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290904968 financial-analysis-celcom-vs-maxis-2012-2014

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1.0 INTRODUCTION
1.1 Telecommunication Industry in Malaysia
The introduction of telephone services in Malaysia started in ...
1.2 Company Background
1.2.1 Maxis Berhad
Maxis Berhad is a communications service provider in Malaysia. Maxis provides a ...
1.3 Objective of the Study
The main objective of this study is to perform financial statement analysis of Maxis
Berhad and...
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290904968 financial-analysis-celcom-vs-maxis-2012-2014

  1. 1. 1.0 INTRODUCTION 1.1 Telecommunication Industry in Malaysia The introduction of telephone services in Malaysia started in 1891 with the first telephone exchange installed in Kuala Lumpur. There were only 21 telephones in Kuala Lumpur supported by 400 miles of telephone and telegraph lines during the initial development stage. The telecommunications system was regarded fairly advanced particularly in Peninsular Malaysia by 1908. In 1985, Telekom Malaysia introduced mobile services into Malaysia, since then, the government granted a number of license to private sector telecommunication operations in an effort to develop the country’s telecommunication industry and infrastructure. Malaysian Communication and Multimedia Commission established as a regulatory body. In the past 5 years ago, the telecommunication industry in Malaysia has been led by only three most popular companies: Maxis, Digi and Celcom. The services that are offered by the companies have significantly helped people to make their daily lives easier. The three companies has been competing with each other to be at the top and leading the industry. However, the number of telecommunication companies that are operating in fulfilling the needs of people to communicate in Malaysia is increasing. The telecommunication market has been dominated by major telecommunication companies such as Umobile and Tune Talk. The telecommunication market structure in Malaysia is become oligopoly due to the competition in the telecommunication market. In order to maintain their position in the market, they would have to consider the possible reaction of rivals to its own pricing, output and advertising decisions.
  2. 2. 1.2 Company Background 1.2.1 Maxis Berhad Maxis Berhad is a communications service provider in Malaysia. Maxis provides a variety of mobile communication products and services. They offer prepaid data plans, call plans and SMS plans, postpaid data plans, call plans and SMS plans, devices, wireless broadband, fibre internet, international roaming, MMS, WAP (over both GSM and GPRS) and residential fixed line services. For business customers, Maxis offer cloud computing, data storage, machine-to-machine services, fixed high speed internet, VSAT services (satellite based communications), call conferencing and a variety of mobile plans. Maxis also provides online games and a music store for its customers to download multimedia content. Maxis' most popular service is its prepaid brand Hotlink, which currently serves over 9.5 million customers in Malaysia. 1.2.2 Celcom Axiata Berhad Axiata Group Bhd. is an investment holding company, which engages in the provision of mobile communication and network transmission related services. The firm operates through the following segments: Malaysia, Indonesia, Bangladesh, Sri Lanka, and Others. It also offers technical and management services on an international scale with investments in subsidiaries, joint ventures, and associates. Axiata has controlling interests in mobile operators in Malaysia, Indonesia, Sri Lanka, Bangladesh and Cambodia with significant strategic stakes in India and Singapore. In addition, the Malaysian-grown holding company has stakes in non-mobile telecommunications operations in Pakistan. The Group’s mobile subsidiaries and associates operate under the brand name “Celcom” in Malaysia, “XL” in Indonesia, “Dialog” in Sri Lanka, “Robi” in Bangladesh, “Smart” in Cambodia, “Idea” in India and “M1” in Singapore. Added to this, the Group has established a communications infrastructure solutions and services company called “edotco”. Axiata has blazed a path across the region; from 40 million customers, pre-demerger, to over 250 million across 8 countries, in six years, making Axiata one of the largest mobile players in Asia.
