2. HUP SENG INDUSTRIES BERHAD 1.0 COMPANY PROFILE 1.1 Background Hup Seng was incorporated in Malaysia as a public limited company on 4th October 1991 and received its certificate of commencement of business on 23rd April 1997.
The principal activity of the Company is investment holding. The principal
activities of the subsidiaries are manufacture and sales of biscuits and coffee mix, and dealers in biscuits, confectionery and other foodstuff. 1.2 Board of Directors Chairman Dato‟ Keh (Kerk) Chu Koh Managing Director
Vice Chairman Kerk Chiew Siong Executive Director
Managing Director Kuo Choo Song Executive Chairman
Director Kerk Chian Tung Executive Director
Director Teo Lee Teck Non-Executive Director
Director Kerk Kar Han Non-Executive Director
Director Woon Chin Chan Independent Non-Executive Director
Director Norita Binti Ja‟afar Independent Non-Executive Director
Director Mazrina Binti Arifin Independent Non-Executive Director
Director Raja Khairul Anuar Bin Raja Mokhtar Independent Non-Executive Director 30
1.3 Management Team
Dato‟ Keh (Kerk) Chu Koh Non- Executive Chairman of the Board Siew Foong Leong Company Secretary
Kerk Chiew Siong Non- Executive Vice Chairman of the Board
Kuo Choo Song Managing Director, Executive Director
Kerk Kar Han Non-Executive Director
Kerk Chian Tung Executive Director
Teo Lee Teck Non-Executive Director
Raja Khairul Anuar Bin Raja Mokhtar Independent Non-Executive Director 1.4 Core business Hup Seng Industries Bhd through its subsidiaries is involved in the production and sales of biscuits and coffee mix. 1.5 Mission Producing quality fast moving consumer products. 1.6 Vision To be market leaders in fast moving consumer products. 1.7 Authorized capital RM 100,000,000 1.8 Paid up capital RM 60,000,000
2.0 GENERAL ENVIRONMENT 2.1 Politics 31
a. Pioneer Status A company with Pioneer Status is partial exempted for 5-year from the contribution of income tax. 30% of its statutory income* is paid as tax with the exemption period beginning from its Production Day (determined by the day its production level obtains 30% of its capacity). During pioneer period, the accumulated losses and unabsorbed capital allowances acquired by companies whose pioneer status will expire on and after 1st October 2005 are able to take forward and deducted against post pioneer income of a business with the same promoted activity and promoted goods. Applications from companies located in the promoted areas include Perlis, Sabah and the structured “Eastern Corridor” of Peninsular Malaysia will get a 100% tax exemption on their statutory income in the duration of 5-year exemption to enhance investment. This great incentive is given to all project applications sent by 31st December 2010. Since 2nd September 2006, Perlis is proclaimed as one of the promoted areas and companies involving in promoted activities will be qualified for incentives currently given to these area. The Pioneer Status is applicable in the Malaysian Industrial Development Authority. (MIDA). b. Investment Tax Allowance A company may apply for Investment Tax Allowance (ITA) as a second option to Pioneer Status. With ITA, company obtains incentive of 60% on its authorized capital expense (such as factory, plant, machinery or other equipment used for the verified project.) acquired in 5 years from the date of the first authorized capital expense is acquired. This incentive can balance against 70% of its statutory income for each examined year. Any unutilized incentive can be pushed to subsequent years until fully utilized. The extra 30% of its statutory profit will be taxed at the conventional company tax rate. Since 13th September 2003, the applications from companies situated in promoted areas such as Perlis, Sabah and Sawarak and the structured “Eastern Corridor of Peninsular Malaysia can get an incentive of 100% on the authorized capital expense
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acquired in the duration of five years to enhance investment. Applications should be sent to MIDA. Note: *Statutory income is obtained after deducting revenue expense and capital incentives from the gross income. *The “Eastern Corridor” of Peninsular Malaysia includes Kelantan, Terengganu and Pahang and the district of Mersing in Johor. 2.2 Economy a. Inflation Inflation indicates the economic fluctuations in Malaysia according to the changes in the Consumer Price Index (CPI) of a country. CPI shows the divergence in prices of consumer goods in the country‟s „shopping basket‟ over a duration.
