Professional Documents
Culture Documents
FINANCIAL MANAGEMENT
FIN60203
GROUP ASSIGNMENT
Title Page
3.1 Introduction 15
2
Johor Bahru
5.1 Strengths 33
5.2 Weaknesses 34
6.2 Lifestyle 36
8.2 Activity
3
8.2.1 Inventory Turnover 49-50
8.3 Profitability
8.4 Debt
10.0 References 68
4
1.0 Background of the Company
1.1 History
KEN Holdings Berhad was established at the year of 1980s. This company
was founded by Tan Boon Kang and headquartered in Kuala Lumpur, Malaysia. Over
past few years, KEN Holdings Berhad engages in the provision of property
development services. It operates through several important segments which are
construction, property development and other segments such as the rental of
investment property and the provision of property management services.
HISTORY
TIMELINE
1980
KEN Holdings Berhad was incorporated as a specialist
contractor providing engineering services
2009
KEN Property became the pioneer and authority in the
arena of green buildings launching the country’s first
BCA Green Mark Gold Plus Award building, KEN
Bangsar.
2013
KEN Holdings indicated as the country’s leading green
developer launching the country’s first green township,
KEN Rimba.
2016
Menara KEN TTDI has been completed. It introduces
platinum-grade office spaces, KEN Gallery, a performing
arts theater, a roof-top pool, a sky bar, a gymnasium and a
vast variety of F&B outlets.
5
2018
KEN Holdings Berhad constructed a fully-integrated
performing arts centre comprising a 500-seat theatre and
is suitable for large scale musicals and concerts.
6
1.2 Organizational Management of the Company
KEN Holdings Berhad is founded at 1980s and owned by Tan Boon Kang as
the Executive Chairman, and his son Tan Chek Siong, as the Group Managing
Director & Executive Director. Tan Boon Kang started the company with the
assistance from his co-founder, Puan Lau Pek Kuan. Tan Boon Kang was the
Managing Director of the group from 2009 to 2013. He has redesignated to be the
Executive Chairman of the Group after the entry of his son Tan Chek Siong. Tan
Boon Kang has monitored the growth of the company for almost 40 years. He is a
specialist in engineering work and also a successful businessman who expanded the
company into a multi-million listed company. He has been diversifying the group into
the property development and investment segments, which allow the group to grow in
an extreme speed.
Tan Chek Siong, the current Executive Director is a very successful young
entrepreneur. He is recognized to be the next Executive Chairman of the group, who
has strived for numerous achievements. By the age of 35, he have become the
Executive Director of the group, and Chairman at Rehda Youth. Tan Check Siong has
taken over Tan Boon Kang to become the Managing Director and has constantly
leading the KEN’s group toward a highest peak.
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BOARD OF DIRECTORS
YAM Dato’ Seri Syed Azni Ibni Independent Non- - Ken Holdings Bhd.
Almarhum Tuanku Syed Putra Executive Director
Jamalullail
Dato’ Ir. Dr. Ashaari bin Independent Non- - Ken Holdings Bhd.
Mohamad Executive Director
8
1.3 Vision and Mission
Apart from that, the group core values is to ensure they continue to contribute
to the local communities while earning revenues. They will also strive to embrace the
sustainable practice and create a better and inclusive communities. Tan Boon Kang
mentioned in the financial report that he is always proud of the culture of the
company as they stand committed to ensuring the growth and development of the
individuals who stand together to make up KEN, which include the foundation and
fundamental staffs of the company.
9
2.0 Principal Activities
During the time span of 5 years from 2013 to 2017, KEN Holdings Berhad
and all its subsidiary companies has been involved in a number of principal activities
which focus mainly on key areas such as construction, property development,
investments and management services, each of which contributes to the gain of profits
for the company. These activities are very important and essential to the company as
the revenues earned from these activities has a tremendous influence on the
company’s financial position. They also help to keep the company running until today.
Where most of KEN Holdings Berhad and its subsidiary companies such as KEN
Property Sdn. Bhd., KENergy Sdn. Bhd. and KEN Park Sdn. Bhd.’s activities point
towards construction contract (35.52% revenue in 2017) and property development
(62.84% revenue in 2017) activities, it is also true that investment holdings (1.28%
revenue in 2017) and provision of management services (0.19% revenue in 2017) like
property management and car park management still play a significant role. Example
of property holding, investment and development comprises of development of
residential and commercial buildings while construction activities include mainly on
specialist engineering services, geo-technical, civil engineering and building works,
10
land reclamation and marine engineering which help the company in terms of
revenues.
According to the vertical analysis from 2014 to 2017, KEN Holdings Berhad’s
primary source of revenue comes from Property Development, fluctuating from 60.77%
in 2014, 50.96% in 2015, 49.06% in 2016 and lastly 62.84% in 2017. Overall, it was
the most effective activity to gain profit. KEN Holding Berhad has many developed
properties including Menara KEN TTDI and KEN Rimba Township which consist of
KEN Rimba Commercial Centre, KEN Rimba Legian Residences, KEN Rimba
Jimbaran Residences, and KEN Rimba Condominium 1 (KRC1). Besides, the
subsidiary companies involved in these property development activities are KEN
Property Sdn. Bhd., KEN JBCC Sdn. Bhd. and Khidmat Tulin Sdn. Bhd.
