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Business Analysis of Sunway Berhard

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Introduction 

SUNWAY BERHAD:

Sunway Berhad, also known as, Sunway Group is a Malaysian conglomerate company. The formation of Sunway Berhad happened through the merger of Sunway City Berhad and Sunway Holdings Berhad on 23rdAugust 2011. Sunway Berhad is an investment holding company, which is engaged in the provision of management services. It includes segments of property development, which works for the development of residential as well as commercial properties; property investment, which functions for the management, operation, and letting of several categories of properties. It also works for the investment in real estate investment fund. Sunway Berhad includes the segments of construction, trading and manufacturing, quarry, investment holdings and others (Bakkeret al. 2013). The segment of construction involves the construction of different buildings and other objects of civil works. Trading and manufacturing involves the manufacturing and trading of different construction products as well as industrial products. It is also involved in the import and distribution of various pharmaceutical products. Then comes the segment of quarry involves manufacturing and supply of readymade mixes, like premixed concrete and even production of building stones. The investment-holding segment involves management and letting of financial as well as investment services. The company is involved in other different segments too, which are, manufacturing different pipes, products of concrete etc. It also works for providing secretarial and share registration service, underwriting insurance and finance, and in addition, interior designing and renovating service (Beacom et al. 2017)


S P SETIA BERHAD:

S P SetiaBerhad is an investment holding company, which is based in Malaysia. The Berhad is engaged in conducting business-involving development of property, construction, infrastructure and manufacturing of wooden products. The company was founded on 8th August 1974 and it has its headquarters at Shah Alam, Malaysia. Their field of operation involves three segments, which are, property development, construction, and other segments too. The segment of property development involve the development of different properties, the construction segment involve building and construction of various infrastructures including construction of government apartments. However, other segment of S P Setia Berhad includes the function of manufacturing, trading and investing (Box et al. 2015)


They perform their operations in Malaysia, Singapore, Vietnam, Australia, China and United Kingdom. The S P SetiaBerhad was listed on Bursa Malaysia in the year 1993. Previously, the company was a construction company but later in 1996 it redeveloped its core area of business to development of properties and was supported by businesses of construction, infrastructure and manufacturing of wooden products. The company is an outstanding player of properties and is well stand in three different economical centers of Malaysia, which are, Johor Bahru, Klang valley and Penang (Bryman and Bell, 2015).


Industry and Comparative Analysis

Industry Analysis and future outlook of the industry 

S P Setia is an excellent player in property and is very well established in the economic centers of Klang valley, Johor Bahru and Penang. It has performed development of township of Setia Alam and Setia Eco Park in Shah Alam. It is also responsible for the development of three major projects of Duta Nusantra and Duta Tropika, and Setiahills in Sri Hartamas and Ampang, respectively,  in Kuala Lumpur. It launched the Setia Sky Residencies in Kuala Lumpur City Centre and later expanded its field to the commercial sector with the establishment of SetiaWalk, and Setia Avenue and Setia City in Puchong and Shah Alam, respectively (Camisón and Villar-López, 2014)


From its recent establishments, KL Eco City in Bangsar is one of the major ones. It has even performed development of signature townships like Bukit Indah and Setia Eco Gardens in Nusajaya Corridor, Setia Indah and Setia Eco Cascadia in Tebrau and Setia Tropika in Kempas. S P Setia has also operated its industry up north of Malaysia where it established Setia PearlIsland in Bayan Lepas, Setia Vista in Relau, Setia Greens in Changkat Sungai Ara and Setia V Residences, which are among the well-known waterfront boulevardof Gurney Drive. In the east part of Malaysia, S P Setia is going to perform two major projects involving the establishments of most innovative transportation hub and a fully integrated commercial hub known as, Aeropod, all in Tanjung Aru. The Setia group possesses a strong vision to become the best in whatever they do. Their mission includes the following – to provide their customers the best quality service and satisfaction of their needs through following the belief of excellence, work for the enhancement of their shareholder’s value, becoming a gentle and responsible employer, and being heedful of their social responsibilities. The values of S P Setia include the following:


