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SCHOOL OF ARCHITECTURE, BUILDING & DESIGN

BACHELOR OF QUANTITY SURVEYING (HONOURS)

FINANCIAL MANAGEMENT
FIN60203

GROUP ASSIGNMENT

Group members : Teoh Zi Wei


Tan Vin Nie
Vivian Tay Huey Shuen
Yeoh Sin Yuen
Tham Kai Loon

Lecturer : Ms Tay Shir Men


Content

Title Page

1.0 Background of the Company

1.1 History 5-6

1.2 Organizational Management of the Company 7-8

1.3 Vision and Mission 9

2.0 Principal Activities 10-14

3.0 Analysis of Revenue Contribution

3.1 Introduction 15

3.2 Categorization/ Break Down of the Sources of 16-18


Revenue

3.3 Revenue Contribution in Year 2015


19-20
3.4 Revenue Contribution in Year 2016
21-22
3.5 Revenue Contribution in Year 2017
23-24
3.6 Conclusion
25

4.0 Current State of the Industry

4.1 Current Size of the Market 26-27

4.2 Prospects of Future Growth 28-29

4.3 Challenges Facing the Industry 30-31

4.3.1 Oversupply of higher raise development in 31-32

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Johor Bahru

4.3.2 Market Preferences 32

5.0 Strengths and Weaknesses

5.1 Strengths 33

5.2 Weaknesses 34

6.0 Company’s Strategic Plans

6.1 Sustainable Development - Core competency 35

6.2 Lifestyle 36

6.3 Subsidiaries support 36

7.0 Major Capital Investment and Sources of Funding

7.1 Major Capital Investment 37-39

7.2 Source of Funding 40

7.2.1 Share Capital 41-42

7.2.2 Increase in Liability 42-43

7.2.3 Decrease in Inventory (Sales performance) 43-44

8.0 Analysis of Financial Condition

8.1 Current Ratio and Quick Ratio

8.1.1 Current Ratio 45-46

8.1.2 Quick Ratio 47-48

8.2 Activity

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8.2.1 Inventory Turnover 49-50

8.2.2 Average Collection Period 50-51

8.2.3 Average Payment Period 51-52

8.3 Profitability

8.3.1 Gross Profit Margin 53-54

8.3.2 Operating Profit Margin 54-55

8.3.3 Net Profit Margin 56

8.3.4 Conclusion for “Margins” 56-57

8.3.5 Return on Total Asset 57-58

8.3.6 Return on Equity 59

8.3.7 Total Asset Turnover 59-60

8.4 Debt

8.4.1 Debt Ratio 61-62

8.4.2 Times Interest Earned 62-63

8.5 Market Performance

8.5.1 Earnings Per Share (EPS) 63-64

8.5.2 Price Per Earnings (P/E) 64-65

8.5.3 Price/book ratio (P/B) 65-66

9.0 Conclusion and Recommendation 66-67

10.0 References 68

11.0 Appendices 69-71

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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.
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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.

KEN Holdings Berhad has experienced through various transformation and


finally it turns into a reputable property development company. It possess about 26
Subsidiaries Companies which provide various services to the local construction
industry and participate in property development and construction. KEN Holdings
Berhad has known as Malaysian 1st Green Developer and had won multiples awards
such as BCA Green Mark GOLDPLUS Award and Multimedia Super Corridor (MSC)
Cybercentre Status. KEN Holdings Berhad emphasizes on green sustainable
development in attempt to provide affordable and high-value green residential houses
to the residents. Achievements and branding of KEN Holdings Berhad has attracted
numerous of long-term customers which in turn increases their reputation in Malaysia.

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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

NAME POSITION CURRENT BOARD


MEMBERSHIP

Dato’ Tan Boon Kang Group Executive - Kenly HK Ltd


Chairman - Ken Projects Sdn Bhd.
- Ken Link Sdn. Bhd.
- Sphere Supreme Sdn.
Bhd.
- Support Capital Sdn
Bhd.
- Ken TTDI Sdn. Bhd.
- Ken Holdings Bhd.

Tan Chek Siong Group Managing - Ken Holdings Bhd.


Director

YAM Dato’ Seri Syed Azni Ibni Independent Non- - Ken Holdings Bhd.
Almarhum Tuanku Syed Putra Executive Director
Jamalullail

Tan Moon Hwa Executive Director - Ken Property Sdn Bhd.


