industry beverage in malaysia - ncku imba financial pricing presentation (spring 2013)
DESCRIPTION
A presentation on the industry beverage in Malaysia and a financial analysis of an investment portfolio composed of several public listed Malaysian beverage manufacturers.TRANSCRIPT
By Kelvin Lye(賴光隆)
» Introduction » The Malaysian Food & Beverage industry» Five featured companies» Application of Theory»Methodology» Research Results » Conclusion and Suggestion
Research Objective»To compute all the necessary variables for each individual stock and for the investment portfolio»To determine the optimal portfolio by obtaining the cut-off rate using single-index model and evaluate the value at risk of the optimal portfolio»To analyze and conclude the optimal portfolio involving stocks of beverage companies in Malaysia
About the country»Region: Southeast Asia»Population: 28 million»Ethnics: Malay and Bumiputra (70%), Chinese (23%), Indians (7%)»Currency: Ringgit Malaysia (RM)»Currency exchange: RM1 9.6NTD
Items Price in Taiwan Price in MalaysiaCoca-cola (0.33 liter bottle) 0.71 USD 0.60 USDMineral water (1.5 liter bottle) 1.02 USD 0.72 USDGasoline (1 liter) 1.07 USD 0.65 USDVolkswagen Golf 1.4 90 kW Trendline 34,476.68 USD 48,024.29 USD1 minute of Prepaid Mobile Tariff (no plans/discounts)
0.13 USD 0.12 USD
Composition of Food and Beverage Sector
Food
Beverage
Food and beverage in
malaysiaDrinking water
Alcoholic drinks
Dairy products
Soft drinks
Traditional drinks
Bakery
Processed foods
Dairy products
Snacks
Staple foods
Instant food
Specials features of the sector»Predominantly owned by Malaysian companies»Contributes 2-3% of Malaysia economy»Domestic retail market of F&B US$11 billion»24% spent on retail purchase of food in Malaysian households
Exports of Malaysian Processed Food and Beverage Products2006-2010
Source: UN Comtrade
Future of Malaysia’s Future of Malaysia’s Beverage IndustryBeverage Industry
» Manufacturer of dairy products in Malaysia since 1950s
» Manufacturing plant in Petaling Jaya» Operations: HACCP, ISO9001, ISO14001,
Malaysian Halal Certification» Partners with the Malaysian
Government on supporting local industries and communities
Finance Performance (2012)Revenue: RM 882.18 million
Operating income: RM 170.74 million
Net income: RM 123.38 millionTotal assets: RM 382.77 millionTotal equity: RM 216.13 million
» Oldest dairy product and beverage company in Malaysia
» Products include dairy products and soft drinks
» Manufacturing plan in Selangor» Operations: HACCP, ISO9001, ISO14001,
Malaysian Halal Certification» Awards: Reader’s Digest Trusted Brand
2006-2008, Superbrands Asia 2006
Finance Performance (2012)Revenue: RM 3239 millionOperating income: RM 887 millionNet income: RM 274 millionTotal assets: RM 2606 millionTotal equity: RM 1555 million
Finance Performance (2012)Revenue: RM 4556 million
Operating income: RM 1553 million
Net income: RM 505 millionTotal assets: RM 1905 millionTotal equity: RM 751 million
» An established dairy product, coffee and nutritional products manufacturer in Malaysia since 1912
» Products include dairy products, coffee, ice cream, cereals and confectionary
» Manufacturing plan in Kuala Lumpur» Operations: HACCP, ISO9001, ISO14001,
Malaysian Halal Certification» Awards: Most Admired Company in Malaysia
2008 and 2009
Finance Performance (2012)Revenue: RM 279.36 million
Operating income: RM 121.24 million
Net income: RM 34.38 millionTotal assets: RM 281.47 millionTotal equity: RM 205.98million
» A relatively new beverage company founded in 1999
» Products include herbal energy drinks, coffee and chocolate beverage
» Manufacturing plan in Johor Bahru» Operations: HACCP, ISO9001, ISO14001,
Malaysian Halal Certification» Focuses on R&D on local mainforest traditional
herbs-based (Tongkat Ali and Kacip Fatimah)
Finance Performance (2012)Revenue: RM 178.21 millionOperating income: RM 62.35
millionNet income: RM 10.59 million
Total assets: RM 272.08 millionTotal equity: RM 150.21 million
» Malaysia’s largest bottled water manufacturer
» Products include mineral water, RO drinking water, carbonated and flavoured water
» Manufacturing plan in Taiping, Perak» Operations: HACCP, ISO9001, ISO14001,
Malaysian Halal Certification» Notable award: Asia Pacific Bottled Water
Company of Year 2010
» Important consumer goods » Steady growth in domestic market» Huge room for improvement: international
market expansion, especially halal market (Bohari, 2013) and value enhancement (Ong, Yeoh & Teh, 2011)
» Active promotion of Malaysian food and beverage by the Malaysian Government
» Steadily strong performance of companies
» Originally known as Kuala Lumpur Stock Exchange (KLSE)
» Renamed in 2004 as Bursa Malaysia» Consists of: Main Board, Second
Board and MESDAQ» Total market capitalization: RM700
billion.
