AFFIN Holdings Berhad (AHB) was incorporated in Malaysia on 31 May 1975 as a private limited company under the name of I.M.A Sdn Bhd. It started off as a credit company providing hire-purchase financing for motor vehicles. On 15 September 1978, it changed its name to AFFIN Motor and Credit Finance (Malaysia) Sdn Bhd. Subsequently it changed its name again to AFFIN Credit (Malaysia) Sdn Bhd on 16 January 1979 and thereafter to AFFIN Holdings Sdn Bhd on 2 March 1991. It was converted into a public company under its present name on 6 May 1991. In the last decade, AHB has changed substantially in terms of group organisation structure through a series of mergers and acquisitions which had been undertaken to facilitate AHB's status as the flagship financial services subsidiary of its major shareholder, Lembaga Tabung Angkatan Tentera (LTAT).
Public Bank
Established in 1966 by its Founder and Chairman, Tan Sri Dato' Sri Dr. Teh Hong Piow, Public Bank is a leading provider of financial services in Malaysia with banking operations in Hong Kong and China, Cambodia, Vietnam, Laos and Sri Lanka. In Malaysia, Public Bank is one of the most efficient banks as reflected by its low cost to income ratio.
Public Bank is a top-tier bank in Malaysia, well-reputed for its prudent management, superior customer service, uncompromising service delivery standards and strong corporate governance and corporate culture. Public Bank remains untouched by the global financial crisis which wrecked havoc in major financial centres around the world.
Over the years, the Public Bank Group has been part of the strong catalysts to support Malaysia's economic development. Since its early days, Public Bank has transformed into a strong and successful financial institution, offering a wide range of competitive and innovative products and solutions to meet its customers' needs.
In Malaysia, Public Bank is an industry leader in home mortgage financing, vehicle hire purchase financing and commercial lending to small- and medium-sized enterprises. Also, in Malaysia, the Public Bank Group has the highest market share for the private sector unit trust business. In Hong Kong, the Group is an industry leader in personal consumer financing.
Public Bank is the most recognized brand in the Malaysian financial services industry for its strong brand promise. In terms of size, it is the third largest domestic bank in Malaysia by market capitalization and balance sheet.
2. Macroeconomic
GDP growth and inflation have slowed piercingly since mid-2008.
ï‚· GDP in 2009Q1 had decline to 10½ percent, compare to 2008Q4 (about 12 percent). The drop in GDP was cost by faltering external demand: exports which is about 110 percent of GDP and are focused in electronics and commodities have decline by more than 15 percent in the first quarter. Domestic demand, which showed in the last year, has also been affected by the inward spillovers of external shocks: private consumption drop by nearly 1 percent and gross fixed investment by some 11 percent, in 2009Q1.
Inflation achieved a 26-year high in mid-2008, but has since dropped as commodity prices have collapsed and lower in demand has put a lid on pricing power. Core inflation has also sloped down.
The decrease in employment has been relatively small so far. Manufacturing employment has reduced by 7¾ percent in the first quarter (compared with industrial production which is about 15 percent), and the overall unemployment rate has rose modestly to 3.2 percent in the first quarter. Lags may still have to play out fully, but there is reasonable survey evidence that foreign workers (not fully captured in labor market statistics) have borne the brunt of the adjustment. In addition, unlike what happened during the Asian Crisis, many export-oriented companies have reportedly been able to mitigate the blow of shrinking orders through shortened work time rather than labor-shedding. As a result, consumer satisfaction and confidence has generally held up.
Government policy
Fiscal Policy
The central government deficit, which had dropped from 5 percent of GDP in 2003 to 3¼ percent of GDP in 2007, increased back to nearly 5 percent of GDP last year. In total, fiscal policy was pro-cyclical in good times. Oil revenues rose on the back of (lagged) energy prices through 2008. However, spending increased even faster as fuel and food subsidies rising, and other current spending kept up with revenues. The headline deficit widened in order to against the backdrop of a trend erosion of non-oil revenue and the non-oil deficit surged to 11 percent of GDP. A subsidy recompose in mid of 2008 provided little budgetary relief as savings were later spent when the cycle turned.