Figure 1: Malaysian CPI and Inflation Rate : January 2011- January 2012
Based on Figure 1, the Malaysian inflation rate was recorded between 2.2 percent and 3.5 percent for year 2011. This shows healthy level of inflation in Malaysia as most economists believe that healthy inflation rate is between 1.0 percent and 3.0 percent. The risk of financial markets is reduced with low inflation rates and this ensures flavourable business environment. b. Gross Domestic Product The prime indicator of the wealth of Malaysian economy is measured using Gross Domestic Product (GDP). A precise GDP figure is calculated by considering and 33
adjusting the Private and Public sector spending, the production of goods and services and exports in the country for imports and inflation.
Figure 2: Malaysian GDP Value ($ Billions): 2003- 2012 Based on World Bank‟s report, the Malaysian Gross Domestic Product (GDP) had obtained 278.67 billion US dollars in December 2011. The Malaysian GDP is estimated to be 0.45 percent of the world economy. From 1960 to 2011, the average of Malaysian GDP was 59.93 Billion USD. In that duration, the highest GDP recorded was 278.67 Billion USD in December 2011 and the lowest was 2.42 Billion USD in December 1961.
Figure 3: Malaysian GDP Growth Rate 34
The Gross Domestic Product (GDP) growth rate measures an aggregated difference in value of the goods and services manufactured by an economy. In Asia, Malaysia is a fast developing economy. Since the 1970s, as an average income country, Malaysia has changed from a manufacturer of raw materials into a rising multi- sector economy. To detach from the country‟s reliance on exports, the Malaysian government has worked on raising domestic demand. However, exports especially electronics continue to drive the economy significantly. From the beginning of April to the end of June 2012, the Malaysian Gross Domestic Product (GDP) increased 3.00 percent compared to the previous quarter. During 2000 until 2012, the average of the Malaysian GDP Growth Rate was 1.22 percent. In that duration, the highest rate was 5.90 percent in September 2009 and the lowest rate was -7.60 percent in March 2009.
Malaysian GDP Composition by Sectors in 2011 Agriculture 12% Services 48% Industry 40%
Figure 4: Malaysian GDP Composition by Sectors in 2011 Source:https://www.cia.gov/library/publications/the-worldfactbook/fields/2012.html, The Central Intelligence Agency.
Figure 4 shows the major movements in Malaysian economy are Industry and Service sectors. In service sector, critical forces were finance, real estate and information
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and telecommunications services. Besides that, rapid growth in wholesale and retail service sector is seen in recent years. a. Unemployment Rate The unemployment rate represents the percentage of active job seekers that is jobless, out of the total number of labour force. Roughly 4% -6% in the unemployment rate is considered healthy. Lower rates are caused by inflation and upward pressure on wages while higher rates reduce the consumer spending.
Figure 5: Malaysian Unemployment Rate : October 2010- September 2012
From October 2010 until September 2012, the unemployment rate in Malaysia is too low around 2.8% to 3.4%. Hence, this inflationary situation has forced employers to continually increase wages on retaining and attracting valuable employees. Since firms have to widen resources on retaining and attracting employees, they would put less effort in performing their duties. As a result, the unutilized of resources would result in less innovation and slower productivity growth. 2.3 Socio- cultural a. Demographic Elements
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Population
Major cities- population
Ethnic groups
Languages
Yearly growth 1.542% (2011 est.)
Infant deaths in 1,000 births are 14.57
Persons below aged 15 is 29.6%
Urban population is 72% of the population (2010)
Urban population growth is 2.4% (2010)
Literacy rate is 88.7%
Kuala Lumpur (capital) 1.493 million
Klang 1.071 million
Johor Bahru 958,000 (2009)
Malay 50.4%
Chinese 23.7%
Indigenous 11%
Indian 7.1%
Others 7.8% (2004 est.)
