Sunday, June30, 2019 The Sunday Times Invest B13 Looking ......multibagger in the equity market....
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Lorna Tan Invest Editor Q What’s a typical day at work like for you? What are some of the day-to-day activities only applicable to equity analysts? A As an analyst, it is a great opportu- nity to meet senior management of companies in order to gain unique and useful insights into how man- agement thinks. It is important to be able to have good interviewing skills and be thoughtfully prepared, as well as to have a good documenta- tion system for future reference. We also get to visit companies’ business operations in Singapore and overseas, where we get to talk to the local management and see how things are run. My most excit- ing company visit was to a coal mine in East Kalimantan, Indonesia, where we had to take a small propel- ler plane and spend countless hours on winding and pothole-filled roads before reaching our destination. During my career as an analyst, I have visited shipyards, chemical plants, steel plants, gold mines, lithium mines, countless coal mines, a Lego manufacturer and even golf courses. Along the way, I also had the chance to float in the Dead Sea. It is also exciting to be able to talk to funds and private investors, who are clearly a very passionate group when it comes to finding the next multibagger in the equity market. While identifying great stock ideas is important, being able to effectively communicate them to investors requires practice and experience. There is no point in hav- ing a great call where others do not take action. Q What is your approach and style towards assessing a company or sector? A When assessing a sector and com- pany, there are two types of infor- mation – what is available publicly and what is proprietary. Proprietary sources may include sourcing information in the supply chain or distribution channels of a company, or through private sur- veys of customers. This is where analysts can add value and gain deeper insights into a sector or com- pany, given that public information would already be reflected in the current share price. As a first step, I would collect critical information that drives the sector, including the growth prospects, key demand drivers and major input costs. Sometimes, a sector re-rating could also be driven by mergers and acquisitions. A high-growth industry creates a virtuous circle. High-growth com- panies would have easier access to capital markets in order to raise funds, are able to command lower financing costs and can spend heav- ily on technology infrastructure and talent. For example, machine learning is used heavily among the big technol- ogy companies such as Google, Facebook and Amazon, and this contributes to their competitive ad- vantage. However, its adoption is moving more slowly among small to mid-sized companies, given the lack of resources and expertise. On the flip side, it is challenging for a company to grow its earnings in a structurally declining sector, such as the oil and gas industry, which is transitioning towards cleaner forms of energy. An underperforming sector cre- ates a vicious circle where compa- nies have to pay higher financing costs and where margins are con- stantly under pressure. In order to generate returns on equity (ROE) to sufficiently com- pensate investors, these compa- nies leverage up, which usually leads to financial distress during a downturn. As a rule of thumb, when I analyse businesses in the sector, I would be cautious of com- panies with a net gearing (net debt/equity) ratio of more than 1x. Second, when assessing a com- pany, the quality of top manage- ment and a clear and well-commu- nicated business plan are impor- tant qualitative features. To gain quantitative insight – in addition to developing financial models to learn about the critical factors that drive a company’s earnings – it helps to model for potential upside and downside scenarios. Q What advice would you give investors with regard to using research reports to guide their decisions? A There is a perception among re- tail investors that reports by bro- kers are biased in one way or an- other due to the inherent conflict of interest. This was a key reason why the MiFID II regulations, which took effect last year, were intro- duced in Europe. MiFID II – the revamped version of the Markets in Financial Instru- ments Directive – is designed to of- fer greater protection for investors and inject more transparency into all asset classes – from equities to fixed income, exchange-traded funds and foreign exchange. Over time, research firms or ana- lysts who can build up a credible track record of independent and good-quality recommendations are likely to have a following among in- vestors. For research reports, in ad- dition to the key investment thesis, the valuation model, especially the discounted cash flow (DCF) method, offers useful