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EMT718 FINANCIAL AND MANAGEMENT ACCOUNTING

WCT BHD| FINANCIAL STATEMENT ANALYSIS 3

The Companys property d evelopmentand investment and management portfolio includes

townships, luxury homes, high-rise residences, industrial properties, offices, mixed

commercial developments, concessions, hotel and shopping malls. WCT is also a reputable

developer of three sustainable

integrated townships in Bandar Bukit Tinggi known as BBT1, BBT2 and Bandar Parklands

with a gross development value (GDV) of RM4.7 billion. Since 1997, WCT has delivered in

excess of 14,000 units of residential and commercial properties amounting to a GDV of

RM4.0 billion. WCT has also entered

the Johor property market with the development of 1Medini condominiums at Medini

Iskandar, Johor Bahru. WCT currently has a land bank of approximately 1,000 acres in

Malaysia.

In the investment and management portfolio, WCT owns and operates Premire Hotel and

owns 3 shopping malls Paradigm Mall, gateway@klia2 (opening second quarter of 2013)

and Bukit Tinggi Shopping Centre. Paradigm Mall and gateway@klia2 are self-managed.

WCT also has an established concession portfolio in three highway concessions in India.

WCTs unwavering commitment to quality excellence is reflected in its developments. For

the works done, WCT has received local and international recognition, winning the

International Achievement Award from the Construction Industry Development Board of

Malaysia, the Best Brands in Engineering & Construction of the BrandLaureate Award 2007-

2008 from the Asia Pacific Brand Foundation, Export Excellence Award 2004 & 2008 by the

Ministry of International Trade & Industry, Malaysia (MITI), Contractor of the Year Award

2010 and the Frost & Sullivan Excellence Award 2011 among others.

Latest outstanding orderbook of WTC is enlisted below(30 September 2011):-

Governmental Administrative Building in Doha, Qatar

New Doha International Airport, Qatar LCCT mall

Tuaran Hospital in Sabah

LCCT earthworks

Vale Civil Works, Perak

Medini Iskandar, Johor

Pinewood studios, Medini

Bakun Hydro Dam

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AEON Melaka

UiTM Campus

This report analyses various aspects of the companys financial performance for the past 5

years (i.e. 2008 2012). The aspects are segregated into 5 different components as per

indication below:-

Profitability

Liquidity

Solvency

Market Growth

Overall Assessment

The elaborated findings will be discussed in further details on the next chapter of this report.

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2. PROFITABILITY RATIO

Profitability ratio is an indication of good financial health and how effectively the firm is

being managed is the companys ability to earn a satisfactory profit and return on

investment. There are some major ratios that measure operating result which are:

2.1. Gross Profit Margin

The gross profit margin reveals the percentage of each ringgit left over after the

business has paid for its goods. The higher the gross profit earned, the better. Gross profit

equals net sales lest cost of goods sold:

Gross profit margin = Gross Profit / Net Sales

Table 2.1: Gross Profit Margin

RM000

2008 2009 2010 2011 2012

Net Sales 3,795,487 4,666,602 1,708,501 1,538,589 1,560,354

Gross Profit 187,048 354,659 329,864 296,976 339,566

Gross Profit Margin 0.049 0.076 0.193 0.193 0.218

From table 2.1, gross profit margin for ratio WCT Holding BHD in 2008 is 0.049. In

year 2009 the gross profit margin was 0.076. The decline in this ratio indicates that the

business in earning more gross profit on each sales ringgit. The reasons for the decline may

be lower in relative production cost of merchandise sold. In year 2011 the gross profit is

0.193 and in year 2012 the gross profit is 0.218. This shows that the business is earningbetter gross profit margin within 5 years.

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2.3. Return on Total Assets (ROA)

Return on assets show an indicator how profitable a company is relative to its total

assets. ROA had given an idea as to how efficient management is at using its assets to

generate earnings. Calculated by dividing a companys annual earnings by its total assets,

ROA is displayed as a percentage. Sometimes this is referred as return on investment.