Bahasa Malaysia, English, Chinese dialects, Tamil, Telugu, Malayalam, Panjabi, Thai
Religions
Note: indigenous languages in East Malaysia
Muslim 60.4%
Buddhist 19.2%
Christian 9.1%
Hindu 6.3%
Confucians and Taoist 2.6%
Others 1.5%
None 0.8% (2000 census)
Table 1: Malaysia‟s Demographic Elements Source:http://www.indexmundi.com/malaysia/demographics_profile.html,CIA World Factbook)
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As 60.4% of the population is Muslim in Malaysia, the political, judicial and religious systems are closely associated and religious leaders take eminent positions in the country. b. Structure of Household Expenditure Household Consumption by Purpose 2000 Food and non-alcoholic beverages
2009
2000-09
% of total household consumption 23.0 24.1 21.8
Alcoholic, beverages and tobacco
2.2
2.3
2.1
Clothing and footwear
3.5
2.4
2.7
Housing, water, electricity, gas and
21.7
16.7
18.9
5.9
5.2
5.4
Health
2.1
2.1
2.0
Transport
12.6
13.1
13.4
Communication
4.9
7.4
6.3
Recreation and culture
4.3
4.9
4.5
Education
1.5
1.6
1.5
Restaurants and hotels
5.8
9.7
7.5
Miscellaneous goods and services
11.6
12.7
12.8
fuels Furnishings, household equipment and maintenance
Table 1: Malaysian Household Consumption by Purpose: 2000- 2009 Source:http://www.bnm.gov.my/files/publication/ar/en/2010/cp01_001_w hitebox.pdf, Department of Statistic, Malaysia) Table 1 shows that food and non- alcoholic beverages are the largest composition in the total expenditure, making up of 23% of the total expenditure. 2.4 Environmental Elements Business environment should be conserved by any company as consumers might not purchase harmful product or product that uses harmful processes. a. Background of Malaysian Environment 38
Malaysia makes up of 328,550 square kilometers of land and has 20 million population ( July 1997 est.). Most of the citizens occupy the western coast. 59% of the total land is tropical forest. Even after industrialization, a large area of the country is still forested. Malaysia has the highest industrial carbon dioxide emissions among 50 nations in the world. The negligence would cause major environmental problems. b. Causes and Adverse Effects of Bad Environment Industrialization and progress of natural resource basis have created environmental problems. The adverse effects are deforestation, depletion of fisheries, air and water pollution and contamination by industrial wastes. c. Environment Laws The main structure of environment legislation in Malaysia was the 1974 Environmental Quality Act (EQA). Since then, the regulations are constituted. Based on EQA 1996, it has been amended many times. Other legislations are the Fisheries Act 1985, the Pesticides Act 1974 and the Plant Quarantine Act 1976. d. Types of Legislation The procedure of legislation in Malaysia is as follows: 1. The Federal Constitution (Perlembagaan Persekutuan). 2. Parliament constituted the Acts. 3. The executive (Ministerial Regulations) enacted rules and other subordinate legislation. 4. State laws and rules. e. Results of the Acts In 1978, industrial and automobile emissions are restricted by clean-air legislation. In Malaysian seas, vessels are not allowed to emit oil. 2.5 Technological Analysis Technological advancement helps to improve performance of the companies in competing for differentiation and providing superior product to its customers. The Ministry of Science, Technology and Innovation (MOSTI) is responsible for the research, telecommunication and information technology of Malaysia. The objective 39
of the ministry is to induce competitiveness in science and technology using the creation of knowledge and sustainable development. Table 2: MOSTI‟s agencies Agencies Malaysian Centre For Remote Sensing (MACRES). National Science Centre. National Oceanography Directorate. National Space Agency. Department of Chemistry Malaysia Malaysian Nuclear Agency. Malaysian Meteorological Services. Department of Standards Malaysia Atomic Energy Licencing Board.
Role Remote sensing, telemetry, geographic information system (GIS) and research. Promoting awareness, appreciation, interest understanding of science and technology. Marine science and oceanography development.
and
Research and development of space science. Chemical analysis, investigation/ forensic consultancy services/ Nuclear technology research and development.
and
National meteorological monitoring services and natural disaster warning. National standards and Accreditation body. Control and supervision of radioactive material usage in industries. The board also examines and enforces safety rules.
MOSTI also gives research grants. Through specialized schemes, the funds are available such as ScienceFund, Techno Fund (Pre- commercialization and IP acquisition fund), InnoFund (Enterprise innovation and community innovation fund), eHCD (Human capital development fund), eIRPA and the Brain Gain fund.
3.0 TASK ENVIRONMENT ANALSIS According to Michael Porter, there are five forces which determine the competition in the industry as listed in table 1. They are competitive rivalry, threat of substitute, threat of entry, buyer power and supplier power. The explanation below will describe that how a dairy industry as being influenced by five forces.
