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Master of Science Program in Finance (International Program)

Thammasat Business School, Thammasat University

EXAM # 1 (PART: EQUITY ANALYSIS)

Name Student ID

Semester 1/2021

Course MF645 Fixed Income Analysis and Equity Analysis

Instructor Sirinattha Techasiriwan

Date Sunday, October 3, 2021

Time 14:00 - 17:00 p.m. (3 hours)

Total 19 questions; the total score of 110 points (25% of your total grade); 12 pages (with
cover)

IMPORTNT Instructions:

 Although this is an open book exam, the time is very limited and you will not be able to
finish the exam on time if you spend too much time searching for answers.
 DO NOT CHANGE THE FRONT (Arial 10) OF THIS EXAM.
 YOU MUST SHOW YOUR CALCULATIONS / REASONS TO SUPPORT YOUR ANSWERS.
 BE CONCISE IN WRITING.
 YOU MUST ANSWER ALL QUESTIONS BY YOURSELF. YOUR ANSWERS CANNOT BE
COPIED FROM GOOGLE, FROM YOUR FRIENDS, OR FROM ANY OTHER MEDIAS. IF ANY
OF THE SENCENCES FROM YOUR ANSWERS MATCH WHAT CAN BE COPIED FROM
GOOGLE OR FROM ANY OTHER MEDIAS OR MATCH YOUR FRIEND'S ANSWER, YOU
WILL RECEIVE A ZERO SCORE WITHOUT ANY EXEMPTION.
 Dishonesty results in an automatic “F” grade for the course. Moreover, the students will
be penalized according to the Thammasat University’s Rules and Regulations.

Additional Online Instructions:

- Set the camera on the whole time in the angle shown in the attached photo.
- You need to edit your name in Zoom to be your Student ID and your first name for instance: 630204XXXX-Dome
Attendance check
(a) Show a national ID card / passport
(b) Show the answer sheets of A4 paper (every front and back page)
(c) Show a calculator
1. You are required to use only 2 devices. One is your mobile phone logging in to Zoom meeting and set the camera on
the whole time in the angle shown in the attached photo. Another device is your desktop, laptop, or tablet (ONE device
only for exam.)
2. You must be present in the camera in Zoom meeting the whole time. There is no rest breaks allowed. If you are out of
the camera during the exam, you will be disqualified from the exam and will received 0. Make sure that you do not set
any screen off after certain period of inactivated time on your phone. Make sure that devices are fully charged and stays
connected with stable internet connection.
3. You are not allowed to use Zoom virtual background at any point.
4. Before the exam starts, you must show your national ID card or passport and show the surrounding area within your
room to the proctors showing that there is no other persons in the room with you.
5. You are not allowed to contact anyone by any means during the test, except contacting an instructor or MIF staff for
problem notification.
6. You can use a calculator.
7. Your answers can be written on sheets of A4 paper or tablet, or typed and saved in a PDF file. (The students who are
writing the answers on sheets of A4 paper can take a photo by your mobile phones and convert to PDF file, but you are
not allowed to leave Zoom meeting.)
8. Your first name, last name, Student ID number and page number must be on the top of each page of your answer
sheets.
9. After you finish your work, convert the answer to a PDF file and upload your answer on Google Classroom before
05:05 p.m. The answer file should be saved using the following format: “Student ID-Firstname”; eg. “630204XXXX-
Dome”.
10. You are not allowed to take screenshots or record screen plays. If this exam are published anywhere at any times in
the future by any means, the grades given to all students in this semester will be voided and new exam will be
administered.
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Name Student ID
This exam contains 19 questions with the total score of 110 points (25% of your total grade)

1. (3 points) Company A's shares trade at THB60.00 with expected earnings of THB5.00 per share
and a required rerum of 10%. Calculate the PVGO and the portion of the share price related to the
PVGO. (show your calculation)

2. (3 points) An analyst gathered the following data for Company A: recent share price THB22.50,
shares outstanding 40 million, market value of debt THB137 million, cash and marketable securities
THB389.3 million, net income THB137.5 million, interest expense THB6.9 million, depreciation and
amortization TTB10.4 million, taxes THB95.9 million. Based on the information, calculate the
EV/EBITDA ratio for Company A. (show your calculation)

3. (3 points) Company A reported THB32 million in earnings during fiscal year 2017. An analyst
forecasts an EPS over the next 12 months of THB0.90. Company A has 40 million shares
outstanding at a market price of THB18.00 per share. Calculate Company A's trailing and leading
P/E ratios. (show your calculation)
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Name Student ID
4. (3 points) Company A recently paid a dividend of THB1.35 a share. It has a payout ratio of 67%, a
ROE of 23%, and an expected growth rate in earnings and dividends for the foreseeable future of
7.6%. Shareholders require a return of 14% on their investment. The justified price to book value
multiple is closest to: (show your calculation)

5. (3 points) Firm A and Firm B are leading companies in a technology sector. Both firms have enjoyed
a strong sales growth above 25% and an ROE of above 18% during the past three years. The
growth and profitability outlooks of the two firms are about similar. The Debt-to-equity ratio of Firm
A and Firm B is 1.2 times and 2.0 times respectively. Based on the two firms fundamental, which
firm should be traded at a higher PE multiple. Give a reason to support your answer. (Your answer
should not exceed 4 lines.)