11
rates, and stringent lending environment from financial institutions, KEN Holdings
Berhad still manage to achieve great financial performance. The group was able to
receive higher revenue of RM 104.2 million in 2017 through new sales registered and
higher progress billing compared to revenue in its previous year which was RM 92.8
million, having an increase of 12.3%. Besides, also during 2017, their profit before
taxes has increased to RM 62.9 million.
12
Since it is a large project, therefore, KEN Holdings Berhad and its subsidiary
companies might use their resources, either inventory or monetary availability to help
this segment, investing in a different segment within the same company. This money
will be ultimately used to generate a higher income in the future for KEN Holdings
Berhad.
13
Figure 2b: The Corporate structure above shows the Principal
Activity carried out by different subsidiary within a company.
14
3.0 Analysis of the Revenue Contribution in KEN Holdings Berhad
3.1 Introduction
The measurement of revenue can be separate into two which are revenue from
external customer and inter-segment revenue. KEN group mainly received external
revenue from the property development segment. In a simple term, KEN group’s
major external income is generated by selling out their developments to individual
household. This revenue has been recorded in the income statement. Besides, inter-
segment revenue is the revenue generated from one segment of a company to another
within the same company. Construction is the main inter-segment that contributes
revenue within the company. This revenue has been excluded from income statement,
as it is not consider to be an incoming profit but income generated within the
organization, yet it has been shown in segment information.
15
3.2 Categorization/ Break Down of the Sources of Revenue
16
of total revenue within inter-segment transaction in year 2016. It clearly shows how
well does the executive team manage the business relation between each of this
division or subsidiary companies to provide its services within the organization, so it
reduces the amount of outsourcing work and maximize the internal profitability of
the company.
Apart from inter-segment transaction, the major sources of revenue for KEN
Holdings Berhad is the profit from property development, as mentioned earlier in the
“principal activities of the company”, KEN group has developed many projects
covering Petaling Jaya, Shah Alam and Kuala Lumpur areas. Out of these project, the
most significant project is the Menara KEN TTDI, the registered office of KEN
Holdings Group. In these recent years, most of the revenue was contributed by the
new sales registered and higher progress billings for KEN Rimba Condominium 1
project.
There are also some of the minor revenues contributed by management fees,
construction contract revenue and investment properties. The annual report does not
describe clearly about the details of the above activities, yet from my understanding,
KEN group consists of few subsidiary companies that serve property management
services. These companies generate annual management revenue by managing new
launch commercial title project or services apartment project. A joint management
party (JMB) will be formed between the offices or shoplots owner and the developer
agents. Monthly sinking fund and maintenance fees will be collected for the
maintenance of external works in common area and facilities within the commercial
area.
17
Figure 3.2b: Subsidiaries companies that owned 18
by Ken Holding Berhad
3.3 Revenue Contribution in Year 2015
2015 2014
Measure of Segments Amount Amount Percentage
revenue (RM’000) (RM’000)
Inter-segment Construction Contract 70,522 58,114 21.35%
revenue Revenue
Sub-total 70,522 58,144 21.35%
Revenue earned Property Development 73,789 90,688 -18,63%
Management fees 477 394 21.07%
Sub-total 74,266 91,082 -18.46
TOTAL 144,788 149,226 -2.97%
Figure 3.3b: Summary of Revenue Information in
Year 2015
48.71%
50.96% Property Development Revenue
Management Fees
Construction Contract Revenue
0.33%
19
Based on KEN Holdings Berhad’s annual report in year 2015, KEN group has
recorded total revenue of RM 74.2 million, a decrease of 18.46% as compared to the
previous financial year. The total revenue stated in the income statement is excluded
the revenue generated by inter-segment. Thus, the overall revenue, included the
revenue from external customer and inter-segment revenue received in year 2015 will
be RM144,788,000 as shown in figure 3.3b. It had slightly decreased by 3%
compared to last year which the overall revenue of year 2014 is RM149,226,000.
Based on the pie chart shown in figure 3.3c, property development segment
generated most revenue in year 2015 as it occupied 50.96% of the total revenue which
amounted RM73,789,000. However, the revenue amount of property development
had decreased 18.63% compared to last year which is RM90,688,000. In addition,
management fees has contributed 0.33% of the revenue amount which is RM477,000.
It had increased by 21.07% compared to last year which is RM394,000.
20
3.4 Revenue Contribution in Year 2016
2016 2015
Measure of Segments Amount Amount Percentage
revenue (RM’000) (RM’000)
Inter-segment Construction Contract 95,718 70,522 35.73%
revenue Revenue
Sub-total 95,718 70,522 35.73%
Revenue earned Property Development 92,492 73,789 25.35%
Management fees 324 477 -32.08%
Sub-total 92,816 74,266 24.98%
TOTAL 188,534 144,788 30.21%
Figure 3.4b: Summary of Revenue Information
in Year 2016
49.06%
Property Development Revenue
Management Fees
50.77%
Construction
0.17%
21
Based on KEN Holdings Berhad’s annual report in year 2016, KEN group has
recorded total revenue of RM 92.8 million, a major increase of 25% as compared to
the previous financial year. The total revenue stated in the income statement is
excluded the revenue generated by inter-segment. Thus, the overall revenue received
in year 2016 will be RM188,534,000, included the revenue from external customer
and inter-segment revenue as shown in figure 3.4b. The overall revenue in year 2016
has boost up 30% compared to last year. The improved revenue was contributed by
the new sales registered and higher progress billings for KEN Rimba Condominium 1
project.
