ZCMA6032

Managerial Finance

GROUP ASSIGNMENT

Student
No Name Phone Email
ID

1 Nor Adli P120968 01156920036 P120968@siswa.ukm.edu.my

Hakim Bin
Zakaria

2 Vaarunn P131106 0189110706 P131106@siswa.ukm.edu.my

Nachiappan

3 Nur Aliah P131403 0132644310 P131403@siswa.ukm.edu.my

Binti Mohd
Nor

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Table of Content

Topic Page no Person In

Charge

Introduction 3 Vaarunn

Company’s Background 4 Vaarunn,

Lia

Analysis 9 Adli

Decision 11 Adli

Final Thought on the selected stock 11 Lia, Adli,

Vaarunn

Appendix 12 Lia

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1. Introduction

Risk and reward in investing are closely interrelated. larger risk often goes hand in hand with
larger potential rewards on investment. Project-specific risks, industry-specific risks, competitive
risks, international risks, and market risks are a few examples of the various sorts of hazards.
Return is used to describe both profits and losses incurred while trading an investment.

The return on an investment is calculated as a percentage and is seen as a random variable with a
wide range of possible values. The kind of profits investors might anticipate from trading in the
markets depends on a number of things.The portfolio is an assortment of investment products,
such as stocks, bonds, fixed deposits, mutual funds, and other cash equivalents. Portfolio
management is the art of choosing the best investing instruments and combining them in the
proper amounts to provide the best returns on the initial investment.

A portfolio is, in other words, a collection of assets. When contrasted, it is typically seen that an
asset's risk is higher than a portfolio's risk. This is due to the option for risk diversification
provided by portfolios. Risk diversification does not guarantee risk eradication. Two categories
of risk, diversifiable risk and market risk, are associated with any asset. Even the best portfolio
can only minimise or eliminate diversifiable risk; it cannot completely remove market risk. The
variability of return decreases as quickly as risk does, resulting in higher and more certain
returns.

The best portfolio management techniques operate on the premise of highest return with the least
amount of risk over a certain period of time. Based on an investor's income, investment budget,
and risk tolerance while keeping in mind the anticipated rate of return, a portfolio is created.

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2. Company’s Background

2.1. Maxis

Maxis has developed into one of Malaysia's top telecom service providers since its
founding in 1995. In Malaysia and other countries, Maxis offers a range of convergent
telecommunications, digital, and associated services and solutions. The firm provides digital and
Internet of Things solutions in addition to mobile and broadband services that include data and
voice services. The two consumer target groups for its products are as follows:

a) Consumer products

b) Enterprise solutions

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 The Menara Maxis building in Kuala Lumpur City Centre, off Jalan Ampang, 50088
Kuala Lumpur houses the corporate offices of Maxis. On November 19, 2009, Maxis floated on
Bursa Malaysia at a share price of RM5.20. Nine people make up its board of directors, five of
whom are independent. Raja Tan Sri Dato' Seri Arshad Bin Raja Tun Uda, the Independent
Chairman, is in charge of the board of directors. Along with Robert Alan Nason, Dato' Hamidah
Naziadin, Alvin Michael Hew Thai Kheam, Mazen Ahmed M. Aljubeir, Mohammed Abdullah
K. Alharbi, Abdulaziz Abdullah M. Alghamdi, and Lim Ghee Keong, Tan Sri Mokhzani
Mahathir serves on the board. Maxis' Chief Executive Officer, Gokhan Ogut, is in charge of its
management team.

Maxis adheres to its dividend policy of paying out no less than 75% of its profit after tax
for each fiscal year because the firm is committed to generating long-term value for its
shareholders. As of December 31, 2021, it has a market capitalization of RM4.03 billion thanks
to its share price of RM4.35 per share.

Due to the end of the network sharing agreement with Umobile, a reduced mobile
termination rate, and a loss of revenue from roaming, service revenue for FY20 slightly dropped
by 0.9% yoy to RM 7.7 billion. Due to the COVID 19 impact on overall economic activity,
EBITDA from thrower revenue and greater impairment made on receivables during the year
declined by 3.3% yoy to RM 3.7 billion.

In addition to a larger demand for home fibre connections, management also gave credit
to the company's bundling packages (with postpaid), which accounted for almost 40% of all of
its fibre connections. When wireless broadband is replaced with fibre optic connections over a
longer period of time, especially when those connections can be made in more remote places,
Maxis may also gain.