- Ken Holdings Bhd.
- Ken Grouting Sdn.
Bhd.
- Jewel Estate Sdn. Bhd.
- Ken TTDI/ Genesis
Nature Sdn. Bhd.
- T.B.S. Management
Sdn. Bhd.
- Ken Link Sdn. Bhd.
- Ken-Chec Sdn. Bhd.
- Ken Projects Sdn Bhd

Dato’ Ir. Dr. Ashaari bin Independent Non- - Ken Holdings Bhd.
Mohamad Executive Director

Sha Thiam Lu Independent Non- - Ken Holdings Bhd.


Executive Director

Lau Pek Kuan Executive Director -

Andrea Huong Jia Mei Secretary -


Figure 1.2: Organizational Chart for KEN Holdings
Berhad

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1.3 Vision and Mission

The vision of Ken Holding Berhad is “recognizing our responsibilities as a


developer and nation builder, we will aspire to deliver sustainable, quality
developments that exceed customers’ expectations.” To increase the quality of the
environment, KEN Holdings Berhad always emphasize on green development which
is environmentally responsible and resource-efficient throughout a building's life-
cycle from siting to design, construction, operation, maintenance, renovation and
deconstruction. It tends to achieve current demands of the customers which is to
provide the residents with the lush nature sanctuary.

The mission of Ken Holding Berhad is to enhance the values of the


shareholders through efficient resource management and effective governance that
promotes steady earnings growth. Besides, it aims to provide sustainable quality
houses to the residents which has planned and designed innovatively. KEN group
intends to preserve the environment for future generations with their sustainable
practices. Their mission is to create a working environment that promote teamwork
and work balance among the employee and promoting learning opportunities to them.

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.

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2.0 Principal Activities

Principal Activity is the main activity of a business which has a primary


purpose to generate revenue or profit for the company. Normally, it includes all the
business activities carried out by the company including operating, financing and
investing activities. In annual reports of any company, these primary activities are
stated, identified and sorted into classifications of business activities to allow owners
and shareholders to be aware of the actions needed to run the business as well as
being able to select the right candidates for the job, ultimately achieving the
company’s aims and goals such as maximizing the current stock value of the
shareholders. It also allows external readers like us to understand and utilize the
information easier and faster.

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,

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land reclamation and marine engineering which help the company in terms of
revenues.

Measures of Revenue 2014 2015 2016 2017

Inter-segment revenue Construction Contract Revenue 38.94% 48.71% 50.77% 35.52%

Sub-total 38.96% 48.71% 50.77% 35.52%


Property Development 60.77% 50.96% 49.06% 62.84%
Revenue earned
Management fees 0.26% 0.33% 0.17% 0.19%

Construction Contract Revenue - - 0.18%

Investment Properties - - - 1.28%


Sub-total 61.04% 51.29% 49.23% 64.48%
TOTAL 149,226 100.00% 100.00% 100.00%

Figure 2a: Vertical Analysis of the sources of


revenue

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.

One of KEN Holding Berhad’s most distinct property developments is KEN


Rimba Condominium 1 (KRC1) located in Shah Alam, Selangor. It comprises of 653
freehold units with 3 or 4 bedroom apartments and 26 pool villas. This property is an
addition to the existing KEN Rimba Township which offers affordable green homes
to the people as well as a modern and aesthetic outlook. Besides providing quality
homes, this property also promotes healthy lifestyle and sustainable living to their
residents by providing recreational facilities and green features. Despite many
concerns regarding the property including oversupply of property, hike in interest

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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.

Besides, another significant property development of KEN Holdings Berhad is


none other than Menara KEN TTDI which consist of corporate office tower located in
Taman Tun Dr Ismail, Kuala Lumpur. These tower, on the other hand, comprise many
sections, namely, Platinum Grade office suites, a performing arts theatre, an art
gallery, chains of food and beverage outlets, a gymnasium, rooftop pool and sky bar.
This project has achieved awards for World Class sustainable development as well as
an intelligent building management system. Consequently, the net cash used to invest
in Menara KEN TTDI has result in a reduce in cash generated from operation. For
example, RM 25.9 Million was used to finance the completion of Menara KEN TTDI
in 2006 and it is reduced to RM 10.5 Million in 2017 when the property is mostly
completed. Currently, the occupancy rate is approximately 30% and the group will
focus on a tenant base corporation in long lease period to improve occupancy rate,
hopefully translating to long term earnings.