Monetary Policy
Since November 2008, the BNM has highly reduced its policy rate by 150 basis points to 2 percent and reserve requirements have also been cut to reduce the cost of financial intermediation. Timely liquidity support in the interbank market has preserved the overnight interbank rate close to the policy rate, suggesting orderly market conditions throughout. As elsewhere in the region, U.S. dollar funding pressures appeared, as indicated by widening cross-currency basis spreads and sporadic evidence of more difficult access to trade credit, but on the whole dollar liquidity still remained adequate.
The monetary transmission mechanism has not been demolished by the global market turbulence. The base lending rate has dropped, and broad money has continued to grow. Credit has expanded although the rate of expansion has slow down as banks tightened lending standards and loan demand moderated in tandem with economic activity.
Business cycle
The stock market price index is a leading indicator. That is as it should be, as stock prices are forward-looking predictors of future profitability. Unfortunately, this makes the series of leading indicators much less useful for investment policy by the time the series predicts an upturn, the market has already made its move. Although the business cycle may be somewhat predictable, the stock market may not be. This is just one more manifestation of the efficient markets hypothesis.
The money supply is another leading indicator. This makes sense in light of our earlier discussion concerning the lags surrounding the effects of monetary policy on the economy. An expansionary monetary policy can be observed fairly quickly, but it might not affect the economy for several months. Therefore, today's monetary policy might well predict future economy activity. Other leading indicators focus directly on discussions made today that will affect production in the near future.
Malaysia's Composite Cyclical Indicators and their Constituent Series
Coincident index components:
1. Index of industrial production
2. Real gross imports
3. Real salaries and wages, manufacturing
4. Total employment, manufacturing
5. Real sales, manufacturing
6. Real contributions, Employees Provident Fund (EPF)
Leading index components:
1. Real money supply, M1
2. Bursa Malaysia Industrial Index (Malaysian stock exchange)
3. Real total traded: eight major trading partners
4. CPI for services, growth rate (inverted)
5. Industrial material price index, growth rate
6. Ratio of price to unit labor cost, manufacturing
7. Number of housing permits approved
8. Number of new companies registered
Lagging index components:
1. 7-day call money rate
2. Real excess lending to private sector
3. Number of investment projects approved
4. Number of defaulters, EPF (inverted)
5. Number of new vehicles registered
Industry analysis
Industry life cycle
You can see there are four phases, 1) Introduction, 2) Growth, 3) Maturity, and 4) Decline. A product can be in the growth stage for one bank, but in the maturity stage for another bank (Banker, 2010).
While most PLC's describe fairly uniform time periods for each of the stages, this is not necessarily fact. Individual products can consume different amounts of time in any one of the stages depending upon the factors including the organization's marketing effort, competition, the nature of the market, and the nature of the product. In addition, not all products will pass through all stages of the life cycle because some products will die in introduction, thus precluding subsequent movement through the cycle. The PLC suggests several guidelines for launching new product ventures despite of these limitations.
The way to introduce a new product will vary depending on whether the product is a new, innovative product. The product typically enters the market in a monopolistic position if the product is a brand new innovative product not previously on the market. There has suggests that promotional plans should focus on making consumers aware of the value and benefit of the innovation in such a position. Advertising for the product in general is, in effect, advertising for the bank's specific product, since the product enjoys a monopoly position.
Promotional programs can support new products which are perceived as more complex and less compatible to aim at changing these perceptions. Hence, new products with strong relative advantage over other existing products will enjoy an excellent position to enter the market. A product pricing strategy will depend upon management's judgment whether the innovative new product can be duplicated. The innovative bank may choose a pricing strategy that will allow for maximum market penetration in the shortest amount of time for those products that lend themselves to copycat competitive strategies. A skimming strategy may be more appropriate if the innovation is protected by some technological competence or a distinctive "trademark" of the introducing bank and such a strategy seeks to maximize product profitability early on in the product's life cycle.
