SITI MAISARAH SHARE VALUATION ASSIGNMENT

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Table of Contents

1.0 Introduction
1.1 Definition
1.2 The Importance of Business Valuation
1.3 Advantages and Disadvantages
1.3.1 Comparable Company Analysis
1.4 Limitation
2.0 Finding and Discussion
2.1 'Dividend Discount Model - DDM'
2.2 Dividend Discount Model Calculation
2.3 Free cash flow method/ Price to Earnings Ratio
3.0 GDP of Malaysia
3.1 Historical GDP of Malaysia
3.2 Forecast for GDP Malaysia
4.0 Income Statement
4.1 Statement of Comprehensive Income Felda Global Venture Berhad
4.2 Statement of Financial Position for Total Asset, Liability and Equity Felda
Global Venture Holding Berhad
4.3 Statement of Comprehensive Income for Boustead Holding Berhad
4.4 Statement of Financial Position for Boustead Holding Berhad
5.0 Forecast of the company Felda Global Venture Global Berhad and Boustead Holding
Berhad
6.0 Conclusion
7.0 References

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1.0 INTRODUCTION

1.1 Definition

To discuss the importance, strength and limitations of share valuation methods

1.2 The Importance of Business Valuation

Many owners of small businesses know their companies inside and

out. Yet, they rarely know one critical fact – how much their company is
worth on the open market. Determining the true value of a business, a process
called “business valuation,” is not just important when the owner is looking to
sell the company.

It‟s also important for other reasons: Business succession

planning: Savvy business owners often arrange to transfer shares to a partner
or heir (after a “triggering event,” such as death, disability or retirement)
through a buy-sell agreement, which is often funded with life insurance. But,
before the owner can identify the buyout price (and thus, know how much the
buy-sell agreement needs to be funded with), the value of the business must be
determined.

The IRS needs to know the value of the business: At the death of the
business owner, the value of the business will be used to help determine estate
taxes and tax basis for any future sale. To obtain a business valuation, business
owners may wish to contract with a professional appraiser to provide an
opinion that will be viewed as independent and objective with the IRS. The
resulting business valuation then may be used in a variety of planning
applications – for example, enabling the owner to sell the business at a higher
sales price, or for the business owner or his or her heirs to pay less in taxes
after the sale of the business or the death of the owner.

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 1.3 Advantages and Disadvantages

Each valuation method naturally has its own set of advantages and
disadvantages. Some are more reliable and accurate, while others are easier to
perform, for example. Additionally, some valuation methods are specifically
indicated in certain circumstances. Here are the main Pros and Cons of each
method:

1.3.1 Comparable Company Analysis

ADVANTAGES DISADVANTAGES

Market efficiency ensures that trading No two companies are perfectly alike, and
values for comparable companies serve as a as such, their valuations generally should
reasonably good indicator of value for the not be identical either. Thus, comparable
company being evaluated, provided that the valuation ratios are often an inexact match.
comparable are chosen wisely. These Also, for some companies, finding a decent
comparable should reflect industry trends, sample of comparable (or any at all!) can be
business risk, market growth, etc. very challenging. As a result, in Comparable
Companies analysis are always running the
risk of “comparing apples to oranges,” never
being able to find a true comparable, or
simply having an insufficient set of
comparable valuations from which to draw.

Values obtained tend to be most reliable as Illiquid comparable stocks that are thinly
an indicator of value of the company traded or have a relatively small percentage
whenever a non-controlling (minority) of floated stock might have a price that does
investment scenario is being considered. not reflect the fundamental value of that
company

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1.4 Limitation

In our view, there are three main limitations with relative (multiple
based) valuation methodologies. The first is that multiple methodologies are
ultimately market based valuations - and thus when a market is valuing an
entire sector incorrectly, relative valuation can be inaccurate. You saw this
happen in the Internet Bubble in the 1990s where the entire technology sector
was valued at extremely high multiples.

If a new company went public and came to market at this time and you
valued it based on the multiples the market was assigning to other similar
companies, your valuation was likely shown to be incorrect after the
valuations of many of these companies fell. This happened even to companies
that were established, real businesses.

A similar phenomenon happened in Spring 2014 where there was a

reduction in the multiple that the market placed on young, high growth
technology companies. If the market's multiple for similar companies is
inflated, so is your valuation.

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2.0 FINDINGS AND DISCUSSION

2.1 'Dividend Discount Model - DDM'

The dividend discount model (DDM) is a procedure for valuing the

price of a stock by using the predicted dividends and discounting them back to
the present value. If the value obtained from the DDM is higher than what the
shares are currently trading at, then the stock is undervalued.

2.2 Dividend Discount Model Calculation

The most common and straightforward for of a DDM is known as the

Gordon growth model (GGM), which was named in the 1960s after Myron J.
Gordon. To find the price of a dividend-paying stock, the GGM considers
three variables:

D(1) = the estimated value of next year's dividend

r = the company's cost of equity capital

g = the constant growth rate for dividends, in perpetuity

Using these variable, the equation for the GGM is:

Price per share = D(1) / (r - g)

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2.3 Free cash flow method/ Price to Earnings Ratio

The price to earnings ratio (PE Ratio) is the measure of the share price
relative to the annual net income earned by the firm per share. PE ratio shows
current investor demand for a company share. A high PE ratio generally
indicates increased demand because investors anticipate earnings growth in
the future. The PE ratio has units of years, which can be interpreted as the
number of years of earnings to pay back purchase price.