  • Building a long lasting and healthy relationship with their customers
  • Try to fulfill the needs of their customers, which includes expressed needs as well as unexpressed needs
  • Creating majestic moments at every single opportunity, they gets
  • Enhancing the quality of integrity and protection of their customer’s privacy as well as their company has reserved information.
  • Understanding one’s role and his or her responsibility for the achievement of the company’s success
  • Believing that they have the opportunity to develop and improve themselves.
  • Performing every work with responsibility and professionalism, and maintaining continuous improvement
  • Having the knowledge of responsibility for maintaining a harmless and tidy environment
  • Respecting as well as supporting the colleagues and other fellow members


S P Setia earned revenue around RM 4900 million in 2016, however, there after tax profit was around RM 900 million. Their earnings per share were RM 29.8 and dividend per share was RM 20. Their return on equity and dividend payout ratio was 8.80% and 71%, respectively. The highest share price of S P Setia was RM 3.6 and the lowest share price was 2.8 RM. The revenue of S P Setia has increased by 19.24% over the past five years as well as their net income, which has increased gradually by 21.04% over the same period (Chaniotaki et al. 2017). Their gross margin has increased by 31.334% over the past five years. However, they have experienced a decline in their level of cash flow by 17.47%. In the year 2016, S P Setia have finished 282 units of double storey house with a gross domestic value of around RM 186 million and was delivered to their customers in Setia EcoHill. During that same period, they also sold more than 910 units of properties in Setia EcoHill and Setia EcoHill 2, which were worth RM 417 million.


The outlook of S P Setia is outstanding involving the areas of their investment. The price target of the company has a median of 399.00, which can be 440.00 at its highest and 350.00 at its lowest. The median estimation presents that the share price of the company will increase by more than 12,176%. In the year 2016, they stated a dividend of RM 0.19, but unfortunately, it may experience a decline of more than 9%. In the 1st quarter of that same year, S P Setia earned revenue of RM 908 million. In their previous year, they did not state any information regarding revenue. The company has already set a sales target of RM 4 billion for the fiscal year 2017, out of which 77% will come from local projects (Cinelli et al. 2014). They have a target to launch more than 7,300 units of residential, which will further range from high-rise residential towers to mid-range homes. It will have a combined gross domestic value of more than RM5.4 billion. 


Key financial analysis of both firms:

For any organization, it is essential to conduct a financial analysis in order to evaluate the performance of the company in the market. It refers to the analysis of the financial statements of an organization through key financial ratios in context to the current market trends or the competitors of the organization. It not only helps the management of the organization in evaluating the performance of the organization but to get a clear understanding of the financial stability of the company as well (Cooperrider and Srivastva, 2017).


a) Profitability ratio: Profitability ratios are one of the performance metrics of an organization. It helps the management of an organization in evaluating the ability of an organization to generate the maximum return against the expenses incurred and significant cost implications. 


  • Return on invested capital: Return on invested capital is one of the critical profitability ratios that measure the ability of an organization to generate the maximum return in regards to the capital employed in the company (Fleisher and Bensoussan, 2015). In actually represents the return, which an investment generates from the capital invested by the stakeholders of the organization.


Return on invested Capital




Sunway Berhad
P Setia Berhad
2012
6.06
8.01
2013
20.14
4.89
2014
8.85
4.2
2015
7.41
7.48
2016
5.25
6.18


From the analysis made above, it is evident that, Sunway Berhad has been able to perform better as compared to P Setia Berhad. However, it is noted that, over the years the Return on invested capital of Sunway Berhad has gradually decreased and is quite low as compared to the market standards. It indicates that, the organization was not able to employ its capital in a profitable manner in order to generate the maximum return. On the other hand, it is noted that, P Setia Berhad has more Return on invested capital in the current financial year (Kou et al. 2014). Thus, it is evident that, management of both the companies needs to critically analyze the situation and look for viable options in order to earn maximum profitability. 


https://lh5.googleusercontent.com/ji233jI4sn1WoD-i_NTNz7KhZe9juMAvOzVHaiBKgeGTyWjB3MJn5qrbzEKl6WT487vnZ_t_jiZJA-tiD_ck694m0efL7QxppS314d5yj6ePJ3Ddz8OYWTWqohw3rqQC2muBPBEQ

Figure 1: Return on invested capital of Sunway Berhad and P Setia Berhad

(Source: Self developed)

Net profit margin: The net profit margin of an organization indicates the percentage of revenue earned by an organization after meeting its payment obligations in a financial year. It is one of the significant profitability ratios that measure the profitability of an organization in the market. 