6. (3 points) Thailand 10-year zero coupon government bond yield as of 30 Sep, 2021, at end-2020,
and at end-2019 is 1.21%, 1.36% and 2.80% respectively. A normalized 10-year yield on Thailand
zero coupon government bonds based on the recent economic cycle and the last ten economic
cycle is 3.50% and 4.00% respectively. Current treasury bill rate is 0.50%. You have analyzed
different economic cycle and concluded that, since the 2000s, inflation pressure has been well
under control and that central banks around the world prefer to use accommodative monetary to
stimulate the economy during economic crisis and has become less aggressive in raising interest
rate. Based on your conclusion, what would be the level of risk-free rate that you will choose to
value common stocks of listed companies in Thailand. Give no more than two specific reasons to
support your answer. (Your answer should not exceed 5 lines).
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Name Student ID
7. (7 points) You estimate THIP's EPS in 2021 and 2022 of THB3.50/share and THB3.90/share
respectively. THIP's dividend payout ratio is 20% and a required return on equity is 12.5%. Annual
dividend from each accounting period is paid in April of the following year. Based on a P/E ratio of
9 times, you estimate THIP's fair value at end-2022 of THB35/share. What would be your
recommendation on THIP at the share price of THB31/share on Sep 30, 2021? Give a brief reason
and show your calculation to support your recommendation.

8. (7 points) STANZ is the largest manufacturer of OEM auto parts in Asia. Asia auto parts industry is
already mature, characterized by an annual growth rate of 3 to 4% per annum during the past five
years. From next year, STANZ expect no growth in its sales due to changing policy to diversify
production base of vehicle’s makers. STANZ expects its profit margin and working capital policy
to remain stable.

Ariya, an analyst, comment that she expects STANZ to report no capital expenditure from next year
due to the decline in sales growth to zero. She also expects that the decline in sales growth to zero
will result in a significant decline in STANZ’s free cash flows and dividend payout ratio, while debt
to capital ratio is expected to increase.
Do you agree with each point that Ariya comments? Give reasons to support each point that you
agree. Provide arguments on each point that you disagree. (Your answer should not exceed 10
lines.)
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Name Student ID
9. (7 points) Based on your understanding of the efficiency market hypothesis, give two different
circumstances where investors might be able to gain abnormal returns from investing in the stock
market. Give reasons to support each of your answers. (Your answer should not exceed 7 lines).

10. (7 points) A calendar anomaly is any different behavior of stock markets which appears to be related
to the calendar, such as January Effect. Do you believe that an investor can regularly outperform
the stock market annual return by buying stocks in December and selling the stocks in January?
Give reasons to support your answer. (Your answer should not exceed 5 lines).

11. (5 points) Cost of Debt Case: An analyst is estimating a cost of debt (kd) for Firm A, Firm B, and
Firm C. Firm A is the only firm that currently has bonds outstanding that are actively traded. The
coupon rate and the time to maturity (TTM) of Firm’s A bonds is 4.00% and 10 years respectively.
The interest coverage ratio of Firm A, Firm B, and Firm C is 5.75, 4.75, and 3.75 respectively. For
BBB rated bonds, the range of interest coverage ratio is 4.5-6.0 and the credit spread is 200 basis
points (bps). The analyst expects the normalized yield of 10-year government bond at 3.00% and
the normalized yield of a Treasury bill of 1.00%. Estimate the cost of debt (kd) for Firm B.
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Name Student ID
12. (7 points) Miracle Box (MB) and Beyond Wood (BW) Case :

Answer questions 12.1) to 12.3) (***show your calculation***)

Thailand bond market and the equity market are efficient and the market prices in the two markets
reflect expectations about future. The yield on Thailand 10-years zero coupon bonds is 3.15% and
Thailand equity risk premium is 8.00%.
Miracle Box (MB) is a medium-size wooden products company in Thailand. Thailand wooden
products industry is approaching a mature stage. The long-term growth rate and ROE for this
industry is expected to be 4.0% and 12% respectively. MB is expected to enjoy a growth rate above
the industry over the next year, after which the growth rate and ROE is expected to be equal to the
long-term rates of the industry. MB's market model regression beta is 0.92 (raw beta). Its capital
structure during the regression period reflects a debt-to-equity weight of 55% debt and 45% equity.
Tax rate for MB is 18%. As MB’s stocks are illiquid, its raw beta needs to be adjusted.
Beyond Wood (BW) is Thailand’s largest company in the wooden products industry. BW is a stable
and mature company. BW’s stocks are actively traded in the stock market. The equity beta of BW
is 1. BW has been operating at its optimal capital structure which reflects a debt-to-equity weight of
60% debt and 40% equity and stable dividend payout ratio. BW’s cost structure consists of 35%
fixed costs and 65% variable costs. Tax rate for BW is 20%. In the recent year, MW pays THB0.875
per share dividend on THB1.25 per share EPS. Its ROE has been at 12% for many years and is
expected to remain stable at this level in the future.