Return on Total Assets, ROA = Net Income / Total Assets

Table 2.3: Return on total assets, ROA

RM000

2008 2009 2010 2011 2012

Total Assets 4,457,297 4,478,484 4,553,484 4,659,550 5,387,027

Net Income 146,213 215,864 209,645 166,494 345,703

Return on Assets, ROA 3.28% 4.82% 4.60% 3.57% 6.42%

From table 2.3, the return in 2008 was 3.28 percent and in year 2009 the return was

4.82 percent. In year 2010 the return was 4.60 percent and in year 2011 the return was 3.57

percent. In year 2012 the return was 6.42 percent. From this figure, we can indicate that thiscompany was better at converting its investment into profit from within one year which is

from year 2008 until 2009 but this company cannot make more profit in year 2010 till 2011.

However this company can make more profit in year 2012. This shows that this company

was to slow in making a profit and their profit was not to stable.

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2.4. Return on Total Equity (ROE)

Return on equity measure the rate of return on the common stockholders investment.

Table 2.4: Return on total equity, ROE

2008 2009 2010 2011 2012

Return on Investment

(ROI)

8.77% 11.73% 12.75% 11.24% 19.82%

From table 2.4, the ROE in first three years show the increased in return earned by

the owners of the business but it was drop in the return earning in year 2011 which is ROEwas 11.24 percent. In year 2012 the return earning in this company start increased back

which is the ROE was 19.82 percent.

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2.5. Market Value Ratio

In market value ratio, it related the firms stock price to its earnings per share. It also

includes dividendrelated ratio such as:

a. Earnings per Share

b. Price/Earnings Ratio

c. Dividend Yield

Table 2.5: Market Value Ratio

RM000

2008 2009 2010 2011 2012

Earnings per Share 0.13 0.19 0.21 0.18 0.38

Price Earnings Ratio (P/E) 11.53 13.86 15.55 13.24 6.18

Dividen Per Share (DPS) 9.5% 10% 10% 9.5% 7%

Dividens Yields 6.25% 3.85% 3.13% 3.99% 2.98%

From Table 2.5, the performance of earning per share in 2008 until 2010 is

increasingly for 0.17 but it slightly down in 2011 is 0.18. The performance of this group has

increase 0.38 in 2012. In this view WCT Group is stable.

The price earnings ratio has present in WCT Group, 2008 until 2010 it slowly

increase with 11.53, 13.86 and 15.55. Indeed, the performance in 2011 until 2012 it was

decrease with 13.24 and 6.18.

The dividend ratio identifies the return of WCT Group in 2008 until 2012.

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3. LIQUIDITY RATIO

Liquidity is a companys ability to meet its maturing short term obligations which an

asset or security can be bought or sold in the market without affecting the assets price.

Analyzing corporate liquidity is especially important to creditors. Liquidity ratios are static in

nature as of year-end. There have various liquidity measures follows:

Table 3.1: Liquidity Ratio

2008 2009 2010 2011 2012

Current Assets RM'000 RM'000 RM'000 RM'000 RM'000

Property development costs 162,597 230,014 228,783 289,564 313,710

Inventories 150,527 113,709 74,393 51,431 73,859

Trade receivables 1,079,663 1,206,971 854,594 706,355 634,062

Other receivables 356,159 265,684 272,147 207,779 407,702

Due from related parties 14,957 5,515 4,223 75,739 188,780

Tax recoverable 16,910 17,760 12,468 6,141 11,234

Cash and cash equivalents 719,316 713,534 1,162,407 1,077,715 790,002

TOTAL 2,500,129 2,553,187 2,609,015 2,414,724 2,419,349

Current Liabilities RM000 RM000 RM000 RM000 RM000

Trade payables 945,414 1,318,176 802,505 562,346 666,262

Other payables 444,386 281,874 228,353 396,441 417,100

Due ti related parties - 263 - - -

Borrowings 301,720 206,707 505,439 466,059 930,715

Tax payable 209 530 1,136 6,718 15,784

TOTAL 1,691,729 1,807,550 1,537,433 1,431,564 2,029,861

Quick Assets RM'000 RM'000 RM'000 RM'000 RM'000

TOTAL 2,155,138 2,186,189 2,289,148 1,991,849 1,831,766

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3.1. Quick Ratio

Quick ratio also known as the (acid-test ratio) present of WCT Group. It is found by

dividing quick assets (cash, marketable securities and receivables) by current liabilities.