Net Profit margin




Sunway Berhad
P Setia Berhad
2012
13.79
15.59
2013
31.57
13.65
2014
16.1
10.65
2015
16.47
13.61
2016
12.58
16.3


From the above analysis it is noted that, the net profit margin of Sunway Berhad has been comparatively better than PSetia Berhad over the last five years. It is noted that, in the year 2013, Sunway Berhad had a Net profit margin of 31.57 %. It indicates that, the organization was able to perform better and thereby earned good amounts of profits. However, in the current financial year, the net profit margin of P Setia Berhad was better than that of Sunway Berhad. This indicates that, P Setia Berhad tends to have a good profit margin as compared to Sunway Berhad (Low et al. 2015)



Figure 1: Net profit margin of Sunway Berhad and P Setia Berhad

(Source: Self developed)


Assets turnover ratio: It is one of the significant profitability ratios, hat measure the value of the sales of an organization in relatives to its total assets. It actually indicates the ability of an organization to generate the maximum sales revenue from the market by investing its assets in the business operations. 


Asset turnover ratio

Sunway Berhad
P Setia Berhad
2012
0.32
0.34
2013
0.47
0.28
2014
0.38
0.3
2015
0.31
0.41
2016
0.27
0.28

From the above analysis made it can be made evident that, the Asset Turnover ratio for both the companies is less and not as per the market standards. It is noted that, over the last five years period, the asset turnover for Sunway Berhad had been better in comparison to P Setia Berhad. This means that, Sunway Berhad is able to employ its asset in the business operations in a better way than P Setia Berhad and generate maximum revenue. However, it is noted that, in the current financial year, there was a fall in the asset turnover of Sunway Berhad and on the other hand, P Setia Berhad had more asset turnover (Schmidt and Hunter, 2014). This indicates that, the organization was able to perform better than Sunway Berhad and was able to generate good turnover comparatively.




Figure 1: Asset turnover ratio of Sunway Berhad and P Setia Berhad

(Source: Self developed)

b) Liquidity ratio: The liquid ratio is one of the measures of performance metrics of an organization. It determines the ability of an organization to meet its both short-term and long-term payment obligations. It represents the amount of liquid cash held by an organization a certain point of time. 

  • Current ratio: The current ratio of the organization is measure of the liquidity held by the organization. It is one of the critical financial ratios that are used to determine the ability of an organization to meet its short and long-term payment obligations. 
Current ratio




Sunway Berhad
P Setia Berhad
2012
1.24
1.35
2013
1.19
2.04
2014
1.38
2.3
2015
1.21
1.94
2016
1.2
2.17


It is evident from the above analysis that, the current ratio of Sunway Berhad is less than the ideal ratio of 2:1. This indicates that, the organization does not have the required level of cash or cash equivalents in order to meet its payment obligations. On the hand, it is noticed that, the current ratio of P Setia Berhad tends to fluctuate from time to time over a period of five years. In addition to that, it is noted that, Psetia Berhad has been able to maintain a current of 2.3:1 in the current financial year (Hee and Ping, 2014). This implies that, the organization can easily both its short-term and long-term payment obligations. 


  • Quick ratio: The Quick ratio is a measure of liquidity of an organization. It is one of the critical liquidity ratios that is used to measure the ability of an organization to pay off its immediate payment obligations. It is represented as ratio of quick assets held by an organization in relation to the total current liability.
Quick ratio

Sunway Berhad
P Setia Berhad
2012
0.77
0.79
2013
0.73
1.06
2014
0.87
1.04
2015
0.69
1.02
2016
0.66
1.12


In regards to the analysis made above it is noted that, the quick ratio of Sunway Berhad is less than the ideal ratio of 1:1. This indicates that, the organization may face difficulty in payment of its immediate obligations. On the contrary, it is noted that, P Setia berhad has been able to maintain a quick ratio of more than 1 over the last five years. This implies that, the organization will be able to meet all its short-term payment obligations. 



Figure 1: Quick ratio of Sunway Berhad and P Setia Berhad

(Source: Self developed)


c) Financial Health: The financial health of an organization refers to the financial stability of the company in the market. It is evaluation of the financial status of the organization in comparison to its competitors in the market. It is determined by calculating the financial leverage of a firm. 

