In 2008 and 2009, Yeo Hiap Seng Berhad faced huge inflationary pressures on raw materials and energy. However, they were able to offset the rising costs with an established infrastructure, cost management and strategic price adjustments. They then focused more on building equity and less in development process in new product. They manage receive several prestigious awards in 2009. Although Yeo's faced a difficulty for sale in Indonesia but they committed to overcome the difficulties and continuing to grow presence in Indonesia.
For Oriental Food Industries, management had taken proactive measures to improve the efficiency of production by optimizing the production output. By condition without compromising on quality they still constantly outsourcing raw materials. In 2009, they introduced new flavours and enhanced the presentation of the packaging of several existing products.
For both company, they did a great job in corporate responsibility by several activities in these two years.
BACKGROUND
YEO HIAP SENG BERHAD
Yeo Hiap Seng Berhad, commonly known as Yeo's, which origins in 1900, is a public listed company and also known as a drink manufacturer Malaysia and Singapore. It involved mainly in the production, sale of food beverage products and marketing under the brand names of 'Yeo's', 'Justea', 'SoyRich', 'Cintan', 'H-Two-O', 'Yogurt', 'LA', 'Freedom' and 'Goodtase'. Ng Teng Fong's Far East Organization is the Yeo's majority shareholder which also running the business of developing houses and condominiums. 60 countries already step in by the company which includes Malaysia, China, Thailand, United States, Singapore and Franchises in Indonesia and Mauritius to expand their operations.
ORIENTAL FOOD INDUSTRIES HOLDINGS BHD
Oriental Food Industries Holdings Bhd (OFI) was established and incorporated in 1978. It operates in the food marketing industry in four categories which are wafer, potato snacks, snack food and bakery products. Snack food and confectionery industry are main concern in Malaysia. It also involves several product brand names such as 'Rota', 'Super Ring', 'Jacker' and 'Oriental'. They are still in the progress to expand their business overseas.
RATIO ANALYSIS
YEO HIAP SENG BERHAD
In order to assess the liquidity and asset management efficiency of Yeo Hiap Seng Berhad, two ratios are being investigated which are current ratio and inventory turnover. Current ratio is used to measure the firms' ability to meet its short-term obligations. It is calculated by using the current assets divided by current liabilities. The current ratio of OFI is 2.03 in year 2008 and 2.24 in year 2009. There is increase of 0.21 which show that the capacity of company to raise money had increase. Another ratio used is inventory turnover which measures the firms' efficiency in managing and selling inventory. It tells us how often did Yeo's sold and replaced its inventory over a period. Inventory turnover is cost of goods sold divided by inventories. Inventory turnover of Yeo's is 5.09 times and 4.84 times in year 2008 and 2009 respectively. The decrease in inventory turnover indicates that excessive inventory is being ordered and kept on hand. However, the decrease is not such significant and the efficiency of the company in managing inventory is not affected.
Next, debt ratio and long-term debt to total capitalization are being used in assessing company's debt financing and coverage. Debt ratio is used to show the proportion of all assets that are financed with debt. It is calculated by total liabilities divided by total assets. For year 2008 and 2009, the debt ratio is 0.32 and 0.33. Results of debt ratio that below 1 show that the company is able to pay all its debts. Yeo's has a slightly increase in the debt financing where company buy more assets through debt financing in year 2009. The second ratio used is long-term debt to total capitalization. It is used to measure the extent of the company use its long-term debt for permanent financing. It is showing the financial leverage of a firm, calculated by dividing long-term debt by the amount of capital available. For year 2008 and 2009, the related ratio is 3.38% and 4.2%. There is an increase which is 0.82% in permanent financing through long-term debt for 2009. As overall for debt financing and coverage, the company needs to use more debt in order to acquire one asset and it is not healthy for Yeo's if these ratios are bigger.
On the other hand, net profit margin and earnings per share (EPS) are used to evaluate the performance of Yeo's in these two years. Net profit margin shows how much profit a company makes for every RM1 of sales. It is calculated by dividing net profit by the net sales. For year 2008 and 2009, the net profit margin is 0.39% and -2.03%. We can assess that there is badly performance of company or inefficiency because the company not gain profit for 2009 compare to last year. Lastly, we used earnings per common share (EPS) to show the return on common stock shareholder for each share owned. This ratio is calculated as net earnings divided by average common shares outstanding. For year 2008 and 2009, the EPS is RM1.50 and -RM7.30. From the results, we realise that the EPS is negative value which mean that share owned by shareholder did not helped them to gain any profit.
