College of Business
School of Business Management
Maestro in Business Administration
- INTRODUCTION …………………………………………………………………..……….….3
- DISCUSSION – The grounds why some stock are considered a good bargain. Give Example of such stock – IJM Corporation Berhad……………………………………………………………………… … ..4
- CONCLUSION…………………………………………………………………………… … … … .9
- REFERENCES ………………………………………………………………..………………..10
It was mentioned in Ross, S, A. , Westerfield, R. , Jaffe, J ( 2011 ) . Core Principles and Applications of Corporate Finance ( 9ThursdayEd. ) . New york: McGraw Hill-Irwin ( page 168 ) that “an plus ‘s value is determined by the present value of its hereafter hard currency flows and in the instance of a stock – it provides two sorts of hard currency flows – foremost that the stocks pay dividends on a regular footing and secondly the shareholder receives the sale monetary value when she sells the stock.”
Based on the above – In my sentiment a portion is a “good buy” if it pay regular and good dividends to its shareholders and at the same clip keep an attractive merchandising monetary value for its shareholders to go out when the clip is appropriate – an indicant of really positive hard currency flow and growing.
I will in my following subdivision – adverting briefly the cardinal construct in stock rating in respect dividends and growing chances – foregrounding its cardinal points and will so try to correlate and reason whether such constructs seems to keep reasonably good in the existent universe by measuring the portion monetary value of a public listed company with latest gross of RM4.63 billion – viz. IJM Corporation Berhad – ( abbreviated as “IJM” ) after taking into consideration of the undermentioned information: –
- The benchmarking of IJM latest cardinal Market ratios in comparing to its rivals within the same sector ( INFRASTRUCTURE DEVT AND SERVICES ) as assigned in Bursa Saham Malaysia ;
- A elaborate analysis of IJM as compared to other 927 listed companies in Bursa Saham Malaysia in respects to – 1 ) Number of Years of paying dividend 2 ) Dividend Yield and 3 ) Price Earnings Ratios.
- Finally – I will reason based on the above analysis on the treatment as to “The grounds why some stock are considered a good bargain. Give Example of such stock” .
Cardinal Concepts: – Briefly, we assume that the portion monetary value is the present value of its future dividends. This is represented in this equation: –
As such a dividend theoretical account can hold growing that diminution, changeless or differential as depicted the graph: –
The general construct as indicated above prevarication s in the perceptual experience that a company with high dividend output / growing will be given to pull a good bargain – it’s an declarative mood of its ability to pay bring forth positive hard currency flow to prolong growing in the company every bit good as to honor its shareholders.
However in instances – where companies who pay zero dividend or make non pay consistent dividend – it is besides speculate such companies plough back the dividend or retained its earning to bring forth “growth opportunities”- Such growing oppurnities in theory can be generated into of what they called “NPVGOs” an abbreviation for the net nowadays value – per portion of the growing chance. It convictions that a firm’s value will increases when it invests in growing chances with NPVGOs.
It deserving adverting in Ross, S, A. , Westerfield, R. , Jaffe, J ( 2011 ) . Core Principles and Applications of Corporate Finance ( 9th Ed. ) . New york: McGraw Hill-Irwin that PE ratio is related to the net present value of growing chances and that the PE ratio is likely a map of three factors – viz. : –
- Growth chances. Companies with important growing chances – high PE ratios.
- Hazard. Low-risk stocks will hold high PE ratios.
- Accounting patterns. Firms following conservative accounting patterns will besides hold high PE ratios.
Out of the 3 maps – It was mentioned that through agreed consensus in the fiscal community that growing chances have the biggest impact on PE ratios.
So judging from the above key constructs – in theory – there are general consensus that there are correlativity between positive dividend growing and PE ratio – growing chance that will heighten the value of the portion which in bend justify the ground for the “good buy” of portions with such strong and positive indexs. Now let’s evaluate the portion monetary value of IJM populace listed company – taking into consideration of the undermentioned information: -Firstly – A spot of the background on IJM – it is a public listed company since 1986, – presently it is listed under sector “Infrastructure Development and Services”- it is engaged into 5 nucleus concerns – Construction, Industries, Infrastructure, Property and Plantation.
- The public presentation of IJM for the past & gt ; 5 old ages ;
Based on the Income Statement of IJM for past 10 old ages from 2004 to 2013 – the analysis below showed that gross grown by 242 % , Operating Net income by 506 % , PBT by 305 % and NP by 189 % , although it fluctuates from twelvemonth to twelvemonth.