  • Financial Leverage: Financial leverage is one of the measurement of financial health of an organization in the market. It represents the leverage or the amount of risk held by an organization in relation to its business operations (Hee and Ping, 2014). Notably, the more the financial leverage of an organization the more the amount of risk held by it.
Financial Leverage

Sunway Berhad
P Setia Berhad
2012
2.51
2.31
2013
2.08
2.25
2014
2.17
2.02
2015
2.44
2.05
2016
2.51
1.9


Evidently, the financial health of an organization is determined by the amount of leverage held by it. The financial leverage actually depicts the risk factors associated with an organization during the course of its operations. From the above analysis made, it is evident that, both Sunway Berhad and P Setia Berhad almost hold the same degree risks over the period of last five years. However, it is noted that, in the current financial year, P Setia Berhad had a lower leverage in comparison to Sunway Berhad. 


Recommendation and Conclusion

Recommendations:

In light of the above discussion made, it so evident that the financial performance of SP Setia Berhad is not up to the standards as compared to the financial stability of Sunway Berhad. However, it is noted in the financial section that, performance of both the organization needs to be improved. The management of both the organizations needs to identify the key issues that may prevail within the definitions and formulate action plan in order to eliminate the same. Below are given some recommendations that will help both the organization to not only increase their productivity in the market but gain a competitive edge as well. 

  • Notably, the current ratio of Sunway Berhad is not in accordance with the ideal ratio of 2:1. In doing the financial analysis, it is found that the company has lacked in maintaining the same amount of the efficiency and has faced some problems. In regards to this, the organization needs to increase their working capital by making short-term acquisitions from the debtors (Schultz and Hernes, 2013). In addition to that, they may also try to meet their short-term payment obligations as much as possible.
  • The company has faced low values of their share in the market although it is seen that the company has not yet reached the stage of financial distress yet. This can be mitigated by decreasing their level of debt capital from the market and issue more equity shares in the stock market. The debts that should be raised off in the secured debts that are the corporate bonds, which have low risk and low interest rates. The subordinate debts those are not collateral, which has very high rate interest and risk (Schmidt and Hunter, 2014). This will not only help the organization in increasing the demand of its equity shares in the market and procure more funds.
  • Organization restructuring is one of the significant ways that helps to restructure the financial stability of an organization. The restructuring process involves valuation of the financial reports of an organization, prioritizing and evaluation of the significant assets of an organization. Evidently, both the organization has a number of various business divisions and branches all across the country. The organization may take into consideration the significant assets that may help the organization in increasing the financial stability of the organizations. In case the units or the subsidiary of the organizations is not able to perform better, then this method may help them to revive their business operations.
  • Stocks repurchase or buy back of shares is also one of the methods that will help the organizations to increase the share prices in the market. This will tend to provide the organizations a much-needed boost and a competitive edge in the market as well. Buy back of shares may help the organizations to enhance the level of capital investment in the organization in order to gain a financial stability (Low et al. 2015). In addition to that, this will also help the organization to attract more stakeholders from the market. 
  • In accordance with the financial analysis made, the net profit margin of both the organization is not as per the market standards. In this regards, both the organizations needs to increase their level of productivity in order to enhance the level of sales revenue and earn more revenue. Enhancement in the revenue of both the organization will surely increase the profit margin. 
  • It is noted that, in almost every profit oriented organization, a certain amount of profit is retained for future investments. In context to this, it would be recommended for both the organization to retain a part of their net profit margin for future investment. This will tend to provide a financial stability for both the organizations and to meet any kind of contingent liability as well (Low et al. 2015).

The recommendations cited above will help both the organization to not only increase their financial stability but enhance their performance metrics as well.


Conclusion

In light of the above study, it can be established that, both the organizations are one of the significant conglomerate company in Malaysia. It is noted that, both the organization holds a significant share in the market and are one of the top performing organizations. However, in accordance with the financial analysis of both the organization the performance of both the organization is not as per the market standards. It is noted that, the current ratio, the net profit margin and the quick ratio is comparatively low and needs to be improved. In addition to that, it is noted that, the financial leverage of the organization\s is higher than the competitors. This tends to enhance the level of risk in context to their business operations. On the other hand, while making their industrial analysis of the organizations it has been noted that they have been able to perform well in the market. 


In regards to this, it can be concluded that, the management of both the organization needs to look after the performance and productivity of the organizations, identify the key issues if any and formulate certain policies in order to eliminate the same. 





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