The runner up of KEN Holdings Berhad’s principal activity lies on


construction contract activity which constitutes an inter-segment revenue. Inter-
segment revenue is revenue generated within segments of a company. This operation
occurs when a company has multiple segments and product sales occur between these
segments. Overall, it is the transfer or exchange of goods or monetary compensation
from one segment of a company to the other which is all within the same company.
For example, KEN Holdings Berhad’s subsidiary company, KEN Grouting Sdn. Bhd.
is in-charge of specialist engineering services, Turnkey contract, civil engineering and
building works. Normally, construction contract will require a large startup cost,
meaning a large investment or monetary support must be placed in order to run it.

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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.

Moreover, KEN Holdings Berhad also perform in investments and


management services. Some of the subsidiary companies that carry out investing
activities for the company are KEN Projects Sdn. Bhd., KEN Estate Sdn. Bhd., KEN
Highlands Sdn. Bhd., and KEN City Sdn. Bhd. while the subsidiary company that
overlook management services includes T.B.S Management Sdn. Bhd. which is
mainly involved in property management services and KEN Park Sdn. Bhd. which is
involved in Car Park Management. Investments can be in many forms. One of the
most common Investing activities are aligned with a company’s long term assets. It is
affected when a company purchase or sell long terms assets such as machinery,
equipment and more. Besides, investments can be also made by taking up a new and
potentially profitable project such as investing in Menara KEN TTDI office towers
which are investment properties. Investment properties are properties held either to
earn rental income or for capital appreciation or for both. Investment properties are
measured at cost, including transaction costs, less any accumulated depreciation and
impairment losses. On the other hand, management services deal with tenants and
prospects directly. For example, T.B.S. Management Sdn. Bhd. can collect monthly
maintenance fee in exchange for more convenient and efficient rental management,
saving time in collecting rent. Also, they can handle maintenance and repair issues in
a better manner.

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Figure 2b: The Corporate structure above shows the Principal
Activity carried out by different subsidiary within a company.

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3.0 Analysis of the Revenue Contribution in KEN Holdings Berhad

3.1 Introduction

Revenue contribution will be studied based on KEN Holdings Berhad’s annual


reports from year 2015 to year 2017. The contribution of revenue in KEN group are
mainly focused on two important segments which are construction and property
development. The operations in construction includes specialist engineering services,
turnkey contracts, building and civil and engineering works, land reclamation,
dredging, marine and civil engineering, while property development includes the
development of residential and commercial properties. In year 2016 and year 2017,
most of the revenue was contributed by the new sales registered and higher progress
billings for KEN Rimba Condominium 1 project.

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.

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3.2 Categorization/ Break Down of the Sources of Revenue

KEN Holdingss Berhad’s major sources of revenue comes from property


development and construction, and the income is generated either within organization
(inter-segment revenue) or from external buyer (Revenue).

Vert Analysis 2014 2015 2016 2017


Inter-segment Construction Contract
38.94% 48.71% 50.77% 35.52%
revenue Revenue
Sub-total 38.96% 48.71% 50.77% 35.52%
Property Development 60.77% 50.96% 49.06% 62.84%
Revenue earned
Management fees 0.26% 0.33% 0.17% 0.19%
Construction Contract
- - 0.18%
Revenue
Investment Properties - - - 1.28%
Sub-total 61.04% 51.29% 49.23% 64.48%
TOTAL 149,226 100.00% 100.00% 100.00%

Figure 3.2a: Vertical Analysis of the sources of


revenue

As shown in the vertical analysis above, the inter-segment revenue mostly


comes from construction contract revenue. According to the corporate structure of
KEN Holdings Berhad as shown in figure 3.2b, KEN group has 28 of different
divisions or subsidiaries companies providing with different types of products and
services from specialist engineering services to housing development or even
properties investment. The inter-segment transaction or sales can be performed within
these divisions or subsidiaries companies. As the annual financial report did not show
how the inter-segment transaction is performed, hence it is hard to trace and access on
history and amount of inter transaction done within the organization. From my
understanding, the simplest way for a developer to perform an inter-segment revenue
is to invest in its own development or providing specialist services to its own
development or project. For instance, KEN Holdings Berhad generated about 50.77%

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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.

In conclusion, the above findings attempts to give a general understanding on


how KEN Holdings Berhad generated its revenue in these recent years.

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Figure 3.2b: Subsidiaries companies that owned 18
by Ken Holding Berhad
3.3 Revenue Contribution in Year 2015

Figure 3.3a: Segment Information 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

Revenue Contribution in Year 2015

48.71%
50.96% Property Development Revenue
Management Fees
Construction Contract Revenue

0.33%

Figure 3.3c: Revenue Contribution in Year 2015

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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.