ORIENTAL FOOD INDUSTRIES HOLDINGS BERHAD
The following is the financial interpretation for Oriental Food Industries Holdings Berhad for their financial report year 2008 and 2009. So as to assess the liquidity and asset management efficiency of OFI, current ratio and inventory turnover are used. The current ratio of OFI is 2.491 in year 2008 and 3.723 in year 2009 which show an increase of 1.232. Such increase in current ratio shows that OFI had improved its ability to pay off the short-term liabilities. Inventory turnover of OFI is 7.063 times and 6.387 times in year 2008 and 2009 respectively. This indicates that is a decrease of 0.676 times in the capacity of company to manage inventory compare to the previous year.
We also assess the debt financing and coverage of OFI by looking at the debt ratio and long-term debt to total capitalization. Debt ratios of OFI are 0.245 in year 2008 and 0.186 in year 2009. The decrease of 0.059 showing that OFI was hold less debt compared to the previous year. Other than that, OFI achieved the long-term debt to total capitalization ratio of 0.122 in year 2008 and 0.108 in year 2009. The decrease in this ratio shows that OFI is less risky in year 2009 because they having less debt in financing.
For assessment of OFI's performance in profitability and efficiency, net profit margin and earnings per share (EPS) are used. Net profit margin of OFI in year 2008 and 2009 are 0.037 and 0.082 respectively. Such increase tells us that OFI is generates more profit from every RM1 of sales. Besides, EPS for year 2008 and 2009 are 7.73 cent and 16.3 cent respectively. It means that a greater return is generated for each common share.
Critical Issues
YEO HIAP SENG BERHAD
Yeo Hiap Seng Berhad had faced loses in their business during 1987, they tried to diversify their business into the prawn-breeding industry by joining forces with Flowell in high tech prawn-breeding. Unfortunately, they faced significant losses which culminated to US$10 million in 1992 and they forced to shut down the pond.
During 1990, Yeo's involved in US market. Due to their underestimation of the difficulties of digesting a large acquisition, they faced losses totalling $36 million in the four following years.
This problem brought to a family issue with Yeo. The Yeo's family, whose shareholding interests in the company were bound together in a jointly owned private holding company, split into factions. This created chances for outsider to intervene in Yeo. By 1995, the first time non-Yeo had took over as chairman. Ultimately, with Far East controlling Yeo Hiap Seng Berhad to this day.
ORIENTAL FOOD INDUSTRIAL HOLDING BERHAD
Throughout our research, we found that there is no fraud or critical issues for Oriental Food Industry in the past. So, we discuss about the potential critical issues that may affect the company in future based on their annual report 2009.
OFI recognized its assets based on the historical value but there are some expectations of the future condition may affect the calculation of value recognition, depreciation expenses and asset useful life. Therefore, there had been some adjustments on the carrying amount of assets and liabilities. This helps to enhance the relevancy in value recognition. The company also recognises currency risk where there are foreign currency transactions such as foreign current exchange risk, interest rate risk, credit risk and so on.
Recommendations and Conclusion
Refers to the ratio analysis above, we compare the performance of these two companies as well. We realised that the current ratio for Oriental Food Industry is larger than Yeo Hiap Seng for both years. This reflects that OFI is more capable to meet the need of cash as arisen compare with Yeo's. Besides, OFI's products are selling faster than Yeo's. This shown that OFI is manages to control their inventory well.
However, debt ratio for OFI is lower than Yeo's which means that OFI is able to acquire asset by its own financing compare to Yeo's which had higher debt ratio. In additions, Yeo's does not gain any profit during year 2009 and they making loss instead. Yet, OFI was making profit during that year. Therefore, shareholders of OFI can enjoy the dividend whereas Yeo's shareholder cannot.
In overall, we can see that Oriental Food Industry is performing better than Yeo Hiap Seng. Yeo's is advised to improve their inventory system in order to control well in the flow of inventory. They may launch a new strategy marketing tool to increase their sales and also the profit.
Since OFI is expanding their business overseas, they are having more potential in gaining the market shares. Compare to Yeo's, OFI has a better system in managing their business such as inventory and debt financing system. As a conclusion, Oriental Food Industry is the company that we would like to invest in because of its good performance.