Based on the pie chart shown in figure 3.4c, property development had
generated a revenue amount of RM92,492,000 which occupied 49.06% of overall
revenue. The revenue amount of property development has increased by 25.35%
compared to last year which is RM73,789,000. Besides, management fees has
contributed 0.17% of revenue amount which is RM324,000. It had significantly
decreased by 32.08% compared to last year.
According to table shown in figure 3.4a, KEN group had received inter-
segment revenue from construction which amounted RM95,718,000. Construction
contract revenue had generated most of the revenue in year 2016 which it occupied
50.77% of the total amount of revenue. It had increased dramatically by 35.73%
compared to last year which is RM70,522,000.
22
3.5 Revenue Contribution in Year 2017
2017 2016
Measure of Segments Amount Amount Percentage
revenue (RM’000) (RM’000)
Inter-segment Construction 57,408 95,718 -40.02%
revenue
Sub-total 57,408 95,718 -40.02%
Revenue earned Property Development 101,555 92,492 9.80%
Management fees 306 324 -5.56%
Construction Contract 284 - -
Revenue
Investment Properties 2,063 - -
Sub-total 104,208 92,816 12.27%
TOTAL 161,616 188,534 -14.28%
Figure 3.5b: Revenue Information in
Year 2017
35.70%
Property Development Revenue
Management Fees
62.84%
Construction Contract Revenue
Investment Properties
0.19%
As shown in the pie chart in figure 3.5c, property development contributed the
most revenue to the company which amounted RM101,555,000. The revenue amount
of property development has occupied 62.84%. It shows a moderate growth with
increment of 9.80%. Investment properties occupied 1.28% which the revenue
amount is RM2,063,000. Management fees occupied the least percentage which is
0.19%. It had generated a revenue amount of RM306,000, which had slightly
decreased by 5.56% compared to last year which is RM324,000.
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3.6 CONCLUSION
25
bar chart, we can conclude that KEN group focused mostly on property development
in year 2017, which in turn receiving an enormous revenue than construction segment.
In contrast, construction suffers a magnificent drop in year 2017.
26
stood at 2.8 million. The reason of why the company is still remaining strong and
steady is because of their strong branding, loyal customer and clients and the unique
value proposition offered by the properties. The current project they are having is a
condominium named KEN Rimba, and the completed projects are KEN Bangsar,
KEN Damansara, KEN Aman and Menara TTDI. In addition, KEN group are
planning for future development such as KEN Johor Bahru and KEN Kota Bahru
which are mainly located at Johor state.
The current project, KEN Rimba Condominium 1 (KRC1) also one of the
highlight development of KEN Holdings Bhd. KRC1 comprises 679 units and villas,
which is another addition to the KEN Rimba Township offering affordable green
homes to the market. It is also the first high-rise residential development being
awarded the prestigious BCA Green Mark GoldPLUS Award (Provisional) and
GreenRE Gold Award (Provisional). KEN group has invested recreational facilities
and green features in this project in order to promote healthy lifestyles and sustainable
living among KRC1 residents. It includes Vertical Garden, Sakura Garden, Cabana,
Hanging Garden, Community Garden, Ironwood Forest and Lake Sanctuary.
All these achievements have been indicated that how succeed are KEN
Holdings Berhad in promoting and enlarging the sustainable development in Malaysia.
Its consistency and perseverance in providing affordable and high-value green
residential houses have become an attraction to the customers in the industry.
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4.2 Prospect of Future Growth
The property market now experiences imbalance due to the acute oversupply
of the office space and shopping complex segments. If it continues without proper
settlement, it can pose risks to macroeconomic and financial stability in Malaysia. To
tackle this risk, KEN group is trying to decrease the price of houses which is
affordable for the general income residents. KEN Group Executive Chairman, Dato’s
Tan Boon Kang believes that the Group’s unique offerings of affordable high rated
green developments coupled with the Group’s resonating brand and values will
continue to appeal to buyers particularly from the younger working class and first-
time buyers. KEN Rimba Condominium is one of the highlight of the affordable green
developments which completed recently.
For future development, KEN Group will place emphasis on growing its
recurring income base due to the demand for properties will likely to remain subdued.
The Group is confident that it will remain resilient in its performance in 2018. Besides,
KEN Holdings Berhad is currently planning to develop the properties, KEN Johor
Bahru and KEN Kota Bahru which both are located at the Johor Bahru State. KEN
Johor Bharu is an integrated mixed development that consist of hotel, services suites
and shopping mall. The project is located at a very strategic location, which is by the
shore of Malaysia-Singapore causeway (First link), and only takes about 5 minutes to
reach the crossing bridge. Besides, this development is fall under Flagship Zone A of
the state of Johor, which is the city central of Johor Bahru. Thus it could say that KEN
Johor Bharu project is a very potential project that may attract large amount of foreign
direct investment (FDI), especially investor from Singapore due to its strategic
location.
28
investor toward the project, as it is now a part of the Malaysia first Smart City
development. The KEN Johor Bharu is expected to rise again in its value, once the
Belt and Road Initiative (BRI) project, Kuala Lumpur-Singapore High Speed Rail
(HSR) and Johor Bahru-Singapore Rapid Transit System (RTS) are completed. With
the establishment of Iskandar Smart City in Malaysia, KEN Holdings Bhd is
expecting to contribute its expertise on green-technology toward the development of
Smart City. One of the characteristic of the smart city is to create a smart environment
with zero pollution, environmental protection, green development and green
infrastructure. KEN Holdings Berhad has been assigned as the consultant to ensure
the greenery of the project. Hence, it is likely that the KEN Holding Berhad will
allocate more budget onto development of green product and advance technology, in
order to cope with the Green Building Index.
