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Continue Shopping论文 代 写 - China Northern Rare Earth (Group) High-Tech Corporation Introduction
Executive Summary
Stock Information
Company A Basic Information
Financial Data
Risk-Free Rate
CAPM calculation
Stock Valuation
Portfolio
Company B and C Basic Information
Relevant Data
3-Stock portfolio construction
Recommendation
Section 1
- China Northern Rare Earth (Group) High-Tech Corporation Introduction
The listed company chosen by our group is China Northern Rare Earth High-Tech Corporation. China Northern Rare Earths has paid 19 consecutive dividends since its listing on the CSI300 Index in 1997. China Northern Rare Earth (Group) High-Tech Co.,Ltd, formerly INNER MONGOLIA BAOTOU STEEL RARE-EARTH (GROUP) HI-TECH CO., LTD., is a China-based supplier of rare earth products ("China Northern Rare Earth Group High-Tech Co Ltd, 600111:SHH profile - FT.com", 2021). The company mainly produces and operates rare earth raw material products, rare earth functional material products and some rare earth application products, such as rare earth salts, rare earth oxides, rare earth metals, rare earth magnetic materials, polishing materials, hydrogen storage materials, nickel-hydrogen power batteries, rare earth permanent magnetic resonance instrument, LED light beads. After more than 50 years of development, North Rare Earth has nearly 40 branches, wholly-owned, holding and participating companies, and is located in 10 provinces (municipalities) and autonomous regions across China. At the same time, this company is a cross-regional, cross-ownership and multi-discipline high-tech enterprise group. This is because they have a complete industrial chain of rare earth smelting, functional materials and deep processing application products. At present, the Company has a smelting and separation capacity of 80,000 tons/year，and a rare earth metal capacity of 10,000 tons/year, ranking first in the world in terms of rare earth raw material production capacity. The Company sells its products in the domestic market and overseas markets.
Section2:
Appendix 1 (At close: October 28 3:00PM CST) CNY
|
|
China Northern Rare Earth (High-Tech |
|
Current price |
50.83 |
|
52 Week Range |
9.94 - 62.10 |
|
Market Cap |
184.742 billion |
|
Beta (5Y Monthly) |
-0.04 |
|
P/E Ratio |
53.25 |
|
EPS |
0.95 |
|
Earnings Date |
Oct 21, 2021 |
|
Forward Dividend and Yield |
0.07 (0.13%) |
|
Ex-Dividend Date |
Jun 24, 2021 |
|
1 year Target Estimate |
N/A |
The current price indicates the value of this stock at a given point in time. In other words the value at which this stock can be sold. It also reflects the current financial situation of this company. We found the stock to be down 6.28% from the previous business day, indicating a decline in the economic state of this company. But we cannot determine the current state of this company by the current price either, other factors are also important.
Market caps indicates the market value of a company and the total value of the shares of a listed company at the market price. From the data collected, the market value of this company amounts to RMB 184.742 billion, which makes it a large company. This is because the company dominates most of the rare earth resources in China. Investors are bullish about the company's future prospects, which has led to an influx of capital. At the same time, this has inflated the market value of the company.
The beta indicates how volatile a stock is relative to the overall stock market. When the market moves, so does the price of the stock. When the absolute value of beta is large, this indicates that the change in returns is more pronounced relative to the broader market; when the absolute value of beta is small, this indicates that the stock is changing less relative to the broader market. If the beta is negative, this indicates that the stock is moving in the opposite direction to the market. beta is compared to 1 in general. beta is -0.04 as found in the table. This stock is changing in the opposite direction to the market.
The P/E ratio is the ratio of a stock's price divided by its earnings per share. The P/E ratio is often used as an indicator to compare whether a stock is overvalued or undervalued. In this stock the P/E ratio is as high as 53.25. This is a fairly high value. This indicates that the stock may be overvalued. Investors may be exposed to greater investment risk. Once the stock falls, the investor will have to wait a long time to make a profit.
Earnings per share is the profit of the business or the loss of the business to be borne by the shareholder for each share held (profit of the company/number of shares of the company). Meanwhile, this is how investors judge the profitability of a company and decide whether to invest in it. This company has an earnings per share of 0.95, a result that is difficult to accept for investors who are not willing to take the risk of investing.