In addition, KEN group had received inter-segment revenue from construction


which amounted RM70,522,000. The pie chart shows that construction contract
revenue occupied 48.71% of the total amount of revenue. It had increased by 21.35%
compared to last year which is RM58,144,000. Thus, it recorded a major increment in
construction segment.

In short, most revenue generated in year 2015 is property development


segment. It had total revenue of RM73,789,000 compared to construction segment
which is RM70,522,000.

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3.4 Revenue Contribution in Year 2016

Figure 3.4a: Segment Information 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

Revenue Contribution in Year 2016

49.06%
Property Development Revenue
Management Fees
50.77%
Construction

0.17%

Figure 3.4c: Revenue Contribution in Year 2016

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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.

In short, construction segment generated the most revenue compared to the


property development segment. It had total revenue of RM95,718,000 compared to
property development revenue which is RM92,492,000.

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3.5 Revenue Contribution in Year 2017

Figure 3.5a: Segment Information 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

Revenue Contribution in Year 2017


1.28%

35.70%
Property Development Revenue
Management Fees
62.84%
Construction Contract Revenue
Investment Properties

0.19%

Figure 3.5c: Revenue Contribution in


Year 2017
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Based on KEN Holdings Berhad’s annual report in year 2017, KEN group
recorded total revenue of RM 104.2 million, an increase of 12.27% 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 2017
will be RM161,616,000, as shown in figure 3.5b. The overall revenue in year 2017
has decreased by 14.28% compared to last year. However, the revenue generated from
external customer is the highest revenue compared to the past few years. The revenue
was improved due to the new sales registered and higher progress billings for KEN
Rimba Condominium 1 project.

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.

Construction contract revenue has contributed 35.70% of total revenue. It


came from two different segments which are inter-segment revenue and the revenue
from external customer. Construction earned RM284,000 from the external customer
which had recorded in income statement. It also earned RM57,408,000 from inter-
segment, which had dramatically decreased by 40.02% compared to year 2016. Thus,
construction had contributed total revenue of RM57,692,000 in year 2017.

In short, property development segment generated the most revenue compared


to the construction segment. It had total revenue of RM101,839,,000 compared to
construction revenue which is RM57,408,000.

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3.6 CONCLUSION

Figure 3.6a: Analysis of Revenue Contribution from the Year 2015 to


Year 2017

According to the previous analysis, construction and property development are


indicated as the major contributions of the revenue. Thus, the bar chart has shown the
analysis of the revenue contribution between these two segments in order to provide
better understanding.

Referring to the bar chart as shown in figure 3.5a, property development


segment is the main revenue contributor to KEN Holdings Berhad in year 2015. In
year 2016, it slightly dropped from 51% to 49%. It then continued to become the
major revenue in year 2017, which increased by 14%. In contrast, the revenue
contributed by construction has increased slightly which is 2% in year 2016, however,
it then decreased exaggeratedly by 15% in year 2017, which is from 51% to 36%. In
short, the revenue contribution in KEN Holdings Berhad is interdependent between
these two important segments. When the revenue contributed by property
development increases, the revenue contributed by construction decreases. From the

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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.

4.0 Current state of KEN Holding Sdn. Bhd.

4.1 Current Size of the Market

KEN Holding Sdn Bhd is the pioneer of sustainable development in Malaysia.


It consists of several landmark achievements, exemplifying their commitment to
promote sustainable development and attempt to bring affordable and high-value
green developments into reality. For example, KEN RIMBA Legian Residences is
one of the famous landmark, which has won the BCA Green Mark Gold Award in
year 2010, becoming the 1st Malaysian landed residential development to receive that
award. In year 2013, KEN group also becomes the 1st developer to receive the BCA
Green Mark Platinum Award (Provisional) with the landmark project KEN RIMBA
Condominium 2, located at Shah Alam. All these famous landmarks have increased
the reputation of KEN Holdings Berhad in the industry. Over the years it has
expanded their property investment in different major states such as Kuala Lumpur,
Selangor and Johor. Apart from construction and property development, it is also
engaged in property holding, investment and development, specialist engineering
services, geotechnical, civil engineering and building works, land reclamation and
marine engineering, and property management. This clearly shows that KEN
Holdings Berhad operates major and minor industries in Malaysia.

KEN group’s capital position is remaining in a very healthy and stable


financial status. At 31st December 2017, the company has a total cash and equivalents

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.