information. Look at the assumptions used, such as the growth rates, the mar- gins and the discount rate. Research has shown that a price target is more accurate when a rig- orous multi-period valuation method (for example, DCF) is used compared with a simple single-pe- riod multiple (for example, price- to-earnings or price-to-book). Given that information is readily available online to everyone and there are many investment plat- forms available to freely exchange ideas, investors can use research re- ports that contain proprietary infor- mation to supplement their knowl- edge of a sector or company. For example, research reports may contain helpful infographics or charts to better explain a busi- ness process or industry supply- chain relationships. Proprietary information such as channel checks, or a survey done by the analyst of the company’s clients to see how well the products are do- ing, can also offer valuable insight. [email protected] • For Mr Ng’s latest reports, go to www.kgieworld.sg Mr Joel Ng says analysts who build up a track record of independent, good-quality advice will have a following among investors. PHOTO: KGI SECURITIES (SINGAPORE) Free Admission & Sure-Win Lucky Dip Free Admission & Sure-Win Lucky Dip Gain work experience & enhance your skills with WSG Career Trial. Get ahead in the service sector with Training Vision’s WSQ certified courses. Jobs & Learning Fest 2019 8th & 9th July 2019 | 9.30am - 7.00pm | Bedok Town Square Top F&B and Retail brands are hiring! Scan to apply for the positions now. On-the-spot interviews Learn the right skills Career guidance Participating Employers: Scan to apply! Open to Singaporeans only www.fastjobs.sg/jobsfest | [email protected] | 63192162 Spotlight on ST-SGX Research Leaders The ST-SGX Research Leaders’ Insights Series features 10 research experts who take turns to offer their views each month. This week, The Sunday Times meets Joel Ng, who heads the Singapore equities research team at KGI Securities (Singapore). He was covering the energy and mineral sectors for more than seven years before expanding to technology and healthcare. The 36-year-old holds a bachelor’s degree in software engineering. He is married and has two children, aged seven and five. Looking at potential upside, downside scenarios helps Sunday, June 30, 2019 | The Sunday Times Invest | B13
Transcript of Sunday, June30, 2019 The Sunday Times Invest B13 Looking ......multibagger in the equity market....
Lorna TanInvest Editor
Q What’s a typical day at work like for you? What are some of the day-to-day activities only applicable to equity analysts?A As an analyst, it is a great opportu-nity to meet senior management of companies in order to gain unique and useful insights into how man-agement thinks. It is important to be able to have good interviewing skills and be thoughtfully prepared, as well as to have a good documenta-tion system for future reference.
We also get to visit companies’ business operations in Singapore and overseas, where we get to talk to the local management and see how things are run. My most excit-ing company visit was to a coal mine in East Kalimantan, Indonesia, where we had to take a small propel-
ler plane and spend countless hours on winding and pothole-filled roads before reaching our destination.
During my career as an analyst, I have visited shipyards, chemical plants, steel plants, gold mines, lithium mines, countless coal mines, a Lego manufacturer and even golf courses. Along the way, I also had the chance to float in the Dead Sea.
It is also exciting to be able to talk to funds and private investors, who are clearly a very passionate group when it comes to finding the next multibagger in the equity market. While identifying great stock ideas is important, being able to effectively communicate them to investors requires practice and experience. There is no point in hav-ing a great call where others do not take action.
Q What is your approach and style towards assessing a company or sector? A When assessing a sector and com-pany, there are two types of infor-mation – what is available publicly and what is proprietary.
Proprietary sources may include sourcing information in the supply chain or distribution channels of a company, or through private sur-veys of customers. This is where analysts can add value and gain deeper insights into a sector or com-pany, given that public information would already be reflected in the current share price.
As a first step, I would collect critical information that drives the sector, including the growth prospects, key demand drivers and major input costs. Sometimes, a sector re-rating could also be
driven by mergers and acquisitions.A high-growth industry creates a
virtuous circle. High-growth com-panies would have easier access to capital markets in order to raise funds, are able to command lower financing costs and can spend heav-ily on technology infrastructure and talent.