A forward dividend&yield is the ratio of the dividend distributed by a company in a year to the price at which the stock was bought. This yield is a predictor of future dividends. If this value is higher it leads to investors being more willing to invest in the company and the investor will be receive a higher dividend.
Risk-free rate
For a CSI300 company, we use the 10-year CHN government bond as the risk-free rate proxy.
The reason why we choose the 10-year bond is we need to use the bond rate as the risk-free rate proxy to analyze the capital asset pricing model (CAPM) of how financial markets price the stock. Since the stocks we selected are long-term stocks, which can exist more than 10 years, so it is not reasonable to use a relatively short-term risk-free rate to discount such a long-term cash flow. Moreover, the yield of short-term bond fluctuates greatly over time, and the relatively long-term bond, such as 30-year bond, might be influenced by political risk and economic fluctuation risk, so we choose the 10-year bond as the risk-free rate proxy.
Table. The 10-year CHN government bond rate from 2010 to 2019 and the risk-free rate
|
|
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
|
|
Bond Rate (%) |
3.470 |
3.860 |
3.460 |
3.826 |
4.155 |
3.369 |
2.859 |
3.580 |
3.623 |
3.180 |
3.538 |
Diagram. The 10-year CHN government bond rate from 2010 to 2019
Source: China Government Bond Yield (Ministry of Finance of the People’s Republic of China) https://yield.chinabond.com.cn/cbweb-czb-web/czb/moreInfo?locale=en_US
According to the 10-year bond data published by Ministry of Finance of the People’s Republic of China, the rate fluctuated regularly at 3.60% from 2010 to 2013. The year of 2014 and 2016 witnessed a peak and a bottom at 4.16% and 2.86% respectively. In 2014, after experiencing an increase, the ten-year bond decreased considerably. Then the bond rate increased in 2017 and stabilized at around 3.60% between 2017 and 2018. Yet in 2019, the bond rate decreased to roughly 3.18%
There are many factors affect the bond yield curve, Jialing Ni (2017) and Zhen Chen (2009) both state that the factors can be divided into four categories, the first one is the economic fundamental factor, like the inflation and the economic cycle. The second one is the capital factor, including the exchange market and the stock market. Thirdly, the policy factor, such as the contraction monetary policy and the expansion monetary policy, also affect the bond yield curve. The fourth factor is the market expectation.
Due to the Covid-19 pandemic, the 10-year bond rate decreased to 2.95% in 2020. We hold a positive attitude towards China's future development. So, we think interest rates will go up in the short period of time then gradually decrease in the long run.
Table. annual growth rate, arithmetic and geometric average growth rate
|
|
Annual growth rate |
Arithmetic average growth rate |
Geometric average growth rate |
|
2010-2011 |
1 |
0.737758198 |
0.181897056 |
|
2011-2012 |
4.250067501 |
||
|
2012-2013 |
0.14285102 |
||
|
2013-2014 |
0 |
||
|
2014-2015 |
-0.375000938 |
||
|
2015-2016 |
-0.63999856 |
||
|
2016-2017 |
-0.666666667 |
||
|
2017-2018 |
2.5 |
||
|
2018-2019 |
0.428571429 |
As the table show the dividend annual growth rate, arithmetic average growth rate is about 73.78% and the geometric average growth rate is about 18.19%. During 2011-2012, the annual growth rate had a substantial increase. Through the company’s development history and the company’s annual report on the company’s official website, it can be found that the following reasons may be the driving force behind its substantial growth. The government had relevant policy support for this type of company those years. In 2011, the company was expanding its economic aggregate and also achieved excellent results in two aspects, the promotion of development. At the same time, the company completed the reorganization of two companies under its group and also acquired 66.7% of the shares of the subsidiary.[1] This series of operations made more people optimistic about the company's future development prospects, and the stock price soared that year.
[1](2019, December 28). https://www.reht.com/h-nd-105.html#_jcp=1&_np=108_0
In the report, we use arithmetic average growth rate of dividend and expected rate of return to calculate the intrinsic value. Because this condition is not satisfied r<g, so the growing perpetuity formula doesn’t apply here, then through using DCF formula for a growing company, it shows that the intrinsic value is about 0.12 which is far less than the true value of the stock.
