REPORT 1.

0 Nature of Business Oriental Food Industries Holdings Berhad (OFIH) was incorporated on 8 June 1996 in Malaysia under the Company Act, 1965 as a public limited company. OFIH was listed on the Second Board of Bursa Malaysia Securities in August 2000 and was subsequently transferred to Main Board on 13 October 2003. OFIH is principally an investment holding company while the OFIH Group has subsidiary that are engaged in the following activities:. Name of major subsidiaries Subsidiaries of OFIH Food Industries Sdn.Bhd Equity interest Oriental 100 Principal activities Manufacturing and marketing of snack food and

confectioneries OFI Properties Sdn.Bhd.(OFIP) 80 Property development Sales and marketing of snack food and confectioneries

Subsidiaries of OFI Oriental Food 100 Marketing(M) Sdn.Bhd.(OFM)

The companys products can be divided into four broad categories which are snack food, wafer, potato snacks and bakery products; and currently have more than 20 varieties, not including the different flavours and sizes.The company has various products brand names. Most of them are commercially strong and are able to generate the required sales and profits. For example, their products brand names such as Rota, Super Ring, Jacker and Oriental are well-known household brand names in Malaysia. The company also offer its products to more than 40 countries, including highly discerning consumer market such as Japan and Australia. OFIH manufacturing plants are located at Air Keroh Industrial Estate, Malacca. It is well recognised as Malaccas industrial hub, covering approximately 60,000 square

meters of prime industrial property. The company produces good quality products as it places the needs and interests of customers in the first place. The key success of the business depends on products quality, products range, high quality of management, sound marketing strategies, effective sales and advertising policies, good domestic and international distribution network and most importantly the commitment to excellence in all aspects of the company businesses. OFIHobtained several certificates in line with their quest for optimum quality control procedures which are MS ISO 9001:2008 and HACCP. The company is also certified by the Malacca State Islamic Department as a manufacturer of 'halal' products.

2.0 Reason for choice of method used Dividend Growth Model The first important criteria to use dividend growth model to value the market share price is the company must have dividend payment. Oriental company have suitable to using this method to value its share price is due to the company have pay dividend from year 2007 to year 2011.This is important as most of the time the company only will paid dividend when the company is mature or making profit in the particular year.

Besides that, the result of the dividend growth model can show us how the constant growth of the dividend payout by company. If the dividend yield have show constant growth, this mean that the company have increasing in term of profit and investor can increase their return. For example, OFIH have constant growth in dividend yield which is 19% from year 2007 to 2009,which mean that the company have growth in profit and good performance in share price and therefore will increase the confident of the investor toward the company. Moreover, the information need for the computation is easy to estimate and readily available Asset Based Valuation Model

The reason for using Asset Based Valuation Model is because this method normally used for a new company without a track of records or has a low value or negative value of going concern. OFIH although not a new company, but the company does not have a track of records or have low or negative value of going concern. Besides that, we can get the companys asset value or the equity share of the companywhich mean that the owners stake in the company. OFIH has the increasing asset value from year 2007 to year 2011. This shows that the shareholders equity is quite stable. Moreover, this method can help the investor to determine the value of company asset and decide whether or not need to invest to add value to the company asset. Thus, this method can provide guidance to investor to purchase the company shares.

Earning Based Method The reason we use this method is Profit Earning ratio(P/E ratio) is the most popular method to value the share of company. It is because P/E ratio is most easy method to show the investor profitability performance of company. Company that are not currently profitable or have negative earning does not have a P/E ratio at all. Besides that, P/E ratio is a simple method that easily to understand by the investor especially for the investor which does not have finance background. P/E ratio also is most valuable method to investor compare the company with their competitor within same industry. The investor also can use the current company P/E ratio to compare with past company P/E ratio to find out there are improve or decline in company performance.

Moreover, investor can based on P/E ratio to find out the risk and return of the company. Company which have high P/E ratio can consider as risky investment compare to company which have low P/E ratio, since high P/E ratio signifies high expectation and generally show that the company has higher growth in the future. The P/E ratio sometime refers to how much the investor is willing to pay per ringgit of the earning. Oriental Food Industry company have decreasing P/E ratio from year

2007 to 2009 which mean that the profit of company is decline.However the company P/E ratio is increase in year 2010 and 2011 mean that the company is improve in profitability performance and the investor is willing to pay more of the earning.However, the P/E ratio should not be used as a standalone method to value the company as the denominator based on the accounting which can be manipulated by the management. 3.0 Comparison between intrinsic value and market value Year 2007 RM Market Value 1.13 2008 RM 0.95 2009 RM 0.9 2010 RM 1.53 2011 RM 1.61