  3. 3. 1.3 Objective of the Study The main objective of this study is to perform financial statement analysis of Maxis Berhad and Celcom Axiata Berhad. This study analysed 3 consecutive years of annual reports of both companies from 2012 to 2014.The 2 companies was evaluated on its financial conditions, profitability, liquidity and long term credit risk which is Celcom Axiata Group Berhad and Maxis Group Berhad .The company was evaluated on its financial conditions , profitability , liquidity and long-term credit risk . Parameters that involved in the evaluation are as below : • Cash flow condition • Profit and loss of the company and trend • Abilities of controlling debt and liabilities Financial statements are historical documents while financial ratios show relatonships that have existed in the past . Analysts , investors and business decision makers are primarily interested in the current condition and future condition rather than the past . Past financial ratios are useful tool for them to use as a basis for making financial condition predictions .
  4. 4. 2.0 FINANCIAL STATEMENT ANALYSIS 2.1 Tools and Analysis A financial statement is a formal record of any business, individual, or entity’s financial activities. All the important information of a business enterprise is presented in the financial statements. The main aim of financial statements is providing info about the financial position, performance, and variations in the financial position of a business enterprise. An understandable financial statement helps business entity’s stakeholders to get reasonable knowledge about the business and its economic activities. Ratio is a mathematical expression of the relationship of one item to another. It is important in understanding financial statements because it compares information from one financial statement with information from another financial statement. By using ratios/percentage, creditors or investors able to judge and analyse company performance and financial position throughout the years. 2.2 Performance on Profitability Summary Table Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Percentage change in net sales (8.30) 1.3 1.9 1.8 3.9 6.8 Return on Assets 9.5 10.2 10.5 4.8 6.3 6.3 Return on Equity 36.4 29.5 26.4 10.4 12.8 13.1 Gross Profit Rate 67.7 66.0 66.5 16.7 19.2 21.3
  5. 5. 2.2.1 Percentage change in revenue Percentage changes in revenue = dollar amount change in revenue / financial statement amount in the earlier year*100 Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Revenue (RM'000) 8,388,502 9,084,452 8,966,828 18,711,777 18,370,841 17,651,617 Change in amount ( 695,950 ) 117,624 166,907 340,936 719,224 1,203,680 Percentage change in revenue ( 8.30% ) 1.29% 1.86% 1.82% 3.92% 6.82% A percentage change in net sales is the rate at which net sales is increasing or decreasing. It is the “growth rate’ of a company in sales. Percentage changes in net sales of Maxis Berhad remain constant from 2012 to 2013, however, there is 8.3% decreased in net sales in year 2014. This is because Maxis introduced worry-free propositions in the way they charge for data and roaming. The impact of voice and SMS was a factor in their financial performance. Meanwhile , percentage chages in net sales of Celcom Axiata Berhad slightly increased from 2012 until 2014 . Net sales has increased from 6.82% in 2012 to 3.92% in 2013 and it is continue increased to 1.82% in 2014 . According to Celcom Axiata Berhad annual report , Celcom Axiata Group keep provide the service with the latest technology which is 4G LTE . The service can be reachable even though the consumer is in the rural area . 2.2.2 Return on Assets Return on assets = net profit / total assets*100 Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Net Profit (RM'000) 1,724,824 1,772,255 1,860,519 2,344,413 2,738,577 2,879,577 Total Assets (RM'000) 18,109,608 17,329,585 17,802,179 49,127,437 43,497,246 45,930,601 Return on Assets (%) 9.52% 10.23% 10.45% 4.77% 6.30% 6.27%
  6. 6. Return on assets measures efficiency of the business in using its assets to generate net profit. Besides, this ratio could help both company management and investors to have a view on how well the company could convert its investments in assets into profits. Maxis Berhad had decreasing trend for ROA from year 2012 to year 2014. The negative percentage of ROA is unfavourable to investors because it shows that the company is ineffectively managing its assets to produce greater amounts of net income. This is because Maxis invested significantly in modernising their network, and expansion plans to provide the best sales and service experience to customers. The three year average for return on assets of Maxis Berhad was 10.07% while Celcom Axiata Berhad was 5.78% . This higher percentage for Maxis Berhad reflects a more efficient use of its assets and higher earnings from products and services sold per company asset . Both companies have strong return on assets that goes to show the loyal base of customers each brand name of the two companies has . 2.2.3 Return on Equity Return on equity = net profit / total equity*100 Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Net Profit (RM'000) 1,724,824 1,772,255 1,860,519 2,344,413 2,738,577 2,879,577 Total Equity 4,737,767 6,016,816 7,057,305 22,557,787 21,379,071 22,007,222 Return on Equity (%) 36.41% 29.46% 26.36% 10.39% 12.81% 13.08% Return on equity ratio (ROE) is a profitability ratio from the investor's point of view. In other words, ROE is a profitability ratio that measures the ability of a company to generate profits from its shareholders investments. Maxis Berhad had increasing trend for ROE from year 2012 to year 2014. This higher ratio indicated that the company is using its investors' funds effectively. The return on equity for Maxis Berhad averaged 30.74% while Celcom Axiata Berhad averaged 12.09% . An observation of this profitability measure shows that Maxis Berhad is possibly much more attractive for potential investors for its ability to effectively manage and use funds generated through shareholders equity .