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4.3 Challenges Facing the Industry
30
The location of Menara KEN TTDI as in the location of the building is
overcrowded and it created a highly competitive scenario to the surrounding and to
itself. At the same time, the current ratio of the residential area is considered very
high, and as continuously growing in the current speed, the residential area will be
oversupply in the industry at 2021. Thus, the company need to think about another
plan which can encounter the oversupply problem such as transferring existing
building into a space-efficiency building, energy-efficiency building and etc.
At the same hand, KEN Holding’s properties are considering a high standard
building as in their building and projects are approved by respective association and
organization to ensure the green standard such as GBI. So in the flip of the coin, the
pricing and market share of the properties and the company itself is higher than other
non-green standard company and it will become an obstacle for them when it come to
a comparison between them and norm. In addition to the declined of property market,
KEN Holdings Berhad may face the critical issues on high number of unsold units and
properties.
Since the KEN Johor Bharu is the core development of the KEN Holding
Berhad, the success of the project will directly influence the future growth of the
company. Reported by the Edge Property, there are many mega developments
happening in Johor Bharu in the recent years, which includes developers from
overseas such as China developers, Greenland Group and Country Garden Holdings,
to develop Greenland Danga Bay and the Forest City. Most of these developments
are concentrated in 5 flagship areas which are Johor Bahru city centre, Nusajaya (now
known as Iskandar Puteri), the Western Gate development (focusing on the Port of
Tanjung Pelepas), the Eastern Gate development (focusing on Pasir Gudang) and the
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Senai-Skudai zone. The mushrooming of the property development in Johor Bahru
may not seem to be a good sign to the trending of property market, as it can lead to an
oversupply to the local community. Furthermore, the Vacant Possession(V.P) of these
project are all happening in the next 5 years, which means over the next 5 years, there
will be a serious competition between developers in selling out their projects.
The market preferences has caused the sales of high cost apartment to decline,
and it will need to take at least another two years for the market to absorb the existing
supply before the market goes up again. However, many analyzer remains positive on
the overall outlook of Johor Bahru development, as there will be a few catalysts are
likely to boost the market, such as the completion of Rapid Transit System (RTS) and
High Speed Rail (HSR). Hence, the KEN Holding Bhd may struggle through low
sales of KEN Johor Bharu within these few years, and it may result a potential turning
opportunities in future.
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5.0 Analysis of the Strengths and Weaknesses of the Company
KEN Holding Sdn. Bhd. is the one of the most famous green developer and it
is the 1st green developer which is well-known in the industry with its famous
projects such as KEN Rimba, Menara KEN TTDI and etc. The impression of KEN
Holding Sdn Bhd toward people is ‘a developer that focusing on green building’
which is totally a good reputation for them and it will generate more reliable
shareholder to buy their stocks based on their reputation on their own properties.
The strength of KEN Holding is that their profit for the financial year is
constantly growing throughout the year from 2013 till 2017 even though 2015 and
2016 had slightly dropped. Their profit margin is considered high compare to other
company such that they can afford to pay for their liability and avoid the possibilities
of bankruptcy. At the same time, KEN Holding Sdn Bhd has a very big amount of
assets, included current and non-current asset such that their ROA is quite high even
though it slightly went down but it performed well again in 2017.
Another strength of KEN Holding is that they are very well-known as the first
green expert developer in the industry thus that most of the clients will go forward to
them if they have the intention to build a green technology included building since the
reputation of KEN Holding is very solid and trustable. Not only that, KEN Holding
has a very strong systematic organization distribution. They listed out they
organization list in the annual report every year so that everyone will get to know who
are the people that working in the company with the higher position and get to gain
33
the trust from the buyer and clients. KEN Holding is a company that is very
transparent as most of their information are open to anyone to access thus they could
get to know more about KEN Holding and how were they performing in the passing
few years and how they overcome it and what was the consequences they faced when
they made certain decisions.
KEN Holding Sdn Bhd’s weakness is they are constantly increasing their
liabilities throughout the year. They increased their loans and borrowings just to
purchase more assets in order to increase their profits. The cost of having a high
liability in the company is they might easily facing the situation of cashless situation
as all of their asset are non-current assets and they will be having a hard time to pay
back the debt they are having and will eventually owe the debtor more money and
increasing the interest rate at the same time. On the same side on the coin, KEN
Holding is a company that expert in green technology building which mean there are
very professional in a very narrow and niche market which lead them to a very limited
working opportunity in the industry as in not a lot of employers and investors are very
familiar with the green building concept thus it will bring them a very hard time while
explaining the building concept and it require more time and profession to convince
and enroll the buyer to accept and willing to try something that is different from usual.