The introductory strategies are somewhat different for product modifications and perhaps the most notable difference is the promotional focus. Promotional focus should be on product differentiation since modifications do not require significant efforts on the part of consumers to learn about them. Furthermore, pricing strategies should focus on market penetration, seizing as much of the market as quickly as possible since competitive reaction may be rather quick and neutralization of the differential advantage fairly easy.
Most product managers would be more favor to the new product spends as little time in the introductory stage as possible. This stage is typically exerts the greatest drag on product and product-line profitability. A function of the product's characteristics (relative advantage, complexity, compatibility, and so forth), the resource commitment by the bank, the planning done prior to introduction, and various market characteristics determine the length of time a product spends in this stage.
In addition, the length of time that the product spends in this stage of the life cycle may be caused by other factors, often beyond the control of the bank. For example, the diffusion of home computers throughout the consumer market is directly related by home computer banking and if this is slow, so too will be the diffusion of home computer banking. Thus, this is a factor that is often overlooked in the process of planning new product introductions.
Competitors
CIMB Bank
RHB Bank
Am Bank
Hong Leong Bank
May Bank Berhad
Competitive Analysis: Porter's Analysis
Rivalry among competing banks is fierce as the number of competitors is large. For example, May Bank has invested heavily in promoting their credit card product in order to expand their market shares.
Potential entry of new competitors is low due to the difficulty to fulfill the requirement for obtaining the license of the business which stated in Bank Negara Malaysia Administered Legislation.
Potential development of substitute products is low because the interest rate charge by licensed financial institutions in loans is higher than the banks. In addition, Bank Negara Malaysia implements OPR which will give a guideline for the banks to set up their BLR and BFR.
Bargaining power of suppliers is high due to the number of suppliers is limited. For example, most of the banks purchase their electronic machine like computer from IBM because IBM is specialist in supplying bank electronic machine.
Bargaining power of consumers is also high because the consumers have many options to choose which will bring the most beneficiary from their decision.
PEST Analysis
Political Analysis
The Government and BNM hold too much power and authority. In addition, lack of coherence in financial policy is a problem as serious as lack of transparency. It does not seem to have a clear exit policy, even though the Government encourages mergers
Economic Factors
Economic conditions affect the level of how easy or how difficult it is to be successful and profitable at any time because they affect both capital availability and cost, and demand. The purchasing power of potential customers and the firm's cost of capital are affected by economic conditions. Furthermore, government spending can enhance the money supply and make capital market more stable.
Social Factors
The social cultural environment decide demand and tastes, which vary with fashion and disposable income, and common changes, can again provide both opportunities and threats for particular companies. Income distribution, Labor/ social mobility, Lifestyle changes, Demographics, Class structure, Education, Culture, gender roles, Entrepreneurial spirit, Attitudes, Leisure interests are some example of social factors.
Technological factors
The rapid growth in the technology of personal computers and internet can be both opportunity and challenge to the banking industry. This unbelievable growth of internet has obligated many banks toward conducting transactions on internet. May Bank Berhad was one of the first banks to provide online services and internet security issues-the question concerning the security of internet has gained great importance.
3. Compare and evaluate their financial performances.
Affin Bank
2007
2008
RM'000
RM'000
Internal Liquidity
Current Ratio
Current Asset
4,434,158
4,286,311
Current Liabilities
1,208,110
1,045,989
= 3.67
= 4.10
The current ratio for Affin Bank experienced an increase from 3.67 at year 2007 to 4.10 at 2008. It might be caused by there has a reduction of current liabilities for the company. Maybe the company has paid some of their short term debts against their creditors. It shows a positive condition of the company situation and growth.
