You will build a reading log for one listed company that a colleague could use to check your work.
Professional analysts don't trust their memory with an annual report. They keep a log: what they read, where it was, and what it means, so that a colleague can check their work and so that next year's reading starts from this year's notes. This exercise builds that log for one SGX-listed company. It becomes a tab in your workbook, and it decides whether the company is worth the hours a model takes in module 7.
Allow about forty-five minutes if you've done the activities in lessons 6.1 to 6.7, longer if you're starting fresh. You'll need the latest annual report, the previous year's report for the risk comparison, and the latest results announcement.
Create a tab called Reading log. Put the company name, the report you're reading and its date at the top. Then build six sections, one under the other.
Business model, top risks, audit matters, notes that change the picture, management pay and ownership, and adjusted figures
Under each section, every entry gets three columns: what you found, the page number, and what it means for an investor. The page reference is the discipline that makes the log useful. Without it, nobody can check your reading, including you next year.
At the bottom, add two more parts: a list of open questions, and one paragraph on whether to model the company.
Work through the sections using the method from each lesson. Here is Marcus's log for Larkspur Precision, with made-up page numbers and figures, so you can see the level of detail to aim for.
Business model, from lesson 6.2. "Machines precision parts and assembles modules for a handful of global chip equipment makers, paid per part under multi-year supply agreements. Customers stay because qualifying a new supplier takes many months. Page 14."
Top risks, also from lesson 6.2. "Top two customers 62% of revenue, page 128. New sentence: a major customer is qualifying a second supplier for some parts, page 30. Demand follows chipmakers' spending, which swings with the industry cycle, page 29."
Audit matters, from lesson 6.3. "Clean opinion, page 88. Two key audit matters: inventory of S$70 million, some of it customer-specific; goodwill of S$30 million on the coatings business, depending on a forecast recovery, pages 89 to 90. Same auditor for eight years, reports on time."
Notes that change the picture, from lesson 6.4. "Revenue booked on customer acceptance, page 104. Semiconductor parts 85% of revenue and almost all profit; coatings 15% and near break-even, page 128. Lease liabilities S$20 million, page 141. Bank loans S$60 million, floating, S$40 million term loan due in three years, covenant net debt under three times EBITDA, page 146."
Management pay and ownership, from lesson 6.5. "Bonus on revenue growth and EBITDA; share plan vests on three-year revenue growth, page 52. Family 55%, CEO 2%, page 172. Warehouse rented from a family company, about S$1.2 million a year, page 170."
Adjusted figures, from lesson 6.6. "Core net profit S$47 million against reported S$48 million. Property gain of S$6 million fairly removed. Share-based pay of S$2 million and restructuring of S$3 million recur every year, so I keep them in. My underlying profit: S$42 million, 14 cents a share. Results announcement, page 6."
Every annual report leaves gaps. Write them down rather than filling them with guesses. Each should be a question someone could answer with a document or a call to investor relations.
Marcus had three. Which customer is qualifying a second supplier, and for what share of its orders? Why has the coatings goodwill not been impaired when margins keep falling? What would the term loan cost to refinance if the industry turned down next year?
The last part is one paragraph: is this company worth modelling? A model takes many hours. It's worth it when the business is understandable from the reports, the accounts look honest enough to forecast from, and the questions that matter can be answered with numbers.
Marcus wrote: "Yes. The business is simple, the audit is clean and the accounts tie to cash. The two questions that decide the value are whether Larkspur keeps its two big customers and whether margins hold through a downturn, and both can be tested in a model with scenarios. The coatings segment is small enough that its problems won't decide the answer."
A no is a perfectly good result. If the accounts depend on estimates you can't check, or the business makes money in ways the report doesn't explain, a model will only give false precision to a guess.
Six sections, each with at least two entries, every entry with a page number and the report date at the top. Three or more open questions. One paragraph with a yes or no and the reason. If any entry lacks a page number, go back and find it now, while the report is open.
Now build the log for your chosen SGX company and end it with your own paragraph on whether it's worth modelling next.
Complete the reading log tab for one SGX-listed company and write a paragraph on whether it is worth modelling next.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).