 quarter numbers as good estimates for full year and for the latter this means more shit to come ?

(3) Since, the analyst does not have the common sense to show quarterly numbers, I have taken some time to do so :-

(S$'000) Q3 2008 Q4 2008
Interest Income 5,084 5,305
Interest Expense (2,221) (2,468)
Net Interest Income 2,863 2,837

Net Premium Revenue 1,278 (746)

Fee/Commission Income 1,503 1,490
Inx Income 468 1,247
Others 46 541

Income before OPEX 6,158 5,369

OPEX (3,975) (3,207)
Allowances/Provisiions (115) (4,276)

Operating Profit 2,239 (1,929)
Associate Income 589 131

EBT 2,828 (1,798)

NI 2,302 (350)

(4) Since financial companies' future quarter income come from mainly its loan assets that are booked in the last quarter, it is very important to understand the movement of its loan assets in each quarter :-

Q2, 2008 Q3,2008 Q4,2008
Loan/HP Assets 69,069 84,460 68,999
Factoring Receivables 208,341 226,649 186,569
Total 277,410 311,289 255,568
Change +34m -56m

It is alarming that total loan assets actually increased in Q3 (which probably helped in Q4 numbers somewhat) and fell drastically in Q4 2008 ! Why ? We do not know.

(5) The numbers derived from (3) and (4) above means IFS Capital earnings could be highly velnerable in Q1 2009 at least. Especially so if there are further provisions ???

Conclusion :-

The above can be gotten from published financial statements. A simple desktop research will be able to uncover more things than the analyst's research; abeit the nice looking charts from Bloomberg.

Unvested; long or short.
Last edited by financecaptain on Wed Mar 11, 2009 5:30 pm, edited 1 time in total.
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Re: Equity Research

Postby Cherry » Wed Mar 11, 2009 4:16 pm

financecaptain wrote:

Equity Research

Want to start this topic as many may find the quality of equity research really not up to the mark. Especially counters that are not well covered and have to depend on the SGX Research Incentive Scheme. The objective is not to criticise but to discuss them and hopefully increase the overall research standard in Singapore.


Financecaptain

Thanks for sharing. Your post is indeed most beneficial.
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Re: Equity Research

Postby winston » Wed Mar 11, 2009 4:28 pm

One thing that I've been laughing at in the Analysts Reports, are their EPS Growth assumptions.

Some EPS Growth estimates are like -30% in Current Year, +25% in Second year and +30% growth in Third Year.

If one has run a business before, one would know that it is next to impossible, to go from very negative growth to very high growth in one year.
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
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Re: Equity Research

Postby blid2def » Wed Mar 11, 2009 4:46 pm

fc - I'm trying to understand this thread better - are you intending to use this for a closer scrutiny of research reports of various counters, or just a general discussion of the quality (or lack thereof haha) of research reports?

Reason I'm asking is - if it's the former, I think it would be easier to carry out the examinations in the respective counters' threads (or in the case of reports on the economy/market directions - in the economic data/news threads or market direction threads). I think there's a risk that the discussions of reports for individual counters will get buried in this thread and unfortunately get lost.

If it's the latter, then is it your intention that the thread examines the quality of reports on a house by house basis? In other words, some sort of analysis thread(s) to assess the quality of reports from the various houses. This is something that I've not seen in Singapore so far - it could be a good thing as it would give folks something to think about when reading reports from a particular analyst, or a particular research source.

Unfortunately, there isn't a post-tagging feature right now, so we can't easily tag posts that could belong in multiple threads. The workaround to that is to post the critique in the threads I suggested, and just post the link back here in this thread (or the other way around, also works).

If you could clarify what you wanted to achieve with this thread, it'd be helpful, as perhaps there might be some arrangements I could do to make it easier for the posts to get eyeballed.

