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Monday, 6 April 2009
Diligence, consistency & thick skin
CLSA’s Thilan Wickramasinghe tells CHEW XIANG there’s nothing special in his method - just a deep understanding of industries, companies and their financials
CLSA’s Thilan Wickramasinghe tells CHEW XIANG there’s nothing special in his method - just a deep understanding of industries, companies and their financials
Chew Xiang 6 April 2009
Analysts are an embattled lot these days - and not a few big names, even in Singapore, have disappeared in the past year. Most will not find this surprising. Why didn’t they see it coming? How could they have kept chorusing ‘buy’, even as the bottom was falling out of the market? And what happened to those much-vaunted Chinese walls, between the sell-side research analysts and the money-mining investment and corporate finance divisions?
CLSA’s Thilan Wickramasinghe, whose calls on OCBC Bank last year were spot-on, has a defence for his - perhaps less lucky? - fellow analysts. ‘When you listen to your companies and you see margins growing, you see earnings growing - those are publicly available information and that’s what we base our recommendations on,’ he says.
‘You do actually see analysts coming out now, and in CLSA we’ve been very proactive in re-looking at our earnings, re-looking at our margins, re-looking at all our assumptions when this crisis unfolded. And I think that is the best that anyone can do.’
Originally from Sri Lanka, Mr. Wickramasinghe came to Singapore in 2004 via analyst stints in Arthur Andersen (‘That didn’t go very well, though I left a few months before it happened.’) and Amba Research, an independent outfit. He joined CLSA here two years ago and now covers the banks, transport companies and some of the agricultural supply chain managers.
He hasn’t done too badly. StarMine, the research agency, picked out his coverage of OCBC as noteworthy. He had an ‘underperform’ on OCBC from Sept 17 through to the end of the year as it plunged from $7.36 to $4.99 (down 32 per cent) and underperformed the benchmark by 8 per cent.
He can’t discuss the company publicly, but says there is nothing special in his method. ‘I try to understand the macro drivers for the industry itself and then try to understand how this company fits within the industry, and whether it actually has any sort of drivers that enable it to differentiate itself in terms of gaining market share, in terms of delivering higher volumes and so on,’ he says.
‘What I do is to take a stand on how much worse things are going to get and then based on that, it’s not hard to model your balance sheet (estimates) based on your macro view. So if GDP in Singapore is going to contract 10 per cent - that’s CLSA’s house view - then you need to look at your balance sheet, your provisioning. You’re obviously going to have a situation where NPLs (non-performing loans) are going to be at a fairly high level. So you’re going to have to compensate for that with incremental provision in your interest income, and your non-interest income is not going to be as strong going forward.’
In a crisis though, Mr. Wickramasinghe’s job doesn’t get any easier, even if he can deal with the pressure of continually getting things wrong. ‘I think the key thing we’re learning is that estimates are extremely fluid. Things are so volatile that what you think is bearish today is actually fairly bullish the following day,’ he says.
What does help is that financial data is much more readily available - it has more ‘granularity’, in the analysts’ jargon - than in the last financial crisis 12 years ago. ‘There’s a lot more you can get your head around this time. Quarterly reporting, line items - there’s a lot more transparency this time around than there was in 1997,’ he notes.
So what does a successful analyst need in such times?
‘I think diligence,’ Mr. Wickramasinghe says. ‘You have to be strong with your numbers, in terms of understanding the financial statements, in terms of understanding where everything fits. Also, consistency in the way you make your calls, in the way you defend your calls and the way you approach them.’
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Diligence, consistency & thick skin
CLSA’s Thilan Wickramasinghe tells CHEW XIANG there’s nothing special in his method - just a deep understanding of industries, companies and their financials
Chew Xiang
6 April 2009
Analysts are an embattled lot these days - and not a few big names, even in Singapore, have disappeared in the past year. Most will not find this surprising. Why didn’t they see it coming? How could they have kept chorusing ‘buy’, even as the bottom was falling out of the market? And what happened to those much-vaunted Chinese walls, between the sell-side research analysts and the money-mining investment and corporate finance divisions?
CLSA’s Thilan Wickramasinghe, whose calls on OCBC Bank last year were spot-on, has a defence for his - perhaps less lucky? - fellow analysts. ‘When you listen to your companies and you see margins growing, you see earnings growing - those are publicly available information and that’s what we base our recommendations on,’ he says.
‘You do actually see analysts coming out now, and in CLSA we’ve been very proactive in re-looking at our earnings, re-looking at our margins, re-looking at all our assumptions when this crisis unfolded. And I think that is the best that anyone can do.’
Originally from Sri Lanka, Mr. Wickramasinghe came to Singapore in 2004 via analyst stints in Arthur Andersen (‘That didn’t go very well, though I left a few months before it happened.’) and Amba Research, an independent outfit. He joined CLSA here two years ago and now covers the banks, transport companies and some of the agricultural supply chain managers.
He hasn’t done too badly. StarMine, the research agency, picked out his coverage of OCBC as noteworthy. He had an ‘underperform’ on OCBC from Sept 17 through to the end of the year as it plunged from $7.36 to $4.99 (down 32 per cent) and underperformed the benchmark by 8 per cent.
He can’t discuss the company publicly, but says there is nothing special in his method. ‘I try to understand the macro drivers for the industry itself and then try to understand how this company fits within the industry, and whether it actually has any sort of drivers that enable it to differentiate itself in terms of gaining market share, in terms of delivering higher volumes and so on,’ he says.
‘What I do is to take a stand on how much worse things are going to get and then based on that, it’s not hard to model your balance sheet (estimates) based on your macro view. So if GDP in Singapore is going to contract 10 per cent - that’s CLSA’s house view - then you need to look at your balance sheet, your provisioning. You’re obviously going to have a situation where NPLs (non-performing loans) are going to be at a fairly high level. So you’re going to have to compensate for that with incremental provision in your interest income, and your non-interest income is not going to be as strong going forward.’
In a crisis though, Mr. Wickramasinghe’s job doesn’t get any easier, even if he can deal with the pressure of continually getting things wrong. ‘I think the key thing we’re learning is that estimates are extremely fluid. Things are so volatile that what you think is bearish today is actually fairly bullish the following day,’ he says.
What does help is that financial data is much more readily available - it has more ‘granularity’, in the analysts’ jargon - than in the last financial crisis 12 years ago. ‘There’s a lot more you can get your head around this time. Quarterly reporting, line items - there’s a lot more transparency this time around than there was in 1997,’ he notes.
So what does a successful analyst need in such times?
‘I think diligence,’ Mr. Wickramasinghe says. ‘You have to be strong with your numbers, in terms of understanding the financial statements, in terms of understanding where everything fits. Also, consistency in the way you make your calls, in the way you defend your calls and the way you approach them.’
Most of all, ‘and a thick skin’, he stresses.
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