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6.0 Company’s Strategic Plans
35
6.2 Lifestyle
Apart from providing sustainable green building, KEN Holdings Berhad has
taken into consideration about the lifestyle of the resident as well. KEN Holdings
Berhad decided to participate in the Iskandar Smart City with the development of
KEN Johor Bahru. This is considered as an excellent decision because the Iskandar
Smart City is the first Smart City in Malaysia which promotes “Smart” lifestyle and
living environments to the residents. The Iskandar City is raising in the market
trending and attracting more investor to step in. It is also recognized to be the second
Kuala Lumpur that provides the residents with material superiority of an advanced
economy with the value-based lifestyle of a traditional society. The KEN Johor Bharu,
is a mixed development that consist of shopping malls, hotel, service suits and
residential apartments, which cater the resident’s lifestyle in term working, leisure,
and entertainment.
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survive through the dampening of real estate market, and have enough cash flow on
hands to continue growth the company in the near future.
In year 2015, KEN Holdings Berhad has made two different investments
which are property, plant and equipment as well as investment properties. According
to cash flow statement as shown in figure 7.1a, KEN group invested its capital in
acquisition of property, plant and equipment which comprised of motor vehicles,
plant and machinery, office equipment, and furniture and fittings with the total
amount of RM552,000. Besides, it also invested RM25,889,000 on investment of
properties. As shown in figure 7.1d, there is a high ratio difference within these two
types of long-term investments. KEN Holdings Berhad only invested about 2% on
property plants and equipment, while 98% on properties investment as shown in
figure 7.1b, hence is obvious to see that the primary investment of KEN Holdings
Berhad is on properties investing.
37
and have sufficient cash on hands, KEN Holdings Berhad has also invested in some
short-term investments. Showing clearly in figure 7.1b, KEN Holdings Berhad has
retained RM8,100,000 in purchasing of liquid investment such as money market fund
and shares of public held companies and also allocated RM223,000 to deposits with
licensed banks. This kind of investment may be lower in return of investment (ROI)
but it stands a definite edge of its volatility.
38
Figure 7.1a: Extraction of Quantities on cash flow from investing activities from
cash flow statement in 2016/2017 annual report
Figure 7.1b: Extraction of Quantities on Cash / cash equivalent & short term
investment from Cash flow statement in 2016/2017 annual report
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7.2 Sources of Funding
40
7.2.1 Share Capital
Equity account is one of the major income for KEN Holdings Berhad. Figure
7.2.1a shows the equity earning by KEN Holdings Berhad throughout the year of
2015, 2016 & 2017. In year 2017, the company has a share capital market that worth
RM 95,860,000. This amount is generated through selling their share and stock. The
company reserves a total earning of RM90,495,000 (RM95,860,000-RM5,365,000)
for the usage of business operation and give out a total of RM5,365,000 as dividends,
the total attribution of the equity to the company is RM300,115,000.
Throughout the year of 2015, 2016 and 2017, the share capital of KEN
Holdings Berhad remains at RM95,860,000 because no new stock was being issued or
41
transferred from unrestricted equity to share capital, but there is a significant increase
in the reserves equity from the year of 2016 to 2017 which has increased by 8% as
shown in figure 7.2.1b. It means that the company started to buy back its own stock
and retained it in the business without distributing to the owner. As we can see from
the figure 7.2.1a, KEN Holdings Berhad reserved more than 65% of the company
stock and there are only about 45% of the company share are sold out as outstanding
shares.
The other way to obtain money is through getting loan or increase in general
liability. Usually a business can also obtain capital from lending loans from licensed
bank or issuing bond. As it is shown clearly from the table above, the KEN Holdings
Berhad has borrowed a total amount of RM2,000,000 at the year of 2015 & 2016 for
the usage of the business, and increase in loaning amount to RM 5,500,000 at the year
of 2017 which is 175% higher comparing to 2016 as shown in figure 7.2.2a. All of the
above loans are lent on short term basis (current liabilities), it has proven that the
42
KEN Holdings Berhad has the financial capability to clear off its debt within 12
months (within an annual accounting period).
Even there are many items such as trade and other payable, deferred tax and
current tax liabilities listed in the profit and losses statement, the increased on the
amount of above items will not sources fund into for the company. The items
mentioned above are just costs that are being incurred in order to generate revenue to
the company.
The third way for the company to sources in funds is to perform sales.
Construction industry is different from other industry, as it take a longer time frame to
produce its final product. Thus, the sales are predicted to be slower than the
production line, as this statement can be further support by the slow ratio of
inventories turnover. Showing in figure 7.2.3a, KEN group has made an revenue of
RM74,266,000 at the year of 2015, RM92816,000 at the year of 2016 and
RM104208,00 in year 2017. There is a huge jump in revenue from 2015 to 2016 with
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an increase of 25% and an increase of 12% from 2016 to 2017 as shown in figure
7.2.3b. However, there is a significant increase of cost of sales from 2015 to 2016 in
proportion with the sales. It may due to failure of management on cost planning,
causing the company to earn relatively lower in the annual profit.
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8.0 Analysis of financial condition
Current assets
Current Ratio: Current
liabilities
Current ratio is a very important tools to identify the company’s ability to pay
off its short term debt based on the study of ratio between current asset and current
liabilities. In the year of 2013, the current ratio of KEN Bhd is at 1.26 : 1 and further
increase to 1.7 : 1 in the year of 2014 .
In year 2015, the current ratio was at 1.3 : 1, meaning that for every ringgit
current liabilities, KEN Holdings Berhad had 1.3 ringgit of asset. For production line
item, a good ratio was 2 : 1, meaning that with every ringgit incurred, the business
had the ability to generate 2 ringgit in return. However, construction industry is an
industry with slower performance of sales (slower in inventory turnover) as it takes
time to produce final product. Due to its product nature, it is relatively higher prices
than other products, hence it only serves niche market of customers who has the
financial capacity to purchase. From the statement above, we know that the current
45
ratio of construction industry is incompatible with other industry because of the
industry nature.