  7. 7. 2.2.4 Gross Profit Rate Gross profit rate = gross profit / revenue*100 Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Revenue (RM'000) 8,388,502 9,084,452 8,966,828 18,711,777 18,370,841 17,651,617 Gross Profit (RM'000) 5,681,537 5,995,184 5,960,987 3,114,456 3,533,039 3,761,794 Gross Profit Rate (%) 67.73% 65.99% 66.48% 16.65% 19.23% 21.31% Gross profit rate is a measure of the profitability of the company products. Gross profit rate fall from 66.48% in year 2012 to 65.99% in year 2013, a decline of 0.49%. Gross profit rate has increased for 1.74% from year 2013 to year 2014. The gross profit rate of Maxis Berhad is fluctuated from year 2012 to year 2014, means the company is operating inefficiency and frequent changing customer demand of company’s products in the perception of investors. Gross Profit increased in year 2014 due to Maxis first launching the 4G LTE network, now covers key market centres and state capitals, offering four times faster downloads and a better video streaming experience. However , gross profit rate for Celcom is slightly fall from 2012 until 2014 . Celcom Axiata had a risky year in 2013 when the rate fell in 2.08% which is from 21.31% to 19.23% . It continue for the next year which is drop again in 2.58% of 21.31% . The average of gorss profit rate for Maxis Berhad is 66.73% and Celcom Axiata Group averaged 19.06% . The decline in Celcom Axiata Group gross profit rate was mainly driven by its IT transformation programme. The company also faced IT system issues, and this has affected its capability to launch new products in a speedy manner . The currency performance in Malaysia and Indonesia ( which is PT XL Axiata Tbk ) was so bad and contributed to the profit rate performance .
  8. 8. 2.3 Performance on Liquidity Summary Table Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Current Ratio 3.7 4.2 5.7 0.8 1.2 1.3 Working Capital (RM'000) 11,348,231 11,816,983 12,991,984 ( 2,242,624 ) 1,198,950 2,652,126 Accounts Receivable turnover rate 8.6 9.6 9.7 6.1 6.9 8.4 Cash Flow from operations to current liabilities 0.98 0.95 1.24 0.5 0.7 0.9 2.3.1 Current Ratio Current ratio = Current Assets/Current Liabilities Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Current Assets (RM'000) 15,531,479 15,477,427 15,760,137 8,316,369 9,239,861 10,390,539 Current Liabilities (RM'000) 4,183,248 3,660,444 2,768,153 10,558,993 8,040,911 7,738,413 Current Ratio 3.71 4.23 5.69 0.79 1.15 1.34 Current ratio is to measure a company ability to pay short term obligations. Although Maxis Berhad had decreasing trend for current ratio from year 2012 to year 2014, but according to rule of thumb for the ratio of current assets to current liabilities which shows a good financial position of a company is 2:1, so Maxis not having trouble getting paid on their receivables or having long inventory turnover. Average current ratio for Maxis Berhad was 4.54 compared to Celcom Axiata Berhad was 1.09 . It tells that Maxis Berhad has more current assets to cover its short term liabilities and makes Maxis Berhad a safer and more financially strong company compared to Celcom Axiata Berhad .