Through research, it can be found that there are several reasons for the difference between theory and reality. First of all, the above calculation is based on the CAPM model. The CAPM model itself needs to meet the following 3 assumptions. risk-free rate is actually risk-free; investors can borrow and lend at the same rate; and markets are efficient.[2]
[2]https://canvas.sydney.edu.au/courses/35958/pages/5-dot-5-capm-in-practice?module_item_id=1298887
Secondly, the data we selected when calculating caused certain differences. For examples β, estimated β is very difficult, and the value of β on each website can be found different to each other, because they use different calculations method. Similarly, the different time nodes for selecting data are also part of the reason for the differences. Dividend’s growth rate cannot be maintained at the same level within ten years. We should calculate the growth rate at different stages according to the actual situation of the company’s development and discount it in multiple stages.
In order to improving the accuracy of the data, we can try to use the 2-stage growth model to calculate the intrinsic value. We can divide 2010-2012 for one stage and 2012-2019 for another stage. By using the model to calculate the value, it can be found that this value is closer to the true value.
Diagram. Timeline of company A’s future dividends
As the global economy was affected by the epidemic in 2020, the company did not pay dividends in 2020. Continuously being affected by the epidemic has led to a shortage of rare earths, which will not change in a short period of time. Therefore, there will be a situation in which supply exceeds demand, making the company's stocks continue to rise in a short period of time.
Section 8：
The other two companies we have chosen are China Merchants Bank and East Money Information Company, which are financial companies. China Merchants Bank was listed on the Shanghai Stock Exchange in 2020. It is the first commercial bank in China. The operating model of China Merchants Bank is focused on better integration of wealth management with social resources. Secondly, the Company strengthens risk management and provides for high quality development. This company has a banking group with financial licences in commercial banking, financial leasing, fund management, life insurance and offshore investment banking at present.
East Money Information Company was listed in Shenzhen Stock Exchange in March 2010. The company takes the financial data terminal service platform as the carrier, and provides users with safe and reliable all kinds of Internet financial transaction services. Meanwhile，East Money Information Company has professional data service capabilities. They use big data to provide financial services to users and help them evaluate and make decisions. The internet-based service platform operated by the company has become one of the Internet service platforms with the largest user visits and highest user stickiness in China. They have gained user recognition and core competitiveness.
The outbreak has had a big impact on banks and financial companies. The number of customers using debit and credit cards has dwindled. Then, deposits and loans of banks have been impacted for small and micro loans and mortgages. Meanwhile, the pandemic has led to a halt in productivity. Falling productivity causes money to spin slowly. Many small businesses are slowly closing down. People prefer to keep their money in more stable banks rather than invest it. It is very difficult for financial companies to do business because they cannot raise capital.
Our group has combined these two stocks using the principle of sector hedging. China Merchants Bank belong to the banking sector, but East Money Information Company belong to the securities sector. Since they are not in the same sector, it is possible to preserve assets when one stock goes down and the other goes up. This is a good option for some investors of risk averse.
Section 9
|
600111 |
|
|
|
|
annualised arithemtic return |
0.195084646 |
|
|
annualised geometric return |
0.082246762 |
|
|
monthly SD |
0.135653866 |
|
|
annualised SD |
0.469918776 |
|
|
anithmetic mean |
0.014962248 |
|
600036 |
|
|
|
|
annualised arithemtic return |
0.186941 |
|
|
annualised geometric return |
0.144097 |
|
|
monthly SD |
0.081816 |
|
|
annualised SD |
0.283419 |
|
|
anithmetic mean |
1.4384% |
|
300059 |
|
|
|
|
annualised arithemtic return |
0.560243 |
|
|
annualised geometric return |
0.252806 |
|
|
monthly SD |
0.235798 |
|
|
annualised SD |
0.816828 |
|
|
anithmetic mean |
0.037766 |
Through the analysis of the data in the above table, the investors of risk averse tend to choose stockA and stockB because these two stocks are low risk and have guaranteed income. however, the investors of risk seeking tend to choose stockC because this stock has high income and high risk.