Quick Ratio
Cash + Receivable
468,213
329,414
Current Liabilities
1,208,110
1,045,989
= 0.39
= 0.31
From the calculation, it shows a small decrease of quick ratio for the company. It declined from 0.39 at year 2007 to 0.31 at year 2008. It shows a very small amount of quick ratio for the company, which means the degree of liquidation for the company, is quite low.
Cash Ratio
Cash
238,213
34,293
Current Liabilities
1,208,110
1,045,989
= 0.2
= 0.033
The cash ratio for Affin Bank experienced a decline from 0.2 at year 2007 to 0.033 at year 2008. The main reason for this circumstance might cause by there is a large reduction of cash in hand for the company.
Receivable Turnover
Net Annual Sales
421,587
141,382
Average Receivable
(3484+230,000)/2
(230,000+295,121)/2
= 3.61
= 0.54
The company suffered a huge decline of receivable turnover from 3.61 at year 2007 to 0.54 at year 2008. The company incurred a huge increase of receivable amount at year 2008, but the annual sales for the same year were decline. The huge amount of increase for account receivable might be a burden for the company to pay off their debts against creditors as well.
As a conclusion to the internal liquidity for Affin Bank, it tells us that the company does not do well in the internal liquidity control. According to the quick and cash ratio, the company does not has sufficient finds to face their liabilities. Besides, the company also incurred a huge amount in their account receivable as well. As consequences, it might harm to company to perform their payoff against their creditors.
Operating Performance - Operating Efficiency Ratio
Total Asset Turnover
Net Sales
421,587
141,382
Average Total Assets
(3,829,675+4,435,403)/2
(4,435,403+4,287,417)/2
= 0.07 times
= 0.03 times
The total asset turnover for Affin Bank drops from 0.07 times at year 2007 to 0.03 times at year 2008. It indicates how the company uses their assets to generate sales. At year 2008, the sales were dropped, so it affects the turnover dropped as well.
Fixed Asset Turnover
Net Sales
421,587
141,382
Average Net Fixed Asset
125114
117555
= 3.37
= 1.2027
The fixed asset turnover for the company drops from 3.37 at year 2007 to 1.2027 at year 2008.
Equity Turnover
Net Sales
421,587
141,382
Average Equity
(3,227,293+2,448,044)/2
(3,241,428+3,227,293)/2
= 0.15 times
= 0.04 times
The equity turnover for the company drops from 0.25 at year 2007 to 0.04 at year 2008.
Operating Performance - Operating Profitability Ratio
Operating Profit Margin
Operating Profit
408,957
133,998
Net Sales
421,587
141,382
= 0.97
= 0.95
The operating profit margin for Affin Bank drops from 0.97 at year 2007 to 0.95 at year 2008. Due to the decline of annual sales at year 2008, it generates a lower operating profit as well compared with year 2007.
Net Profit Margin
Net Income
275,045
92,429
Net Sales
421,587
141,382
= 0.6524
= 0.6538
The net profit margin experienced a small increase which from 0.6524 at year 2007 to 0.6538 at year 2008.
Return on Equity (ROE)
Net Income
275,045
92,429
Total Equity
3,227,293
3,241,428
= 0.0852
= 0.0285
The return on equity for the company suffered a decline which from 0.0852 at year 2007 to 0.0285 at year 2008. It means that the company is deficient at generating profits from every unit of shareholders' equity at year 2008.
After examine Affin Bank's operating performance, we noticed a big problem in this section. This is, the annual sales of the company drop hugely at year 2008. Due to the decline of annual sales, it makes the turnover related to annual sales unstable. As to this, the company failed to generate an equivalent profit as compared to year 2007. It harms the consistent growth for the company. Besides, it reduces the rate of return for the company against to their shareholders.
