In this report, a business analysis and valuation exercise was conducted on the firms in our Hyp$100,000 investment portfolio to evaluate their strategies and historical performance, as well as to determine the intrinsic value of their shares. To reduce risks through portfolio diversification, two firms from unrelated industries were selected. Hyflux was chosen as the SGX Mainboard Company due to the huge earnings potential from its operations in China and the Middle East and North Africa (MENA) region. For the Catalist company, Artivision was selected because of its growing potential and promising technology in video management solutions. Overall, our group adopted a risk adverse approach for our initial portfolio and invested 40% in Hyflux, 20% in Artivision and 40% in the money market fund. Using Porter’s Five Forces, business strategy analysis was conducted to examine the industries in which the firms operated. For the analysis of the firms, SWOT model, competitive and corporate strategies were used. Next, accounting analysis was carried out to evaluate the firm’s key accounting policies and quality of disclosure. Potential red flags were then identified, and adjustments were made such that the financial statements better reflect the firms’ underlying business reality. With these adjusted financial statements, financial analysis was then performed. Time-series and cross-sectional analyses were conducted on the firms’ key financial ratios to assess their operating, investment and financial management. Finally, using the ratios calculated, analysts’ reports and other firm specific news as the basis for our forecasts of the firms’ growth, profitability and risks, prospective analysis was performed using the eVal software. By comparing the intrinsic values obtained through our fundamental analysis with the actual market share prices, our initial portfolio was revised. The final portfolio consists of 60% of funds invested in Hyflux and 40% in the money market fund. The total portfolio returns over the seven week period was -8.17%.
Hyflux is the first water treatment company to be listed in the Singapore stock exchange in 2001. Since then, it has grown to become a leading provider of integrated water management and environmental solutions with operations and projects in Singapore, Southeast Asia, China, India, Algeria, the Middle East and North Africa. It operates in 4 key segments, Membrane sales, wastewater recycling, operation and maintenance as well as desalination. 2. Business Strategy Analysis
Industry Analysis – Porter’s Five Forces
Rivalry among existing firms
| Moderate: Water solutions industry is relatively concentrated with a small number of major players. Major contracts offered by government to build water plants are limited.
| Threat of new entrants
| Low: The water solutions industry is highly capital intensive in terms of R&D and infrastructure. Acquiring proprietary knowledge is difficult and takes many years.
| Threat of substitute products
| Low: Conventional water treatment solution such as desalination is costly, less effective, complex and requires economic of sales. (solutions, 2005)
| Buyer power
| Moderate: Contracts are decided through a tendering process. The buyer power is mitigated due to product customization and a high level of expertise is needed to meet the needs of the buyer. This decreases the buyer price sensitivity
| Supplier power
| Low: Supplier concentration for raw materials and subcontracting services is low. Volume purchases from big buyers like water treatment companies are important.
| Industry is moderate-highly profitable due to low horizontal competition.
Company Analysis – SWOT
| * Visionary management from its founding CEO Olivia Lum. Diversify the company business from purely water solution to waste oil recycling. (Hyflux, 2011) * Award winning and cost-effective products....
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