Asset based valuation Dividend valuation Earning valuation

1.947

1.898 0.059

1.773 0.088

1.525 0.098

1.518 0.104

growth 0.041

based 1.13

1.66

0.79

1.07

1.62

Dividend based Valuation Using dividend growth valuation method to calculate the market share price, the result is different with the real market share price. The result of DVM is far smaller than real market share price, for example year 2010.The real market share price is RM1.53 but the result of the dividend growth model only show RM0.098.Dividend payment cannot reflect the company actual performance as the company can still paying the same dividend even the company profit is decrease in order to attract the investor invest their company. Besides that, dividend based valuation is assume that there are constant growth in the

dividend in perpetuity. However, the dividend growth may not be always constant. Dividend growth rate may be higher in the initial period and will be transform overnight into lower stable rate at the end of period. The Oriental company have dividend policy that pay the dividend for the 35% of the company profit. The company may have different performance in the different year and therefore affect the dividend growth rate. It is difficult for the company to maintain it dividend growth rate over long term. Besides that, the focus on dividends in this model can lead to skewed estimates of value for firms that are not paying out what they can afford in dividends. In particular, we will under estimate the value of firms that accumulate cash and pay out too little in dividends. Dividend growth model assumes fixed dividend payments and are not likely to change in the future. Besides, the dividend payments may grow as a small but constant rate. As a result, the equity of the company is considered to be perpetuity.

Asset based Valuation Using asset based method to calculated the share price of company, the result also different with the actual market share price. The result of this method is slightly higher than the real market share price, for example year 2009,the real market share price is RM0.90 but the result of asset based valuation is show RM0.088. The reason for the different is due to the real market share price is based on the expectation from all investor to the company and not the actual performance of the company. The higher the expectation of the company, the higher the company share price. However, the asset based method is only a balance sheet valuation method and is tend to ignore the future expectation of the company. It depend on the accounting convention is lead its result different with the real market value.For example, due to the economic crisis in year 2009,the investor have low expectation for the company and cause the company have decline in the real market share price. However, the company is tend to commerce a new cake line Zess and may buy more machinery in that year cause the non current asset value increase and therefore increase the share price from the asset based method in year 2009.

Asset based method which are including book value evaluation may be suffer by the depreciation policy. For example, some assets in the company may be written down prematurely but others still values well above their real worth. Therefore, the original cost may be of little use if the assets is very old, or if the asset replacement has been irregular over time. Buying or selling the asset of the company may also increase or decrease the depreciation value of the company. Asset based method only include net operating asset and not include liquidation cost, tax and redundant asset which are less important to the ongoing of the business may cause the result less accurate and therefore may affect the judgement of the investor. Earnings-based Valuation (P/E ratio) Using earning based method to calculated the share price the result is also different with the real market value of share.The result may be higher or lower than the market share price. P/E ratio is largely due to the subjective in nature. This can partially be accredited to the volatile nature of stock prices.When the economic recession like example in year 2009, share are undervalued in term of their P/Es. When the company earning is lower than expected by market consensus, the company EPS will be change become lower and cause P/E suddenly increase. Increase in P/E will cause the share price become higher and therefore resulting in overvalue of the stock. The earning based valuation use the company earning to calculate may be inaccurate result.The management of the company may tend to manage their earnings so that they present them more attractive to potential investors. The management company manipulate the profit of company by overstated the company sales and understated the purchases of the company in order to attract further investment. The earnings may not reflect the actual benefits of the owner. Therefore, it might be inaccurate and inappropriate to act as a valuation method. 4.0 Advised Investor on Purchase Shares In our opinion, when the intrinsic value of the company share is higher than its market value, the shares is considered as undervalued and have higher dividend yield. The investor is encourage to sell the shares which is undervalued. On the other hand, when

the intrinsic value of shares is lower than the market value, the shares is consider as overvalued and have lower dividend yield. Therefore the investor is encourage to purchase the shares when the market value is higher than intrinsic value.

However, the investor should not only consider the intrinsic value or market value of the share to make decision. It is because the value of shares does not reflect the actual performance of the company. Performance of the company is still one of important factor to need to be consider as the company without good performance may have going concern issue. The public image, future plan, social responsibility of company and the economic condition such as inflation also need to be consider in order to purchase the company share. In conclusion, we are advised that the investor should not only consider the over or under valued of share and need consider all financial and non financial factor of company before purchase the shares.

Asset-Based Valuation

2011

= RM 1.947 2010

= RM 1.898 2009

= RM1.773 2008

= RM1.525 2007

= RM 1.518