Question 3 (30 marks) Omega Ltd.'s audited statement of profit and loss for the financial year ended December 31, 2020 is given as follows. 2020 (S$M) Revenue 1,394.0 Cost of goods sold (COGS) (1,012.1) Gross Profit 381.9 Expenses (incl. taxes) Net Income (242.8) 139.1 Additional information: 1. Dividend paid in 2020 was 98.2 (S$M). 2. Number of shares outstanding as at December 31, 2020 is 1,503 shares (M). 3. Total equity is 375.1 (S$M). 4. COGS is estimated to grow 4 percent, and expenses expected to increase 40 percent. 5. Omega Ltd. belongs to foods and beverages (F&B) sector, and its median industry's P/E multiple is currently estimated at 19.32 times on average. 6. Store size expansion rate is on average 3 percent. 7. Expected inflation rate is 2 percent. 8. Online grocery sales growth is estimated at 3 percent. 9. Current stock price of Omega Ltd. is S$1.48 traded on SGX. Required: (a) Omega's revenue growth drivers in F&B industry are expected inflation rate, online sales growth, and physical store floor area growth. Compute estimated growth rate for Omega's revenue in 2021. (6 marks) (b) Calculate the target price of Omega Ltd. in 2021. Is Omega Ltd. currently under-, over-, or fair-valued and why? (8 marks) (c) Compute the expected return of Omega in 2021 using the sustainable growth rate based on Dividend Growth Model (DGM). Provide three alternative valuation models could be used and supplement to valuing Omega Ltd. (8 marks) (d) Discuss the advantages and disadvantages of using the relative valuation method. (8 marks) Question 3 (30 marks) Omega Ltd.'s audited statement of profit and loss for the financial year ended December 31, 2020 is given as follows. 2020 (S$M) Revenue 1,394.0 Cost of goods sold (COGS) (1,012.1) Gross Profit 381.9 Expenses (incl. taxes) Net Income (242.8) 139.1 Additional information: 1. Dividend paid in 2020 was 98.2 (S$M). 2. Number of shares outstanding as at December 31, 2020 is 1,503 shares (M). 3. Total equity is 375.1 (S$M). 4. COGS is estimated to grow 4 percent, and expenses expected to increase 40 percent. 5. Omega Ltd. belongs to foods and beverages (F&B) sector, and its median industry's P/E multiple is currently estimated at 19.32 times on average. 6. Store size expansion rate is on average 3 percent. 7. Expected inflation rate is 2 percent. 8. Online grocery sales growth is estimated at 3 percent. 9. Current stock price of Omega Ltd. is S$1.48 traded on SGX. Required: (a) Omega's revenue growth drivers in F&B industry are expected inflation rate, online sales growth, and physical store floor area growth. Compute estimated growth rate for Omega's revenue in 2021. (6 marks) (b) Calculate the target price of Omega Ltd. in 2021. Is Omega Ltd. currently under-, over-, or fair-valued and why? (8 marks) (c) Compute the expected return of Omega in 2021 using the sustainable growth rate based on Dividend Growth Model (DGM). Provide three alternative valuation models could be used and supplement to valuing Omega Ltd. (8 marks) (d) Discuss the advantages and disadvantages of using the relative valuation method. (8 marks)