Financial Risk Analysis
Total Debt Ratio
Total Debt
1,208,110
1,045,989
Total Debt + Total Equity
(1,208,110+3,227,293)
(1,045,989+3,241,428)
= 0.2724
= 0.2440
The total debt ratio for Affin Bank dropped from 0.2724 at year 2007 to 0.2440 at year 2008. It indicates that during year 2007, the company had about 27% of assets is financed with debts and about 24% at year 2008.
In the measurement in terms of the proportion of debts, Affin Bank done quite good in this section. It shows a very positive condition in the assets financed with debts. It reduces the burden of the company to pay off their debts and also reduce their expenditures on interest paid.
Earning per Share (EPS)
= 19.11 sen
= 19.60 sen
The earning per share for Affin Bank at year 2007 is 19.11 sen. It increased to 19.60 sen at year 2008.
Pricing Earning Ratio
Market Value Share
2.59
1.52
EPS
19.11 sen
19.6 sen
= 13.55
= 7.76
The pricing earning ratio for Affin Bank dropped from 13.55 at year 2007 to 7.76 at year 2008. The market value share of Affin Bank dropped at year 2008 might be caused to the decrease of their annual sales.
In this section, Affin Bank shows a positive growth on the earning per share. But, due to the reduction of annual sales at year 2008, it affects the market value share dropped from 2.59 to 1.52. As consequence, the pricing earning ratio drop.
Analysis of Growth Potential
Due to the instability of growth rate for Affin Bank, the management has to work harder to correct it and put the company back to the track for their future growth. The decline of the company's return on equity and the decline of the market value share might lose the confidence of investors to continue invest in the company. By the way, the company's strength is on their financial risk control, which they done proper in the proportion of debts. As for the future growth, the company might gain some advantages due to this section.
Public Bank
2007
2008
RM'000
RM'000
Internal Liquidity
Current Ratio
Current Asset
157,227,617
165,355,139
Current Liabilities
149,120,485
157,307,025
= 1.0544
= 1.0512
The current ratio for Public Bank experienced a small decrease from 1.0544 at year 2007 to 1.0512 at 2008. Throughout the figure, we noticed that the company had increased their current assets as well as their current liabilities too. Maybe the company has made some short term loan to make some investment. As for long term growth, we believe that the company has a very consistent growth even there show a decline on their current ratio.
Quick Ratio
Cash + Market Security + Receivable
61,070,376
63,487,326
Current Liabilities
149,120,485
157,307,025
= 0.4095
= 0.4036
From the calculation, it shows a small decrease of quick ratio for the company. It declined from 0.4095 at year 2007 to 0.4036 at year 2008. It shows a very small amount of quick ratio for the company, which means the degree of liquidation for the company, is quite low.
Cash Ratio
Cash
32,606,147
29,564,959
Current Liabilities
149,120,485
157,307,025
= 0.2187
= 0.1879
The cash ratio for Public Bank experienced a decline from 0.2187 at year 2007 to 0.1879 at year 2008. The cash in hand for the company decreased but there is an increasing of current liabilities is the reason for this circumstance.
Receivable Turnover
Net Annual Sales
7,832,708
8,556,614
Average Receivable
(3,069,166 + 3,954,803)/2
(3,069,166 + 3,834,326)/2
= 2.2303
= 2.4790
The receivable turnover for the company increased from 2.2303 at year 2007 to 2.4790 at year 2008. It is a good condition for the company. As the reduction of amount in account receivable, it reduces the burden of the company to collect back their debts as to pay off their debts.
Public Bank has a very stable and consistent growth rate in this section. But the only problem is, the current liabilities incurred by the company are considered high. Besides, the company is also suffering a small rate of quick and cash ratio. It might harm the company when they need to pay off some of their short term debts emergency. The company does not have sufficient degree of liquidation to meet their current liabilities.