Cheers.
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Re: Equity Research

Postby financecaptain » Wed Mar 11, 2009 5:04 pm

Actually, it is the former objective. Not aiming to criticise subject companies but highlight specific research that are not up to mark. It is highly educational inthe area of equity research.
Understand that there would be a problem that the discussions of reports for individual counters will get buried in this thread and unfortunately get lost too.
Simple solution is to post at both threats.
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Re: Equity Research

Postby blid2def » Wed Mar 11, 2009 5:28 pm

Okay let's do that then. My suggestion would be to post in the individual threads, and post the link to it here (can just copy the link from the reply title). Reason being that it saves disk space (haha), and also folks won't get the deja vu feeling when reading the same post twice (has often happened to me here when peeps cross-post across threads...) :D

Boleh?
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Re: Equity Research

Postby winston » Fri Apr 17, 2009 9:01 am

TOL:-

For every Buyer, there's a Seller. So who's right ?

Does "who's right" depends on the quality of your info ?

Or does "who's right" depends on the quality of the interpretation of your info ?

I recalled a while back that the Investment Houses in Singapore, were pushing the S-Chips, with the reason that the QDII money from China, would be buying those S Chips in Singapore :D :lol:
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Re: Equity Research

Postby winston » Fri Apr 24, 2009 7:50 am

Stocks With the Most Buy and Sell Recommendations

A report was recently going around highlighting that the stocks with the most sell ratings have been significantly outperforming the stocks with the most buy ratings. Below we highlight the average percentage of buy and sell ratings for stocks in each of the ten S&P 500 sectors. We also provide the percentage change for each sector since the March 9th low.

As shown in the table, the sectors with the most positive analyst ratings have indeed lagged the sectors with the most negative analyst ratings during the rally.

Health Care has the most buy ratings at 57%, followed by Energy, Telecom, Utilities, and Consumer Staples. These defensive sectors have been the worst performers since March 9th. On the other hand, Financials have the most sell ratings, and they're up 68% during the rally.

Analysts are typically lagging indicators, and they have moved to a defensive position in recent months. This defensive stance has caused major underperformance as the S&P has rallied 25% off its lows.

http://bespokeinvest.typepad.com/bespok ... tions.html
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Re: Equity Research

Postby winston » Wed May 20, 2009 2:33 pm

No choice. They were wrong before so they now have to compensate. Follow them at your own risk...

BTW, GS said Oil will reach US$200 and the US will not go into a recession ....


DJ MARKET TALK: HK Analysts' Calls Chasing Market Rally, Too

1204 [Dow Jones] Investors not only ones chasing market rally, so are analysts. Among target price hikes today, Goldman Sachs boosts Cathay Pacific (0293.HK) target by 65%, CIMB bumping Li Ning (2331.HK) target up by 80%.

With HSI +55% vs March 9, many high-beta stock rallying much more than that, analysts forced to hike target prices, which in turn gives shares another push up, creating upward spiral.

While some upgrades due to fundamental improvements, are also plenty simply citing increase in investors' risk appetite.

Goldman raising Cathay target price today marks 16th target price hike by house so far in May; most aggressive being more than doubling HKEx (0388.HK) target price (to HK$124 form HK$58) earlier this week.
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Analysts

Postby winston » Wed Aug 19, 2009 7:43 am

Taking Wall Street Advice in Rally Means Owing $6,000 (Update2) By Lynn Thomasson and Adria Cimino

Aug. 18 (Bloomberg) -- Anyone who did what Wall Street analysts advised last March has only losses after the biggest stock market rally in seven decades.

Citigroup Inc., Bank of America Corp. and more than a dozen other firms told clients to purchase European energy producers and U.S. drugmakers while selling banks and retailers, according to combined rankings compiled by Bloomberg. An investor who used $10,000 to buy companies in the highest-rated industries and bet on declines in the lowest since the advance began on March 9 lost everything and would owe as much as $6,000 to cover bearish trades, the data show.

The recommendations didn’t work because companies with the worst earnings led the 46 percent gain in the Standard & Poor’s 500 Index since it fell to a 12-year low five months ago. Securities firms that failed to foresee that the hardest-hit stocks last year would recover fastest steered investors to drug and energy producers, which have trailed the MSCI World Index by more than 24 percentage points, the data show.

