The Challenge entails:

❏ Analysis of a publicly traded company

❏ Mentoring by a Professional Research Analyst
❏ Writing a Research Report – A sell-side report
❏ Presentation of Research to a Panel of Experts

ANALYSTS
SALES DESK
Sell side firm: A broker or dealer (e.g.,
securities companies) that provides
independent investment research and
recommendations to investment
management companies.
Portfolio Manager
& Analyst
Buy-side trader
Buy side firm: An investment
management company or other
investors that uses the services of
brokers or dealers (i.e., the client the
sell side firms).
❏ Often-heard recommendations: "strong buy", "outperform",
"neutral" or "sell"
❏ Recommendations assisting clients (investors) in deciding to buy
and/or sell certain stocks
❏ Recommendations called "blanket recommendations“ – Not
directed at any one client, but rather at the general mass of the
firm's clients
❏ Commission-earning for the sell-side firm when a client makes a
decision to trade stock
❏ Strong career passion

❏ Analytical Skills

❏ Strong writing skills

❏ Ability to work in teams

❏ Strong interpersonal skills

1. Ethics: it pays to be ethical

a) Independent (i.e. not incentivized) research is valuable

b) Integrity: recommendations need a reasonable basis

c) Professional standards: fair dealing, no material nonpublic information

2. Hard work: you can’t become a good analyst overnight

a) Hard skills: analysis, modelling, logic, knowledge, writing

b) Soft skills: time management, presentation, relationship management

c) Personal improvements to further differentiate (intelligence, creativity)

3. Passion: the more you like the job, the better the job you do

a) Ability to withstand the pains, pressures and criticism in order to improve

b) Ability to stay curious throughout the career

c) Determination for life-long and constant learning

 Form Write
Gather Process Analyze
investment research
data data data
ideas report

• Financial 1. Adjustments to • Should investors Buy, Hold or Sell?

statements financial statements • What are the rationales for the
• Annual reports 2. Financial ratios recommended actions?
• Company filings calculation • What are the keys assumptions?
and disclosures 3. Vertical/horizontal/cr • What is expected return and risks?
• Company/competit oss-sector/peer
or/suppliers/custo comparison
mers interviews 4. Projection and
valuation
 Analyze

• Financial reports, annual

reports, prospectus, etc.
• Other information
disclosure: AGM resolutions,
etc.
• Company Interview
• Primary research: Field
work
• Industry reports/ surveys
• Evaluate the company
• Analyze business prospects
and financial conditions
• Project & Model future
financial performance.
• Perform valuation
• Form investment
opinion/recommendation
• State investment opinion
• Present investment
thesis
• Provide arguments
• Update the report
regularly
• Follow up on your
Recommendation.

Collect
data/Information Report
 OPINION FACTS
Tells an attitude Facts are things that
or judgement, are always true.
cannot be proven Everyone can agree on
true or false. the same facts.

✔ Opinions without facts most commonly leads to a series of bad decisions

✔ Good decisions are made when we base our opinion on the facts
❏ An analyst’s goal is to find the best estimate of a stock intrinsic
value.

❏ Prices can diverge significantly from intrinsic values due to

irrational exuberance or pessimism.

❏ Catalyst is what brings a stock’s price toward its intrinsic value.

❏ Time constraints must always be considered in making a

recommendation.
 1. Understanding the Business
Industry and competitive analysis Financial statement analysis

2. Forecasting Company Performance

Forecast sales, earnings, dividends, and financial position

3. Selecting the Appropriate Valuation Model

Base selection on company characteristics

4. Using Forecasts in a Valuation

Use judgment in valuation application

5. Applying the Valuation Conclusions

Investment recommendations Valuation opinions Strategic decisions
 8. Risks to target 9. Investment
1. Stock ratings
price: Scenario & risks &
description
sensitivity analysis Mitigations.