Operating Performance - Operating Efficiency Ratio
Total Asset Turnover
Net Sales
7,832,708
8,556,614
Average Total Assets
(158,471,100 + 134,267,022)/2
(158,471,100 + 166,698,854)/2
= 0.0535
= 0.0526
The total asset turnover for Public Bank drops from 0.0535 at year 2007 to 0.0526 at year 2008. It indicates how the company uses their assets to generate sales.
Fixed Asset Turnover
Net Sales
7,832,708
8,556,614
Average Net Fixed Asset
(1,243,483+1,244,678)/2
(1,243,483+1,343,715)/2
= 6.296
= 6.6146
The fixed assets turnover for Public Bank increase from 6.296 at year 2007 to 6.6146 at year 2008.
Equity Turnover
Net Sales
7,832,708
8,556,614
Average Equity
(9,350,615+8,970,327)/2
(9,350,615+9,391,829)/2
= 0.8551
= 0.9131
The equity turnover for the company increased from 0.8551 at year 2007 to 0.9131 at year 2008.
Operating Performance - Operating Profitability Ratio
Operating Profit Margin
Operating Profit
3,212,665
3,293,229
Net Sales
7,832,708
8,556,614
= 0.4102
= 0.3849
The operating profit margin for Public Bank experienced a decline from 0.4102 at year 2007 to 0.3849 at year 2008. The company has a lower proportional of operating profit from their net sales at year 2008 compared with year 2007.
Net Profit Margin
Net Income
2,106,197
2,272,736
Net Sales
7,832,708
8,556,614
= 0.269
= 0.267
The company experienced a small reduction of net profit margin, which is from 0.269 at year 2007 reduce to 0.267 at year 2008.
Return on Equity (ROE)
Net Income
2,106,197
2,272,736
Total Equity
9,350,615
9,391,829
= 0.2252
= 0.2420
The return of equity for the company increased from 0.2252 at year 2007 to 0.2420 at year 2008. The company shows a very stable rate of return that their management has earned on the capital provided by the owner.
In this section, Public Bank shows a very stable and consistent rate on their operating performance from year 2007 to year 2008 as well. But, the total assets turnover for the company is considered small. So, the company does not do well by capitalizing their assets to generate larger sales.
Financial Risk Analysis
Total Debt Ratio
Total Debt
149,120,485
157,307,025
Total Debt + Total Equity
(149,120,485 + 9,350,615)
(157,307,025+9,391,829)
= 0.9410
= 0.9437
The total debt ratio of Public Bank at year 2007 is 0.9410 and it increases to 0.9437 at year 2008. It shows a quite high of percentage which the company's assets are financed with debts.
Due to the financial risk analysis, Public Bank shows a quite large ratio on their total debt ratio. It is not a good direction for the company. Due to this, the company might increase their burden on paying off debts to their creditors. Instead of using the money to pay off their debts, the company might lose chances to invest in other field and generate more income.
Earning per Share (EPS)
63.3 sen
76.9 sen
During year 2007, the earning per share for Public Bank is 63.3 sen and it increases to 76.9 sen at year 2008.
Pricing Earning Ratio
Market Value Share
9.37
10.7
EPS
0.633
0.769
= 14.8
= 13.91
The pricing earning ratio for the company dropped from 14.8 at year 2007 to 13.91 at year 2008.
Public Bank shows a positive growth in their earning per share. Besides, the company also able to increases their market value share as well. This might helps the company keep surviving well in the industry.
Analysis of Growth Potential
Due to the stable and consistent growth rate showed by Public Bank, the company has great potential for future growth. The company did very well in their return on equity rate and the pricing earning ratio. By showing a positive rate of return and positive growth of their market value share, it increases the confidence of investors to invest in their company.
Public Bank vs Affin Bank
Public Bank
Affin Bank
RM'000
RM'000
Internal Liquidity
Current Ratio
Current Asset
165,355,139
4,286,311
Curent Liabilities
157,307,025
1,045,989
1.0512
4.10
Due to the current ratio, Affin Bank has a higher current ratio compared with Public Bank at year 2008. This is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. As to the calculation, Affin Bank has a better ability to pay off its debts compared with Public Bank.
