1.0 Executive Summary
In this written report, we are emphasizing on the comparison of the financial performance between OSK Holdings Bhd and Affin Holdings Berhad. From an investor's point of view, the financial performance is more important as it will be used for making investment decision.
As an investor, benefits in form of dividend come first. Therefore, we have to analyze the financial performance of both of the company in order to determine their sustainability in managing the business. For this purpose, we look into the financial reports issued by OSK Holdings Bhd and Affin Holdings Berhad in 2008 and 2009 to conduct a trend analysis in financial ratio. Trend analyses help the users to foresee the performance of the company in the future. It is not only used by current investors to decide the continuity of investment, but also used by potential investors to value the worthiness of the company's shares.
Besides quantitative information, we also look at the quantitative information which included other critical issues which will have the financial impact to the company and most importantly, the investors themselves.
Based on the financial statements and other researches of the company, we will come out with a conclusion from the investors' point of view.
2.0 Background of Companies
2.0.1 OSK Holdings Berhad
OSK Holdings Berhad (OSK) is a financial services company. The company is offering a variety of financial advisory and investment services for individuals as well as enterprises. The company's principal business operating country included Malaysia, Singapore, Hong Kong and Shanghai. OSK offers a range of investment banking products and services, wealth management services, Venture capital services, and retail financial products and services. The company has many business segments which are, Investment banking; Commercial banking, Futures & options, Equity, Venture capital; Capital financing; Property development, Unit trust; Holding entities, Property investment and other.
2.0.2 Affin Holdings Berhad
Affin Bank was incorporated as a private limited company on 31 May 1975. Now, Affin Holdings Berhad is an investment holding company. It operates in five segments: commercial banking and hire purchase, investment banking, stock-broking, insurance and others. The Commercial Banking and Hire Purchase segment focusing on business of banking in all aspects which includes Islamic Banking operations. Investment banking segment includes business of a merchant bank, discount house, fund and unit trusts management. Stock-broking segment comprises institutional and retail broking business for securities listed on the Bursa Malaysia Securities Berhad, investment management and research services. The insurance segment includes underwriting all classes of general and life insurance businesses in Malaysia. Other business segments in the Group include operation of investment holding companies, money-broking, insurance-broking and other related financial services. Operations are carried out in Malaysia. Besides, the major shareholder of AFFIN Holdings Berhad is Lembaga Tabung Angkatan Tentera
3.0 Ratio Analysis
3.0.1 Liquidity (Short-term solvency) and Asset Management Efficiency
Current ratio
From the above calculation, the short term liquidity has been decreased from 0.3909 to 0.2862. It means that the ability of the firm to meet the needs for cash is decreasing.
From the above calculation, it shows the ability of Affin Holdings Bhd to meet short term liquidation has been increase from 1.6470 to 1.8150.
Working Capital
From the above calculation, we notice that OSK Holdings Bhd has negative working capital, which means that the company currently is unable to meet its short-term liabilities with its current assets.
For Affin Holdings Bhd, the working capital is positive, this show that the company able to pay off its short-term liabilities with its current assets.
Fixed Assets Turnover From the calculation above, we realize that there is an increase from 0.0189 to 0.1599 in how OSK Holdings Bhd generates sales from fixed assets.
From the calculation above, we realize that there is an increase from 0.0357 to 0.0428 in how Affin Holdings Bhd generates sales from fixed assets.
Total Assets Turnover
From the calculation above, we realize that there is an increase from 0.0184 to 0.1553 in how OSK Holdings Bhd generates sales from all assets.
From the calculation above, we realize that there is an increase from 0.0329 to 0.0376 in how Affin Holdings Bhd generates sales from all assets.
3.0.2 Debt Financing and Coverage
Debt Ratio
In the year 2008, 0.09 shows that OSK Holdings Bhd is using RM 0.09 of liabilities for each RM 1 of assets. In the year 2009, OSK Holdings Bhd is using RM 0.1069 for each RM 1. The increase of the ratio from 0.09 to 0.1069 shows the increasing of the liabilities to finance the assets.
In the year 2008, 0.2440 shows that Affin Holdings Bhd is using RM 0.2440 of liabilities for each RM 1 of assets. In the year 2009, Affin Holdings Bhd is using RM 0.2765 for each RM 1. The increase of the ratio from 0.2440 to 0.2765 shows the increasing of the liabilities to finance the assets.
Long Term Debt To Total Capitalization
Long Term Debt to Total Capitalization shows the extent of the company financing the debts by using long term debts. As the ratio gets higher, it shows the company is using higher proportion of debt for the permanent financing.
From the above calculation, the ratio shows that only 0.05 of debts are financed by long term debts in the year 2008 and 0.071 for the year of 2009. The increased of ratio shows the increasing of the use of long term debts to finance the debts.
From the above calculation, the ratio shows that only 0.0037 of debts are financed by long term debts in the year 2008 and 0.0846 for the year of 2009. The increased of ratio shows the increasing of the use of long term debts to finance the debts.
Debt to Equity
From the calculation above, in the year 2008, the ratio shows that 9.89% of liabilities are financed by the creditors and 11.98% in the year 2009. The debt equity increases from 9.89% on year 2008 to 11.98% on year 2009. It proves that the company having higher liabilities is financed by the creditors.
From the calculation above, in the year 2008, the ratio shows that 32.37% of liabilities are financed by the creditors and 38.22% in the year 2009. The debt equity increases from 32.37% on year 2008 to 38.22% on year 2009. It proves that the company having higher liabilities is financed by the creditors.