One of their successful project, Menara KEN TTDI, a worldclass sustainable


corporate office tower located within the affluent vicinity of Taman Tun Dr Ismail,
Kuala Lumpur has become a main feature of the company. This intelligent building
has been awarded the BCA Green Mark Platinum Award on top of the coveted US
Green Building Council LEED Platinum Certificate and has obtained the Multimedia
Super Corridor (MSC) Cybercentre status. It comprises Platinum Grade office suites,
a performing arts theatre, an art gallery, chains of food and beverage outlets, a
gymnasium, rooftop pool and sky bar.

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.

Furthermore, KEN Holding Berhad decided to cooperate with the Iskandar


Regional Development Authority to develop the first green integrated project in the
Iskandar city. This cooperation has effective boosted up the confident level of foreign

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.

In short, KEN Holdings Berhad will be constantly developing Eco-friendly


building or office since this is their main products they provide and the demand of the
green building will enormously be increasing in the future as in the buyers are aware
of the condition of our environment now, and they will prefer a replacement plan or a
building technology that will reduce the pollution toward the environment. KEN
Holdings Berhad believes that their affordable high-value green development will be
the first and reliable company that the customer and clients will be approaching to.

29
4.3 Challenges Facing the Industry

The overall property market is expected to remain lackluster in 2018 due to


the shrinking demand and oversupply across the residential and commercial property
sectors. In year 2017, Malaysia was struggling to shrug off a severely weakened
currency, international infamy due to the 1MDB scandal, and a declining property
market. The Malaysian Reserve (2018) reports that high- and low-end properties are
not expected to see any immediate rebound as affordability, excess stock, and
economic and political concerns cast a dark shadow on what was once a vibrant sector.
As shown in figure 4.3a, National Property Information Centre (Napic) shows that
there were 130,690 unsold residential properties in the country during the first quarter
of 2017. In such circumstance, it may affect the overall growing and performance of
the property development of KEN Holdings Berhad in these coming years. KEN
group will have to seek for a solution for the unsold units and ensure their overall
financial condition are stable to tackle this critical situation.

Figure 4.3a: Total Unsold Residential Properties in Year 2004 to 2017

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.

4.3.1 Oversupply of higher raise development in Johor Bahru

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

31
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.

4.3.2 Market Preferences

As mentioned above, the pricing of KEN’s project is relatively high compared


to other surrounding project, as there will be more cost incurred in constructing
building that comply with the Green Building Index (GBI). According to Edge
Property, the property market of Johor Bahru indicates a moderate growth, which
mainly due to the market preferences. The local prefers to buy property which range
between RM220 psf to Rm430 Psf. “The highest percentage growth in price psf can
be found at the low-cost flats in Taman Desa Cemerlang (+44.7% y-o-y to RM101 psf)
and and Taman Bukit Mewah (+44.1% y-o-y to RM144 psf).”

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.

5.1 Strengths of the Company

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.

5.2 Weakness of the Company

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.

34
6.0 Company’s Strategic Plans

6.1 Sustainable Development - Core competency

As been mentioned above, the market property trending in Malaysia remains


soft at these few years, especially after the implementation of Goods and Services Tax.
In order for the KEN Holding Berhad to cope with the above situation, the company
has developed their own strategy competency. Aligned with the establishment of
Sustainable Development Goals (SDG), the KEN Holding Berhad committed to the
sustainable development by constructing building with better natural ventilation,
sunlight, lower carbon emission, installation of chiller plant & waste management
system .and photovoltaic (PV) panels to generate electricity. This is one of the
biggest selling point of all of the KEN Project, including KEN Johor Bahru, KEN
TTDI and KEN Rimba. Even Though the initial prices of these project is
comparatively higher than other ordinary project, however, it brings tons of long term
benefits to the residents. Some of the significant benefits includes cutting off on the
electricity bills as no air-condition is needed in a good ventilated building, generation
of electricity by solar plant, better air quality and better control over the waste
management. To ensure their project remaining competitive with the low and middle
cost development, KEN Holdings Bhd has settled their projects at a reasonable price
range, so that its attract more domestic and foreign investor. The selling point of
“Sustainable Development” has successfully contributed to the high sales of KEN
Rimba Condominium 1, which archived at its sale’s peak of RM92.8 million in the
year of 2017.

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.