At the year of 2016, the current ratio decreased slightly by 0.1 to become 1.2 :
1, which resulted to be not a healthy ratio as mentioned above, a standard ratio shall
range between 1.5 :1 to 3:1. In year 2016, the business only earned 20% of the profit
for the cost incurred.
From the study above we can observe that the KEN Holdings Berhad has its
ability to pay off debt at the year of 2017, describe clearly at the [extra finding 1],
KEN Holdings Berhad had cleared off most of its debt at the early year of 2017, this
is one of the major reason to contribute to high current ratio at the year of 2017.
Extra Finding 1
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As shown in the balance sheet above KEN Holdings Bhd current liabilities had
fallen from RM103,052,000 to RM57,601,000 from the financial year of 2016 to 2017,
this is because there was a significant drop in the trade and other payable in the year
of 2017. From the vertical analysis above, we know that KEN Bhd had paid off 59.56%
of its trade and other payable at 2017 financial year.
This results in an increase in current ratio and debt ratio, as the amount of total
current liabilities decreased, hence this has shown as a significant effect of how
current ratio and quick ratio perform as an indicator to evaluate on the liquidity of
cash in an organization and its ability to pay off debt.
Quick ratio is a very good indicator to find out company’s short term liquidity
position, Quick ratio only look at the most liquid asset that can be convert into cash
fast. As we can see from the table above, KEN Holdings Berhad’s quick ratio was at
the position of 0.58 : 1 at the year of 2013 , further increased to 0.68 : 1 at the year of
2014. It decreased slight to 0.62 :1 at the year of 2015, it then further dropped to 0.42 :
1 in the year of 2016 and then boosted up to 0.72: 1 at the year of 2017.
However, in the year of 2016, the performance of sales was the lowest point of
0.42: 1 which not seem to be healthy as for every ringgit of incurred liabilities, the
company was only generating 0.42 sen of liquid asset, this means that if the KEN
Holdings Berhad can't sell off its inventories, it may face problem in paying back the
debt.
47
Figure 8.2A: Statistic for Current Ratio and Quick Ratio
8.2 Activity
In the year of 2013, KEN Holdings Berhad had its inventories turnover for 0.4
times along the year, the inventories turnover ratio further increased into 0.62 times at
the year of 2014 probably because of the increasing in sales and properties
development.
In the year of 2015, KEN Holdings Berhad turnover its inventories 0.6 times
annually, and the increase in selling of inventories and development of new properties
in the year of 2016, causing the ratio to increase to 0.74 times per year. KEN
Holdings Berhad performed badly in sales at the year of 2017, causing a significant
drop of inventory turnover from 0.74 : 1 to 0.54 : 1. The inventory turnover ratio for
KEN Holdings Berhad remained at a good level and has shown its abilities to sell out
its inventories.
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[Extra Finding 2]
Account Receivable
Inventory Turnover:
Annual Credit Sales / 365
The ratio sloped down to 182.5 days at the year of 2014 and remained at the
same figure for 2015 and 2016.The stabilization of average collection period for these
50
3 years were a good sign as its could probably means that the company received most
of their payment incurred by their customer for credit sales on time. At the year of
2017, the average collection period slightly increased to 183.52.
[Extra Finding 3]
The average payment period is a good tool to indicate time taken by the
company to pay off their credit purchase. At the year of 2013, the average payment
period for KEN Holdings Berhad was 77 days, which means the company used 77
days to pay the supplier their credits allowance for the inventories that were already
51
delivered in advance. The average payment period further dropped to 25 days at the
year of 2014, the significant drop of average payment days had told us that the KEN
Holdings Berhad had its financial capacity and sufficient cash flow on hands to clear
off the debt incurred. As the lower the average payment period, the company was
expected to be better in their cash flow.
In the financial period of 2015, the average payment period raised to 59 days
and dropped to 38 days at the year of 2016, there was an significant increase of
average payment period at 2017 which reached 64 days, this is because of the
decrease in accounts payable in the year of 2017 as per describe in [extra finding 1].
8.3 Profitability
52
Figure 8.3: Statistic for Gross Profit Margin, Operating Profit
Margin and Net Profit Margin
Sales - COGS
Gross Profit Margin: Sales
53
sold or inventory of the company. For developer like KEN Holdings Berhad, its cogs
is probably referring to the project or construction cost for a particular project. Gross
profit is efficient for an investor to inspect on how well a management team control
the production cost for goods sold by reviewing its proportion with revenue earned.
At the year of 2014, the gross profit margin of KEN Holdings Berhad was at
63.94% and it had slightly dropped to 60.68% at the year of 2014. At the year of 2015,
the percentages of gross profit was at 54.35%, simply means for every ringgit of sales
made, the company earned RM0.54 after deducting the cost to produce goods. The
percentages decreased at the year of 2016 which was at 46.64 %. The depreciation of
gross profit was most probably caused by the poor cost control of the ongoing project.
The gross profit turned up to its peak at the year of 2017 by reaching 65.93 %, and
had proven the ability of the company to manage its cost of sales along the annual
accounting period.
