In financial investment, one can invest in stock, bond, mutual fund, properties, bank or setting up a new business. When public company needs addition fund for their company operation, they can issues share (stock) which is listed in
The different investments have different risk and return with its own criteria. Financial assets are essential for each individual or group because it is a way to against economy biggest enemy, inflation rate. Inflation gives a definition of general increase in prices and fall in the purchasing value of money, meaning every year the value of our money will depreciate and the value of RM1,000 present and 10 years ago are different. Investment may for other purposes such as retirement or success in financial goals.
After the 1997/1998 financial crisis, people tend to avoid the words “stock market” as it remind of people where lots of money are lost in Bursa Malaysia. However, it proved to be wrong because when the market is crashed, that is the period of purchasing bargain stock. Furthermore, some says that stock is part of gambling. Yet, invest in a stock similar to doing a business without get into the business daily operational personally and anticipate it to grow managed by other people.
For this portfolio assignment, stock will be the choice of financial asset due to its advantages and benefits. This assignment contained details and information on the stock selected for this portfolio using RM50,000. The main reason this assignment was undergone is to focus on the risk and return of stock market in
Risk and Return
First of all, before selecting stock as the financial asset, one should analyze the expected risk and return of the financial investment as it effect greatly on one’s portfolio. The reason why the creation of this portfolio is purely on stock because of its high return compared with other investment assets.
Referring to appendix 1 graph drawn, it gives better view on the risk and return for stock, bond, mutual fund, fix deposit and new business in
Investors are familiar with the phrase of “do not put many eggs in a basket, but put few eggs in few baskets”. This phrase delivered the meaning of spreading the risk by divided the fund and buy in few stocks. When comes in mutual funds investment, fund manager will buy shares in numerous companies. This is because to diversify the risk rather than bet on only a single stock by hoping it will turn to be a star. This portfolio will split the RM50000 to be invested in five difference stock which is potential to bring high value of profits, by doing so, the risk will be spread. According to the book “Corporate Financial Management” written by Carlos, Correia, Mayall, Peter, O’Grady, Barry, and Pang, Johnney, it stated that the risk of the portfolio decreases rapidly with the first few shares held and then levels off until here is no meaningful reduction in the risk resulting from an increase in the number of different shares in the portfolio (2005, p 4-17).
Foresee Profit of Investment
As mentioned earlier, allocating RM50000 in five different companies that could gives expected 21% to 30% annual return would be Berjaya Sports Toto Berhad, CCM Duopharma Biotech Berhad, Golden Hope Plantations Berhad, CB Industrial Product Holding Berhad, and Lion Diversified Holdings Berhad.
The research and information obtained for his assignment will eventually boost confidence of the future profit. Therefore, research materials from research firm were attached in the appendix for reference on the reliability of this financial portfolio assignment.
Berjaya Sports Toto Berhad - BJTOTO (1562)
Berjaya Sports Toto Berhad (BJTOTO) is an investment holding company in
Most sin stock is well-known in paying lucrative dividend to shareholders and BJTOTO among the one. Although considered as a sin stock, yet the profit from lottery business was stable because of there is no limitation of people will gamble on lottery in the market. Many research house call for buy on BJOTO, among are Avenue group, HLG research and OSK188. It was believed that the stock is undervalued. As
BJTOTO is selected not only for the reason of its undervalued, yet the investment is for defensive against the uncertainty market condition in
CCM Duopharma Biotech Berhad - CCMDBIO (7148)
CCM Duopharma Biotech (CCMDBIO) is a local pharmaceutical company, whose niche is primarily in the manufacture of small volume injectables (SVIs). It is the largest local manufacturer of SVIs in
Referring to analysis done by Loo Yee Ting/ Teoh Cheng Guan from K&N Kenanga on CCMDBIO (see appendix Number), the Revenue and profit is growing year by year as past financial statement showing healthy result of the company due to the increasing demand from public sector and government pharmaceutical supply contract. This respectively reflected the increase of earning per share (EPS) on the company which driven the increase in share price. However, for the future outlook the company will gain under the 9th Malaysian Plan where government had allocated RM3.3 billion on public health compare to 8th Malaysian Plan total RM1.3 Billion. (Reference)
The 149.1% increased will secure CCMDBIO pharmaceutical business in government contract as the other major pharmaceutical player is Pharmaniaga. The company should be alert with the major rivalry in drug business especially Pharmaniaga, in the advance of research & development of new drug. Over the long term, Pharmaniaga may start distribute same drug which would ease the sales and profit margin for the reason that price war will occur.
The targeted return on investment for the next five years in CCMDBIO is 18% due to the increase in sales to private and government sectors in the near future; in addition, the dividend payout is expected to rise gradually as profit increase.
