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Bhd. 1. This is a group project in which each of the group has to do the following: i. ii. iii. iv. v. vi. a brief fundamental valuation analysis of Harimau Plastics; determine the worth of the original RM1 million investment in 1996 at the end of 2004 (how much per share) - based on discounted cash flow method of Harimau Plastics free cash flow; Calculate the Net Tangible Asset to determine the share price of Harimau Plastics at end of 2004 Carry out a relative valuation method with other companies of similar industry as a comparison. what is your valuation in terms of price per share of Harimau Plastics. What is your recommendation to the founders the FAIR PRICE to issue at IPO and state your justification how you arrive at that value.
2. Each group needs to prepare presentation slides (not more than 30 slides) of the above and made a presentation not more than 25 minutes on 6 December 2011. Question and answer (5 minutes) will follow after each group’s presentation. 3. Your forecast cash flow is up to year 2008 and you can assume a perpetuity growth of an annual rate of 4% of the free cash flow after year 2008. 4. You need to determine your weighted cost of capital (WACC) and please explain how you derive at the cost of capital for Harimau Plastics. 5. If some data are not available, you could make some assumptions but the assumptions must be realistic and base on literature review or supported by published reports. 5. This is a group work and I expect every member of the group to participate actively, contribute and prepare the case study as a team. 6. You need to hand in your presentation slides to me before the start of the presentation. 7. Class participation is very important and those who cannot attend must have valid reasons.
The company’s founders are 3 individuals with diverse backgrounds in both educational and functional working experiences. A man who had work non-stop. Not long after that. age 63 years old. (Harimau Plastics) Mr. His dedication and willingness to take on any assignment enabled him to rise through the ranks even overtaking those with tertiary and professional qualifications. The People behind Harimau Plastics Sdn. Datuk D. is the Finance and Administration Director of the company. Since that day. and with two other individuals. is located in an industrial park in a small town of Perlis. He opted to retire in 1995 following strategic differences with major shareholders. Upon graduation. Dr. Dr. established Harimau Plastics Sdn. both became great friends. R. aged 50. is the Executive Chairman of the company. BHD. R of his plans to establish a plastics manufacturing factory in Perlis. His knowledge of the plastic industry is very extensive. R who longed to return to Malaysia did not waste any time and immediately agreed to become his business partner. After taking things easy for a few months. Therefore. he worked as one of the senior banker in one of the largest banks in Singapore before deciding to join hands with Datuk D to set up Harimau Plastics. when Datuk D informed Mr. C. he got restless and wanted to occupy his time usefully. The company established in 1996. The oil company identified him as one of their future 2 . Bhd. Bhd. is the Operations Director of the company. That was the only company he had ever worked for. He has vast experience in the plastics industry. to become the Deputy Managing Director of the company. He started work with a plastics manufacturer in Singapore as a production apprentice at age of 20. C. he did not really know the meaning of retirement. His friendship with Datuk dates back to 1985 when he interviewed him as part of the procedure to assess his application for business financing.UNIVERSITY PUTRA MALAYSIA GRADUATE SCHOOL OF MANAGEMENT INVESTMENT ANALYSIS (GSM5421) CASE STUDY HARIMAU PLASTICS SDN. he joined one of the Malaysian operations of a leading oil company as a management trainee. Mr. he decided to venture into the business world. also a Malaysian is a graduate from UTM with a degree in Chemical Engineering. aged 57. Harimau Plastics is a player in the ever growing plastics industry in Malaysia. A Malaysian and a graduate of University of Putra with a Degree in Finance.
They decided to establish their operations in an abandoned factory that they bought at an auction. obtain substantial short-term and long-term financing for the company speedily and at favourable rates. besides giving him the opportunity to gain further academic qualifications. The factory structure and layout were almost similar to what they had envisioned. 3 . secure some orders to get the factory into running mode. who he became a close friend from the time they first met at a conference on the petrochemical industry in Singapore in 1990. The trigger point to leave came when he received a phone call one afternoon from Datuk D. The Vision and Operations The founders’ ambitious plan for the company was to turn it into a comprehensive manufacturer of thermo-formed plastic food containers.000 consisting of 1. However. Singapore and Indonesia. catering to the needs of the domestic market as well as the regional markets of Thailand.000 shares with par value of RM1 each.000. its maiden production of jelly containers done with a second-hand made thermoforming machine and second-hand mould imported from Japan. His mind was increasingly not on his job anymore. land for future expansion.managerial prospects and gave him numerous assignments to hone his skills. obtain favourable terms for key raw materials. The state government has also offered them concessions as an inducement to invest. over the years he had grown increasingly frustrated at all the politicking around him. The founders incorporated the company in 1996 with a fully issued and paid-up capital of RM1. transportation and shipment infrastructures and proximity to foreign markets such as Thailand. the company finally commenced production in November 1996. the three mortgaged their property and used their own money to kick-start the factory. He took the opportunity to obtain his PhD from a British University. For funding. Their strong reputation in the commercial sector enabled to the company to: i. Singapore and Indonesia. Starting the business After scouting around for a suitable site. ii. Perlis after considering factors such as labour availability and affordability. Following the recruitment of key personnel and after painstaking planning and organization. serving as the head of several refineries in a neighboring country and his future was bright.000. Dr. C moved up quickly. they decided on Padang Besar. iii.