Maxis is anticipated to see healthy growth in the future, supported by (i) customers'
growing readiness to spend more money online in order to cut expenses over the long term, (ii)
an expansion in worldwide collaborations, and (iii) the economy's progressive opening up.

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 2.2. Dagang NeXchange Berhad

An international technological company with a focus on three industries—technology, energy,

and information technology—is Dagang NeXchange Berhad, also known as DNeX. A maker of
semiconductors, DNeX is skilled in upstream exploration, production, equipment supply, and
maintenance. Additionally, the business possesses great operational expertise in offering tailored
services and solutions for subsea telecommunication, systems integration, trade facilitation, and
technology consulting. To welcome a new, more broad business orientation, the firm changed its
name to DNeX after being formed in 1970 as TIME Engineering Shd Bhd to sell and distribute
welding products. By 2022, it will have over 2,000 people working across branches in Malaysia,
the United Kingdom, Taiwan, Indonesia, and Thailand, making it geographically diversified.

In 2003, DNex with the Stock Code 4456 was listed on the Main Market of Bursa Malaysia
Securities Berhad. DNeX's share capital was increased by 30% from FY2021 to RM1.02 billion
in FY2022. Additionally, its Net Income in FY2022 was RM549.59 million, a 358% increase
from FY2021. The Group secured a highly robust financial performance in FY2022 despite the
supply chain bottlenecks and volatility in raw material prices thanks to the wise expansion
expenditures, strategic acquisitions, and operational improvements made under the able
leadership of the Group Managing Director, Tan Sri Dato' Sri Syed Zainal Abidin Syed
Mohamed Tahir.

In the DNeX Integrated Report 2022, Tan Sri Abd Rahman Mamat, Chairman of DNeX, stressed
that the Group will strategically invest in high growth segments while leveraging partnerships to
expand service offerings and enter international markets with the intention of creating long-term
value for the shareholders, people, communities, and natural environment.

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 2.3. Hibiscus Petroleum

The first independent oil and gas exploration and production business to be listed on the
Malaysian stock exchange is Hibiscus Petroleum Berhad. In order to provide a sustainable return
to shareholders, the Group has an emphasis on generating value from producing oilfields as well
as expanding its portfolio of production and development assets in the United Kingdom,
Vietnam, and Malaysia. It has operating interests in a number of companies in the UK and
Australia as well as a number of production-sharing agreements in Vietnam and Malaysia. With
its experience in upstream oil and gas and dedication to maintaining high standards of safety and
environmental management, it aspires to be a reputable, valued, and responsible energy
organisation.

Kuala Lumpur, Malaysia, is home to Hibiscus Petroleum's corporate headquarters. Since 2011,
Hibiscus Petroleum has been listed on the Bursa Malaysia Securities Berhad Main Market with
the Stock Code 5199. The Securities Commission of Malaysia's Shariah Advisory Council has
designated it as Shariah-Compliant. It also makes up the FTSE4Good Bursa Malaysia Index and
the FTSE4Good Bursa Malaysia Shariah Index, which gauge the success of publicly traded
businesses that exhibit good Environmental, Social, and Governance (ESG) practises.

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Under the direction of Managing Director Dr. Kenneth Gerard Pereira, Hibiscus Petroleum
achieved a market capitalization of RM 2.01 billion in FY2022—a 47% increase over FY2021.
In addition, because of the assets bought and the rise in oil and gas prices, its Net Income
increased by 530% from FY2021 to RM652.9 million in FY2022.

In the Annual Report 2021/2022, Hibiscus Petroleum's Chair of the Board, Zainul Rahim Bin
Mohd Zain, stated that the Group had refocused its mission to achieve a target equity production
of 35,000 to 50,000 BOE per day and 2P Reserves of 100 million BOE by 2026 while taking into
account the current social, political, and economic climate around the world. In addition to
decarbonizing upstream operations, strengthening the resilience of hydrocarbon assets, and
exploring investment opportunities in green/clean energy, it will continue to pursue future
growth opportunities in the North Sea and Southeast Asia while maximising cash flow in the
face of high oil prices.