PE ratio is often referred to as the "multiple" because it demonstrates

how much an investor is willing to pay for one dollar of earnings. PE Ratios
are sometimes calculated using estimations of next year's earnings per share in
the denominator. When this happens, it is usually noted.

Formula

Price to Earnings Ratio =

Price / Earnings Per Share (EPS)

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3.0 GDP of Malaysia

3.1 Historical GDP of Malaysia

The Malaysian economy posted 6.2 per cent year-on-year in 2017,

compared with a 5.8 per cent growth in the previous three months and
outperformed market expansion from 5.4 per cent expansion. This growth was
the strongest growth since the quarter of 2014, driven by strong private
consumption and rising rapidly in government spending, investment and
exports.

Malaysia‟s GDP annual growth rate facing up and down situation due
to global economy. It involves import and export of goods which also depends
on world markets. The increasing in GDP due to the investors from overseas
invest in Malaysia such as investors from China where they involve in
developing infrastructure of Malaysia.

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3.2 Forecast for GDP Malaysia

GDP Annual Growth Rate in Malaysia is expected to increase 5.40

percent by the end of this quarter, as expected by the analysts‟. We estimate
the GDP Annual Growth Rate in Malaysia stands at 4.80 in 12 months‟ time.
As for the long-term, the GDP Annual Growth Rate is estimated around 5.60
percent in 2020.

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4.0 INCOME STATEMENT

4.1 Statement of Comprehensive Income of Felda Global Venture

Holding Berhad

This is statement of comprehensive income for the Financial

year ended 31 December 2011 - 2016

Statement of Comprehensive Income 2011 - 2016

700,000
611,370
600,000

500,000 435,840 450,417

Amount (RM '000)

400,000
283,004
300,000

200,000

100,000

0
2011 2012 2013 2014 2015 2016
-100,000
-94,472 -71,279
-200,000
Axis Title

Series 1 Linear (Series 1)

This is the statement of comprehensive income of Felda Global Venture

Holding Berhad which the company have up and down in their total profit/loss for the
financial year. Based on the graph, in year 2011 and 2016 they loss which is negative
RM 94,472 for the year 2011, and negative RM 71,297. For the year 2013, they get
the highest profit compared to the year from 2011 until 2016 which is they obtained
positive RM 611,370. In year 2012, they showed the positive profit income from the
negative value to positive value where the year 2012 their profit is RM 435,840.

Starting from the year 2013 until 2016, Felda Global Venture had decreased
their income which in year 2014 their income RM 450,417 and the year 2015 their
income RM 283,004 thus in the year 2016 they got loss -RM 71,279. This loss can
make the forecast for the following year also become loss.

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 The world's largest producer of MSM, Felda Global Ventures Holding Bhd.
(FGV), is the most impressed company with the current industry situation as 75 per
cent of turnover is contributed by plantation, much larger than other industry players.
FGV posted a profit drop of 96 per cent for the fourth quarter ended Dec 31, 2014.

4.2 Statement of Financial Position of Felda

Total Asset, Liabilities, and Equity of Company which is ended 31 December

2011 – 2016

Total Asset of Company

12,000,000
10,216,248 10,154,351
9,642,373 9,762,432
10,000,000 9,345,508
Amount (RM '000)

8,000,000

6,000,000
4,610,122

4,000,000

2,000,000

0
2011 2012 2013 2014 2015 2016
Axis Title

Series 1 Linear (Series 1)

Based on the graph above, the asset that spent or possessed shown an increasing. The
huge amount of assets is in the year 2013 and 2015 which the total asset in year 2013 is RM
10,216,248 and the total asset in the year 2015 is RM 10,154,351. The lowest amount of total
asset is in year 2011 that is RM 4,610,122. For the year 2012, 2014 and 2016 the total amount
is almost the same that is in the year 2012 the amount is RM 9,345,508, for the year 2014 the
amount is RM 9,642,373 and for the year 2016 is RM 9,762,432.

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 Besides that, the trendline shows that they have increase in the asset, liabilities and
equity which means that Felda bought the new asset in the company with liabilities. In the
year 2015 to 2016, they have decreased due to the shareholders in the company may have no
strong view about the future in Felda‟s business.

4.3 Statement of Comprehensive Income of Boustead Holding Berhad

The graph below shows that the income earning from year 2010 until 2015.

Statement of Comprehensive Income Boustead Berhad

400 364.6
350 312.1
AMOUNT (RM) MILLON

300 267.1 261.5

257.5
250
192.7
200
150
100
50
0
2010 2011 2012 2013 2014 2015
Year

Series 1 Linear (Series 1)

The graph shows the fluctuation of income earnings from 2010 until
2015. For the year ending 2010 stated that the income is at the highest level
compared to the year ending 2013. The comparison is based on the cumulative
income for more than 300 million per year. Meanwhile, for year ending 2011,
2013 and 2014 stated that the cumulative income is significantly not acceding
or decreasing. The lowest income is stated for the year ending 2015 where its‟
income is recorded for not more than 200 million.