Quick ratio= Quick assets

Current liabilities

Table 3.2: Quick ratio of WCT Group

Year 2008 2009 2010 2011 2012

Total Quick Assets 2,155,138 2,186,189 2,289,148 1,991,849 1,831,766

Total Current Liabilities 1,691,729 1,807,550 1,537,433 1,431,564 2,029,861

Quick Ratio 1.27 1.21 1.49 1.39 0.90

Table 3.2 shows that quick ratio performances of WCT Group. It founded the value of

quick ratio for WCT Group in year 2008 and 2009 is 1.27 and 1.21, the performance is

decrease. While the value quick ratio in year 2010 for WCT group is 1.49, the performance is

increase; but in 2011-2012 the performance for this group is decreased 0.49.

Form that analysis in table 3.2, it can be pointed out that the WCT Groups ratio

stable in 2008-2010 and may face easy in paying off their debts (short term) but it went down

slightly in 2011-2012.

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3.2. Working Capital

Net working capital is equal to current assets less current liabilities. Net working

capital is a safety cushion to creditors.

Net working capital= current assetscurrent liabilities

Table 3.3: Net working capital of WCT Group

Year 2008 2009 2010 2011 2012

Total Current Assets 2,500,129 2,553,187 2,609,015 2,414,724 2,419,349(-)Total Current Liabilities 1,691,729 1,807,550 1,537,433 1,431,564 2,029,861

Net Working Capital 808,400 745,637 1,071,582 983,160 389,488

Table 3.3 shows net working capital performance of WCT Group. In year 2008, the

value net working capital is RM808, 400. While in 2009 and 2010 (RM 745, 737, and RM1,

071, 582) the value for the group has increased. But in 2012, the performance is decrease

with value RM389, 488.

From the analysis in Table 3.3, the performance in net working capital is an

unfavourable sign in certain year.

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4. SOLVENCY ANALYSIS

Solvency ratios measure the ability of a company to pay its long term debt and

the interest on that debt. Solvency ratios, as a part offinancial ratio analysis,help

the business owner determine the chances of the firm's long-term survival.

Solvency ratios are of interest to long-term creditors and shareholders. These groups are

interested in the long-term health and survival of business firms. In other words, solvency

ratios have to prove that business firms can service their debt or pay the interest on their

debt as well as pay the principal when the debt matures.

Solvency Ratio Calculation and Interpretation

One ratio in particular serves as both a debt ratio and a solvency ratio. That ratio is the Total

Debt/Total Assets ratio.This ratio measures how much of the firm's asset base is financed

using debt. Let's say that the Total Debt/Total Assets ratio = 50%. This means that half the

firm's assets are financed using debt and the other half are financed using equity sources.

The only way you know if this is high or low or average is if you have industry average data

to compare to. If industry average data for this firm's industry is around 50%, then you know

your firm is in line with the industry and you are probably doing well with regard to the

Debt/Assets ratio. If the Debt/Assets ratio for your company is, for example, 65%, then your

debt is high as compared to other firms in your industry and you should definitely take a look

at it. Your company is not as solvent as other firms in the industry.

Solvency ratios help the business owner keep an eye on possiblebankruptcy. As the

Debt/Asset ratio increases, the likelihood of bankruptcy also increases as the firm is financed

more and more with debt as opposed toequity sources.
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Solvency Ratios

Debt to equity = Total debt / Total equity

This ratio indicates thedegree of financial leverage being used by the business and includes

both short-term and long-term debt. A rising debt-to-equity ratio implies higherinterest

expenses,and beyond a certain point it may affect a companys credit rating, making it more

expensive to raise more debt.

Debt to assets = Total debt / Total assets

Another leverage measure, this ratio measures the percentage of a companys assets that

have been financed with debt (short-term and long-term). A higher ratio indicates a greater

degree of leverage, and consequently, financial risk.

Interest coverage ratio = Operating income (or EBIT) / Interest expense

This ratio measures the companys ability to meet the interest expense on its debt with

itsoperating income, which is equivalent to its earnings before interest and taxes (EBIT).