“Analysts are attached to fundamentals,” said Romain Boscher, who helps oversee $18.5 billion as head of equities at Groupama Asset Management in Paris. “This is a technical rally, a rally of sentiment. Analysts were too defensive. There was an inflection point and they didn’t see it.”

Almost half the firms covering American Express Co. advised dumping shares of the New York-based card company in March because of concern falling consumer credit would force a dividend cut. Citigroup recommended buying San Francisco-based Visa Inc. while shorting American Express in a March 11 report. Investors who held that trade until Citigroup upgraded the stock a month later lost 12 percent.

More brokerages are tailoring advice to investors who seek to make money whether stocks rise or drop. In May 2008, Merrill Lynch & Co. boosted the number of companies it rated as “sell” to at least 20 percent of its total coverage in an effort to lure clients using so-called absolute-return strategies.

Negative Return

Merrill, now owned by Bank of America, changed its definitions so equities rated “underperform” are expected to have a negative total return over 12 months or gain the least in their industry or region. Short selling is the sale of borrowed shares in the hope of profiting from a decline by buying them back at a lower price.

Even without shorting, someone who sold stocks rated below “buy” would have missed the biggest rallies. U.S. industries with the highest percentage of “hold” ratings, financial institutions and retailers, beat the S&P 500 with advances of at least 58 percent since March 9. The groups in the MSCI Europe with the most “holds,” banks and commodity producers, surged more than 55 percent in the past five months.

Stock returns haven’t been tied to profits during the five- month rally in global equities. S&P 500 companies that reported a drop in second-quarter earnings have risen 8.4 percent on average in the past month, compared with a 7.2 percent advance for those with increases, data compiled by Bloomberg through Aug. 17 show.

‘Trash’ Rally

“It’s been trash that’s done well,” said Andrew Lapthorne, the head of quantitative strategy at Societe Generale SA in London. “Most analysts struggle to recommend stocks that are rubbish.”

In March, more than half the ratings for European and American energy producers were “buys,” according to data compiled by Bloomberg, as analysts projected growth in emerging market economies would boost earnings. A measure of oil drillers, pipeline builders and explorers in the MSCI Europe has gained 18 percent since March 9, while the U.S. group is up 22 percent.

Analysts were also bullish on Europe’s utilities and health-care companies in the S&P 500, with “buys” making up the majority of recommendations. Power companies posted the only increase in first-quarter profit among the 10 main industries in the MSCI Europe, while drugmakers had the highest income growth in the S&P 500. In the past five months, neither has advanced more than 28 percent. The MSCI World has risen 52 percent in that period.

Average Rating

Overall, analysts rate about a third of companies in the U.S. and U.K. at “buy,” according to data compiled by Bloomberg. Forty-one percent of French companies and 43 percent of those in Germany have that rating.

Analysts recommended unloading shares of European retailers, hotels and restaurants, assigning “sells” to 30 percent as rising unemployment and falling home prices curbed consumer spending. The group is up 39 percent since March 9.

The biggest financial crisis since the 1930s and more than $1.5 trillion in credit losses worldwide prompted analysts to make 28 percent of their ratings on European financial institutions “sells,” Bloomberg data show. The percentage was 14 percent for American banks. Both the S&P 500 and MSCI Europe groups have more than doubled since the rally began.

No Earnings

Downgrades came as earnings evaporated at companies from New York-based American International Group Inc. to Morgan Stanley and Capital One Financial Corp. in McLean, Virginia. First-quarter income plunged more than 74 percent at U.S. raw- material producers and retailers, the most among the 10 main industries in the S&P 500. In Europe, earnings for those two groups sank more than 93 percent.

Brokerages didn’t recognize that shares of banks and commodity companies already reflected losses during the recession, according to a study of analysts’ ratings by Citigroup’s chief U.S. equity strategist, Tobias Levkovich, on Aug. 7.

“Analysts were too defensive,” said Yves Maillot, a fund manager at Robeco Asset Management in Paris, which oversees $11 billion. “They went too low, but they weren’t the only ones. Many investors also missed out.”

http://www.bloomberg.com/apps/news?pid= ... aGHy7G8SCs
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