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High
Medium
•
Competitive Rivalry
•
Threat of New Entrants Threat of Substitutes
• •
Supplier Power Buyer Power
Low
•
3.1 Competitive Rivalry When the number of competitors increases, the rivalry increases because of more firms must compete for the same customers and resources. If the competitors have similar market share, the rivalry will become intensified. Hup Seng is not just a pure biscuit player, after its listing, it acquire 100% stake in inComix so they are selling instant hot drinks as well. In fact, they themselves have a good products mixes of varieties of biscuits such as deluxe sandwich, cookies and all other kinds of biscuit. The closest listed competitors are Hwa Tai.
The graph above shows the gross profit margin between Hup Seng and Hwa Tai and clearly we can see, Hup Seng consistently performed better than Hwa Tai which signifies Hup Seng competitive advantage over its competitor. On liquidity wise, Hup Seng has seen to be much prudent versus its counterpart who stays below 1 over the past 5 years. And as of today, Hup Seng has no long term debt and has a cash of more than RM47million which translate to 41
nearly RM0.39 per share. That is almost 22% yield if they were to give all of them back as dividend. Hup Sheng believed that they can keep maintain in a strong position even grow market share via it growth strategies.
3.2 Threat of New Entrants According to Porter, the new firms will choose to enter the industry if the profit level of that industry looks attractive, and then it will increase the supply in the market. Hence, the threat of entry places an upper limit on an industry‟s profitability. We cannot deny that fact that Hup Seng is the best biscuit manufacturing company in Malaysia market. It has a stable position in the biscuit manufacturing industry and thus the threat of entry by newcomers is low. The newcomers like Gloria Biscuit faces with high entry barriers because Hup Seng which is their existing competitor has strong brand identification. Consumers are loyal to Hup Seng products and its product differentiation has created a high barrier to entry to Gloria Biscuit. Gloria Biscuit has to spend a lot to defeat the existing customer loyalty on the products of Hup Seng. Therefore, it is not easy for the newcomers to entry the biscuit manufacturing industry and affects the position of Hup Seng.
3.3 Threat of substitute Due to the technological advancement nowadays, there are a lot of substitute products with different appearance but have the same function to satisfy the same need as another product in the market. For the Hup Seng, the threat of substitute products is high because there are a lot of products which able to satisfy the need of consumers. For example Julie‟s biscuits can be a substitute product for the biscuits by Hup Seng. Consumers can enjoy the different types of biscuits instead of Hup Seng' s biscuits. Consumers can also eat instant noodles MAGGI instead of eating cakes by Hup Seng, and even the Gardenia bread can replace the biscuits and cakes by Hup Seng for meal. The prices of the substitute products bring effect to the products of Hup Seng and finally influence the return and profit of Hup Seng.
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3.4 Buyer power Buyers can affect an industry through their ability to force down prices, bargain for higher-quality or more services, and to play competitors off against each other. The bargaining power of buyers of Hup Seng is high. There are many other biscuit manufacturing companies in the market and the products from the industry have standard or undifferentiated. Buyers can easily get the alternative suppliers from the market such as Munchy, Hwa Tai, Julie's, and so on. Since it is an ease to get standard products and have alternative suppliers, buyers emphasize the prices of the products more than which biscuits taste better. The products of Hup Seng is not very expensive compared with others biscuits of other brands and many buyers choose the products of Hup Seng now. This finally creates high bargaining power of buyers of Hup Seng. 3.5 Supplier power Hup Seng has the low bargaining power of supplier. This is because the ingredients of manufacturing biscuits and cakes such as eggs, flour, sugars and others can be found everywhere from any suppliers. Thus, Hup Seng can have ingredients anytime without worrying lack of inputs. The bargaining power of supplier is low because the switching cost to other suppliers is low. Suppliers' products are very crucial to Hup Seng to have effective production to fulfill the demand of buyers. Besides that, they also produce the high quality of products to the public.
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4.0 SWOT Strength(S) 1. Currently in a good financial position. 2. Skilled workforce. 3. Company name recognized on a National/ Regional/ Local level. 4. Own premises. 5. Wide range of products flavour.
Opportunities(O) 1. Skilled workforce means that they can be moved and trained into other areas of the business. 2. Competitor going bankrupt. 3. Moving a product into a new market sector. 4. Increasing number of shopping outlet in whole Malaysia. 5. Could expand to overseas.
Weaknesses(W) 1. 2. 3. 4.
Fewer customers. Too much waste. Low customer retention. Low production quality compared to other brands. 5. Low integrity of annual report.
Threats (S) 1. 2. 3. 4.