Golden Hope Plantations Berhad - GHOPE (1953)
Golden Hope Plantations (GHOPE) is one of the larger fully integrated plantation groups in the country with 197,998 hectares of plantation land in
Recently GHOPE’s core plantation profit declined by 19% to RM344.2 million as the drop in selling prices of palm products and higher costs of production. His is because downturn on fresh fruit bunch (FFB) harvests and the oleochemical businesses were impacted by the rising costs of raw materials. However, the net profit forecast of RM432 million in 2007 and introducing net profit projection of RM482 million for 2008. Earnings growth will be driven mainly by higher plantation earnings due to increasing crop production and stronger selling prices. The expected jump of earning will be reach as long as average crude palm oil price above at RM1,500 per tonne. See appendix (NUMBER)
The stock been picked in the portfolio since biodiesel as new energy being use rapidly and its anticipated this alternative sources of energy will widely used due to the benefits to the environment. According to the article “Players seek more biodiesel perks” by the European Union (EU) legislation is prepared to raise the quantity of biodiesel in Europe's transport energy mix to 2% for 2005, 5.75% by 2010 and 20% by 2020 (2006). In addition, the consumption on fuel by
The stock is expected to bring a return of over 15% a year in a decade as the company biodiesel plant was in construction. The treats to the targeted return include slower growth in demand for palm oil from the biofuel sector, which may against the palm oil prices going forward.
CB Industrial Product Holding Berhad - CBIP (7076)
With its patented in-house modular mini mills (modipalm mills) technology and continuous sterilization system for palm oil fruits, CB Industrial Product Holding Berhad (CBIP) designs, builds and commissions complete palm oil mills of various sizes. CBIP recently diversified into plantation development and operations with the acquisition of 3,720 hectares of plantation land in
Refer to appendix (NUMBER). At the growing in palm oil price, numerous plantation companies is expanding the palm oil production to meet the demand. More mills are needed increase the capacity to process palm oil. With CBIP’s well-known Modipalm technology, it is capable to increase the production of palm oil and been used in Southeast Asia to
The group will projected to gives a return of 15% annually for five years time in support of Modipalm was one of the key drivers for the group's future growth in the medium term. It is a patented technology with the rights to last until year 2021. Besides that, the group is planning to development and operations into plantation sector. While the risk for CBIP is market price of steel comprises almost total production costs, which driven lower would contract as the cost of construction hike. In addition, as the majority of the group contract comes from overseas, hence the increase in Ringgit
Lion Diversified Holdings Berhad - LIONDIV (2887)
Overview: Lion Diversified Holdings Berhad (LDHB) is a Malaysia-based investment holding company. LDHB is organized into five major business segments: retailing, which is engaged in the operation of departmental stores and supermarkets; property, which is engaged in property development and management; computer, which is engaged in the manufacturing and sales of computer and related products; beverage, which is engaged in the manufacturing and sales of beer and non-alcoholic drinks, and others, which is engaged in investment holding and others (Lion Diversified Holdings Berhad‘s annual report 2005).
As this portfolio is aiming on long term investment, LIONDIV certainly is a good buy for the reason the investment company entered
LIONDIV is expected to bring 12% per annual return as the main reason is vast market in the republic which is an opportunity to growth rapidly. In addition,
More details on the return of investment for the future profit had been put together on the appendix (see NUMBER). Calculation had been made based on expectation for the ten years investment on the five different sector stocks. Some assumption on the calculation had been made to attain the future profit. As;
Share Price = based on current market price.
Expected Return Per Annual = from the analysis made and research house.
Expected Dividend Yield Per Annual = from the annual report and past dividend payout.
Assume Inflation Rate = Based on
The results of the summary from the calculation are:
After 10 Years Investment = RM651,449.94
The Present Value = RM399,933.94
The Average Growth on Investment = 23%
Pro and Con of Stocks
Stocks are a form of ownership; they represent participation in a company's growth. Generally, the initial investment gives no promises about return to investors. In fact, the profitability of the investment depends almost entirely upon rising stock price, which, relates directly to the performance and growth (increasing profits) of the company. It is uneasy to identity the pro and con just only looking on stock alone.
Advantages of Stock:
- The profit gain from appreciation of stock price will eventually belong to the investors, unlike mutual fund, the profit from investment made have to pay for fund managers who made the investment.
- As known stock is a liquidity asset, which allows investors to request that the investment shares to be converted into cash at any time.
- Invest in stock not just benefits on profits, yet it help to gain more knowledge on the market perform. An investor always needs to know how the invested company performs thus; media information on the market and company has to take alert.
- Investor for profit would invest in the stock which they have faith that the company will perform well in the near future based on their study or research. Contrasting with mutual fund, it is the fund manager allocates the money on their judgment. Yet the investment made by fund manager does not mean will bring a promised return.
Disadvantages of Stock:
- To pick a good stock which expected excellent return, investors are required time and effort to do research as well as study the market.
- There is some stock which is expensive to purchase in a “lot”, so, investor would need more fund to own the company shares. And mutual fund offered minimum small amount of money for investment.
- Demanding with occupation investor has no time or the expertise manage their own portfolio.
In conclusion, this portfolio has been made based on current market and with all the analysis made using reliable source and data. It is believed that RM399,933.94 in a decade expectation return will achieved using assumption made after taking care of he inflation rate. The year on year growth rate of 23% is calculated from the information that obtain indicate stock could bring return of 16% – 30% annually o investors.
In financial asset investment, there is no guarantee securities that gives 100% return in the future as we can not predict the future uncertainty. Therefore, investors who are willing to take on greater risks and who would prefer the benefit of having partial ownership in a company and the unlimited potential of a rising stock price would be better off investing in stocks.