With the competitors eliminated and with the market on the edge of strong recovery. were eager to lend money once more and the trio took full advantage of the situation. and to show that the organization is more important than the individual. introduced newer products into the market. unsupported by market fundamentals. Harimau Plastics sales and production suddenly seemed untenable. Bangkok and Jakarta. b) The company had three thermoforming machines. albeit a small and growing one. Revenue improved slightly. They paid themselves a token of RM5. Harimau Plastics introduced sophisticated. The banks. They intensified new product development. With low financing cost. the founders decided that financial years 2000 and 2001 would be pivotal years for the company. Harimau Plastics had turned into a respected player. all aided and funded by low cost financing from domestic banks. state of the art machinery from Germany. The market situation improved in 1999. The founders did not lose sight of their larger goals for the company. moved into more value added businesses and spurred domestic and foreign marketing efforts. only for the Asian Financial Crisis to strike in July 1997. Italy and Japan. one thermoformed container-printing machine. 4 . The future looked brighter by the day and by the end of the financial year 2002. but the company still posted a reduced net loss for the financial year 1999. The three founders were undeterred and did their best to seek new orders. A snapshot of Harimau Plastics at the end of the financial year 2002 revealed the following: a) The company produced its own extruded thermoforming sheets. d) The company had marketing and distribution offices in major towns in Malaysia besides having offices in Singapore. to maintain and improve quality and efficiency and to exercise stringent operational and financial discipline. The company posted net losses in financial years 1997 and 1998.000 each as a monthly salary so as to lead by example. The financial crisis had swept away a few players from the scene. in the market. after being adversely affected in 1997 and 1998. c) The company had one small mineral water bottling operation.Financial Performance and Challenges The company was just beginning to get a toehold in the industry. one extruder and one grinder of waste material.
he distanced himself more and more from the business that he had built from scratch with his two comrades. The thermoformed container-printing machine allowed the company to perform value added work. he rarely spoke to anyone. Such value added work allowed the company’s products to fetch higher prices. This forced both Mr. Harimau Plastics was already capable of manufacturing plastic bottles. a chronic smoker had already been identified as suffering from mild stress related disorder and the doctor had already warned him that the signs of future medical problems were all there. He was suffering from liver complications and diabetes too. Harimau Plastics income statements for financial years 1997-2004 are as shown in Appendix 1. A few months earlier. The mineral water bottling operation is a textbook case of how a many company can leverage on its strengths to venture into a new area. R and Dr. C to re-evaluate their organizational and personal lifestyles. 5 . cancer had claimed his wife. it was necessary to work at such breakneck pace. Dr. except on most important matters. The company did and has been marketing and distributing its mineral water products through its own branch offices.The company decided to acquire its own extruder upon realizing its vulnerability vis-à-vis its relationship with its plastic sheet supplier. All is needed to do was to install the bottling facility. Tragedy struck No one had anticipated of the tragedy lurking around the corner. The extruder enabled Harimau Plastics to extrude out 500 kg to 1 ton plastic rolls to be fed into thermoforming machines. In late 2004. These personal tragedies transformed a witty person full of wisdom into a shell of his formal self. Datuk D suffered a massive stroke and the left side of his body was paralyzed. For how long could they subject their minds and bodies to such stress? Mr. nimble and energetic person he once was. Why should it not?. C dealt with the pressures of work by over-eating and he no longer resembled the young. While physically and psychologically recuperating. R. Day by day. They wondered whether at their age. The company went on to record stellar performances in the financial years 2003 and 2004.