Times Interest Earned
From the calculation above, the ratio indicates that every RM 25.56 of operating income is able to cover each RM 1 of interest expense in the year 2008.For the year 2009, every RM 3.58 of operating income is able to cover each RM 1 of interest expense.The decreasing ratio of times interest earned from 25.56 on year 2008 to 3.58 on year 2009 shows that OSK holding less capable in paying the interest on its debts.
From the calculation above, the ratio indicates that every RM 10.0632 of operating income is able to cover each RM1 of interest expense in the year 2008. For the year 2009, every RM 12.5372 of operating income is able to cover each RM 1 of the interest expense. The increasing ratio of times earned interest form 10.0632 on the year 2008 to 12.5372 on the year 2009 shows that Affin Holdings become more capable in paying the interest on its debts.
3.0.3 Profitability - overall market efficiency & market ratios
Profitability of two companies can be judged by comparing the overall market efficiency and market ratios. Thus, a class of financial metrics used to assess comparison between both companies' ability to generate profit as compared to its expenses and other relevant costs incurred for the year 2008 and 2009. A higher value of ratios between two companies indicates that the company is doing well. For the following calculation, all is in RM'000.
Overall market efficiency ratios
Net Profit Margin
From the calculation above, net profit has been increased from 0.0091 to 0.2713. the profit generated had been increased.
From the calculation above, there is a decrease of net profit from 0.6538 to 0.5917. the profit generated had been decreased.
Return on Equity
From the calculation above, the return on shareholders' investment has been increase from 0.0014 to 0.0063. It means profit generated from equity has been increased.
From the calculation above, the return on shareholders' investment has been increase from 0.0289 to 0.0308. It means profit generated from equity has been increased.
Return on Total Assets
From the calculation above, the efficiency of OSK Holdings Bhd in managing assets and generating profits has been increase from 1.2540 to 5.6094. It means profit generated from equity has been increased.
From the calculation above, the efficiency of OSK Holdings Bhd in managing assets and generating profits has been increase from 0.0216 to 0.0223. It means profit generated from equity has been increased.
Market Ratios
Dividend Payout
From the calculation above, the dividend payout has been decreased from 0.5344 to 0.2161 and this means that the dividend paid to shareholders has been decreased.
From the calculation above, the dividend payout has been increased from 0.2551 to 0.3416 and this means that the dividend paid to shareholders has been increased.
4.0 Critical Issues
The most critical issue faced by both OSK Holdings Berhad and Affin Berhad is the economic downturns during 2009. The year was full with gloomy economic environment and deteriorating prospect. Global growth had decreased and Malaysia's economic was estimated to contract from 4-6%. The unfavourable economic condition had indeed brought a challenging year for both mentioned companies. However, both of the company still performed better than they expected.
According to Tan Sri overview in The Star, because of Malaysia Banking Industry's strong capitalisation, healthy asset quality and improved risk management standards and practices, it remain ressilent during the year of 2009. Besides, according to OSK Holdings Bhd Chairman, the prompt actions by the Central Bank in developing countries had also disallowed the fall down of global economic downturns.
Besides, the efforts by the company itself also stand an important role in order to survive in the challenging market environment of 2009. The OSK Holdings Berhad's management implemented good strategies group continues to be progressive and continues to improve their capability and competitiveness. The group also continue the growth in their product and services, human capital, market coverage and others.
On the other hand, The Affin Holdings Berhad has undertaken various new initiatives such as rebranding and strengthening of their human capital The group implemented new and dynamic systems and technology that will further improve their operations. The Group enhance the operations and so that the group and be promoted as a vibrant and dynamic organization.
5.0 Conclusion & Recommendations
Below is the summary of the ratio calculation:
Based on the summary above, we can realize from liquidity and asset management efficiency, debt financing and coverage, and also profitability ratio, Affin Holdings Bhd is performing quite well and better if compared to OSK Holdings Bhd which are in the same industry.
For the overall liquidity and asset management efficiency ratio, Affin Holdings Bhd had an increase from year 2008 to 2009. But, for OSK Holdings Bhd there is some increase and some is decreasing. This shows that the ability of the OSK Holdings Bhd to convert an asset into cash is decreasing from the year 2008 to 2009 and the ability of Affin Holdings Bhd is increasing. For the overall debt financing and coverage, the ratio of both companies shows increasing from the year 2008 to 2009. From the ratios calculated, we noticed that Affin Holdings Bhd is better in paying back the debt of company. For the overall profitability, we noticed that there is some increase in the calculations of related profitability ratios, but there is also some is decreasing from the year 2008 to 2009. For this, Affin Holdings Bhd also performing better than OSK Holdings Bhd as the return is higher than OSK Holdings Bhd. Besides, we think that Affin Holdings Bhd is more stable than OSK Holdings Bhd as the ratios shows that there is some fluctuations from the year 2008 to the year 2009.
Recommendation for OSK Holdings Bhd is to try to compare with othe companies within same industry's performance to find out what is the problem they currently face. Besides, OSK Holdings Bhd is recommended to ask for consultancy as there is fluctuation between the year 2008 and the year 2009. Current issues are also crucial for current and potential investors to predict the stock pricing, and hence making better investment decision, so that their wealth can be maximized.
As investors, we would invest in Affin Holdings Berhad as the company is more stable and more profitable based on the analysis above.
