Financial Statement Analysis

Mah Sing Group Berhad and UEM Sunrise Berhad are two leading property
developers in Malaysia. The corporate profile of these two companies is as follows:

Mah Sing Group Berhad was listed on the Main Board of Bursa Malaysia in 1992 and
ventured into property development in 1994. Mah Sing is one of Malaysia’s fully
integrated developers with residential, commercial and industrial developments. The
Group currently has 47 projects (34 ongoing) in Greater Kuala Lumpur and Klang
Valley, Penang, Johor as well as Sabah. A leading property developer in Malaysia,
Mah Sing’s diverse portfolio includes master planned townships, integrated
developments, Grade A office buildings, retail projects and industrial developments.
For more than two decades, Mah Sing has continuously created iconic developments
that have won over 200 domestic and global awards for company performance,
corporate governance, product design, concept, innovation and quality. Mah Sing has
launched numerous big projects with luxury in mind. Some of the notables are Icon
Residence (Mont Kiara), M City (Jalan Ampang), M Residence (Rawang), Icon City
(Petaling Jaya), and Ferringhi Residence (Batu Ferringhi, Penang).

UEM Sunrise Berhad is a public-listed Company and one of Malaysia’s leading

property developers. It is the Flagship Company for township and property
development businesses of UEM Group Berhad and Khazanah Nasional Berhad.
UEM group is wholly-owned by Khazanah, the strategic Investment fund of the
government of Malaysia. The Company has core competencies in macro township
development; high-rise residential, commercial, retail and integrated developments; as
well as property management and project & construction services. The company is
renowned for its numerous award-winning high-rise and landed residential;
commercial and mix-use developments in Iskandar Puteri, Kuala Lumpur's affluent
Mont' Kiara enclave, the Kuala Lumpur City Centre, Cyberjaya, Shah Alam, Bangi
and Seremban.
 Selected ratios for the three financial years of 2015, 2016 and 2017 are as follows:

Mah Sing Group UEM Sunrise Group

2017 2016 2015 2017 2016 2015
Activity Ratios
Total Asset 0.41 0.48 0.47 0.20 0.14 0.15
Turnover
Fixed Asset 18.71 21.49 28.38 7.70 6.14 7.48
Turnover

Liquidity
Ratios
Current Ratio 3.00 3.10 3.43 2.56 2.25 3.02
Quick Ratio 2.63 2.86 3.30 2.35 2.02 2.78
(Acid-Test)

Profitability
Ratios
Gross Profit 26.12% 25.20% 25.55% 28.27% 27.72% 30.01%
Margin
Net Profit 12.23% 12.24% 12.46% 8.25% 10.34% 17.33%
Margin
Return on 7.67% 9.44% 10.51% 3.22% 2.65% 4.23%
Equity

Leverage
Ratios
Debt Ratio 34.91% 38.33% 44.31% 48.38% 46.81% 39.73%
Debt/Equity 0.54 0.62 0.80 0.94 0.88 0.66
Ratio

a) Compare the performance of these two companies based on all the ratios above.
 Fixed Asset Turnover
30 28.38 Total Asset Turnover
25 21.49 0.6
20 18.71 0.5 0.47 0.48
0.41
15 0.4
10 7.48 7.7 0.3
6.14 0.2
5 0.2 0.15 0.14
0 0.1
2015 2016 2017
0
Mah Sing Group UEM Sunrise Group 2015 2016 2017

Mah Sing Group UEM Sunrise Group

Diagram 1: Activity Ratios for Mah Sing Group and UEM Sunrise Group from year
2015 to year 2017

These are activity ratios we used in measuring the efficiency of the company to use their
asset to generate revenue and/or cash. In this case, two types of activity ratios we used
are: Total Asset Turover (TAT) and Fixed Asset Turnover (FAT).

The Total Asset Turover (TAT) of Mah Sing Group from year 2015 to year 2017 are
0.47, 0.48 and 0.41. On the other hand, the TAT of UEM Sunrise Group decreased from
0.15 (year 2015) to 0.14 (year 2016), but it increased to 0.2 in year 2017. From the data
above, we can see that Mah Sing Group has higher TAT than that of UEM Sunrise
Group. It means that Mah Sing Group is better in their business operation in efficiently
using their assets to turn in to money.

