The Five Factors Equity Rating Scorecard

Strictly for educational and illustrative purposes

In an earlier posting, I have developed a preliminary equity rating scorecard. In this subsequent posting, I intend to refine this scorecard and continue to test & refine it over the next 12-18 months. It is very important to reiterate the point that an equity rating scorecard does not “predict” the future target price of a security. It is merely a simple high-level tool / framework / weightage system which serves to harmonise different perspectives / factors that may potentially affect the share price of a security. The end final score / rating does not mean anything (seriously). I personally look at the final score / rating as higher probability of the security hitting my target price or stop loss.

In this refined equity rating scorecard (known as the The Five Factors Equity Rating Scorecard), the framework has considered the following key factors: (1) Technical & Risk Management; (2) Statistical; (3) Fundamentals (there are 6-sub underlying fundamental factors); (4) Insiders Transactions; and (5) Analysts’ Target Price.

Let’s start with the stock screening process based on a customised long-only multi-indicators trading system (as explained in my earlier posting – using Keltner Channel & RSI indicators). Results of the screening are shown as follows, as of 23 July 2017:

ScreeningResult_23072017.png

Of the screened results, Muhibbah Engineering (M) Bhd. (“Muhibbah”) is engaged in the provision of oil and gas, marine, infrastructure, civil and structural engineering contract works. Let’s explore Muhibbah further using the refined equity rating scorecard.

Technical & Risk Management

Muhibbah appears to be on a ‘downward’ trajectory. The screening process has picked this stock up due to a higher probability of a ‘failure test’, as supported by a rebound in the Keltner Channel as well as the RSI indicator. For the purpose of risk management, let’s set a target price of RM2.78 and a stop loss of RM2.35.

Muhibah_23072017_TA.png

Statistical View

Based on z-Score ranking, it appears that the recent oversold position of Muhibbah has reached the lower bound of negative 2.25, thus signifying a higher probability of a mean reversion.

Slide1.PNG

Prospects

As per the latest quarterly result, Management did not explicitly state the company’s prospects. Nevertheless, with the amount of secured order book, it may signal that the company will be able to ride through the challenging times.

Prospects_23072017

Insiders Transactions – In the last 6 months, there were numerous transactions that reflect the typical trading operations of Lembaga Tabung Haji (LTH). Overall, it was a net buy position in which LTH has increased its exposure in Muhibbah.

 

Insiders.png

Analysts Target Price

The current average target price of RM3.10 is relatively higher than the last closing price of RM2.50.

Muhibah_analysts.png

Equity Rating Scorecard

Based on  consideration of the five key factors, the final rating scorecard for Muhibbah is 4.35 (in which in my personal view, this security is expected to achieve positive return).

Equity Rating Scorecard.png

If compared to the earlier version of equity rating scorecard, there are few changes that have incorporated:

  • Weightage has been amended
  • Statistical factor has been included in this scorecard
  • P/E and P/B factors have considered the historical average multiples of the security

Final Remarks

The performance of Muhibbah’s share price will very much depend on the recovery in the Oil & Gas sector. With Nam Cheong being the latest casualty in the sector, the recovery of the industry does not appear to be smooth.

I would like to reiterate that the equity rating scorecard is a simple high-level desktop analysis. It does not substitute the need for a detailed security analysis. Will need to test & refine the scorecard in the next 12-18 months.

 

DISCLAIMER

  • THIS IS A PERSONAL BLOG Of KEN UTAU AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. 
  • ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS.
  • IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION.
  • SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS.
  • THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES

Author: Ken Utau

Data Scientist, Markets Analyst and Food Lover

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