Section 10
|
Covariance |
Stock 1 |
Stock 2 |
Stock 3 |
|
Stock 1 |
0.2208 |
0.0035 |
0.0058 |
|
Stock 2 |
0.0035 |
0.0803 |
0.0054 |
|
Stock 3 |
0.0058 |
0.0054 |
0.6672 |
Covariance for each group is greater than 0. Therefore, one stock rises with the other stock also rises. Conversely, when one stock will be depreciate with another stock goes down.
|
Correlation |
Stock 1 |
Stock 2 |
Stock 3 |
|
Stock 1 |
1.0000 |
0.00211 |
0.0034 |
|
Stock 2 |
0.0021 |
1.00000 |
0.0156 |
|
Stock 3 |
0.0034 |
0.01561 |
1.0000 |
The correlation takes values between 1 and -1. When the correlation coefficient is equal to 1, the two stocks reflect a perfectly positive correlation. When the correlation coefficient is equal to -1, the two stocks are fully negatively correlated. However, each set of correlations in the table has a value before 1 to 0. This indicates that they are positively correlated, but have little influence on each other.
Section 10
Table. the annual expected rate of return, expected standard deviation and Sharpe ratio for. the following portfolio constructs
|
Portfolio |
600111 |
600036 |
300059 |
Sharpe ratio |
||
|
1 |
1/3 |
1/3 |
1/3 |
0.314 |
0.243 |
1.149 |
|
2 |
1/4 |
3/4 |
0 |
0.189 |
0.089 |
1.718 |
|
3 |
1/2 |
1/2 |
0 |
0.191 |
0.125 |
1.248 |
|
4 |
3/4 |
1/4 |
0 |
0.193 |
0.171 |
0.924 |
|
5 |
0 |
1/4 |
3/4 |
0.467 |
0.503 |
0.858 |
|
6 |
0 |
1/2 |
1/2 |
0.374 |
0.340 |
0.995 |
|
7 |
0 |
3/4 |
1/4 |
0.280 |
0.183 |
1.338 |
|
8 |
1/4 |
0 |
3/4 |
0.469 |
0.506 |
0.858 |
|
9 |
1/2 |
0 |
1/2 |
0.378 |
0.356 |
0.963 |
|
10 |
3/4 |
0 |
1/4 |
0.286 |
0.240 |
1.047 |
|
11 |
1/3 |
1/6 |
1/2 |
0.376 |
0.347 |
0.984 |
|
12 |
1/3 |
1/2 |
1/6 |
0.252 |
0.149 |
1.456 |
|
13 |
1/6 |
1/3 |
1/2 |
0.375 |
0.341 |
0.995 |
|
14 |
1/2 |
1/3 |
1/6 |
0.253 |
0.167 |
1.302 |
|
15 |
1/2 |
1/6 |
1/3 |
0.315 |
0.255 |
1.099 |
|
16 |
1/6 |
1/2 |
1/3 |
0.313 |
0.236 |
1.178 |
|
17 |
1/8 |
1/8 |
3/4 |
0.468 |
0.503 |
0.859 |
|
18 |
1/8 |
3/4 |
1/8 |
0.235 |
0.115 |
1.734 |
|
19 |
3/4 |
1/8 |
1/8 |
0.240 |
0.191 |
1.256 |
|
20 |
3/4 |
1/12 |
1/6 |
0.255 |
0.205 |
1.247 |
Diagram. 20 portfolios and the efficient frontier
According to Module 4, the efficient frontier is the curve of portfolios that give the highest return for a given risk. The upper curve of these portfolios is called the efficient frontier. The efficient frontier is then the best combination of assets, i.e., portfolios that investors would want to hold. That is, portfolios on the efficient frontier have strictly higher expected returns for a given risk or the same expected return for lower risk.
The portfolios on the efficient frontier are effective, which means portfolio 3, 4, 10, 14, 19, 20 are ineffective, the rest of the portfolios are effective. Portfolio 18 has the highest Sharpe ratio. The higher a fund's Sharpe ratio, the better its returns have been relative to the amount of investment risk it has taken. So, we label portfolio 18 as the portfolio T.