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 The fluctuation income recorded in the report is influenced based on
the commodity of market price. The palm oil industry is facing a difficult
situation especially the fall in crude palm oil (CPO) and crude oil prices since
in the middle of last year and has yet to show signs of recovery.

4.4 Total Asset, Liabilities and Equity for Boustead Holding Company

Total Asset, Liabilities And Equity

6000
5425.4
5152.1
5000
4339.2 4315.4 4416.9
AMOUNT (RM) MILLION

4000
3380.2

3000

2000

1000

0
2010 2011 2012 2013 2014 2015
AXIS TITLE

Series 1 Linear (Series 1)

Based on the graph above, the total asset is equal with total liabilities
and equity. The highest of the total asset and total equity and liabilities is in
2015 where the amount is RM 5425.4 M and the lowest of total asset,
liabilities and equity is in year 2010 with the amount of RM 3380.2 M. The
increasing of total asset, liabilities and equity is due to the investment of
shares from outside investors. The investors believe that the company will
have strong financial performance for the consecutives years.

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 The stabilization of financial performance makes the Company
purchase new assets to ensure they will have more capitalization of assets. As
the assets are increasing, the liabilities will also increase for the purchasing of
assets. The Company have mortgage in the liabilities as the secretion of the
purchasing of assets.

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5.0 FORECAST

This forecast is for the company, that we assume based on the income
comprehensive statement which we got from their annual report. In addition this
forecast we did by using Microsoft Excel where the formula is „ =FORECAST(the
forecast year, sum of the income (profit/loss), the year of that income)‟. For example,
we want to find forecast for the year 2017, we did at the Microsoft excel ;

=FORECAST(2017,D3:D8,C3:C8) then enter.

5.1 This forecast is for Felda Global Venture Holding Berhad

Year Profit/Loss (RM ‘000)

C3 2011 -94,472 D3

C4 2012 435,840 D4

C5 2013 611,370 D5

C6 2014 450,417 D6

C7 2015 283,004 D7

C8 2016 -71,279 D8

2017 218,797
2018 204,411
2019 190,025
2020 175,640
2021 161,254

Prof i t O r L oss
Series 1 Linear (Series 1)
611,370

450,417
435,840
Amount (RM'000)

283,004

218,797

204,411

190,026

175,640

161,255

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
-71,279
-94,472

YEAR

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 In the above forecast, graph shows a decrease in profit or loss in the
coming year. This decline is probably due to the weather factor and, the fall in
palm prices where in 2014 was the worst year due to floods. Floods that
triggered palm oil prices were also affected. The decline is likely due to the
recovery of assets to restore the palm.

5.2 This forecast is for

Boustead Holding Year RM Million Berhad
2010 364.6
2011 267.1
2012 312.1
2013 257.5
2014 261.5
2015 192.7
2016 182.8
2017 156.2
2018 129.6
2019 103.03
2020 76.4
2021 49.84

Forecast Of B ou stead Hol d i n g B erh ad

Series 1 Linear (Series 1)
364.6

312.1
267.1

261.5
257.5
Amount (RM) Milloin

192.7

182.8

156.2

129.6

2010 2011 2012 2013 2016 2018 2019 2020 2021

Year

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 For Boustead Holding Berhad, the decrease in income is not as bad as
happened to Felda Global Venture Holding, where the decrease is not up to the
negative level. This is likely due to Felda's Global Venture as the world's biggest
producer (MSM) that caused Felda to be the most affected. For Boustead Holding,
they are slightly affected possibly they have a good and efficient management in
handling problems.

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6.0 CONCLUSION

In our opinion, Boustead Berhad is much better income than Felda Ventures
Berhad because the Boustead Berhad‟s financial statement shows an increasing of
income every year. Its‟ equity of shares also increases which shows that its financial
is strong and liable and this could give positive impact to its‟ business. The public or
other business companies, local and overseas will interested and confidence to invest
in Boustead Berhad.

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7.0 REFERENCES

Annual Report. (n.d.). Retrieved from Boustead Holding Berhad:

http://www.boustead.com.my/annual_reports.html
Felda Global Venture Holding Berhad. (n.d.). Retrieved from MorningStar:
http://financials.morningstar.com/ratios/r.html?t=5222&region=mys&culture=en-US
Financial Statement. (n.d.). Retrieved from FGV: http://www.feldaglobal.com/investors/financial-
statement/
Jaafar, F. (2015, May 18). Zaman kejatuhan komoditi sawit? Retrieved from Utusan Online:
http://www.utusan.com.my/bisnes/ekonomi/zaman-kejatuhan-komoditi-sawit-1.93033
Richard. (2016, December 15). How to do Forecasting in Excel. Retrieved from Excel Quant:
http://www.excelquant.com/how-to-do-forecasting-in-excel/

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