The above results are satisfying as the healthy gross profit margin range
between 25% to 35% and KEN Holdings Berhad’s results are surprisingly go way
beyond that, this may due to the efficient cost planning and estimation.
Operating Profits
Operating Profit Margin:
Sales
Operating Profit refers to the profit earned by the company after deducting
COGS, depreciation and operating expenses. Operating Profit margin is somehow
similar to gross profit margin, where the different is the operating profit margin
considers about operating expenses whereby gross profit margin does not.
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The OPM of KEN Holdings Berhad was at 50.87% at the year of 2013. It
further decreased to 47.88% at the year 2017. In 2015 it further sloped down to 42.50%
and 39.92% at the year of 2016, and soon reached its peak at 2017 with 60.44% on the
operating profit margin. As mentioned above, the depreciation and appreciation of
operating profit margin can be caused by 3 different elements, which is COGS,
operating expenses and depreciation. We will analyze which is the fundamental
elements that affected the most in the margin.
55
On the other hands, the appreciation of OPM from the year of 2016 to 2017
had shown that the KEN Holdings Berhad had reviewed on their cost plan and
efficiently decreased in its COGS over the net income. As shown at the vertical
analysis above the COGS over net income of the year has decreased from 178.63% to
70.44%, a significant drop of 100% over a single year.
Similar to OPM and GPM, net profit margin (NPM) reflects how well the
company manages its overall expenses by comparing its sales over net income. The
movement of trend is predicted to be the same as OPM and GPM the net profit margin
depreciated from 34.30% to 29.87 % from 2015 to 2016 and increased significantly to
48.36% at the year of 2017
As a conclusion for previous analysis on OPM, GPM and NPM, we found out
that the fundamental factor that affects the above statics is the COGS, hence it is
essentially important to implement cost supervise and control over the production of
goods sold which shall take consideration on supplying rate of materials, structural of
supply and value chains, initial budgeting & cost plan and most importantly regular
supervise on the cost incurred on constructing the goods sold.
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KEN Holdings Berhad results for OPM, GPM and NPM were surprisingly
high and it may subject its product. As most of the KEN developments are high-ends
services apartments and served a niche market to the high income population,
resulting in the profit earned per units sold of its project is comparative higher than
other middle-ends or low-ends project.
Return on total asset reflects how well a business uses the assets invested into
the business. In the year of 2015, KEN Holdings Berhad’s ROA was at 7.63%, which
means for every RM100 invested in the business, KEN Holdings Berhad generated
RM7.63 in profit. In the year of 2016, the ROA increased to 7.76% and further
depreciated to 14.09 % at the year of 2017.
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Figure 8.3.5: Vertical Analysis of the
Asset
From the Vert Analysis, we know that KEN Holdings Berhad invested a
biggest amount onto the investment of properties. It had occupied around 35.44 % out
of the total asset. Properties investing is always a smart investment choice as it can
generate income in two different ways, which are the appreciation of properties prices
over years and collection of rental by renting out unoccupied properties to individual
tenant.
The second biggest asset that KEN Holdings Berhad owned is the land held
for property development which occupied around 29.22% over the total asset. The
land held for property development will multiplied in its values, once the
development or construction has been done.
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8.3.6 Return on Equity
Net Income
Return on Equity:
Total Common Equity
The return on equity tells us how efficient the profits are generated with each
ringgit of equity invested. As been mentioned above, 65% of the share of KEN
Holdings Berhad was retained within the company and only 45% of the shares were
outstanding share that are open up for public to purchase, hence most of the equity in
this company was contributed by the owner of the company.
In the year of 2015, ROE for KEN Holdings Berhad was about 10.99% and it
experienced a minor drop to 10.91% at the year of 2016. The ROE soon raised to
16.79% at the year of 2017. This was a very good sign of the company was increasing
in its value. For every ringgit the owner or the shareholder invested in the company, it
generated 16.79 sen of profit to the organization.
Sales
Total Asset Turnover:
Total Asset
KEN Holdings Berhad performed pretty well in the year of 2015. Its total asset
turnover was at 0.32 times, which means with every ringgit of the asset invested, the
company was able to generate 0.22 sen of total sales. KEN Holdings Berhad
performance got even better at the year of 2016 to hit 0.26 times on total asset
turnover and it then ended at its high peak of 0.29 times at the ending of 2017
accounting period.
The gradual increase of total asset turnover was mainly caused by the gradual
increase of sales by KEN Holdings Berhad group as shown in the analysis above, the
revenue of KEN Holdings Berhad increased 24.98 % from 2015 to 2016 and
constantly increased for another 12.27% from the year of 2016 to 2017 and the result
above contributed to an increase of total asset turnover over these 3 years.
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8.4 Debt
Total Liabilities
Debt Ratio:
Total Assets
The debt ratio is a ratio analysis of the proportion of debt over the assets. The
higher the debt ratio, the more likely a company will experience financial difficulties
as the company may fail to pay back its liabilities on times. For KEN Holdings
Berhad, its debt ratio in the year of 2013 was at 34.30%, which considered as a not
healthy ratio. As for every ringgit of the asset that the KEN Holdings Berhad earned,
it incurred 34 sen of liability. Yet in the year of 2014, there was a significant drop in
the ratio from 34.30% to 24.94 %. It is because of the decrease of company debt for
26% which was at the amount of 25 million [Refer to figure 8.5.1].
