Analysis Of Business Issues, Financial Position And Competitive Advantage: Amcorp Properties Berhad

Company Background

The main objective of this report is to analyze and evaluate the business issues, financial position, strategies and competitive position Amcorp Properties Berhad. This analysis will be done by benchmarking the business operations of Amcorp Properties Berhad with other two companies in the same industry, named SP Setia Berhard and IOI Properties Group Berhard.

Amcorp Properties Berhad is one of the major investment holding companies of Malaysia. Amcorp Properties Berhad does its business through three major segments. They are Malaysia properties and others; overseas properties; and contracting and renewable energies. The Malaysian and overseas business of the company operates in the area of property development. The renewable energy sector of the company deals with electrical and engineering products (amcorpproperties.com 2017).

From the business operations of Amcorp Properties Berhad, it can be seen that the company is facing some major problems in their various business operations. According to 2016 annual report of the company, some of the major areas in which Amcorp Properties Berhad is facing difficulties are financial budgeting, corporate proposals, development of various business strategies and others. Another crucial issue is compliance issue in the financial position of the company. The emerging issue of government regulation on the capital market is affecting the business operations of Amcorp Properties Berhad. All these issues are largely affecting the business operations of the company. Thus, the Amcorp Properties Berhad is losing its competitive edge in the particular market.

The major factors in the financial analysis are the analysis of profitability, stability and viability of the financial position of the companies. Ratio analysis helps to analyze all the above-mentioned financial factor of the companies. The ratio analysis of Amcorp Properties Berhad, SP Setia Berhard and IOI Properties Group Berhard are shown below:

As per the above figure, Amcorp Properties Berhad has highest return on invested capital in 2014 that is 15.01%. SP Setia and IOI Properties group have their highest return on capital in 2012 that is 8.01% and 10.82% respectively (spsetia.com.my 2017). Benchmarking the performance of Amcorp with its two rival companies Amcorp has its lowest return on investment in 2015 that is 3.79%. However, in the next year, Amcorp improved its return that is 7.46%. The company had strong return in 2012, 2013 and 2014 that are 14.76%, 10.59% and 15.01% respectively. Thus, it can be seen that Amcorp has strong return than its two competitors.

Return on Assets (ROA) measures the profitability and efficiency of the companies in relation to its total assets. As per the above graph, in 2012, 2013 and 2014, Amcorp had effective ROA that is 10.87%, 9.69% and 13.54% and it indicates the efficiency of the company. After the benchmarking process, Amcorp had lowest ROA in 2015 that is 2.49% than two competitors. SP Setia and IOI Properties have highest ROA in 2015 and 2012 respectively and they are 5.59% and 10.26% respectively (ioigroup.com 2017). However, the ROA of Amcorp is better than its competitors are.

Major Issues of Amcorp Properties Berhad

Net Profit Margin is considered as a major key performance metrics for the companies as its measures the profitability of the companies. As per the above graph, Amcorp has healthy net profit margin as the highest net profit margin can be seen in 2014 that is 100.65%. According to the benchmarking process, in 2014, SP Setia and IOI properties have lower net profit margin than Amcorp that are 10.65% and 61.19%. The net profit margin trend states that Amcorp has healthier net profit margin than these two companies do.

Current ratio analysis measures the liquidity position of the companies as it measures the ability of the companies to pay their current obligations. As per the above graph, the liquidity position of Amcorp is not good as the ratio is above industry standard (amcorpproperties.com 2017). As per the benchmarking process, in 2013, SP Setia has the perfect current ratio that is 2.04% and in 2014, IOI Properties has almost the perfect current ratio that is 2.09%. Overall, the liquidity position of Amcorp is not good than its competitors.

Analysis of Quick Ratio is useful to measure the short-term liquidity of the companies. As per above figure, in 2013, Amcorp has almost suitable position that is 1.54 (amcorpproperties.com 2017). However, in the same year, SP Setia and IOI Properties have better quick ratio than Amcorp that are 1.06 and 1.07. According to the benchmarking process, the five years trend of quick ratio states that SP Setia and IOI Properties have stronger short-term liquidity position than Amcorp.

Financial leverage known as equity ratio and gearing ratios and it is useful to measure the financial health of the companies in relation to assets and equities. As per the above diagram, Amcorp has the best financial leverage in the year 2016 that is 1.26. In that particular year, SP Setia and IOI Properties have financial leverage of 1.9 and 1.43 respectively (spsetia.com.my 2017). As per the benchmarking process, Amcorp and IOI Properties have almost the same financial health where the financial situation of SP Setia is inferior to the other companies.