Fixed Asset Turnover (FAT) indicates the efficiency of a company to generate sales
with its fixed assets such as property, factories and building. It is a more specific type of
activity ratios that measures the fixed assets utility efficiency, especially useful in
evaluating business like those property developers. From the diagram we can see that
Mah Sing Group’s FAT is in down trend, from 28.38 in year 2015, to 21.49 (year 2016),
to 18.71 (year 2017). It may show that the efficiency of Mah Sing Group in maximizing
their sales from their fixed assets reduces. On the other hand, FAT of UEM Sunrise
Group is much stable from year 2015 to 2017. It reduced to 6.14 in year 2016, but
increased back to 7.70 in year 2017. However, in comparison between these two
company, Mah Sing Group still outstand UEM Sunrise Group with higher FAT. UEM
Sunrise Group may not use their fixed assets to their full extent. Or, they may be
overinvested in certain properties where no
Quick Ratio one is interested to purchase.
3.5 3.3
3 2.78 2.86
2.63
2.5 2.35
2.02
2
1.5
1
0.5
0
2015 2016 2017

Mah Sing Group UEM Sunrise Group

 Current Ratio Diagram 2: Liquidity Ratios for Mah Sing
4
3.43 Group and UEM Sunrise Group from year
3.5 3.1
3
3.02 3 2015 to year 2017
2.56
2.5 2.25
2 Mah Sing Group’s Current Ratio are 3.43
1.5
1
(year 2015), 3.1 (year 2016) and 3 (year
0.5 2017). On the other hand, Current Ratio of
0
2015 2016 2017
UEM Sunrise Group are 3.02, 2.25 and 2.56
for year 2015, 2016 and 2017 respectively.
Mah Sing Group UEM Sunrise Group
Both companies’ Current Ratio are in down
trend, meaning that the liquidity of both companies decreased. Current Ratio of Mah
Sing Group are higher compared to that of UEM Sunrise Group from year 2015 to year
2017. So, Mah Sing Group liquidity is better. In terms of loan application from banks,
Mah Sing Group is more favorable compared to UEM Sunrise Group.

Quick Ratio of Mah Sing Group are 3.3 (year 2015), 2.86 (year 2016) and 2.63 (year
2017). On the other hand, Quick Ratio of UEM Sunrise Group are 2.78 (year 2015), 2.02
(year 2016) and 2.35 (year 2017). After excluding the inventory and prepaid expenses,
the trend of Quick Ratio for both companies are similar to Current Ratio. Both Quick
Ratio shows down trend, both companies are less liquid from year 2015 to year 2017.

Gross
Net Profit
ProfitMargin
MarginReturn on Equity
31.00%
20.00%
12.00% 30.01%
10.51%
17.33%
18.00%
30.00% 9.44%
10.00%
16.00%
29.00% 28.27%
14.00% 27.72% 7.67%
8.00% 12.46%
28.00% 12.24% 12.23%
12.00%
27.00% 10.34%
10.00%
6.00% 25.55% 26.12%
8.25%
26.00%
8.00% 25.20%
4.23%
25.00%
4.00%
6.00% 3.22%
2.65%
24.00%
4.00%
2.00%
23.00%
2.00%
22.00%
0.00%
0.00%
2015 2015 2016 2017 2016 2017

Mah Sing Group UEM Sunrise

Mah Sing
Group
Group UEM Sunrise Group

Diagram 3: Profitability Ratios for Mah Sing Group and UEM Sunrise Group from year
2015 to year 2017

Gross Profit Margin of Mah Sing Group are 25.55% in year 2015, 25.20% in year
2016, and 26.12% in year 2017. On the other side, UEM Sunrise Group has better gross
profit margin, 30.01% (year 2015), 27.72% (year 2016), and 28.27% (year 2017). Both
companies show decline in gross profit margin in year 2016. But the gross profit margin
of both companies climbs back in year 2017.

Net Profit Margin is used to investigate how well a company is managed by comparing
net income to total sales. Net profit margin of Mah Sing Group is much stable from year
2015 to year 2017, from 12.46%, to 12.24% and then 12.23%. However, the net profit
 margin of UEM Sunrise Group is showing down trend. Initially it was higher (17.33%)
in year 2015 compared to that of Mah Sing Group (12.46%). But the net profit margin of
UEM Sunrise Group drops to 10.34% in year 2016, and future decreases to 8.25% in
year 2017. Lower net profit margin of UEM Sunrise Group shows that the company is
less efficient to translate their sales into profits. It may be due to poor management to
control on their financial and operating expenses. The sustainability of UEM Sunrise
Group profitability may be questioned by stakeholders.