Quick Ratio
Cash + Receivable
63,487,326
329,414
Curent Liabilities
157,307,025
1,045,989
0.4036
0.31
In this section, Public Bank has a better quick ratio than Affin Bank did. A higher quick ratio indicates that Public Bank has better ability to use its near cash or quick assets to immediately extinguish or retire its current liabilities.
Cash Ratio
Cash
29,564,959
34,293
Curent Liabilities
157,307,025
1,045,989
0.1879
0.033
Public Bank shows a higher cash ratio compared with Affin Bank. It means that Public Bank has better conservative liquidity ratio than Affin Bank.
Receivable Turnover
Net Annual Sales
8,556,614
141,382
Average Receivable
(3,069,166 + 3,834,326)/2
(230,000+295,121)/2
2.479
0.54
Due to the calculation of receivable turnover, Public Bank shows a higher turnover than Affin Bank. For the receivable turnover ratio, the higher should be the better. Because it's mean that the company will get a highly turnover on their receivable to get back their receivable amount from their debtor. So, Public Bank might gain more competitive advantages than Affin Bank.
As overall, the comparison between Public Bank and Affin Bank shows that Public Bank has done better and acquired a better internal liquidation compared to Affin Bank. Even though Affin Bank done better in controlling their current ratio, but Public Bank has higher quick and cash ratio compared with Affin Bank. But, the amount of quick and cash ratio for both banks are still considered small.
Operating Performance - Operating Efficiency Ratio
Total Asset Turnover
Net Sales
8,556,614
141,382
Average Total Assets
(158,471,100 + 166,698,854)/2
(4,435,403+4,287,417)/2
0.0526
0.03
Public Bank shows a higher total asset turnover than Affin Bank. It means that Public Bank has a better ability in order to generate sales revenue or sales income to the company than Affin Bank. So, Public Bank had done more efficiency in this section.
Fixed Asset Turnover
Net Sales
8,556,614
141,382
Average Net Fixed Asset
(1,243,483+1,343,715)/2
117555
6.6146
1.2027
Due to the fixed asset turnover, it indicates that how well the business is using its fixed assets to generate sales. In this section, Public Bank has a higher turnover than Affin Bank. So, Public Bank has better ability to use its fixed assets to generate more revenue than Affin Bank.
Equity Turnover
Net Sales
8,556,614
141,382
Average Equity
(9,350,615+9,391,829)/2
(3,241,428+3,227,293)/2
0.9131
0.04
Public Bank has a higher equity turnover than Affin Bank. Public Bank performs better than Affin Bank by using the company's equity to generate revenue.
Operating Performance - Operating Profitability Ratio
Operating Profit Margin
Operating Profit
3,293,229
133,998
Net Sales
8,556,614
141,382
0.3849
0.95
In this section, Affin Bank shows a higher operating profit margin than Public Bank. Operating profit margin is a measurement of what proportion of a company's revenue is left over, before taxes and other indirect costs after paying for variable costs.
Net Profit Margin
Net Income
2,272,736
92,429
Net Sales
8,556,614
141,382
0.267
0.6538
Affin Bank has higher net profit margin than Public Bank. But, due to the differences of businesses' operating and financing arrangement, it will incur different level of expenditures. So, the comparison of one with another can have little meaning.
Return on Equity (ROE)
Net Income
2,272,736
92,429
Total Equity
9,391,829
3,241,428
0.2420
0.0285
In this section, Public Bank shows a higher return on equity than Affin Bank. It means that Public Bank has better ability to generate profits from every unit of shareholders' equity.
In this section, Public Bank shows a better operating performance than Affin Bank in both operating efficiency and operating profitability ratios. Public Bank has better ability by using both of their assets and equity to generate more revenue than Affin Bank. Besides, Public Bank also gives a higher return on equity figure to their investors.