The analysis of cash flow per share is useful for the analysis of the solvency position of the companies. As per the above graph, in the years 2014 and 2016, Amcorp has negative cash flow per share that indicates the poor solvency position of the company. As per the benchmarking process, IOI Properties has better solvency position than Amcorp and SP Setia (ioigroup.com 2017). It implies that Amcorp does not have better solvency position and the management of the company needs to develop strategies to avoid this situation.

Competitive Value Proposition

The analysis of macro and microenvironment is the major parts of strategic analysis for the companies. One of the major tools for the analysis of business environment is the PESTEL analysis (Annarelli and Nonino 2016). As Amcorp Properties Berhard mainly operates in Malaysia, the PESTTEL analysis of the business environment of Malaysia is done below:

Political Environment: The government of Malaysia has revised the rate of taxes. A per the political implication, Amcorp Properties Berhard needs to generate more amount of revenues in order to cover all the domestic costs of business. In this regard, it needs to mention that the unstable political condition of the country has been the major cause for depreciation of currency. In addition, economic recession of the country has lead to lowest fall of Ringgit in the last seven years. However, the government of Malaysia has been taking major positive steps in order to support the industries of the country (Ho 2014).

Economical Environment: The prime minister of Malaysia has decided to de-peg the ringgit and this decision has been considered as a major decision to revive the Malaysian ringgit. As a result of this decision, the price of oil in Malaysia has decreased from RMI 400 to RMI 380 per ton. Two of the major economic threat of the Malaysian economy is the rise in the rate of inflation and the price index. Rise in inflation rate has the power to make a negative impact on the purchasing power of the countrymen that can affect the demand and supply model (Ab Talib et al. 2014).

Social Environment: It can be seen that the customer’s purchase behavior change on a regular basis in Malaysia. Thus, the business organization needs to have sufficient knowledge about their customer’s purchase behavior. Some specific social issues like income inequality, religious conflicts and others have negative impact on the business model of the companies. Consumers of Malaysia prefer products and services that are technically advanced (Menzies and Orr 2014).

Technological Environment: The immense advancement of technology in Malaysia has positively influenced the business of the country. In order to satisfy the demands of the customers, the contraction companies of Malaysia has been adopting and implementing integrated technologies in their business operations. As a result, the construction companies are developing high quality of integrated real estate projects (Yüksel 2012).

Environmental Environment: The customers of Malaysia have become more conscious about the preservation of environment. In order to respect this concern of their customers, the construction companies of Malaysia have adopted Bio-Composting procedure that leads to zero wastes from the construction process. However, two of the major environmental concerns are pollution control and consumption of energy that are negatively affecting the businesses (Koumparoulis 2013).

Financial Analysis

Legal Environment: Some major legislation policies are affecting the businesses of Malaysia like the implementation of GST. Combining with the present economic crisis, these legislations are creating hurdles for the construction companies of Malaysia.

One of the major tools for the analysis of competitive forces is the Porter’s Five Forces analysis. The analysis of Porter’s Five Forces in relation to Amcorp Properties Berhard is discussed below:

Porter’s Five Forces Analysis

Competitive Rivalry: The construction industry of Malaysia is full of competitions as many major companies are there in the same field. Some of the major competitors of Amcorp Properties Berhard are SP Setia, IOI Properties, Sunway, Sime Darby and others that are providing super luxury real estate to the customers (Dobbs 2014).

Threat of New Entrants: The new firms in the construction industry of Malaysia have to face stringent regulations and obligations and thus, it is not easy for them. Thus, the threat of entrants in Malaysia construction business is low (Porter and Heppelmann 2014).

Threat of Substitute: Amcorp Properties Berhard develops high level of luxury real estate for their consumers. Thus, the threat of substitutes is low for Amcorp Properties Berhard as it is difficult for other companies to follow the business model of Amcorp Properties Berhard (Gobble 2012).

Bargaining Power of the Buyers: In the present situation of Malaysia, there is a high demand of luxurious residential and office suits. Thus, it can be observed that there is a presence of high bargaining power of buyers. Hence, this threat is high for Amcorp Properties Berhard (McLay 2014).

Bargaining Power to Suppliers: In the construction industry of Malaysia, the bargaining power of the suppliers is high. The reason is that the companies have to largely depend on their suppliers for the completion of construction projects. Thus, this threat is high for Amcorp Properties Berhard (Srivastava, Franklin and Martinette 2013).

Apart from Porter’s Five Forces analysis, one crucial force in the construction industry of Malaysia is the introduction of computer designs and it is called as Digitalization. The inclusion of this new force in this industry has helped the companies to integrate their value chain in the construction business. The influence of digitalization has changed the lifestyle of the people of Malaysia along with the business environment. Now, the consumers are able to compare the price and quality of different products with the assistance of improved information technology (Abdul Rahman et al. 2013).