2. Investment
7. Valuation 10. Disclosure
highlights

3. Company
6. Projections &
background & 11. Appendices
Estimates
Business

4. Industry
5. Historical
Overview &
Financial
Competitive
Analysis
Positioning
 Key financial data

Investment highlights

Summary of investment ideas

Key points
 Rating: Buy/Sell/Hold State the thesis for the Rating, which may include:

Price Target: VND’000 ● One/two points to the fundamental: Growth, ROIC, cash-flow
 generation
Price, current date: VND’000 ● Holding period for the rating: 6/12 months
● Upside/Downside: %
● Key elements to the Price Target: Models used (DCF/Multiples or
● combined), stable ROE in long term, WACC/Ke,…

Define stock ratings – Put these in Disclosures Section

● Buy: Total return is expected to outperform benchmark (VN Index)

by at least [10%] or be at least [15%] on an absolute basis over the
next 12 months.
● Neutral: Total return is expected to be in line with benchmark (VN
Index) or fall in the range [+/-10%] on an absolute basis over the next
12 months
● Sell: Total return is expected to underperform benchmark (VN
Index) by [10-15%] or more over the next 12 months.


Key factors to substantiate State the factor headings (no more than 4) and provide most
the Rating quantitative justification for how the factors affect the
company’s value (in no more than 2 concise sentences).
Company’s value-changing factors may include:

Summary of financial ● Revenues: Expected to increase/decrease at what percentage

and whether it be driven, singly or cumulatively, by underlying
changes in market, demand, competition, regulatory changes or
major corporate actions (expansion projects or acquisitions).

● Margins: Expected to enhance/deteriorate at what percentage

and whether it be driven, singly or cumulatively, by cost
management, change in product/service mix,
productivity/efficiency or others. In analysing bank industry: you
should consider NIM or CIR instead of gross margin, operating
margin ...
 ● Management: Judge whether management provides effective
leadership, based on their knowledge, experience and track
records/commitment.

● Key opportunistic factor expected to cause a value twist:

Identify a major factor expected to alter the value over the
horizon (whether it be a regulatory change, increase/decrease in
key risk exposures, or R&D outcome). Quantify the effect of this
factor to the company’s projected financials.

Provide a summary of financials that may include:

● 3-5 historical and at least 5 projected years

● Key lines for financial position, performance and cash flows: Sales,
EBITDA, NI, CFO, CFI, CFF, Assets, Equity.
● Key per-share indicators: EPS, Dividend per share, book value. .
 Products/services and ● Describe concisely the company’s revenue-generating
relative position business and state its relative market position:
Largest/leading/innovative provider/manufacturer of
products ABC in markets XYZ.

Revenue by product/service ● Break down revenues by most meaningful categories

 (products/services/importance customer segment/market).
line and respective Judge the relative importance of these revenue lines and
importance justify any actual and/or potential change among these
lines.

 Entire sales process ● Describe the entire sales process – from order to fulfillment .

 Distribution strategy ● Describe sales channels (wholesale/retail or

modern/traditional chains or direct sale/distributor network)
 and judge their relative importance and how existing
channels should be managed/modified to sustain sales
growth.
Products/services and ● Describe concisely the company’s revenue-generating
relative position business and state its relative market position:
Largest/leading/innovative provider/manufacturer of
products ABC in markets XYZ.

Key operating metrics/ value ● Identify metrics and drivers that underpin
drivers product quality, financial performance, customer
satisfaction or time to market.

Corporate actions ● Highlight special situations/ earnings/ interruptions

got/get under way, such as major expansion projects,
acquisitions, restructurings or discontinued operations.

Company strategy ● Convey key elements that the company’s strategy entails,
whether they be continuous product innovation/ production
consolidation/ customization enhancement/ brand identity
improvement or change in merchandising mix.
 Industry description ● Describe concisely the industry’s size (output and amount). Judge, with
reasoning, on the prospect of the industry for the projection horizon
(positive/negative at what percentage growth)

Forces driving the industry forward ● Judge on forces that shape the industry and move it forward, whether it be
driven, singly or cumulatively, by demand/supply/ demographics or emerging
competition. Judge if these forces can still prevail over the projection period.


Competitors ● Name the competitors and analyze the relative competitiveness between the
company and its peers based on key competitive factors (market share, focused
client/product segments, price, technology expertise, product/service quality,
new product/service deployment time, trade credit policy, payment terms, client
support, product breadth….).

Customer buying decision ● Identify, in order of importance, elements in customer decision pattern (product
customization/quality, consulting expertise, track record/reputation, price, service
quality, and breadth of product lines …).