  9. 9. 2.3.2 Working Capital Working capital = currents asset - current liabilities Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Current Assets (RM'000) 15,531,479 15,477,427 15,760,137 8,316,369 9,239,861 10,390,539 Current Liabilities (RM'000) 4,183,248 3,660,444 2,768,153 10,558,993 8,040,911 7,738,413 Working Capital (RM'000) 11,348,231 11,816,983 12,991,984 ( 2,242,624 ) 1,198,950 2,652,126 Working capital is to measure of company efficiency and it short term financial health. A company’s current assets must exceed it current liabilities. From the table above, it shown that Maxis Berhad consistently having positive amount of working capital, which it able to pay back creditor in the short term . Meanwhile , Celcom Axiata Berhad is began to suffering losses . 2.3.3 Account Receivable Turnover Rate and Day to Collect Average Accounts Receivable Accounts receivable turnover rate = revenue / accounts receivable Day to Collect Average Accounts Receivable = Days / Accounts Receivable turnover rate Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Revenue (RM'000) 8,388,502 9,084,452 8,966,828 18,711,777 18,370,841 17,651,617 Account Receivables (RM'000) 970,453 946,720 922,284 3,062,390 2,679,905 2,112,098 Accounts Receivable turnover rate 8.64 9.60 9.72 6.11 6.86 8.36 Days 365 365 365 365 365 365 Days to collect average account receivable ( days ) 42.25 38.02 37.55 59.74 53.21 43.66
  10. 10. Accounts receivable turnover rate indicates how quickly receivables are collected. Generally a high value of accounts receivable turnover rate is favourable and lower figure may indicate inefficiency in collecting outstanding sales. Maxis Berhad had decreasing trend for accounts receivable turnover rate from year 2012 to year 2014. In the accounting policy of Maxis, when the debt becomes uncollectible, it is written off against the allowance account. Subsequent recoveries of amount previously written off are recognised in the statement of profit or loss . Hence , a very high value of account receivables turnover rate may bot be favourbale if it was achieved by extremely strict credit terms since such policies may repel potential buyers . Even though Celcom Axiata Berhad showing a good value of account receivables turnover rate , a normal level of receivables turnover is different for different industries . Maxis Berhad able to collect customers payments on account receivable is stronger than Celcom Axiata Berhad , with Maxis Berhad taking 39.27 days on average compared to Celcom Axiata Berhad's 52.2 days . While both companies collection period was longer than the normal business benchmark of 30 days , Maxis Berhad was much more successful and efficient in collection from its customers and thus reduced the liability for risky accounts receivable . 2.3.4 Operating Cash Flow to current Liabilities Operating Cash Flow to current Liabilities = Cash Flow from Operation / Current Liabilities Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Cash flow from/used in operating activities 4,106,372 3,476,918 3,420,632 5,583,914 5,648,243 6,836,981 Current Liabilities (RM'000) 4,183,248 3,660,444 2,768,153 10,558,993 8,040,911 7,738,413 Cash Flow from operations to current liabilities 0.98 0.95 1.24 0.53 0.7 0.88 The Operating Cash Flow ratio is used to analysis the cash flow of the Group. It shows how the cash flow in and out from the company. In flow of cash enable the Group to pay their bills and liabilities. It measures the Group liquidity in short run as it related to reimburse their short term obligations. From the table, the ratio is constant from year 2013 to 2014. Maxis Berhad is still able to turn sales into cash. Meanwhile , Celcom Axiata Berhad shows a decreasing movement for the cash flow from operating activities from year 2012 until 2014 . The poor ratio indicates that the group is facing an uphill task to increase their operation cash flow ratio to meet short-term liabilities and to raise its liquidity for the uses of funding the business's other operations . Less flexibility is given when the cash flow is low to finance the strategies in use for adapting the market changes .