Large and increasing competition. Increase in price of raw materials. Rising cost of wages. Possible relocation cost due to poor location currently held. 5. New distribution channel.
1) Strengths Hup Seng maintains a good financial position in food and beverages industry because the company is using equity rather than using debt to generate their company. Hup Seng also has skilled workforce hence little training is required for the employee. Their brand is well-know within food and beverages industry market. By the way, Hup Seng has their own premises to run their business so there is no additional cost for renting. Hup Seng has a wide range of products flavor of the biscuit for customer to choose in market. For example, marie biscuit, coconut cookies, butter cookies, cream cracker and so on. 2) Weaknesses
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Hup Seng faced the problem of fewer customers and low customer retention because there is high competition in this industry. Hence, the customer is production quality of Hup Seng is low compared to other competitive such as Kraft and Nestle. By the way, Hup Seng has the problem of too much waste in production. While for the annual report, there is low integrity since that there is incomplete information for outsider. 3) Opportunities Skilled workforce in Hup Seng means that their employee can be moved and trained into other areas business. Besides that, if competitor in the market going bankrupt, they have the opportunity to gain more customer support. The company can distribute their product easily since there are increasing shopping outlets in whole Malaysia such as Tesco, Jucso, Giant and so on. Besides the domestic market, Hup Seng also can export their product to overseas. 4) Threats Nowadays, there is large and increasing competition in food and beverages industry. For example, Hwa Tai, Cocoaland, Julies, and so on. Other than that, minimum wages for the employee have set by the government so the wages has increases in today operation cost. Due to unstable weather, unstable economic, the cost of raw materials such as flour, sugar, and egg will be fluctuated. There also have to prepare cost for possible relocation due to poor location currently held that cause by lack of transportation and utilities. In addition, new distribution channel has cause Hup Seng to redesign their channel so they able to compete in the market.
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5.0 TOWS Strengths (S) INTERNAL FACTORS (IFAS)
EXTERNAL FACTORS (EFAS)
1. Currently in a good financial position. 2. Skilled workforce. 3. Company name recognized on a National/ Regional/ Local level. 4. Own premises. 5. Wide range of products.
Weaknesses (W) 1. Fewer customers. 2. Too much waste. 3. Low customer retention. 4. Low production quality compared to other brands. 5. Low integrity of annual report.
)
Opportunities (O) 1. Skilled workforce means
2. 3. 4. 5.
that they can be moved and trained into other areas of businesses. Competitor going bankrupt. Moving a product into a new market sector. Increasing number of shopping outlet in whole Malaysia. Could expand to overseas.
Threats (T) 1. Large and increasing 2. 3. 4. 5.
competition. Increase in price of raw materials. Rising cost of wages. Possible relocation costs due to poor location currently held. New distribution channel.
SO Strategies
WO Strategies
1. Building on brand equity. (S3O5) 2. Job rotation. (S2O1) 3. Take over the bankruptcy competitor market. (S1O2)
1. Launching products of Hup Seng through overseas. (W1O5) 2. Create brochure for the customer. (W3O4) 3. Skill and knowledge training. (W2O1)
ST Strategies
WT Strategies
1.
1.
Developed R&D department. (S5T1) 2. Recruit most suitable worker for particular department. (S2T3) 3. Develop e-commerce. (S3T5)
Developed effective advertisement. (W3T1). 2. Technology development. (W2T2). 3. Product research about Hup Seng products. (W4T1).