Operating Profits
Times Interest Earned:
Interest Expenses
The ratio further increased to 350 times at the year 2016 and reached its peak
at 2017 at 538.32 times. The times interest earned of KEN Holdings Berhad remained
low as the interest expenses that has shown on the income statement was really low.
From the vertical analysis below, we can see that the financial cost for KEN Holdings
Berhad do not even reach up to 1% of its net profit.
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Figure 8.4.2: Horizontal Analysis of Income Statement
Price per Book Ratio (P/B) 0.57 0.64 0.83 0.90 0.39
63
Earnings per share is one of the most important indicator to evaluate the
profitability of a company. Earnings per share (EPS) represents the portion of a
company's profit allocated to each share of common stock. The EPS ratio is very
useful when it is use to compare within competing company in an industry. It gives us
a clear view of the comparative earning power of the companies.
In 2013, KEN Holdings Berhad Earning per share ratio was at 0.22 :1, In 2014,
the EPS ratio decreased slightly to 0.17:1 and further depreciated to 0.13:1 at 2015. Its
rebounded back to 0.14:1 at the year of 2016 and soon reached its peak of 0.26:1 at
the year of 2017. Reflecting on the EPS of KEN Holdings Berhad, the trend of the
EPS ratio was experiencing various fluctuation. This is not a good sign for the
company. Investor usually will spot for company with the gradually increase EPS, so
that their investment will rise in value over years.
The EPS is subjected to the share splitting as well. Happening on the 2014,
there is a share split for KEN Holdings Berhad outstanding share. The outstanding
share number has been multiplied by two, changing from 95860,000 of outstanding
share to 191720,000. These had caused to a significant drop of EPS value from 2013
to 2014.
Price per Earning (P/E) ratio value on the ratio of market price of a company’s
stock to its earnings per share (EPS). It is directly proportional to the demand of the
company’s shares. The P/E ratio indicates how much does the investors of the
financial market are willing to pay for 1 ringgit of current earning.
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At 2013, the P/E of KEN Holdings Berhad was at 3.41:1, which means that
the investors were willing to pay RM3.41 for 1 ringgit of current earning. The ratio
rose to 5.88 :1 at the year of 2014 and reached its peak at 7.77:1 in the year of 2015.
After 2015, the P/E ratio had experienced a slight drop to 6.07:1 throughout 2016, the
ratio further dropped to 3.42 : 1 at the year of 2017.
Similar to the EPS, P/E ratio was also subjected to the splitting of share. When
there is a split of share, the P/E ratio waas expected to increase in its value as the EPS
has dropped. Happening in 2014, right after the splitting of KEN Holdings Berhad
share, the P/E ratio had raised for 2.47 : 1.
The price to book ratio measures a company's market price in relation to its
book value. It tells how much equity does the investor are paying for each ringgit in
net asset.
The price to book ratio of KEN Holdings Berhad was considered healthy as in
the year of 2013. The P/B ratio was at 0.39: 1, which means the investors were paying
for 39 sen for each ringgit of net asset. At the year of 2014, the P/B ratio rose up to
0.9:1, this reflects that the company may not be performing well throughout the year
and this also reflects that the company may sold out part of their assets to get fund to
sustain the business. The P/B ratio turned slightly better at the year 2015, at 0.83:1,
and turned down gradually throughout the 2016 and 2017.
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The lower the P/B ratio, the better and favour for the investor because a low
P/E ratio is reflecting to the investor that the company now is undervalued and is a
good timing to park in their investment.
From the analysis above, we know that KEN Holdings Berhad is a raising
company. In term of profitability and market performance, KEN Holdings Berhad has
experienced through tough time during the market depression at 2015 and 2016, but it
has successfully turned the challenges into edges and reached its best performance at
the year of 2017. Taking net profit margin as a viewing point, KEN group has
increased its net profit margin for almost 10% from 2016 to 2017. This is probably
because of the well control of cost of goods sold and other expenses that incurred
when delivering the product to their customers. KEN Holdings Berhad executive and
management team has proven their abilities to make profit and coped with the market
depression and soft in real estate market, but focusing their principal activities toward
the investment sectors and specialist engineering work instead of property
development. This statement is proved from the revenue contribution, where the KEN
Holdings Berhad has about 50% of their revenue coming from their subsidiaries and
another 50% coming from property development at the year of 2016.
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From the analysis of activities sector, we know that KEN Holdings Berhad
has no difficulties in obtaining back their debt, as the average collection period is
stable, while on the other hand, they faced no challenges on paying back debt as well,
and this is reflected on average payment period ratio. As been mentioned at [Extra
Finding 1] above, the KEN Holdings Berhad has clear off about 60% of its debt on
that year of 2016. This has shown that KEN Holdings Berhad has an extremely stable
monetary support from its shareholder, and it has high liquidity in its financial
movement.
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10.0 References
KEN Holdings Berhad (2017). KEN annual report 2017. Retrieved from
http://kenholdings.com.my/v2/wpcontent/uploads/2018/05/AnnualReport2
017_LowRes.pdf
KEN Holdings Berhad (2016). KEN annual report 2016. Retrieved from
http://kenholdings.com.my/v2/wp-content/uploads/2017/04/KEN-AR-
2016-Final.pdf
The Wall Street Journal (n.d.). KEN Holdings Berhad. Accessed on 20 November
2018, from https://quotes.wsj.com/MY/KEN/company-people
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11.0 Appendix
Liquidity
Activity
69
Debt
Profitability
70
Market Performance
71