Financial Risk Analysis
Total Debt Ratio
Total Debt
157,307,025
1,045,989
Total Debt + Total Equity
(157,307,025+9,391,829)
(1,045,989+3,241,428)
0.9437
0.244
Affin Bank has lower total debt ratio than Public Bank. The proportion of debts for Affin Bank is lower. It means that Affin Bank has lower of percentage which the company's assets are financed with debts.
Due to the proportion of debts, Affin Bank is doing better than Public Bank did. Public Bank has higher percentage which the company's assets are financed with debts.
Earning per Share (EPS)
76.9 sen
19.6 sen
Public Bank has higher earning per share than Affin Bank.
Pricing Earning Ratio (PE Ratio)
Market Value Share
10.7
1.52
EPS
0.769
19.6 sen
13.91
7.76
The pricing earning ratio for Public Bank is higher than Affin Bank.
Due to the earning per share and the pricing earning ratio, we can indicate that Public Bank has a better performance than Affin Bank did. It also tells us than Public Bank has the better ability to help their investors to generate more earning.
Analysis of Growth Potential
Due to the stable and consistent growth rate showed by Public Bank, the company has great potential for future growth. The company did very well in their return on equity rate and the pricing earning ratio. By showing a positive rate of return and positive growth of their market value share, it increases the confidence of investors to invest in their company. On the opposite sides, Affin Bank gives an instability growth rate to their investors compared with Public Bank. So, the management of Affin Bank has to work harder to correct it and put the company back to the track for their future growth. The decline of the company's return on equity and the decline of the market value share might lose the confidence of investors to continue invest in the company.
4. Provide comprehensive recommendations/solutions on how to improve the overall situation of each companies
Recommendations for Affin Bank:
After the analyzing the financial ratio for Affin Bank, we noticed that the company doesn't perform a proper internal liquidity. The company faces problems in the liquidity issue. It might harm the company when they need to pay off some of their short term debts emergency. The company does not have sufficient degree of liquidation to meet their current liabilities. So the company has to make sure they have sufficient reserve funds for emergency usage and confidence their investors. The management of Affin Bank has to think about it on how to make proportion for their cash reserve. The proportion for cash reserve should stabilize the company when it needs immediate money to pay off their debts, and also the consideration to use the cash to invest in other profitable investments.
There is another concern that the company should take note, which is the annual sale for year 2008 was declined. As the huge falling of annual sales amount, the company suffered a very small turnover on the operating efficiency ratios. The company does not manage well to use its assets and capital to generate sales. So, the company must manage well on what they have and use it proper to generate larger sales. The company has to capitalize what they have and what are their strengths against their competitors to generate more sales. Maybe the company can put more effort on the research and development area. They should understand the trend in the market and the changes of consumers' needs. After that, they might invent new kind of services that satisfy the consumers' needs in the market. If they done this step better and earlier than their competitors do, they can earn initial profit than their competitors.
Recommendations for Public Bank:
After the analyzing the financial ratio for Public Bank, we noticed that the company suffering a small rate of quick ratio. It might harm the company when they need to pay off some of their short term debts emergency. The company does not have sufficient degree of liquidation to meet their current liabilities. So the management should put their concern on it. Same as Affin Bank, the company has to make sure the company has sufficient reserve funds for emergency usage. For example, the company might sell some unused fixed assets to transform it into cash.
Besides, another problem we noticed that is the proportion of debts for Public Bank is considered high. Most of their assets are financed with debts. To solve this kind of situation, the company might think to sell some of unnecessary assets. By selling those unnecessary assets, the company can transform the assets into cash; this might solve the previous problems which helps the company to increase the rate of their quick ratio. Besides, the company can prevent unnecessary purchases to avoid wastage of resources. Thirdly, it helps the company reduce the amount of loan.