5.1 Strengths and Opportunities Hup Seng would expand their products overseas easily since this brand is well known on national, regional, and local level. Hup Seng emphasized on building brand equity. This is necessary for company to negotiate with distributors for the general distribution of its products to
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overseas. Effective promotional plan is to gain the interest of overseas market and develop a good impression of their products and brand. Besides that, job rotation can provide their employees a skilled workforce. Through job rotation, employees can be moved and trained into areas of businesses. Hup Seng also can take over the opportunity from the competitor who faced bankruptcy. For instances, the skilled workers, potential resources, distribution channel and so on. 5.2 Weaknesses and Opportunities Hup Seng can expand their market through overseas to gain more customers attraction. Doing a launching of the store would be far more effective in promoting the store if compared to other methods. This is because launching is a centralized event which can save costs and increase in public awareness. However there are many shopping outlet in whole Malaysia, Hup Seng still cannot get the retention from the customers. Hence, Hup Seng can create brochure and distribute to the customers. Hup Seng can implemented a skill and knowledge program that can up-grade labor standards so that can use high technology in production method. 5.3 Strengths and Threats Hup Seng faces high competition in food and beverage industries. Hup Seng needs to develop and improve the Research and Development Department so that they can produce more and unique products that are differed with competitors‟ products by using high technology. Next, the human resources department needs to recruit the most suitable worker for particular areas. This can reduce the number of unskilled workers and can minimize the cost of wages. Nowadays, a new distribution channel can make the shipping works become complex. Hup Seng can choose E-commerce as the way to distribute the products along the supply chain. 5.4 Weaknesses and Threats In a high competition industries, Hup Seng should implemented aggressive advertising to inform the consumers that its products is exists. Advertising is the key activity to drive up sales and customer awareness. In order to improve the productivity and efficiency of Hup Seng, the industry should modem their technologies. By this way, Hup Seng can eliminate the waste and can utilize the local resources well. Besides that, Hup Seng needs improve their products quality against competitors. If not, the consumers will shift their preference to other brands with same 47
prices. Hup Seng should develop a product research within the markets. Marketing department should modify and improve their quality of the products as well as change their production methods based on the research.
6.0 FINANCIAL RATIO HUP SENG INDUSTRIES BERHAD Ratio PROFITABILITY RATIO Net profit margin Gross Profit Margin Return on investment Return on equity Earning per shares LIQUIDITY Current ratio Quick ratio Inventory to net working ACTIVITY RATIO Inventory turnover Days' sales in inventory Total assets turnover Fixed assets turnover Average collection period LEVERAGE RATIOS Debt to equity ratio Long term debt to capital structure
2011
FY 31 Dec 2010 Variances
7.75 32.54 9.14 31.05 0.16
10.65 34.61 12.02 38.90 0.19
Decrease Decrease Decrease Decrease Decrease
2.78 2.32 0.26
2.93 2.28 0.34
Decrease Increase Decrease
6.78 5.87 26.77 32.89 1.18 1.13 3.48 2.76 54.97 55.59
Increase Decrease Increase Increase Decrease
0.95 0.14
Increase Unchange
0.79 0.14
The table above is the ratio analysis of Dutch Lady Milk IndustriesBerhad in two years performance from year 2010 to 2011. 6.1 PROFITABILITY RATIO It relates the profit to sales and investments. Profitability ratio is to indicate the firm‟s overall effectiveness of operations and give us an idea on how well the firm utilized its resources in order to generate profit and increase the shareholder value. a. Net Profit Margin
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This ratio is to indicate how much of revenues a company can generate for every RM 1 in sales. In HupSeng, the net profit margin has significant decrease from 10.65% in year 2010 to 7.75% in year 2011. The decreasing percentage of 2.90% shows that HupSeng has not well performed in year 2011 compare with the performance in year 2010 where the Padini has less generates RM 0.0290 of every RM 1 in sales. b. Gross Profit Margin Gross profit margin is to show how much the gross profitof every RM 1 in cost of goods sold. In HupSeng, the gross profit margin has decrease from 34.61% in year 2010 to 32.54% in year 2011. The decreasing percentage of 2.07% shows that the management of Dutch Lady has not well control system in its expenses in order to generate more profit to its company. c. Return on Investments (ROI) This ratio shows how well the firm management puts the company assets to work in order to generate income. Lower ratio shows lower company performance. ROI ratio in HupSeng shows decline of 2.88% which decrease from 12.02% to 9.14% in this two years. It shows that the HupSeng has not improves in using assets to generate the firm sales. d. Return on Equity (ROE) This ratio is to measure how the stockholders fared during the year. It is a true bottomline measure of performance. ROE ratio has decrease 7.85%, from 38.9% in 2010 to 31.05% in 2011. That is HupSeng‟s superior return on equity maybe due to its inefficient use of asset to generate sales and the fact that HupSengunbenefitted from its use of more debt financing or financial leverage. e. Earnings per Share (EPS) Earnings per share represent the portion of a company's earnings, net of taxes and preferred stock dividends, which are allocated to each share of common stock. EPS ratio has slightly decrease RM0.03, from RM0.19 in 2010 to RM0.16 in 2011. This means that it is not a good signal for the company financial position because the lower the earnings per share, the lower each share worth.