Amcorp Properties Berhard has been adopting various different approaches in order to deal with various issues of their business. The development of new remuneration committee has made it sure that proper structure is followed at the time of remuneration calculation. In addition, the management of Amcorp Properties Berhard has made it sure that sufficient resources are there in the company to support all the business operations. Various important codes of conducts of the company is there for the protection of honesty, integrity and transparency in the business operations of Amcorp Properties Berhard. The management of Amcorp Properties Berhard has been succeeded for the smooth running of the large number of business operation of their business. In 2016, Amcorp Properties Berhard has registered a healthy profit of RMI 86,845 as compared to RMI 36,697 in 2015. This indicates the strong financial strategy of the company (Zainul Abidin, Yusof and Othman 2013).

Amcorp Properties Berhard has provided their shareholders with bonus shares and high amount of dividends and it indicates that the company has a stable financial position. The key performance indicators of Amcorp Properties Berhard are considered as the major factors behind the success of the company. There is effective strategic linkage between the objectives and strategies of business. This can be considered as other major factors for the success of Amcorp Properties Berhard’s business. Another important success factor of the company is the process of effective monitoring of the business operations (Latiffi et al. 2013).

In order to identify and develop the business strategies, business organizations consider Ansoff’s Matrix analysis as a major tool. The analysis of Ansoff’s Matris in relation to Amcorp Properties Berhard is discussed below:

Market Penetration: As per the current marketing strategy, Amcorp Properties Berhard has adopted the market penetration strategy in order to retain the existing customers. In addition, Amcorp Properties Berhard provides their customers with different reward and discount price schemes (Hussain et al. 2013).

Product Development: In order to capture the whole market, Amcorp Properties Berhard needs to adopt the strategy of product development that will increase its market share and profit. With the help of research and development activities, Amcorp Properties Berhard can develop its current products.

Market Development: Amcorp Properties Berhard needs to develop the strategy of market development in order to expand their business. For this reason, the company needs to plan their business expansion more outside Asia so that new market can be tapped.

Diversification: As diversification is a risky strategy, Amcorp Properties Berhard needs to be extra careful while adopting this strategy. With the help of diversification strategy, Amcorp Properties Berhard will be able to diverse their products and market in a more effective way (Swarbrooke and Page 2012).

In order to measure the performance of the selected company, conventional analysis has been chosen. However, some major limitations are there in this analysis model. In case of the Porter’s Five Forces model, it can be seen that this model is outdated in relation to some industries and thus, it needs to be updated as per the industry requirements. In addition, PESTEL analysis only takes into consideration the analysis of external environment and it does not take into consideration the resources and capabilities of the organizations (Healy and Palepu 2012).

As per the assumptions of financial model, business organizations operate in a vacuum place. However, in reality, the companies are surrounded by various crucial factors like government regulations, economic performance and the market sentiments. Another assumption is that all the companies are similar. In actual, all the companies are different and actual results cannot be obtained from the application of similar measures. Often, these measures do not take into consideration the change in economic conditions of countries like change in government regulations, taxation and various other legislations. These are the major limitations in the financial model used for the performance analysis.

Financial Modeling is a useful tool in order to forecast the performance measurement of Amcorp Properties Berhard in case there is a change in strategies in future. This financial modeling includes various aspects like economics, finance, busies philosophy derived from key performance indicators. As per the below table of financial spreadsheet modeling, forecast scenario of Amcorp Properties Berhard can be obtained. Three major variables are there; they are best case, moderate case and worst case.

Scenario Analysis

Scenario Forecasting

Outcome: As per the above table, in case there is a growth in the business by 5% in near future, there is a possibility that the net margin can be higher that is 49.52%, 51.99% and 54.59% in the year 2017, 2018 and 2019 respectively. In case, there is a decline in the business by 5% in near future, there is a possibility that the net margin can be lower that is 44.82%, 47.04% and 49.39% in the year 2017, 2018 and 2019 respectively. In case there is not any in the business in near future, there is a possibility that the net margin will not be changed.

7. Conclusion

As per the financial analysis, it can be seen that Amcorp Properties Berhard has better financial position as compared to its other two competitors SP Setia and IOI Properties. The net profit margin of Amcorp Properties Berhard is way better than the other two companies from the year 2012 to 2016. However, in case of 5% growth in near future, there is a possibility that Amcorp Properties Berhard can earn higher level of net margin. Apart from this, Amcorp Properties Berhard has some major management issues that need to be resolved.

Based on the above analysis, some recommendations are provided below:

• Amcorp Properties Berhard needs to adopt market development strategies in order to be speared their business internationally.
• Amcorp Properties Berhard needs to adopt the advanced technologies more in order to deliver quality products and services for their customers.
• Amcorp Properties Berhard needs to diversify their current products in order to tap more customers.

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