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Contents

Contents..................................................................................................................... 1
Introduction ............................................................................................................... 2
1.0 Company Insights.................................................................................................3
1.1 Armstrong.........................................................................................................3
1.2 TPV Technology Limited....................................................................................3
1.3 CSC Holdings Limited........................................................................................3
1.4 Keppel Land Limited..........................................................................................4
1.5 Ezra Holdings Limited........................................................................................4
1.6 Midas Holdings Limited......................................................................................5
1.7 Raffles Education Corporation Limited..............................................................5
1.8 Star Hub Ltd......................................................................................................6
2.0 Portfolio’s expected rate of return........................................................................7
3.0 Portfolio’s expected rate of return .......................................................................8
4.0 The risk factors of the portfolio.............................................................................8
4.1 Credit risk.......................................................................................................... 8
4.2 Liquidity risk .....................................................................................................9
4.3 Capital risk........................................................................................................9
5.0 Advantages of the Portfolio..................................................................................9
6.0 Recommendations..............................................................................................11
6.1 Growth............................................................................................................. 12
6.2 Yield................................................................................................................ 12
6.3 Income ............................................................................................................12
6.4 Risk.................................................................................................................. 13

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Introduction
Many investors in Singapore are on the lookout for an opportunity to invest their
money in unorthodox manner. The reason behind this practice is due to banks
offering very low interest rate on ones capital. Due to this many investors are
turning towards the stock market to gain higher returns for their capital. This is
done in the form of investing on portfolios for an expected level of return. This
portfolio consists of different companies with varying fields of specialization.

The portfolio which will be analyzed in the following report consists of eight
companies who are listed in the Singapore Stock Exchange (SGX). In order to make
a portfolio attractive it is important to make sure investors have a clear
understanding of the risks expected and the advantages of investing in this
particular portfolio. This is because many companies share a relationship with each
other in market which evolves on a day to day basis.

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1.0 Company Insights

1.1 Armstrong
Armstrong Industrial Corporation Limited was established in 1974. They were
listed on SGX on 6th December 1995. They are the leading foam and rubber
components manufacturer specializing in Noise, Vibration and Heat
Management for the automotive and electronics industries. They provide
innovative solutions for dampening, insulation, sealing, cushioning and
related applications. Armstrong produces high performance precision die-cut,
rubber molding, vacuum forming & heat press molding, EPP molding
components required for the assembly of diverse end products of OEMs.

They focus on enhancing their engineering and manufacturing processes to


meet the needs of the industry and achieve total customer satisfaction. With
their commitment to quality, innovation and a dedicated management team,
Armstrong is on its way to greater achievements and long term growth in its
operations.

1.2 TPV Technology Limited


They are leading display solution provider, specializing in design and
production of a wide range of desktop monitors and LCD TVs. They were
listed on SGX in October 1999, they have emerged as the largest monitor
maker in the world. They are striving to design, develop and provide
innovative monitors to suit the emerging needs of our customers. Their
revenue in 2010 increased by 45%, profit to equity holders increased by 20%
and EPS increased by 10%. This shows their significant growth prospect.

1.3 CSC Holdings Limited


CSC Holdings Limited Group of companies is Singapore’s largest foundation
and geotechnical engineering specialist and one of the regions leading
ground engineering solutions provider for private and public sector works

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which include residential, commercial, industrial and infrastructure projects.
Founded in 1975, it has been listed on SGX since 1998.

The Group operates principally as foundation and geotechnical engineering


specialists and offers a full range of capabilities in this field which includes
the construction and installation of large diameter bored piles, diaphragm
walls, ground improvement works, driven piles, jack-in piles, micro piles, soil
investigation and instrumentation services and automatic tunnel and
structural monitoring survey.

1.4 Keppel Land Limited


Keppel land limited is a property arm of Keppel Corporation. They started
their operations back in 1890.Keppel land is a premier multinational
corporation providing urban living solutions through businesses of property
development and property fund management. They have been very
successful over the years. Keppel Land is one of the largest listed property
companies by total gross assets on the SGX. Its total gross assets amounted
to $6.6 billion as at end-December 2009. It is also part of the FTSE ST Real
Estate and EPRA/NAREIT indices.

1.5 Ezra Holdings Limited


Ezra Holdings limited was found in 1992 which was listed on Singapore Stock
Exchange and promoted to Main board on 8th December 2005. It provides
integrated offshore support solutions provider for the oil and gas industry.
Ezra also enjoys a good business network and has built a strong customer
relationship that has enabled them to retain existing customers and secure
new businesses.