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3. Analysis
3.1. Individual Portfolio

This will be a regression analysis as we will analyze the stocks based on the past historical
monthly data (30 months). The first step is to convert the stock prices into rates of return. For
example, to find the Jun 2020 return for Maxis, we find the percentage change from the previous
month:

(RM 4.866924 – RM 4.803483)/ RM 4.866924 = 0.013207 ≈ 1.32%

• The average monthly return, variance and standard deviation can be calculated using
Excel’s built-in functions.
• The coefficient of variation (CV), which is the return divided by the standard deviation.
Which means, it is return per unit risk

The standard deviation can be used to calculate the historical standard deviation of returns for
a stock, which can provide insight into how volatile the stock has been in the past. It can also be
used to estimate the expected future volatility of a stock. From here, we can conclude that the
smaller the standard deviation, the tighter the probability distribution and, accordingly, the less
risky the stock. If we use this procedure, Maxis standard deviation is seen to be 4.2%; we
likewise find DNeX standard deviation is to be 21.67% and Hibiscus’s standard deviation to be
13.82%. Dagang NexChange has the larger standard deviation,which indicates a greater variation
of returns and thus a greater chance that the actual return will turn out to be substantially lower
than the expected return. Therefore, Dagang NexChange is a riskier investment than Hibiscus
and Maxis when held alone.

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 3.2. Portfolio Risk Analysis

Portfolio risk analysis is the collection and analysis of risks across individual portfolio
investments. It is measured by taking the Standard Deviation of variance of actual returns of that
portfolio over time. The reason for doing portfolio risk analysis is because risk cannot be
eradicated but can be minimized by diversifying the investment across various asset groups.
Thus, it is important to understand portfolio risk and evaluate if the risk is aligned with financial
objectives before investing. For this assignment, portfolio risk analysis is presented with below 3
analysis which are:

a) Maxis 50% with DNex 50%

b) Maxis 50% with Hibiscus 50%
c) DNEX 50% with Hibiscus 50%

Remark: Refer to Appendix for risk analysis calculation table

By pairing Maxis, DagangNex & Hibiscus for portfolio analysis with the weightage of 50% from
each of portfolio, it revealed that combination of 50% (Maxis) & 50% (Hibiscus) gives expected
return of 0.78% each year, while 50% for both Maxis & DNEX will loss for 0.85% yeraly and
combination of 50% (DagangNex) & 50% (Hibiscus) also give a loss of 12.01%. Additionally, a
higher proportion contribution from Maxis improves the risk profile by reducing the standalone
risk of DagangNex from 21.67% to 10.14%, followed by Hibiscus from 13.83% to 8.68%.
Similar trend observed in the co-relation of coefficient as well, from 1.47 (Maxis standalone), to
2.17(Hibiscus) will result in 0.2477 for combination of portfolio Maxis and Hibiscus. In other
word, combination of Maxis and Hibiscus will influence each other and lead to increase in return
when either one of the company receive increase in return. Same goes to Coefficient of Variation
of Maxis and Hibiscus. It has only 2.6% of risk in comparison to the amount of return expected
from investments. Adding Maxis to the portfolio reduces the risk observed significantly.

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4. Conclusions

The average rate of return for both stocks can be obtained from historical performance of the
respective stocks. From the analysis, it can be seen that Hibiscus outperforms DNEX and Maxis
in terms of the average return from their past performance. However, these values alone might
not be the best indication for the expected rate of return in the future simply because they have
either had good or bad performance in the past. To cushion our performance analysis based on
past returns, we then consider the standard deviation to factor in the variability of each year’s
return in comparison to its historical average return. This will then give us a better indication on
how far above or below their each year’s return is actually from their average return. Based on
this, it can be seen from earlier that Maxis has less standard deviation which means that it is less
risky. On top of this we also worked out the co-efficient of variation to see the effect between
their risk and return and found that combination of DNEX and Hibiscus is actually has higher
positive CV value. On this basis, Hibiscus is a better choice of a specific stock if we are to
choose between the three.

5. Final thoughts on the selected stocks.

On the contrary, if we are more of a risk-averse investor then we should consider portfolio
investment as the portfolio risk will be much lesser. We have come out with three different
combination of stock to form the portfolio and the risk of each different weightage is lower than
that if investing solely on 1 stock, i.e Maxis. Of course, the return is now a bit lower, but then it
comes with a much safer risk as well. Having considered all options, we are of the view that the
right investment to go with is the stock portfolio with 50 % of Maxis and 50% of Hibiscus.
Being as risk- averse as possible, we will not trade off the higher return with the riskier
investment by going with individual stock and rather we choose to go for a safer route by
minimizing the risks with portfolio investment instead.

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6. Appendix

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