The portfolio T is on the efficient frontier and has the highest expected return for a given risk. According to Module 5, the market portfolio on the efficient frontier, has the highest possible Sharpe ratio of any portfolio on the efficient frontier. So, portfolio T is roughly equal to market portfolio and it’s also roughly equal to tangency portfolio.
Table. Data of portfolio T and risk-free asset
|
New Portfolio |
Portfolio T |
Risk-free Asset |
variance |
SD |
ERp |
|
1 |
100% |
0% |
0.007991 |
0.089391574 |
0.188977 |
|
2 |
90% |
10% |
0.006473 |
0.080452416 |
0.173618 |
|
3 |
80% |
20% |
0.005114 |
0.071513259 |
0.158258 |
|
4 |
70% |
30% |
0.003916 |
0.062574102 |
0.142899 |
|
5 |
60% |
40% |
0.002877 |
0.053634944 |
0.127539 |
|
6 |
50% |
50% |
0.001998 |
0.044695787 |
0.11218 |
|
7 |
40% |
60% |
0.001279 |
0.035756629 |
0.09682 |
|
8 |
30% |
70% |
0.000719 |
0.026817472 |
0.081461 |
|
9 |
20% |
80% |
0.00032 |
0.017878315 |
0.066101 |
|
10 |
10% |
90% |
7.99E-05 |
0.008939157 |
0.050742 |
|
11 |
0% |
100% |
0 |
0 |
0.035383 |
|
12 |
-10% |
110% |
7.99E-05 |
0.008939157 |
0.020023 |
|
13 |
-20% |
120% |
0.00032 |
0.017878315 |
0.004664 |
|
14 |
-30% |
130% |
0.000719 |
0.026817472 |
-0.0107 |
|
15 |
-40% |
140% |
0.001279 |
0.035756629 |
-0.02606 |
|
16 |
-50% |
150% |
0.001998 |
0.044695787 |
-0.04141 |
|
17 |
-60% |
160% |
0.002877 |
0.053634944 |
-0.05677 |
|
18 |
-70% |
170% |
0.003916 |
0.062574102 |
-0.07213 |
|
19 |
-80% |
180% |
0.005114 |
0.071513259 |
-0.08749 |
|
20 |
-90% |
190% |
0.006473 |
0.080452416 |
-0.10285 |
|
21 |
-100% |
200% |
0.007991 |
0.089391574 |
-0.11821 |
The above table is the result of annual expected rate of return and expected standard deviation for the portfolio constructs between T and the risk-free asset.
Through using the above result, we draw a graph of the portfolios into a risk-return space. The following diagram takes standard deviation as x-axis and expected return of this portfolio as y-axis. The point which under the x-axis is inefficient because that will produce a negative return on investment, which is what investors don’t want to see. And the diagram shows that if you want to earn more, you will take more risk.
Diagram. Portfolio T and risk-free asset
After combining the two diagrams onto the same graph, we can find that the portfolio is better than choose any individual assets over this portfolio. Then we put the stockA, stockB and stockC into the investment portfolio, and we find that some investment portfolios can provide investors with lower investment risks compared with selecting a single stock under the condition that we can get roughly the same investment return. It can help investors to avoid risks to a certain extent, and we can recommend different combination to investors with different risk appetites.
Reference
- Zhen Chen. Study on yield curve of China government bonds [D]. Fudan University, 2009.
- Jialing Ni. An empirical analysis of the factors affecting the yield curve of China government bonds [D]. East China Normal University, 2017.
- Ministry of Finance of the People’s Republic of China. China Government Bond Yield Historical Data https://yield.chinabond.com.cn/cbweb-czb-web/czb/showHistory?locale=en_US
- hina Northern Rare Earth Group High-Tech Co Ltd, 600111:SHH profile - FT.com. Markets.ft.com. (2021). Retrieved 2021, from https://markets.ft.com/data/equities/tearsheet/profile?s=600111:SHH.
- Ministry of Finance of the People’s Republic of China. China Government Bond Yield Historical Data https://yield.chinabond.com.cn/cbweb-czb-web/czb/showHistory?locale=en_US
Appendix
Data of dividends
Ministry of Finance of the People’s Republic of China. China Government Bond Yield Historical Data https://yield.chinabond.com.cn/cbweb-czb-web/czb/showHistory?locale=en_US