6.2 LIQUIDITY a. Current Ratio
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It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. This ratio decrease 0.15 times, from 2.93 times in 2010 to 2.78 times in 201. It shows that the company is not generally considered to have good short term financial strength. b. Quick Ratio Quick ratio is a measure of how well a company can meet its short term financial liabilities. The ratio increase 0.04 times, from 2.93 times in 2010 to 2.78 times in 2011. The higher the ratio the more financially secure a company is in the short term. The company with a quick ratio of greater than 1.0 is sufficiently able to meet their short term liabilities. 6.3 ACTIVITY RATIO a. Inventory Turnover Inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory.The ration increase 0.91 times, from 5.87 times in 2010 to 6.78 times in 2011. This shows that the demand of the HupSeng‟s product is increase. It is also mean that‟s the products are in the warehouse sold very fast. b. Total Assets Turnover The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales. The ratio increase 0.05 times, from 1.13 times in 2010 to 1.18 times in year 2011. The ratio is merely increased shows that there are huge sluggish in the firm‟s sales. c. Fixed Assets Turnover The fixed asset turnover ratio measures the company's effectiveness in generating sales from its investments in plant, property, and equipment. The ratio has been increase 0.72 times, from 2.76 times in 2010 to 3.48 times in 2011. An increasing fixed assets turnover means that the company has been more effective using company‟s investments in net property, plant, and equipment. d. Average Collection Period The average collection period is the number of days, on average, that it takes a company to collect its credit accounts or its accounts receivables. The ratios significantly decrease 0.62 days, from 55.59 days in 2010 to 54.97 days in 2011. By comparing with last year, a decreasing
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of average collection period means Dutch Lady‟s customers are not only paying their credit accounts on time but faster than they have in the past. 6.4 LEVERAGE RATIOS a. Debt Equity Ratio Debt equity ratio is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. The ratio increase 0.16 times, from 0.79 times in 2010 to 0.95 times in 2011. The increasing in this ratio might show that the company is being financed by creditors rather than from its own financial sources which may be a dangerous trend. The company with high debt-to-equity ratio may not be able to attract additional lending capital. b. Long Term Debt to Capital Structure It is used in determine what portion of the total capitalization, or full debt and equity of the company, is made for the long term debt to finance operation. The ratio for long term debt capital structure shows a same percentage of 0.14 in these two years. Unchanged of this ratio signifies that the company is not facing mature financial difficulty.
7.0 STRATEGY DIRECTION There are many aspects that needed to be growing so that Hup Seng Biscuit can become more competitive in the market. Growth in the aspects of sales, assets, profits, or some combinations are crucial to Hup Seng Biscuit. Ansoff (1965) devised a matrix to analyze the different strategic directions organizations can pursue. Market penetration is the effort of increasing the market share in the existing market with the existing products. Hup Seng Biscuit has been exporting its products to foreign markets and domestic market. Hup Seng Biscuit has a lot of consumers who eat its biscuits, cakes and snacks worldwide. However, Hup Seng Biscuit should keep on its effort to increase its market share in the existing market by attracting more new consumers to buy its existing products. Hup Seng Biscuit should also make sure that the existing consumers to eat more its products. With the capabilities and resources of Hup Seng Biscuit, this strategy is not risky because Hup Seng Biscuit do not need to do anything unless increase its products' quality to meet the consumers' needs and wants. Improving its quality is not a problem to Hup Seng Biscuit as it has professionals for R&D.
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Hup Seng's products have captured the hearts of consumers, young and old in many corners of the world such as Asia, Africa, Oceania, Europe and North America,. Henceforth, Hup Seng shall continue to upgrade, improve and reach new peaks of excellence. Diversification occurs when an organization seeks to broaden its scope of activities by moving into new products and new markets. Diversification is actually a suitable strategy for Hup Seng Biscuit because it helps to spread risk by reducing reliance on any one market or product. For instance, Hup Seng Biscuit should have diversification by producing new products like organic food to new market especially health-conscious market. Hup Seng Biscuit will face lesser competition if having new market. If one of the existing products is not in high sales, Hup Seng Biscuit is still safe because consumers from other market may buy its other products. The risk of low revenue will be spread among different products. Hup Seng Biscuit will be afforded to implement diversification because it will earn a lot after implementing the low cost strategy. Hup Seng Biscuit itself does not need to find more capital from other resources to sustain the diversification of products. As the result of benchmarking, having diversification is crucial in order to own sustainable competitive advantage forever.
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