Following a few meetings involving the three founders. Over the years. You quickly contacted him and he. They were more than capable of taking charge and leading the company into its next stage of growth. you proposed that the three consider divestment of Harimau Plastics to a new party as a way of exiting the day-to-day toil and gaining financially for their non-stop efforts over the years. there had to be a way for them – the founders of the company – to benefit from the exit. of course was very excited. However. the many talents recruited had gained enough knowledge and skills of the industry and of the company. They had loomed over the company as larger than life figures. they had lived on salaries markedly below what their peers earned in the same industry. You suddenly remembered a prospective buyer. Harry Mao. The founders ask your company to carry out a thorough investment analysis of Harimau Plastics and determine a fair valuation price (at end of year 2004) per share for them to sell. The company decided to engage your investment company to help plot a viable solution. They had to gain from their controlling shareholding in the firm. Mr. They had mortgaged almost all their personal belongings. but be afraid if you stand still” 6 . “Do not be afraid. a fresh breath of air. all their efforts over the years would have gone down the drain. Furthermore. they reached a consensus that the time was ripe for them to withdraw from the day-to-day management of the company. if you move forward slowly. !!!! You have just seen that valuation can be something deliberate or triggered by unexpected circumstances.Exit Strategy At the end of year 2004. who is cash rich and looking for a suitable business and company to invest into. If their exit did not result in any personal gain. They had made numerous personal sacrifices. Perhaps what the company needed now was a new identity.
270) (8.500 10.820) (3.600 (2.250 (1.186 (612) (853) 2.688) 563 (270) 293 (345) (155) (208) (208) Income Statement for financial years endings 31 December (All values in RM'000) FY-98 FY-99 FY-00 FY-01 FY-02 FY-03 2.500 (15.671 FY-04 26.715) (1.800 5.957 (196) (224) (550) (941) (1.790 4.000 16.650) 7.950 (532) (860) 6.143) 735 980 2.200 4.450 2. FY-97 2.180 4.645 1.100 (1.550 5.721 (50) 2.483 7 .300) (6.771) 539 (600) (304) (365) (365) 756 (563) (515) (321) (321) 1.170) (1.Appendix 1 Revenue Less: COGS Gross Profit Less: Administrative and marketing expenses Earnings before interest.900) 10.380 (693) (897) 1.650 (616) (702) 332 332 3.645 3.558 (75) 6. tax and depreciation (EBITD) Less: Interest expanse (net) Less: Depreciation Profit before tax (PBT) Less: Tax expense Net Profit (loss) There are minor rounding effects.450 13.450) (10.790 1.240 (744) (851) 1.
Harimau Plastic Sdn Bhd's balance sheets for financial years 1997-2004 are as below: 8 .
953 FY-03 2.878 23.033 Balance Sheet as at 31 December (All values in RM'000) FY-99 FY-00 FY-01 FY-02 1.140 9.645 1.500 4.500 5.799 3.395 17.988 2.000 (1.379 13.000 3.167 9.125 2.417 20.279 4.292 1.000 4.263 4.000 5.724 2.000 2.650 7.520 FY-04 1.000 (712) 1.342 7.085 2.500 5.044) 332 288 9.042 2.000 (358) (365) 278 5.980 6.000 4.683 13.281 1.800 7.922 745 1.316 3.150 7.000 6.000 2.367 3.724 15.900 2.491 1.FY-97 Current assets Cash Account receivables Raw material inventory Work in progress inventory Finished goods inventory Total current assets Fixed assets Total fixed assets (less depreciation) Total assets Current Liabilities Account payables Other payables Total current liabilities Debts (short-term and long-term) Short-term debt Long-term debt Total debts Total liabilities Shareholders' equity Issued and paid-up capital Retained earnings/ loss brought forward Current year net profit/ loss Shareholders' equity Total liabilities + Shareholders' equity 3 563 375 281 378 1.279 483 18 502 1.742 8.580 5.633 1.500 3.467 650 6.000 (150) (208) 643 4.002 1.742 16 1.000 9.404 1.085 4.000 9.491 5.994 4.557 1.790 3.442 25 4.650 11.361 1.211 2.600 FY-98 723 463 308 206 333 2.112 970 3.263 5.650 11.757 2.138 550 442 325 467 2.117 1.750 7.750 8.307 1.279 17.483 12.671 6.469 23.800 11.799 2.440 910 2.150 11.750 6.395 6.250 9.488 1.733 21 2.387 1.525 2.994 9 .933 13.430 4.692 1.117 1.030 375 12 387 1.000 8.132 15.000 (723) (321) (44) 7.580 967 75 1.246 5.754 1.263 517 40 557 2.000 3.030 3.000 933 1.192 20 2.575 2.250 867 663 917 4.
the owners had lost all the money they pumped into the business. The company is insolvent. 10 . In essence. resulting in negative shareholders' equity. Such situation normally arises when the company posts repeated net losses. (Note that in FY-99 the company had more liabilities than assets.There are minor rounding effects.
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