Through the years, they have developed an experienced and well trained
team of offshore crew and shore based executives. It’s a diversified
organization which makes it earnings from 70% of sales in offshore support
services and the rest from marine services. Ezra has built up a well

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respected track record by maintaining quality and value with strong network
of clients that include all majors and national oil companies. This was
possible through the combined efforts of their four businesses – Offshore
Support Services, Marine Services, Deepwater Subsea Services, and
Construction & Production. Ezra Consistently strives to create value for their
clients and stake holders.

1.6 Midas Holdings Limited

Midas Holdings limited was listed on the Singapore Stock Exchange on the
17th of November 2007. It is an investment holding company that capitalizes
on two products whose demands are very high in the People’s Republic of
China. The first being large section aluminum alloy extrusion products and
the second being polyethylene pipes. This is largely due to China’s
transportation, power and infrastructure industry growing at an exponential
growth. Midas Holdings LTD has captured a large part of the market share in
PRC due to the quality of their products and services. As a result of this
factor they are one of the countries leading manufacturers.

Midas Holdings LTD Procurement Division was set up in November 2005 and
they were based in Beijing. Besides its role as a central procurement centre
for their business divisions, it also serves to leverage on the existing supplier
and customer relationships to expand their current product range to both
existing and potential customers.

1.7 Raffles Education Corporation Limited


Raffles Education Corporation Limited is the largest private education group
in Asia-Pacific. Since establishing its first college in Singapore in 1990, the
Group has grown to operate 39 colleges in 35 cities across 15 countries in
the Asia-Pacific and the Middle East. Their colleges offer a comprehensive
range of internationally recognized programs leading to Diploma, Advanced

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Diploma, Degree and Masters Qualifications. They were listed on SGX on 24
January 2002. Their vision is to be the premier education Group in Asia-
Pacific. They are committed to provide quality education through their
network of institutions in the Asia pacific region to develop industry relevant
skilled professionals.

1.8 Star Hub Ltd

Star Hub is Singapore's fully-integrated info-communication company,


offering a full range of information, communications and entertainment
services for both consumer and corporate markets. Incorporated in 2000,
Star Hub has become one of Singapore's most innovative info-
communications providers, and the pioneer in 'hubbing' the ability to deliver
unique integrated and converged services to all its customers. They were
listed on SGX in October 2004 and is a component stock on Straits Times
Index. Star Hub operates Singapore's fastest two-way HSPA plus mobile
network that delivers up to 21Mbps for downlink to complement its nation-
wide GSM network, and an island-wide HFC network that delivers multi-
channel cable TV services including High Definition Television and on
demand services as well as ultra-high speed residential broadband services.
Star Hub also operates an extensive fixed business network that provides a
wide range of data, voice and wholesale services. Over Singapore’s fiber-
based Next Generation Nationwide Broadband Network, Star Hub offers a
broad range of home and business broadband plans along with a host of
advanced media-rich value-added services.

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2.0 Portfolio’s expected rate of return
A firm’s cost of equity is given by the Security Market Line equation

Ki = Krf + (Km - Krf) x Bi

Ki is the expected return

Krf is based on the return on Singapore Government bond

Km is the return on the market portfolio

Bi is the Beta coefficient between the market portfolio and Capitaland’s


share

According to Appendix 2:

Krf = 3.95% (average Singapore Govt. Bond Yield 2000- 2011)

Km= 37.35% (use the slope of excel based on the calculation from Apr 1
2009 to Apr 1 2011)

According to Appendix 1:

Beta =SLOPE (stock return, market return)

company beta Ki percentage

A Armstrong 1.4744 0.5319496 0.1

B TPV 1.3403 0.4871602 0.15

C CSC holdings 1.8795 0.667253 0.05

D EZR holdings 2.0184 0.7136456 0.05

E Midas holdings 1.7383 0.6200922 0.05

F Keppel land 1.5836 0.5684224 0.05

G Raffles education co 1.4431 0.5214954 0.05

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H Star hub 0.783 0.301022 0.5

Investors should invest different proportions of the investments, to higher


the return and lower the risk.

3.0 Portfolio’s expected rate of return

ERp = WaKa +WbKb +WcKc +WdKd +WeKe +WfKf +WgKg +WhKh

= 0.4313

Portfolio risk

Beta (p) = WaBa+WbBb+WcBc+WdBd+WeBe+WfBf+WgBg+WhBh

=1.173

So based on the calculation, the expected rate of return is 43.13% and the
portfolio risk is 1.173. Use the portfolio could diversify the risks and pay back
the investors with higher return.

4.0 The risk factors of the portfolio

It is important to note that since the companies in the portfolio are very
diverse the companies in the portfolio are exposed to many kinds of financial
risks such as market credit risk, liquidity risks and capital risks.

4.1 Credit risk


The issue of a company facing a credit risk could arise when an event occurs
when a counter party is unable to make payments on items or supplies
purchased on credit. Many companies in the portfolio would face this risk

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mainly in the form of trade and other receivables. Many companies in the
portfolio have no major accumulation of credit risk. That being said it is
important to note that the companies in the portfolio have measure in place
to observe and maintain their credit risk.