6.3 Subsidiaries support

According to the executive chairman of KEN Holdings Berhad, one of the


major challenges that the company faced is the bad cycle in the financial market. The
fluctuation and implication of GST in Malaysia has increased the cost of living of the
household, leading the customer to spend cautiously, which led to the dampening of
demand and price of properties. To prevent financial difficulties that caused by the
slow property market, instead of putting all eggs in one basket, the KEN Holdings
Berhad has switched its capital from project development to other investments sectors
such as property investment, property management services and research and
development. All of these investment activities happen and managed by the
subsidiaries company of KEN Holdings Berhad. This is to ensure that, they can

36
survive through the dampening of real estate market, and have enough cash flow on
hands to continue growth the company in the near future.

7.1 Major Capital Investment

Capital investment is defined as the funds invested in a firm or enterprise for


the purpose of furthering its business objectives. As a developer, KEN Holdings
Berhad constantly invested various type of long and short-term investment, such as
properties, plant and equipment and also land held for property development.

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.

In year 2016, KEN Holdings Berhad invested its capital on purchasing


property, plant and equipment at the amount of RM708,000 which occupied around
2.71% of the annual investing activities as shown in figure 7.1a and 7.1d. In addition,
the major investment in the year of 2016 of the KEN group is on the acquisition of
investment properties at the amount of RM25,446,000 which contributed about 97%
of the annual investment activities. Apart from this, to ensure high liquidity in finance

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.

In year 2017, KEN group invested RM477,000 in acquiring of plants and


equipment which occupied around 4.5% of the annual investment activities, the other
95.5% of investment is contributed to the investment on properties at the amount of
RM10,138,000 as shown in figure 7.1a and 7.1d. For the short-term investment as
shown in figure 7.1b, KEN group invested around RM100,000 for liquid investment
and RM230,000 for deposits with licensed bank.

According to the figure 7.1c, there is a significant decrease in the investment


activities between year 2017 and the previous years. The horizontal analysis as shown
in figure 3 shows that there is a decrease of 60% in investment activities, which is
from value of RM25,880,000 (year 2016) to RM10,524,000 (year 2017). Apart from
this, the company seems to be retained less cash and liquid investment on hands at
2017. At 2016, KEN Holdings Berhad retained a total amount of RM8,807,000 cash
or equivalent on hands, however, in the year of 2017, it only retained RM276,000
amount of cash on hand. The sudden descent of the amount of retained cash and
investment activities seem to be abnormal, whereby the finding of such descending
will be clarified further.

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

Figure 7.1c: Horizontal analysis on cash flow from investing activities

39
7.2 Sources of Funding

A company can sources in fund by 3 fundamental ways, either to decrease in


asset (sales, selling of fix assets), increase in liability (loan) or obtaining it from the
share capital (equity). The above information can be clearly identify in the balance
sheet (financial position) and the income statement sheet (profit and losses), the table
below will show the explanation of how KEN Holdings Berhad sources in money for
year 2015, 2016 & 2017.

Figure 7.1d: Vertical analysis on cash flow from investing activities

40
7.2.1 Share Capital

Figure 7.2.1a: Extraction of Total equity from 2016/2017 financial report

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.

Figure 7.2.1b: Horizontal analysis to study the rate growth of Equity


account

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.

7.2.2 Increase in Liability

Figure 7.2.2a: Extraction of Total liabilities from 2016/2017 financial


report

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.

7.2.3 Decrease in Inventory (Sales performance)

Figure 7.2.3a: Extraction of Revenue (profit and loss statement) from


2016/2017 financial report

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

43
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.

Figure 7.2.3b: Horz Analysis for Profit and losses statement

44
8.0 Analysis of financial condition

Year/Ratio 2017 2016 2015 2014 2013

Current 2.30 : 1 1.2 : 1 1.3 : 1 1.7 : 1 1.26: 1


Ratio

Quick Ratio 0.72 : 1 0.42 : 1 0.62 : 1 0.68 : 1 0.58 : 1

8.1 Current Ratio and Quick Ratio

8.1.1 Current Ratio

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

Figure 8.1.A: Balance sheet of KEN Holdings Berhad

Figure 8.1.B: Horizontal Analysis of KEN Holdings Berhad’s Balance Sheet

46
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.

8.1.2 Quick Ratio

Cash + accounts receivable


Quick Ratio:
Current liabilities

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

Ratio 2017 2016 2015 2014 2013

Inventory Turnover 0.54:1 0.74:1 0.60:1 0.62:1 0.38:1

Average collection period 183.52 182.5 182.5 182.5 368.04

Average Payment Period 64.43 37.98 58.5 25.37 76.74

Figure 8.3A: Statistic for Average Collection Period and Average


Payment Period
48
8.2.1 Inventory Turnover

Cost of Good Sole


Inventory Turnover:
Average Inventory

There is no standard ratio for inventory turnover as different industry has


different nature. For an example, housing development will be slower compared to
other industries because the process is lengthy and complex. The inventory turnover
ratio is useful to find out how quick a business moving its inventories.