Both its Operating border and PBT border for the same period grew from 12 % – 22 % and 15 % to 18 % severally. We benchmarked this to Gamuda – a RM3.86 billion, another populace listed company categorize in the same sector with IJM. As shown in the tabular array below – their gross has grown by 125 % , for Operating Net income – 58 % , PBT – 59 % and NP – 91 % . Both Gamuda – Operating border and PBT border are registered at 13 % & A ; 18 % – Overall we can state that their public presentation and growing is lower than IJM.
At the clip of composing the market monetary value of IJM was RM5.754 per portion – higher as compared to Gamuda of RM4.45 per portion. Both pay consistent & A ; good dividend for the 10 twelvemonth period.
- The benchmarking of IJM latest cardinal Market ratios in comparing to its rivals within ( INFRASTRUCTURE DEVT AND SERVICES ) sector in Bursa Saham Malaysia as shown in the tabular array below.
The above analysis showed that IJM although it registered the highest in term of their portion monetary value – the company registered 3rdputing for both in their Earning per portion ( EPS ) ( 3rdputing ) and Dividend Yield ( 2neodymiumputing ) . The above does non bespeak clear positive correlativity between portion monetary values to PE and dividend output for IJM and other companies within the same sector.
- Finally an analysis of IJM as compared to other 927 listed companies in Bursa Saham Malaysia in respects to – 1 ) Number of Years of paying dividend 2 ) Dividend Yield and 3 ) Price Earnings Ratios.
Number of Years of paying dividend –I sorted all the listed companies that pay the highest to the lowest in figure of old ages of paying dividend – it shows that IJM ranked figure 66 as shown below: –
However – most ironically- the top 15 companies that have the highest figure of dividend payout in old ages does non demo a positive correlativity ( except for 1 -2 companies ) to its portion monetary value – highest wage out does non intend high portion monetary values – as shown below.
Highest Dividend Yield– I did the same for dividend output – screening them from the highest to the lowest – IJM ranked at 373 as shown below: –
The top 15 companies that has the highest dividend output besides do non demo positive correlativity to its Share Price and / or PE ratio, high dividend output can correlate to lower portion monetary values as shown below: –
Highest Price Earnings Ratios –Finally – for PE ratios – screening them from the highest to the lowest – IJM ranked at 228 as shown below: –
The top 15 companies that has the highest Price Net incomes Ratio – likewise it does non demo positive correlativity to its Share Price and Dividend Yield – as shown below: –
Based on the above analysis – in my sentiment – IJM it is a good bargain – because of its consistence in is dividend payout every bit good as it progressive addition in portion monetary value ( as per IJM – & gt ; 5 old ages Income Statement ) . The theoretical construct that the value of a stock is computed by taking the present value of its dividend with its growing chances being represented by PE ratios – is non easy use in pattern – it involves much more complication, the simple analysis above ( indicate degree Celsius ) showed that there is no clear indicant of positive correlativity between high dividend output / high wage out old ages, high PE ratio to its stock monetary values or frailty versa.
As such in world – a “good buy” of a stock by the investors is represent by many other micro and macro factors – such as their investing / bad schemes, precedences, penchants every bit good as market sentiment / mentality, public presentation of the sector / waies of cardinal stock index. So it is non a consecutive forward instance of merely utilizing the Dividend Growth Model and together with their Pe to do a “good buy” – for illustration – most Internet houses, such as Amazon.com, Google, and eBay – they do non pay dividends but yet its stock are high in value and sought by investors.
The stock market is simply a mechanism to dwell the pricing perceptual experiences of the hereafter – it can be used for investing or bad intents – it is non the crystal ball of the hereafter itself and every bit much as the stock market wants to hold a realistic perceptual experiences of a firm’s chances – this is non ever true.
- Ross, S, A. , Westerfield, R. , Jaffe, J ( 2011 ) . Core Principles and Applications of Corporate Finance ( 9ThursdayEd. ) . New york: McGraw Hill-Irwin.
- Website of IJM Corporation Berhad: hypertext transfer protocol: //www.ijm.com/web
- Website of Gamuda Berhad hypertext transfer protocol: //www.gamuda.com.my
- Website of Muhibbah Berhad hypertext transfer protocol: //www.muhibbah.com
- Website of PJ Bumi Berhad hypertext transfer protocol: //www.pjbumi.com.my
- Website of Protasco Berhad hypertext transfer protocol: //www.protasco.com.my
- Website of Silk Holdings Berhad hypertext transfer protocol: //www.silk.my
- Website of WCT Holdings Berhad hypertext transfer protocol: //www.wct.com.my
- Website of Bursa Saham Malaysia: hypertext transfer protocol: //www.bursamalaysia.com/market
- Website of KLSE Tracker: hypertext transfer protocol: //klsenew.klsetracker.com.my