  11. 11. 2.4 Performance on Long Term Credit Risk Summary Table Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Long Term Debt Ratio 74% 65% 60% 54% 51% 46% 2.4.1 Long Term Debt Ratio Debt ratio = total liabilities / total assets*100 Item MAXIS BERHAD CELCOM AXIATA BERHAD 2014 2013 2012 2014 2013 2012 Total Assets (RM'000) 18,109,608 17,329,585 17,802,179 49,127,437 43,497,246 45,930,601 Total Liabilities (RM'000) 13,371,841 11,312,769 10,744,874 26,569,650 22,118,175 20,923,379 Long Term Debt Ratio 74% 65% 60% 54% 51% 46% Debt ratio indicates relative size of the equity position and shows percentage of assets financed by creditors. Debt ratio gives general idea of the amount of leverage being used by a company. A low percentage means that the company is less dependent on leverage. The lower the percentage, the less leverage a company is using and the stronger its equity position. However, the higher the ratio, the more risk that the company is considered to have taken on. Maxis had increasing trend for the long term debt ratio from year 2012 to 2014. This is because major liabilities of Maxis, example, payables and borrowings had increased, due to weakening RM against USD and SGD, thus higher interest rates on the borrowings. Maxis Berhad's three years average of long term debt ratio was 66.33% , compared to Celcom Axiata Berhad lower average ratio of 50.33% . While many feel that debt from creditors is more harmful because of the interest paid on the principle borrowed , the advantage here is that once the creditor is paid back , they are gone and off the payroll . Maxis Berhad approach to being more heavily financed through debt than equity may be in an attempt to keep earnings per share at an increased level .
  12. 12. 3.0 SUGGESTIONS FOR IMPROVEMENT AND CONCLUSION 3.1 Suggestions for improvement Both Maxis Berhad and Celcom Axiata Berhad have the financial statistics showing why they are strong competitors in the telecommunication industry . In an industry that attracts potential customers by offering the latest service at cheapest price , Maxis Berhad needs an increase their amount of research and development to develop a new scheme . Maxis Berhad has to combined competitors strenght into new scheme . It would be wise for Maxis Berhad to focus on precise areas where they have a strong competency and to be unique among the telco consumers . Maxis Berhad can extend their service to rural area especially to police and military quarters which got more potential consumers because usually the quarters is near to the rural areas and a quarters contains at least 80 families and it can reach 200 – 300 families depends on location . These location basically use Celcom coverage . Maxis Berhad also can use new university or new university hostel as their new location for internet coverage . All these locations is under federal government land and the rental fees is expensive . Also , the federal government does not want to bear any fees if anything happen to the telco coverage material . But Maxis can give a try just like Celcom Axiata Berhad does because they have to come out with their new business strategy . At the moment , the amount of increased funds used on marketing , general and administrative has not equally translated into higher sales revenue . Maxis Berhad's profitability and liquidity performance are quite strong , but need to improve their operating performance . If they are able to increase their profit margins within their operating performance , it will give a higher net income and possibly increase asset utilization . Maxis also can reduce the debt if they are consistence in improving their operating performance . Celcom Axiata Berhad's area of improvement is with its collection period . Currently , the collection period is too long and is causing Celcom Axiata Berhad to use its working capital funds to clear the account payable . Celcom Axiata Berhad also can reduce the liability which is growth in big amaount within a year . Celcom Axiata Berhad also making losses in 2014 and if the company continues in making losses for five times in a row , there is high possibility that the company would be classified as PN17 issuer in the future . The company has to looking into formulating a plan to regularise its financial condition .
  13. 13. 3.2 Conclusion and recommendation for investment One of the better ways to determine a company's direction financially is to look at the last few years of their performance and see where they physically placed their priorities . Both companies' are strong and healthy investments for potential investors . Selling , general and administrative will have a minor increase explained through the increased volume of sales . Research and development will increase as Maxis Berhad works to increase their ability to compete with other major competitors such as Celcom , DiGi and Umobile to bring ahead of the curve innovation to the market for consumers . Net income will increase with projected sales volume up , largely credited to an improving economy and consumers spending again . After reviewing their company strategies and recent year's financial statements and ratios , it is believed that Maxis Berhad would be a better investment with its larger coverage 2G , 3G and 4G LTE service , brand name , lower operating expenses , larger net incomes , higher sales volumes and better growth potential in the long run .

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