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.

[Extra Finding 2, Explanation on faulty message that may bring by inventories


turnover]

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[Extra Finding 2]

Inventory turnover ratio is not fully dependent on the performances of sales in


construction industry. It is also subjects to the speed of development. The term of
turnover is representing how fast the inventories of particular companies can be sold
off and how fast the inventories can be replaced. As for the developers, inventories
refer to the units of housing development which are yet to be sold, or in a simple
terms, properties under the company projects that are not sold out. If a developer
keeps on selling out its properties but there is no upcoming project or development in
the future, its inventories may go low, hence it can result in high inventories turnover.
In this situation, the high inventories turnover ratio may give a faulty message to the
investors that the company is doing well, however, once the on hands developments is
fully sold, the developer may seem to be in financial problem as there is no revenue in
return.

8.2.2 Average collection period

Account Receivable
Inventory Turnover:
Annual Credit Sales / 365

Average collection period is an analysis study on average number of days


between the date a credit sale is made and the date payment is received from the credit
sale. In a simple term, it means how long the company does collect its payment after
the issue of inventories. For KEN Holdings Berhad, its average collection period for
its account receivable was about 368 days in the year of 2013, the result shown in
2013 was not seen to be healthy as the payment for inventories incurred was only
being collected in a year.

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, Understanding about credit sales, and nature of product in


construction industry]

[Extra Finding 3]

Credit sales is defined as allowances of goods to customers in order to pay in


advance. In construction industry, usually the date of payment for credit sales is
relatively slow as this is affected by the nature of construction industry’s products. As
mentioned above, the product for construction industry is referring to the real estate or
properties on sold and usually the buyer will pay for their properties on an installment
plan which last for years, hence the average collection period for construction
industry will be relatively slow than other industry.

8.2.3 Average Payment Period

Accounts Payable x Number


Average Payment Period: of Working Days
Net Credit Purchases

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

Ratio 2017 2016 2015 2014 2013

Gross Profit Margin 65.93% 46.64% 54.35% 60.68% 63.94%

Operating Profit Margin 60.44 % 39.92% 42.50% 47.88% 50.87%

Net Profit Margin 48.36% 29.87% 34.30% 35.07% 37.43%

Return on Total Assets 14.09% 7.76% 7.63% 11.30% 7.48%

Return on Equity 16.79% 10.91% 10.99% 15.05% 11.38%

Total Assets Turnover 0.29 : 1 0.26 :1 0.22: 1 0.32 : 1 0.20 : 1

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Figure 8.3: Statistic for Gross Profit Margin, Operating Profit
Margin and Net Profit Margin

Profit Margin, Return of Asset (ROA), Return of Common Equity, Return on


investment and total asset turnover are the fundamental tools to check on the
profitability of a company. It reflects on the how well the management teams allocate
their fund to generate maximum income to the company with minimum input. The
profit margins further tell us the amount of sales made by the company and its ability
to balance between production costs and revenue made from sales.

8.3.1 Gross Profit Margin

Sales - COGS
Gross Profit Margin: Sales

Gross profit margin is used to measure on the health of a company by


reviewing the amount of money left over from revenue after deducting cost of goods
sold. Cost of goods sold (COGS) is the amount of money used to create the goods

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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.

8.3.2 Operating Profit Margin

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.

Figure 8.3.2: Vertical Analysis of the income


statement

The above Vertical Analysis shown the percentages of each elements


contributed to the profit for financial year (net income). Showing clearly at the
analysis above, the depreciation of OPM from the year of 2015 to 2016 was mainly
caused by the cost of goods sold which was an increase of 66.51% over the net
income of the year. The minor increase of the administrative expenses is the other
reason for the depreciation of OPM as well. The KEN Holdings Berhad’s
management team shall at the particular time review on their cost plan and budgeting
strategy, especially on the production of goods sold.

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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.

8.3.3 Net Profit Margin

Revenue – COGS – Operating Expenses –

Net Profit Margin: Other Expenses – Interest - Taxes


x 100%
Sales

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

8.3.4 Conclusion for “Margins”

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.

8.3.5 Return on total asset

Earnings Available For Common


Stockholders
Return on Total Asset (ROA):
Total Assets

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.