Relative position of the company ● Judge whether the company is expected to scale up and sustain sales in joint
considerations of industry prospect, the company’s position in the overall
competitive landscape and its relative advantages in winning customer choice.
 -
Income Statement Judge, using key ratios, on the financial performance:

● State income growth and identify the main cause of growth and judge if the cause is operationally
sound and sustained. For example: you should consider the credit growth and deposits growth of the
industry when analyse net interest income; consider the securities portfolio when analyse gain/loss of
Balance Sheet trading securities.

● Justify if the company has maintained/improved its pricing power over time as seen in its NIM.

Cash Flows ● Justify if the company has maintained/improved its net margin through examination of CIR.

Statement ● Judge how earnings quality has been over time based on the proportion of net interest income in total
net income of the company.

Judge, using key ratios, on the financial position:

● Judge how healthy/improved the company balance sheet, based on ratio such as liquidity ratio, leverage
ratio, CAR and LDR ...

● Judge whether the formation of operating assets (finished goods/CAPEX, you should consider another
factor when analyse bank such as CASA ...) have been well justified by revenue growth.

● Judge on how cash cycle has been maintained/ deteriorated/ improved over time.

Judge on cash flows

● Identify major uses/sources of cash

● Determine whether CFO has been sufficient meeting CAPEX and obligations to fund providers.

● If CFO was negative, judge if such negative CFO was for a good or bad reason.
 Key assumptions for projections:
Assumptions for
projections ● Project overall revenue growth over the projection
horizon (5 years). Justify and quantify in percentage
Financial Estimates what (business lines/ special situations) drives such
growth.

● Project overall gross margin and justify the

reasons for such margin level, whether it be
driven, singly or cumulatively, by favorable
product mix change, seasonality/ new product
effects, change in bargaining power….

● Project the level of SG&A expenses relative to sales

and justify any significant change compared to
historical level.
● Project and justify key balance sheet items, such as
A/R DSO, A/P and Inventory days, CAPEX, borrowing
level and retention ratio, which is based on historical
levels and new information released and further
projections.

Provide financial estimates and ratios:

● Provide a more complete projected financials, which

may include revenues, gross profit, EBITDA, net
profit, total assets, total borrowings, equity, ending
cash, CFO, CFI, and CFF.

● Present key financial ratios, such as Activity,

Liquidity, Solvency and other per-share ratios.
 Models Decide on models used:

Inputs

- Recommend to use both DCF (or residual income for financial company) and Multiple Valuation. Assign probability
weights (summing to 1) for results based on these two valuation methods which reflect the relative validity between the
Risks To Price two methods given the characteristics of the company’s operations and the prevailing market situation.

- Justify the selection of the most suitable models for the company, whether they be DDM, single/multiple stage DCF,
Target P/E and/or P/B.

Determine and calculate inputs for models:

- Determine if FCFF or FCFE will be used. Calculate the cash flows based on projected financials.

- Based on the type of cash flows used, calculate WACC and/or required return to equity. Recommend to use CAPM to
calculate return on equity.

- Determine and justify terminal growth rate, which reflects long-term GDP growth and the relative position of the
company’s industry to the general economy.

- Determine and justify the most appropriate comp sets for Multiple Valuation. Elements to consider for comp
sets may include industry, company size, geography, and relative multiples of national broad markets.

Identify key risks to Price Target

- Identify what projection factors, if not materialized, may jeopardize the Target Price. Downsides may include an
expansion project failed after cash investments made, failures in planned restructuring or in anticipated acquisitions or
lower-than-expected revenue growth or deep appreciation/ depreciation of involved currencies.

- Justify the likelihood of these downsides given the company’s fundamentals, leadership and market prospects.
 Key risk factors Judge on key risks that may make
the estimates run off the line. Be direct and concise
about identifying true risks which may fall in broad
ranges of operation, competition, interest rate, liquidity,
 credit, market, regulation risks.

Mitigations
Determine, based on the company’s strengths and
planned actions, how these risks
will be mitigated/minimized. Be clear on how effective
these mitigations are.