The higher the ratio and also the better the companys ability to cover its interest expenses.
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Solvency Ratio:-Long- Term

2007 2008 2009 2010 2011 2012

RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Non-current Liabilities 1431239 1183958 1,484,523 1,378,952 1,489,751

Total Liabilities 1,882,656 3,122,968 2,991,508 3,021,956 2,810,516 3,519,612

Total Assets 4,457,297 4,478,484 4,553,484 4,659,550 5,387,027

Net gearing ratio 0.35 0.23 0.37 0.4 0.41

Debt Ratio 70.1% 66.8% 66.4% 60.3% 65.3%

Net Sales 3,795,487 4,666,602 1,708,501 1,538,589 1,560,354

Non-current Account

Receivables

135,728 438,703 404,544 389,324 374,640 358,625

Current Account

Receivables

1,042,160 1,079,663 1,206,971 854,594 634,062 706,355

Total Account

Receivables

1,177,888 1,518,366 1,611,515 1,243,918 1,008,702 1,064,980

Average Account

Receivables

1,348,127 1,564,941 1,427,717 1,126,310 1,036,841

Accounts Receivable

Turnover (times)

2.82 2.98 1.20 1.37 1.50

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Generally, there are six key financial ratios used to measure the solvency Ratio of a WCT

Holding Berhad and these include:-

Current ratioComputed as Current Assets Current liabilities, this ratio helps in comparing current assets

to current liabilities and is commonly used as a quantification of short-term solvency.

Quick ratio

Also known as liquid ratio and computed asCash + Accounts Receivable Current

liabilities, considers only the liquid forms of current assets thus revealing the companys

reliability on inventory and other current assets to settle short-term debts.

Current debts to inventory ratioComputed as Current liabilities Inventory, this ratio reveals the reliability of a company on

available inventory for the repayment of debts

Current debts to net worth ratio

Computed as Current liabilities Net worth, this ratio indicates the amount due to creditors

within a years time as a percentage of the shareholders investment

Total liabilities to net worth ratio

Computed as Total Liabilities Net Worth this ratio reveals the relation between the total

debts and the owners equity of a company. A higher ratio indicates less protection for

business creditors.

Fixed assets to net worth ratio

Computed as Fixed Assets Net Worth, represents the percentage of assets centered in

fixed assets I comparison to total equity.

Solvency Ratio is important for a WCT Holding Berhad company's financial health. A number

of financial ratios are used to measure a companys solvency, and an investor should use to

get the complete picture of a companys financial position. Additional useful information can

be gleaned by comparing a companys ratios versus its peers and by analyzing ratio trends.
http://www.readyratios.com/reference/debt/fixed_assets_to_net_worth.htmlhttp://www.readyratios.com/reference/debt/fixed_assets_to_net_worth.html

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5. MARKET GROWTH ANALYSIS

5.1. Diversification

As a reputable construction and property player WCT Berhad did has diverse

business model that covers full-fledged property development services that cover both

locally and abroad. The company operates in business segment which are engineering and

construction, property development as well as the Investment and management. In local

context, WCT is known for their high-profile projects such as Sepang F1 Racing Circuit,

Kuala Lumpur International Airports (1 and 2), Bakun Hydroelectric Dam, 1,300 acres

Bandar Bukit Tinggi Township and recently the Paradigm Mall in Kelana Jaya. A part form

that the company also has great track record form few overseas projects in Qatar, Bahrain,

Abu Dhabi and India. Figure 5.1 list down among the services and projects that has been

completed over the years by WCT Berhad.

Figure 5.1: WCT Construction Jobs Win (2008-2012)

Source: WCT Corporate Profile

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Over 32 years the company has successfully completed more than 350 construction

projects that worth in excess of RM2bof contracts. On top of that, since 1997 the company

has sold over RM3.5b of properties which includes 13,000 units of residential and

commercial properties. In addition to their high-profile projects in Malaysia, Qatar, UAE,

Bahrain and India the company also has excellent track record in construction deliverance

as they managed to complete Yas Marina F1 Circuit, Abu Dhabi for just 28 months. Due to

these factors it is sound to assume that WCT Berhad has a solid reputation in the

construction and property industry with diversification of services that hugely contributed

their successful business portfolio.

5.2. Market Growth

In the year 2008 to 2010, the company has recorded upward trends in their

construction jobs resulted in the healthy revenue for their construction business (Figure 5.2)..

However in 2011 the construction jobs win by the company significantly drop to just

RM0.19b compare to RM2.2b in 2010. Among the reason is that the company failed to

secure high-profile construction jobs during the year as they tend to be selective in securing

jobs, turning away lower margin projects. Nevertheless they did recover in 2012, as theymanaged to secure nearly RM1.9bnew jobs with among the notable are the development in

Medini Iskandar Malaysia, Ministry of International Trade and Industry Headquarters in

Kuala Lumpur as well as 44.75km Batinah Expressway projects in Oman. For the financial

year of 2013 the company expected to secure the total of RM1.5bworth of contract as they

have clinched approximately RM511milworth of jobs (AmReserach, 2013).

