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Tuesday, May 13, 2008

Investment Portfolio


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 Bursa Malaysia. Company sell bond to generate more funds into the company which return will be given based on interest rate agreed. A mutual fund is a form of collective investment that pools money from many investors and invests the money in stocks, bonds, short-term money market instruments, or other securities. Properties in this assignment tend to be house, land or machinery. Meanwhile, fix deposit is where most of Malaysian places their money which is in the bank.

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 Malaysia associates the reason to change the negative mindset of the people on stock market perception. Furthermore, the assignment comes with appropriate graphs and diagrams for deeper understanding, as a graph contain thousand of words.

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 Malaysia. With the limitation amount of RM50,000 it is difficult to set up the new business successfully unless the time allocation and additional fund for the new business is maximized. So with acquiring a properties, with RM50,000, it is reasonably impossible to buy a properties with the limited RM10,000 – RM50,000 fund. Although mutual fund gives fairly return on investment, but with the knowledge of investment one had, why should one seek for fund manager to manage their money while picking own stock can give more return yield? Beside that, low interests are paid in fixed deposit and bond. The value of money soon will be eaten up by inflation since Malaysia inflation rate are around 4 – 5% per year. Thus, the best choice to allocate the RM50,000 fund is on stock market, the benefits and advantages will be reveal later.

In Malaysia market, the expected risk and return on stock investment around 21% – 30% per annual. People always kept talking about the high risk in stock market investment, but they never really did find out why other investor such as Warren Buffett, Jim Slater or Peter Lynch could make money and success in stock market investment. The reason why people losing money in stock market typically are those who never do their study and only buy based on news or tips from other investors. It not bad at all getting tips from people; however risk will be minimized if proper research been conducted before buying a stock.

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

Malaysia current market is volatile on the event of US rising interest rate, crude oil price hike and tension of nuclear in Iran and North Korea. (Reference) It’s unavoidable that these affair resulted market uncertainty. However, this does not indicate that investor should withdraw from stock market as most of the stock heading south because it will create an opportunity looking for bargain or undervalued stock. Arms by appropriate study and research, we can avoid no falls into the shrinking stock price trap. As future returns are uncertain, investors should not place all their funds in one investment. Initially, the market will be invested is gaming, pharmaceutical, plantation, industrial, and retail.

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 Malaysia engaged in the operations of Toto betting; leasing of online lottery equipment, and manufacture and distribution of computerized lottery systems. The Company has two direct subsidiaries. Its Sports Toto Malaysia Sdn. Bhd. subsidiary is a betting system and lotto operator in Malaysia. It operates 680 outlets throughout Malaysia, and offers six lottery games: 4D, 5D, 6D, Toto 4/49, Toto 6/42 Jackpot and Super Toto 6/49. The Company's other subsidiary, Berjaya Lottery Management (HK) Limited, is an investment holding company. Its holdings include Prime Gaming Philippines Inc., which is involved in lottery operations in the Philippines; Philippines Gaming Management Corporation, which focuses on leasing an online lottery system to the Philippine Charity Sweepstakes Office, and International Lottery & Totalizator Systems Inc., which provides computerized wagering equipment and systems to racing organizations worldwide (Berjaya Sports Toto Berhad’s s annual report 2005).

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 Malaysia market today is volatile, some stock which offer return not mainly on the appreciation of stock, but also dividend payout should be considered. See appendix (NUMBER)

BJTOTO is selected not only for the reason of its undervalued, yet the investment is for defensive against the uncertainty market condition in Malaysia nowadays. Thus, High dividend yield payout like BJTOTO is where defensive stock is picked for protection against in volatility market. However, investor should beware of dividend policy as the boards of director in company have the right not to distribute dividend to shareholders, although it’s unlikely to happen o BJTOTO. Hence, investment on BJTOTO expected to contribute 15% per annual in the next ten years based on its past performance in financial result.

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 Malaysia with an estimated 85% market share of SVIs manufactured in the country. The company changed its name from Duopharma Biotech to CCM Duopharma Biotech with effect from June 8, 2006 (CCM Duopharma Biotech’s annual report 2005).

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 Malaysia and Indonesia. It has downstream palm oil operations both in Malaysia and overseas, which involve the manufacturing of oil palm-based edible oils & fats, oleochemicals and bio-diesel (Golden Hope Plantations Berhad’s annual report 2005).

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 Danny Yap, it stated that 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 United States, China and India’s continued growth, which bring alternative sources of energy such as biodiesel would be in great demand. Consequently, Malaysia plantation player like GHOPE would be the beneficiary as the company is venturing into biodiesel with foreign company to reach the future market demand.

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 Sarawak. (CB Industrial Product Holding Berhad ‘s annual report 2005).

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 Africa. According to the managing director of CBIP, LIM Chai Beng in the article of “MD steers CBIP to greater heights”, he stated the only company which has the capability to build and operate palm oil mills in Malaysia is CBIP and the group's modular palm oil mills (Modipalm) with processing capabilities ranging from five to 45 tonnes per hour, can be seen in oil palm plantations in Indonesia, Thailand, Colombia, Ivory Coast, and West Africa ( 2006).

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 Malaysia would lead negatively impact on profits.

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 China market under its Parkson Retail managed by its subsidiary Parkson Retail Group Ltd (PRG). It’s unquestionable that China is a giant market with the population over 1 billion of people, this would made LIONDIV an opportunity to growth in the chinese market by merge and acquisition on departmental stores and supermarkets existed. Currently, LIONDIV operating 39 stores in 26 cities in China, PRG plans to open 30 more across China as part of a nearly one billion yuan (RM469 million) five-year expansion plan (Lion Diversified Holdings Berhad‘s annual report 2005).

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, China political and economic is stable and growing. It should take note that appreciation value of yuan will panic foreign investor invest in the country.

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 Malaysia current market inflation rate.

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.