As an investor, we always expects a company with large amount of assets


invested into the business to generate a significantly higher profit than business with
less assets invested. ROA allows us to measure of this by adjusting for the scare and
size of the companies. From the finding above we clearly see that the KEN Holdings
Berhad has well used its asset in creating value to its business. The table below shows
the analysis of the type of assets that the companies own and how KEN Holdings
Berhad has well-used it to generate income to the business.

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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.

8.3.7 Total Asset Turnover

Sales
Total Asset Turnover:
Total Asset

Similar to ROA, total asset turnover is used to measure how efficient a


company use its assets in generating sales. The differences between ROA and total
asset turnover is that ROA is measured based on net income over the total assets,
which is subjected to all type of expenditure (Net income = sales -total expenditure),
hence effectiveness on cutting off expenditure is an important elements to be consider
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in ROA. On the other hand, total asset turnover purely measured on the sales over
total assets, which is not subjected to any of the expenditure such as COGS, taxation
and depreciation.

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.

Figure 8.3.7: Vertical Analysis of Income


Statement

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

Ratio 2017 2016 2015 2014 2013

Debt Ratio 16.10% 28.85% 30.53% 24.94% 34.30%

Times Interest Earned 538.32 349.03 300.59 229.52 108.82

8.4.1 Debt Ratio

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].

Figure 8.5.1: Horizontal Analysis of current 61


liabilities
The ratio continued to rise to 30.53% in the year 2015 and remained at 28% in
the year 2016. But there was a significant drop in the debt ratio at the year 2017. It
was because of that the KEN Holdings Berhad had paid off about 50% of its total debt
throughout the financial period of 2017 as per described in [Extra Finding 1].

8.4.2 Times Interest Earned

Operating Profits
Times Interest Earned:
Interest Expenses

Times interest earned is calculated to measure a company's ability to honor its


debt payments. KEN Holdings Berhad has a very healthy ratio on this as in the year
2013, KEN Holdings Berhad had the times interest earned ratio at 108.82 times,
which means for the profit that it earned over the year were allow to pay 108 times of
its interest expenses. The ratio was gradually increasing. At the year of 2014, the ratio
was at 229.52 times and in 2015, the ratio increased to 300.59 times.

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

8.5 Market Performance

Ratio 2017 2016 2015 2014 2013

Earnings Per Share (EPS) 0.26:1 0.14:1 0.13:1 0.17:1 0.22:1

Price Per Earning (P/E) 3.42 6.07 7.77 5.88 3.41

Price per Book Ratio (P/B) 0.57 0.64 0.83 0.90 0.39

8.5.1 Earnings Per Share (EPS)

Earnings Available For Common


Stockholders
Earnings Per Share (EPS): Number of Shares of Common
Stock Outstanding

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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.

8.5.2 Price Per Earnings (P/E)

Market Price Per Share


Price Per Earnings (P/E):
Earnings Per Share

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.

8.5.3 Price/book ratio (P/B)

Market Price Per Share


Price/book ratio (P/B): Equity Book Value/ Share

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.

9.0 Conclusion and Recommendation

As my conclusion from the above study, Ken Holding Berhad is a very


potential company to growth in the next future. Under the excellent lead of Dato’ Tan
Book Kang, KEN Holdings Berhad has developed its own competency to allow itself
to remain competitive in the market. KEN is also the Malaysia leading “green-
developer” with the advancement of green technology and techniques.

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.

By understanding the construction market and trend, KEN Holdings Berhad


has developed its own strategic competency that is not challengeable by the other
developer. The advanced technologies and experiences of KEN Holdings Berhad
offered in the sustainable development is one of their primary edges. This has made
KEN Holdings Berhad’s projects to be unique and special.

Finally, as my humble recommendation, the real estate market is expected to


remain slow and soft in the next few years, because of the oversupply of high rise
development. The KEN Holdings Berhad shall practice to allocate more budget onto
other sector such as specialist engineering work and property investment, instead of
property development, to ensure that the company can sustain and survive through
any financial crisis.

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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

Propwall (n.d.). KEN Holdings Berhad. Accessed on 18 November 2018, from


https://www.propwall.my/developer/58/KEN-Holdings-berhad

Csisprop (2018). Malaysian Property Market to Decline in 2018. Accessed on 18


November 2018, from https://csiprop.com/malaysian-property-market-
decline-2018/

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11.0 Appendix

Calculation for Ratio Analysis

Liquidity

Activity

69
Debt

Profitability

70
Market Performance

71