During the past years, MB has been aggressive in innovative promotional campaign, which has
allowed MB to enjoy a revenue growth above the industry growth and has gained market share
during the past five years. MB’s current cost structure consists of 50% fixed cost and 50% variable
costs. However, after the next year, MB’s weight of fixed cost to variable cost is expected to be 40%
fixed cost and 60% variable cost. MB’s capital structure is also expected to reach the weight of 62%
debt and 38% equity next year.

12.1) (1 points) Based on MB and BW case, estimate the cost of equity (ke) for BW using the
CAPM.

12.2) (2 points) Based on MB and BW case, estimate the stable growth rate (SGR) for BW.
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Name Student ID
12.3) (4 points) Based on MB and BW case, determine MB’s appropriate level of beta after the next
year by adjusting MB’s raw beta based on BW raw beta (compute in three decimal points).

13. (4 points) Netflix Case: Netflix (NFLX) total assets for 2018 were USD25.974billion. Its debt/equity
ratio in 2018 was 3.5 times. NFLX shares and debts are actively traded and are efficiently priced.
The current market capitalization of NFLX shares is USD11.06billion. Total market value of its
debts is USD16.59billion. NFLX’s cost of debt is 4.75%, its CAPM stock’s beta is 0.83. Corporate
tax rate is 40%. Equity risk premium over 10-year government bond is 7.00%. The normalized
yield 10-year government bond at 3.00% and the normalized yield of a Treasury bill of 1.00%.
Compute NFLX's weighted average cost of capital (wacc) (compute in three decimal points).
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Name Student ID
14. (7 points) Better Health Case:

Answer questions 14.1) to 14.4) (***show your calculation***)

**Better Health's WACC is 12%.**

**Share price at end-2017 was THB34/share. Number of shares is 200mn shares. **

14.1) (2 points) Based on Better Health financial information, estimate ROIC in 2018 (based on
beginning invested capital).

14.2) (2 points) Based on Better Health financial information, estimate EVA per share in 2018.

14.3) (2 points) Based on Better Health financial information, estimate MVA at end-2017.

14.4) (1 points) Better Health's MVA at end-2017 is negative, while EVA in 2018 is positive. Give a
fundamental reason to explain this.
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Name Student ID
15. (15 points) Thantawan Industry Plc. (THIP) case:

Answer questions 15.1) to 15.3)

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Name Student ID

****THIP’s additional information: tax rate 15%, end-19 share price THB32/share, wacc 8.50%, ke 9.00%.
An analyst estimates THIP’s residual income (RI) of THB2.70/share in 2021 and THB 3.00/share in 2022.

15.1) (7 points) Use only the available information from the previous page to analyze THIP's earnings
result in 2019. (Your answer should not exceed 10 lines.)

15.2) (4 points) Estimate fair value of THIP shares at end-2020 assuming that the RI will remain
constant from 2022 onward (show your calculations; calculate in two decimal points).

15.3) (4 points) Estimate fair value for THIP shares at end-2020 assuming that the RI will gradually
decline from 2022 onward, applying a persistence factor of 0.9 in 2022 (show your calculations;
calculate in two decimal points).
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Name Student ID
16. (7 points) The table below shows return on average assets (ROA) and return on average equity
(ROE) for KASIKORNBANK (KBANK). The cost of equity (ke) for KBANK is 8%. Given the fact that
the conventional banking business is in a mature stage, apply your understanding on the industry
life cycle, Porter’s the five competitive forces (industry attractiveness), and Porter’s Three
Generic Strategy (company attractiveness) to explain KBANK's excess return on equity during
2017 to 2019. (Your answer should not exceed 12 lines.)

17. (7 points) Company A is a stable growth company. The company earned THB3.50 per share last
year. Investment in fixed capital was THB2.00 per share, depreciation was THB1.60 per share, and
the investment in working capital was THB0.50 per share. Company A is currently operating at its
target debt-to-asset ratio of 40%. Thus, 40% of annual investments in working capital and fixed
capital will be financed with new borrowings. Shareholders require a return of 14% on their
investment, and the expected growth rate is 4%. The value of Company A's stock is closest to:
(show your calculation)
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Name Student ID
18. (7 points) Apotel case:
Answer questions 18.1) to 18.2) (***show your calculation***)
Apotel's cost of equity (ke) is 9%. The company's DPS is expected to grow at a constant growth
rate (g) of 4.5% from 2035F onward.

18.1) (5 points) Find the present value at end-2022 of the dividend per share (DPS) stream from the
year 2035F onward. (show your calculation)

18.2) (2 points) Find the fair value of Apotel’s shares at end-2022. (show your calculation)

19. (5 points) Analyze potential impacts on interest rate and the stock market if a central bank increase
holdings of Treasury securities. Give specific reasons to support your answer. (Your answer should
not exceed 5 lines.)

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