Instruments: 1.Securities market (Main & Ace)2.Derivatives market (Futures)3.Islmaic offerings (Sukuk, Shariah compliant securities)4.Others (Bond market, offshore market)
( 1) ( )
( )
( 1)
( )
Daily return, 100% ,
where stock price on current day
stock price on previous day
i t i ti
i t
i t
i t
P PR
P
P
P
1Expected return, ,
where number of period; th security; th period (day)
N
ijj
i
R
RN
N j j i i
Daily Returns and Expected Returns of Individual Stocks
Standard deviation and Covariance of Individual Stocks
1
( )( )
Covariance, ,
where number of period; th security; th period (day)
daily return; = expected return
N
Aj A Bj Bj
AB
R R R R
NN i i j j
R R
Coefficient of correlation,
where covariance between securities and ;
, standard deviation of securities and respectively
ABAB
A B
AB
A B
A B
A B
Single-Index Model: Cut-off Rate Calculation
Adapted from •Elton, Gruber and Padberg (1976)•Campbell, Huisman and Koedijk (2001)
CASES:»Short sales disallowed»Standard definition of short sales»Lintner’s definition of short sales
Ci versus Cut-off rate
Optimal Portfolio: Short Sales and No Short Sales Criteria
CASES:»Short sales disallowed»Standard definition of short sales»Lintner’s definition of short sales
Adapted from •Elton, Gruber and Padberg (1976)•Campbell, Huisman and Koedijk (2001)
Value-at-Risk: Description and Computations
Parametric Value-at-
Risk
Historical Value-at-
Risk
Monte-Carlo
Value-at-Risk
Using overall expected return
and standard deviation
Using daily/weekly/monthly expected return
and standard deviation
Using projected expected return
and standard deviation
Value-at-risk
Adapted from •Kaplanski and Kroll (2002)•Campbell, Huisman and Koedijk (2001)
Value-at-Risk: Description and Computations
Parametric Value-at-
Risk
Analytical
•Individual•Portfolio
Value of Z-score based on the confidence interval based on
normal distribution
Variance-covariance •Portfolio
Optimal portfolio weightsAdapted from •Kaplanski and Kroll (2002)•Campbell, Huisman and Koedijk (2001)
Value-at-Risk: Description and Computations
Historical Value-at-
Risk
1. Calculate daily stock returns and standard deviations for individual stocks
2. Calculate the daily portfolio returns and standard deviations based on the optimal portfolio weights
3. Compute a histogram4. Determine the percentile (or percentage) of the
lowest returns at confidence interval (99%/95%/90%), corresponding to significance level (1%/5%/10%)
Lowest return at significance level
Adapted from •Elton, Gruber and Padberg (1976)•Campbell, Huisman and Koedijk (2001) Use “normsinv”
function in Excel
Comparison: Historical, Parametric and Monte Carlo VaR
Aspects Historical Parametric Monte Carlo
Data type Historical data No data Future data
Strength Easy to implement
Easy to implement
Use projection instead of past data
Weakness• No
distribution required
• Not great for non-linear payoffs
• Harder to implement
• Time-consuming
Historical Individual Daily Stock Prices
Research Process Flow
Historical Daily Indices of KLCI
Data Collection
•Datastream•Bank Negara
Calculation (Microsoft
Excel)
Risk-free return in Malaysia
Expected Returns and Standard Deviations for Stocks and Market
Cut-off Rate and Optimal Portfolio
Value-at-Risk for Stocks and Portfolio
Analysis of results Value-at-Risk
Optimal Portfolio
» Samples: Dutch Lady, Fraser and Neave (F&N), Nestle Malaysia, Power Root and Spritzer
» Sample period: 20 May 2008 – 20 May 2013» Sample Size: 1304 observations per company» Market return rate: KLSE index» Risk-free rate in Malaysia: 3-month interbank offer
rate (3.21% per annum)» Assumption: Returns are equally weighted
Research Sample Setting and Assumptions
Company Expected Return (%)