Return on Equity (ROE) of Mah Sing Group shows much superior than that of UEM
Sunrise Group, from year 2015 to year 2017. In average of 3 years ROE, Mah Sing
Group has ROE of 9.2% but UEM Sunrise Group only has 3.37%. ROE of UEM Sunrise
Group initially shows decrease in 2016 (ROE=2.65%), but it slightly increases to 3.22%
in year 2017. However, the ROE in 2017 is still lower than ROE in 2015, which is
4.23%. Although Mah Sing Group’s ROE is better than that of UEM Sunrise Group, we
can still see that it is in downtrend mode. The ROE reduces to 9.44% (year 2016) from
10.51% (year 2015). In year 2017, it further reduces to 7.67%. It may show the reduced
efficiency of Mah Sing Group in using stakeholders’ equity to generate incomes.

Debt to Equity Ratio

1 0.94
0.88
0.9 0.8
0.8
0.7 0.66 0.62
0.6 0.54
0.5
0.4
0.3
0.2
0.1
0
2015 2016 2017

Mah Sing Group UEM Sunrise Group

Debt Ratio Diagram 4: Leverage Ratios for Mah Sing

60.00% Group and UEM Sunrise Group from year
46.81% 48.38%
50.00% 44.31% 2015 to year 2017
39.73% 38.33%
40.00% 34.91%
30.00% Debt Ratio is used to measure the proportion
20.00% of total assets borrowed from creditors,
10.00% showing the company’s ability to pay off its
0.00%
2015 2016 2017
liabilities with its assets. Debt Ratio of Mah
Sing Group in year 2015 is 44.31%, 38.33% in
Mah Sing Group UEM Sunrise Group
year 2016 and 34.91% in year 2017. It is in
decreasing trend, showing that the company is doing well to reduce their total liabilities
over their total asset, making it less financially leveraged. On the other hand, UEM
Sunrise Group’s Debt Ratio is in upward trend: 39.73% in year 2015, 46.81% in year
 2016, and 48.38% in year 2017. Higher debt ratio will be considered riskier to creditors
and also shareholders. Both banks and investors might not be confident with UEM
Sunrise Group’ ability to pay off debts and also sustain their business in the future.

From year 2015 to year 2017, Mah Sing Group’s Debt to Equity Ratio are lower
compared to that of UEM Sunrise Group. Mah Sing Group’s Debt to Equity Ratio is
decreasing from year 2015 to year 2017, from 0.80 to 0.62 and then 0.54. It is a good
sign because the proportion of using investors’ equity is more compared to that of
creditors’ financing. However, the Debt to Equity Ratio of UEM Sunrise Group is going
upwards, from 0.66 (year 2015), to 0.88 (year 2016) and to 0.94 (year 2017). It means
that the ratios of finance resources will be more from creditors than that of investors.
From a view of an investor, UEM Sunrise Group can also be considered as a risker
investment if compared to Mah Sing Group.

b) Identify two ratios that will be important to banks in evaluating loan application from
these companies.

One of the ratios that is important for banks to evaluate the loan application is Current
Ratio It shows how well a company ability is to settle short term debts. In this case, loan
application will be easier for Mah Sing Group as it has better Current Ratio, compared to
UEM Sunrise Group, in years 2015 to 2017.

The other ratio is Debt Ratio. It measures the percentage of the proportion of all
borrowing, including short term or long-term loans. It shows the company’s ability to
pay off its liabilities with its assets. Company with higher debt ratio will be considered
highly leveraged and riskier for creditors. In this case, loan application is harder for
UEM Sunrise Group because its average Debt Ratio is higher compared to Mah Sing
Group. Banks might judge the ability of UEM Sunrise Group’s ability to pay off the
debts in the future.

c) Identify two ratios that investors will consider in deciding to invest in any of these two
companies.

First will be the Fixed Asset Turnover (FAT). FAT measures the efficiency of a
company to generate sales with its fixed assets such as property, factories and building.
As an investor, I prefer to invest in Mah Sing Group because its FAT is obviously better
than that of UEM Sunrise Group, in years 2015, 2016 and 2017. It means that with the
amount of assets given, Mah Sing Group utilized them efficiently and generate higher
sales.

Secondly, I will use Return on Equity (ROE) to decide which company to invest. ROE
shows how good a company is in generate profits from its shareholders’ equity. The
higher the ROE, the more efficient the company is to manage the shareholder’s equity
and grow it with the profits. Between these two companies, I will invest in Mah Sing
Group over UEM Sunrise Group. Although Mah Sing Group’s ROE is in decreasing
trend, the overall ROE is still higher than that of UEM Sunrise Group.