For example, machine learning is used heavily among the big technol-ogy companies such as Google, Facebook and Amazon, and this contributes to their competitive ad-vantage. However, its adoption is moving more slowly among small to mid-sized companies, given the lack of resources and expertise.
On the flip side, it is challenging for a company to grow its earnings in a structurally declining sector, such as the oil and gas industry, which is transitioning towards
cleaner forms of energy.An underperforming sector cre-
ates a vicious circle where compa-nies have to pay higher financing costs and where margins are con-stantly under pressure.
In order to generate returns on equity (ROE) to sufficiently com-pensate investors, these compa-nies leverage up, which usually leads to financial distress during a downturn. As a rule of thumb, when I analyse businesses in the sector, I would be cautious of com-panies with a net gearing (net debt/equity) ratio of more than 1x.
Second, when assessing a com-pany, the quality of top manage-ment and a clear and well-commu-nicated business plan are impor-tant qualitative features. To gain quantitative insight – in addition to developing financial models to
learn about the critical factors that drive a company’s earnings – it helps to model for potential upside and downside scenarios.
Q What advice would you give investors with regard to using research reports to guide their decisions?A There is a perception among re-tail investors that reports by bro-kers are biased in one way or an-other due to the inherent conflict of interest. This was a key reason why the MiFID II regulations, which took effect last year, were intro-duced in Europe.
MiFID II – the revamped version of the Markets in Financial Instru-ments Directive – is designed to of-fer greater protection for investors and inject more transparency into all asset classes – from equities to fixed income, exchange-traded funds and foreign exchange.
Over time, research firms or ana-lysts who can build up a credible track record of independent and good-quality recommendations are likely to have a following among in-vestors. For research reports, in ad-dition to the key investment thesis, the valuation model, especially the discounted cash flow (DCF) method, offers useful information.
Look at the assumptions used, such as the growth rates, the mar-gins and the discount rate.
Research has shown that a price target is more accurate when a rig-orous multi-period valuation method (for example, DCF) is used compared with a simple single-pe-riod multiple (for example, price-to-earnings or price-to-book).
Given that information is readily available online to everyone and there are many investment plat-forms available to freely exchange ideas, investors can use research re-ports that contain proprietary infor-mation to supplement their knowl-edge of a sector or company.
For example, research reports may contain helpful infographics or charts to better explain a busi-ness process or industry supply-chain relationships.
Proprietary information such as channel checks, or a survey done by the analyst of the company’s clients to see how well the products are do-ing, can also offer valuable insight.
• For Mr Ng’s latest reports, go to www.kgieworld.sg
Mr Joel Ng says analysts who build up a track record of independent, good-quality advice will have a following among investors. PHOTO: KGI SECURITIES (SINGAPORE)
Free Admission& Sure-WinLucky Dip
Free Admission& Sure-WinLucky Dipy p
Gain work experience &enhance your skills withWSG Career Trial.
Get ahead in the service sectorwith Training Vision’s WSQcertified courses.
Jobs & Learning Fest 20198th & 9th July 2019 | 9.30am - 7.00pm | Bedok Town Square
Top F&B and Retail brandsare hiring! Scan to apply forthe positions now.
On-the-spot interviews Learn the right skills Career guidance
Participating Employers:
Scan to apply!
Open to Singaporeans onlywww.fastjobs.sg/jobsfest | [email protected] | 63192162
Spotlight on ST-SGX Research Leaders
The ST-SGX Research Leaders’ Insights Series features 10 research experts who take turns to offer their views each month. This week, The Sunday Times meets Joel Ng, who heads the Singapore equities research team at KGI Securities (Singapore). He was covering the energy and mineral sectors for more than seven years before expanding to technology and healthcare. The 36-year-old holds a bachelor’s degree in software engineering. He is married and has two children, aged seven and five.
Looking at potential upside, downside scenarios helps
Sunday, June 30, 2019 | The Sunday Times Invest | B13