Identify key sets of financial projection inputs and do a financial
Scenarios Analysis run for Favorable – Base – Worst Case scenarios. Key sets may
 include revenue (or key revenue line) growth, gross margin,
Inventory DSO, Receivables Days and Payables Days.

Do a two-variable sensitivity analysis to directly simulate the

Sensitivity Analysis range for Target Price. The variables should be WACC/Re and
terminal growth rate if you use DCF model.

Judge on the relative likelihood among the scenarios and

Judgement solidify the highest likelihood of the Base case and justify
why/how the Worst Case is the least likely.



CFAI template Provide disclosures as seen in the CFA Research Report
template, which features the following points:

- Ownership and material conflicts of interest

- Receipt of compensation

- Position as an officer or director

- Ratings guide

- Investment Research Challenge and Global Investment

Challenge Acknowledgement

- Disclaimer
 Include in this section:
Financial tables ● Complete financial statements
● Fuller list of projection inputs
Non-financial appendices ● Fuller list of valuation inputs
● Any table/data deemed necessary.

The 7 critical -elements of stock
recommendations
The 7 elements:
● Appealing (has a hook) Conclusion oriented (starts with
conclusions)
● Stock-oriented (talks about stocks)
● Concise (brief as possible without excluding supporting
information)
● Aware (acknowledges alternative view and avoid
attacking people)
● Data-driven (supported with data)
● Easy-to-understand (can be understood by almost any
practitioner)
Inductive Argument You should buy ABC because:

- (1) ABC’s new and effective operational risk mitigation system is not
factored in its current price
- (2) ABC is rapidly improving its liquidity condition
- (3) ABC is profitably expanding into emerging markets

Deductive Argument You should buy ABC if the market fails to factor an element X into its
current share price. And, the market is failing to factor element X into
ABC’s price, therefore you should buy it.
Being your point of view about Single Idea Expansion is expected to succeed
the paragraph’s subject because of management strength in meeting
customer needs and managing operations.

No more than 20 words Strong demand for ABC’s products is driven by its
leading position and strong fundamentals in
customers’ industry segments.
Direct and usually The company is expected to be provided with effective leadership
shorter by its management team.

Easier to understand The management team effectively leads the company forward

Stronger to It is projected that a new risk management system may be

communicate who needed.

Did what We project that management may need to put in place a new risk
management system.
• State investment thesis, the more specific the better
• Analyze the information, NOT just describe things

• Provide and analyze the facts and figures to come up with conclusion.
Do NOT leave your opinion not justified

• Support the investment thesis with arguments and evidence/analysis. Do NOT

write a report in order to include all sections but without direct support to the
thesis

• Talk about “Why”, ie. the argument to support the thesis, (or the

• story) and NOT about “How we do the analysis”

• Do NOT give the full history on the subject or act as a PR for the company
 1. The company captured an annualized expense
Use brief, reduction of approximately $1 million dollars by
clear sentences conceiving, developing, and implementing various
relevant new J.I.T methodologies.

2. We increased sales by $900,000 annually by

Avoid long words and generating and implementing strategies to renew the
flowery language team’s strategic focus on those accounts yielding the
most sales volume.

3. The company strengthened their retention rate

Don’t let paragraphs among newly hired employees by assessing, modifying,
run longer than a few and realigning the organization’s talent acquisition
strategy to more fully represent the culture and values
lines
inherent to the broader company

4. Fresh Fish Sold Here Today” – a sign at a wet market.

1. The company captured an annualized 1. The company cut yearly costs $1M
expense reduction of approximately $1 by incorporating J.I.T.
million dollars by conceiving, developing, and
implementing various relevant new J.I.T
methodologies.

2. We increased sales by $900,000 annually by 2. We grew annual sales $900,000 by

generating and implementing strategies to refocusing team on company’s
renew the team’s strategic focus on those most lucrative accounts.
accounts yielding the most sales volume.
3. The company strengthened their retention 3.
rate among newly hired employees by
assessing, modifying, and realigning the
organization’s talent acquisition strategy to
more fully represent the culture and values
inherent to the broader company
4. “Fresh Fish Sold Here Today” – a sign at a wet 4.
market.
The company improved new hire
retention by better aligning
recruitment strategy with its
corporate values.
What do you think should be
left on the sign?