4.2 Liquidity risk

All the companies in the above portfolio have very low liquidity Risk. This is
because they have a sufficient amount of cash, assets and marketable
securities that enables them to meet their financial and operational
commitments.

4.3 Capital risk

The companies in the portfolios primary concern are to efficiently manage


their capital to safeguard its ability to continue as a going concern and to
maintain a strong capital base to secure its future success.

In addition to the above, the various companies are also exposed to risks
associated with accurate financial reporting. Management monitors the
Group’s capital using a ratio calculated as debt divided by net assets. Debt
comprises total borrowings and net assets are calculated as total assets less
total liabilities.

5.0 Advantages of the Portfolio

From the calculation done in chapter three it can be seen that the portfolios
risk factor is 1.173. This in comparison with the return which is 43.13% is
quite acceptable. This is because in a market which is very volatile and
experience a lot of fluctuation in the share prices this rate is very generous

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and more than any bank could match. The risk factor included is also
acceptable due to the size of the returns.

Furthermore when holding shares in companies like Armstrong, Midas and


Star Hub for example who are vital market leaders in their respective
industries could increase the liquidity of their stocks. The companies
mentioned above are only some of the very reputable companies in the
industry and holding shares in them is very advantageous.

The other reason for investing on this portfolio is that all the companies in it
have very high expected rate of returns and by diversifying the investment
the risk factor is brought down. This is because higher the expected rate of
return higher the risk. Based on this principle a bulk of the investment goes
into companies which are identified to be blue chips.

The companies which were identified to be as blue chips are shown in the
table below.

Company Expected Rate of Return


TPV 48.7%
Armstrong 53.3%
Raffles Education 52.1%
Star Hub 30.1%
Keppel Land 56.8%

From the above table it can be seen that the companies even though they
are categorized as blue chips, gives investors more than 30% return on their
investment.

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The companies which were associated as high risks are shown below.

Company Return Beta


Ezra 71.4% 2.0184
CSC Holding 66.7% 1.8795
Midas 62% 1.7383
Even though the above table shows that the companies offer very high
returns their risk factors very high because beta is more than 1.5. Due to this
the percentage invested in each of these companies are low.

That being said it is very important to note that the portfolio is still very
profitable since it consists of 5 blue chips which have very high returns and
three high risk companies with sizable returns.

6.0 Recommendations
It is very important to note that there are many factors that investors have
to take into consideration before deciding to invest in a portfolio. Due to this
current day investors have many tools available for them to conduct their
own studies in order to make smart and safe investment decisions.

There are four key factors that should be considered by an investor and they
are:

• Growth

• Yield

• Income

• Risk

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6.1 Growth

This factor basically considers the rate at which the money that’s invested
appreciates during the duration of the project. Therefore it is very critical
that investors make a note of how long they want to invest their funds. If
their looking for a short term investment they should look into portfolios
which would provide them with a steady and safe growth rate. In the case of
long term investors have to be aware of the fact that their investment is
exposed to fluctuations that would occur in the market during this period.
Long-term investments that are influenced by factors such as the inflation
rate may lose money in the short term, but they can still grow over an
extended time frame.

6.2 Yield
This term takes into consideration the interest or dividends an investor earns
during the period of their project. This is also a very critical factor that needs
to be taken in to consideration. This is because if this is an investment one is
making with the idea of retiring they should whether the yield they receive
can fund their lifestyle since they no longer work. Stocks and stock mutual
funds can yield the highest percentages but also have the greatest chance of
loss.

6.3 Income
This factor is in a way very similar to yield. This is because one has to take
into consideration whether the yield generated is a significant part of their
income they receive. If this is the case they have make investment choices
that ensures the amount of yield the portfolio generates remains consistent
and reliable. They should give careful consideration to where and how often
they want to reinvest their money, as it could have a major affect on their
financial security.

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6.4 Risk
The last but by no means the least important factor that should be taken into
consideration is risk. This is because an investor should be aware of how
much of their investment they stand to loose in case of an economic down
turn. Do they stand to loose some or all of their investment.

Due to this it is very important for an individual to know what kind of an


investor they are. In terms of a conservative investor they tend to invest
more in projects that offer safety and some measure of control over your
returns—for example, savings bonds with a guaranteed rate of return.
Conservative investors may choose to miss some high-growth opportunities
by keeping their money in investments with more secure rates of return.

Whereas in the case of aggressive investors they are prepared to take high
risks in order to achieve high returns and are willing to expose their fund to a
volatile, or fluctuating, market in the hope that they have the opportunity to
receive a greater return on their initial investment.

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