Fundamental Analysis Workshop Series

Session Five – Picking the Right Stocks (Part I) - Top Down Analysis

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SYLLABUSSEMESTER 2

WK 2 • Introduction to Stock Investing

WK 4• Art of Reading Annual Reports

WK 5 • Dividend Investing

WK 6 • Picking the Right Stocks(Part I) – Top Down Analysis

RECESS WEEK

WK 7 • Picking the Right Stocks (Part II) – Bottom Up Analysis

WK 8 • Portfolio Management for the Retail Investor

WK 9 • Case Study 1

WK 10 • Case Study 2

WK 11 • Case Study 3

INTRODUCTION

PROFILE

• NUS Invest Research Analyst

• Year 2 BBA

• Pure Fundamental Analysis

Agenda

• Knowing About the Company and Its Business

• Industry and Competitive Analysis• Thematic and Economic Outlook• What does it all mean to you

Knowing About the Company and Its Business

What’s There to Know?

• What does the company actually do to make

profits?

• What businesses the company actually

engages in?

Why so important?

• Important to know the revenue model of

the company (Sustainable or not)

• Indication of business risk profile (Under

diversification VS Over diversification)

• Understand drivers of the business

Revenue Model

• Stable or Cyclical Revenue?

• E.g, BreadTalk vs OSIM (Food and Beverage

vs consumer durables)

• Think about sustainability and growth for

the future

Breadth of the Business

• Related vs Unrelated lines of business

• Upstream and Downstream integration

• Gives an indication of the amount of

risk/opportunities the firm is exposed to

• Eg. SPH (Print business and Property Business)

Products and Services

• Shows the diversity and number of revenue

streams the firm has

• Tells us what kind of customers the firm

deals with

Example – SingTel

• Offers telecommunications service, cable TV

and broadband internet service

• Controls Optus from Australia

• Services customers from different regions

with different needs

Industry and Competitive Analysis

Industry and Sector Outlook

• Need to analyse the overall trend of the

industry (Growing or Sunset industry)

• Eg. Renewable Energy vs Diesel Distribution

• Relates to Thematic Investing

Industry and Sector Outlook

• Understand important events pertaining to

the industry

• Eg. New patents (Pharmaceuticals), New

innovations (Film vs Digital), Regulations

(Finance Industry)

Why so important?

• Gives indication of future growth potential

of the industry

• Understand how sensitive the industry is to

macro factors

Competitors

• Market Structure of the industry

• Highly Competitive or Monopolistic

• Local, Regional or International Competition

• Tells us the stability of firm’s profits with respect to the

actions of competitors

• Eg. (Samsung vs Apple)

Economic and Thematic Plays

Geo Political Outlook

• Change in Policies/Policy Stance

• Change in Leadership

• Political and Military Antagonism

• Adds uncertainty to the profitability of firms in the

region in question

• Eg. China vs Japan, North Korea antagonism

An Example – SGX Acquisition

• SGX acquisition effort of ASX

• Australian regulators were reluctant to accept

SGX’s offer due to sensitive control issues

• SGX did not manage to buy over the large

revenue stream of ASX

Economic IndicatorsIndicators What it means

GDP • Broadest Economic Indicator• Overall Economic Performance of the

CountryJob Growth • Indicator of Consumer Confidence

• Infer that Consumer Spending will increase with Job Growth

PMI • Made up of 5 sub indicators• Tells us Investor’s Confidence in the economy• 50 is the magic number

Thematic Investing

• Investing by identifying global trends and

drivers of businesses

Global Economy Politics

Social and

Cultural Trends

Consider the Current Themes

• By no means exhaustive• China’s transition from investment driven growth to consumer

driven growth

• Clean and Sustainable Energy

• Quantitative Easing

• European Recovery

• The Big Picture

What does it all mean to you

Priced In

• How do we know information is already

factored into the price

• Efficient market Hypothesis

• Determine by looking at charts (Any sharp

movements in prices?)

An Example – SC Global

What does this all mean to an Investor

Macroeconomic News

Industry Specific

Company Specific

• No fixed investment philosophy

• Determine which kind of information is best for making your judgement

Q & A