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Looking at the property development potential, WCT Berhad has over 2,076 acres of

land bank around Malaysia and abroad with another 1,076 acres are yet to be developed

(Table 5.1). With the total potential Gross Development Value (GDV) of RM14.7bproperty

development division is expected to continuously contribute to the revenue of the company

in the future.

Table 5.1: WCT Land Bank

Location Total

Acres

Balance

acres

GDV

(RM m)

Development

Type

Bandar Bukit Tinggi, Klang 1,336 345 2,500 Township

DLaman, Klang 56 56 450 Luxury homes

Paradigm, PJ 8 8 700 Mixed commercial

1-Medini, Johor 6 6 430 High-rise homes

Medini Business Dist, Johor 10 10 900 Mixed commercial

Bkt Jelutong, Shah Alam 2.3 2.3 100 Mixed commercial

Bdr Serendah, Sgor 39 39 270 Industrial

Rawang, Selangor 468 468 1,200 Township

OUG, OKR, KL 57 57 4,000 Mixed

Lot A60, Zone A, Medini 18 18 1,500 Mixed

Inanam, KK, Sabah 22 22 200 Luxury homes

Jln Skudai, Johor 12 12 900 Mixed commercial

Ho Chi Minh City, Vietnam 22 22 1,000 Mixed commercialDPN land, HCMC, Vietnam 11 11 500 High-rise homes

TOTAL 2,076 1,076 14,650

Source: WCT Annual Report and Maybank IB Research

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6. OVERALL ASSESSMENTS & RECOMMENDATION

6.1. Overall Assessments

In summary, it is in our opinion that this counter (i.e. WCT Berhad) is a highly favourable

investment asset to be considered. Our recommendations were evaluated from 2

perspectives:-

1. Quantitative factors; and

2. Qualitative factors.

Quantitative factors are those reported earlier in this report (i.e. Profitability, Liquidity,

Solvency and Market Growth Kindly refer to our previous findings that support our

arguments). Adding qualitative factors, we acknowledge the followings are the essential

indicators of fundamentally strong company to invest in and WCT Berhad possessed these

qualities:-

1) Strength of Management TeamStrong key personnel in top-management to continue ensuring continuous shareholder

value creation at mind while not compromising the end-quality of the business. The Group is

making significant stronghold in Malaysia while continue looking for further opportunities

abroad especially in the Gulf states. Each members illustrious backgrounds and in -depth

knowledge of industry are the key to continue driving companys growth for long-term

despite challenging competition and economic condition, globally and locally.

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2) Excellent track record

(Sepang International Circuit) (New Doha International Airport) (Medini Residents

Iskandar)

WTCs unwavering commitment to quality excellence is reflected in its development.

WTC is ambitious in becoming a regional player though its still focusing its core businesses

in Malaysia. Recognition of its brand and skillset has enabled WTC to be a competent bidder

for any international tender related to its business. Citing a good example that can further

boost its track record is the ongoing construction and development Governmental

Administrative Building in Doha, Qatar.

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3) Attractive dividend policy

WCT recorded a fluctuation of turnover (i.e. revenue) over the past 5 years.

However, the top management to continue creating shareholder value by declaring attractive

dividend policy in average of 48% (dividend payout ratio) post financial crisis 2007-2008.

This is one of the factors why investors retaining their investment portfolio (in WTC Berhad)

for longterm.

4) Strong orderbook on construction projects

Based on JP Morgans analysis (Research House Report), there are currently about

17 ongoing projects in the pipeline. The biggest offshore project to date is the Governmental

Administrative Building in Doha, Qatar ($1.4 billion), while locally WTC is still actively engage

in high impact project such as Medini Iskandar ($230 million) and LCCT Mall $392 million).

Rest assured that WTC will not rest on its laurels as it continues eyeing more construction

projects overseas (Oman Expressways, Bahrain International Airport Extension) and also

locally (Pahang Selangor Raw Water Transfer (Langat 2), Kuala Lumpur InternationalFinancial District, and Southern Double Tracking (GemasJohor Bahru).

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Final Report (22-10-2013)

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