Standard Deviation (%)
Dutch Lady (D) 0.1100 1.2712
F&N (F) 0.0611 1.1199
Nestle Malaysia (N) 0.0633 0.8804
Power Root (P) 0.1128 2.9073
Spritzer (S) 0.1107 2.5496
KLSE 0.0274 0.7596
Expected Return and Standard Deviation of Individual Stocks and KLSE
Variance-Covariance Matrix
D F N P S
D 1.6159 0.1555 0.1084 0.2949 0.0699
F 0.1555 1.2542 0.0771 0.1692 0.0055
N 0.1084 0.0771 0.7751 0.1636 0.0838
P 0.2949 0.1692 0.1636 8.4522 0.6126
S 0.0699 0.0055 0.0838 0.6126 6.5003
Coefficient of Correlation Matrix
D F N P S
D 1 0.1092 0.0968 0.0798 0.0216
F 0.1092 1 0.0782 0.0520 0.0019
N 0.0968 0.0782 1 0.0639 0.0373
P 0.0798 0.0520 0.0639 1 0.0826
S 0.0216 0.0019 0.0373 0.0826 1
Cut-off Rate: Ranking and CalculationRanking(Excess
Return over Beta)
Collection of required
parameters
Calculation of Cut-off
rate
Company Expected Return (%)
Standard Deviation (%)
Beta (Datastream)
Other parameters
Dutch Lady (D) 0.1100 1.2712 1.1060
Risk-free rate, RF
(3.21% annual,0.008% daily)
F&N (F) 0.0611 1.1199 0.5610Nestle Malaysia (N) 0.0633 0.8804 0.4830Power Root (P) 0.1128 2.9073 1.7290Spritzer (S) 0.1107 2.5496 0.8040KLSE 0.0274 0.7596 1.0000
Cut-off Rate: Ranking and CalculationCalculation of Cut-off
rate
Collection of Required
Parameters
Ranking (Excess
Return over Beta)
Cut-off Rate: Ranking and CalculationCollection of
Required Parameters
Calculation of Cut-off rate
Ranking(Excess
Return over Beta)
Optimal Portfolio: Computation
Stock Z values X values Weights (%)S 0.0677 0.3152 31.52N 0.0340 0.1582 15.82F 0.0285 0.1325 13.25D 0.0542 0.2523 25.23P 0.0305 0.1418 14.18
Total 0.2149 1.0000 100.00
Portfolio Expected Return
Portfolio Standard Deviation
0.0967% 1.0448%
NOTE:»All Ci are lower than excess return over Beta»Cut-off rate, C* = 0.0425»No short sales can be done
No Short Sales ONLY
Excel Printscreen: Expected Return, Standard Deviation, Variance-Covariance, Cut-off Rate and Optimal Portfolio
Value-at-Risk Computation: Excel Printscreen
Value-at-Risk Computation: Comparison
MethodConfidence interval
99.00% 95.00% 90.00%
Parametric VaR 2.3338 1.6218 1.2422
Variance-Covariance VaR 2.4306 1.7185 1.3390
Historical VaR 2.6144 1.3912 1.0102
Objectives met?•All variables computed ()•Cut-off rate determined ()•Optimal portfolio computed ()•Value-at-Risks evaluated ()
Analysis:•No short sales can be done•Low portfolio return•Low risk (standard deviation and value-at-risk)
Objectives met?•All variables computed ()•Cut-off rate determined ()•Optimal portfolio computed ()•Value-at-Risks evaluated ()
Analysis:•No short sales can be done•Low portfolio return•Low risk (standard deviation and value-at-risk)
» Benninga, S., & Wiener, Z. (1998). Value-at-risk (VaR). Mathematics in Education and Research, 7(4), 1-8.
» Bohari, A. M., Cheng, W. H., & Fuad, N. (2013). The competitiveness of halal food industry in Malaysia: A SWOT - ICT analysis. Malaysia Journal of Society and Space, 9(1), 1-9.
» Campbell, R., Huisman, R., & Koedijk, K. (2001). Optimal portfolio selection in a value-at-risk framework. Journal of Banking and Finance, 25(9), 1789-1804.
» Elton, E. J., Gruber, M. J., & Padberg, M. W. (1976). Simple criteria for optimal portfolio selection. Journal of Finance, 31(5), 1341-1357. Jusoff, K. (2009). An ARDL approach in food and beverages industry growth process in Malaysia. International Business Research, 2(3), 98-107.
» Kaplanski, G., & Kroll, Y. (2002). VAR risk measures vs traditional risk measures: An analysis and survey. Journal of Risk, 4(3), 1-27.
» Ong, T. S., Yeoh, L. Y., & Teh, B. H. (2011). Intellectual capital efficiency in Malaysian food and beverage industry. International Journal of Business and Behavioral Sciences, 1(1), 16-31.