Mah Sing Group Berhad and UEM Sunrise Berhad are two leading property developers in Malaysia

Accounting Nov 05, 2020

Mah Sing Group Berhad and UEM Sunrise Berhad are two leading property developers in Malaysia. The corporate profile of these two companies is as follows:

Mah Sing Group Berhad was listed on the Main Board of Bursa Malaysia in 1992 and ventured into property development in 1994. Mah Sing is one of Malaysia’s fully integrated developers with residential, commercial and industrial developments. The Group currently has 47 projects (34 ongoing) in Greater Kuala Lumpur and Klang Valley, Penang, Johor as well as Sabah. A leading property developer in Malaysia, Mah Sing’s diverse portfolio includes master planned townships, integrated developments, Grade A office buildings, retail projects and industrial developments. For more than two decades, Mah Sing has continuously created iconic developments that have won over 200 domestic and global awards for company performance, corporate governance, product design, concept, innovation and quality. Mah Sing has launched numerous big projects with luxury in mind. Some of the notables are Icon Residence (Mont Kiara), M City (Jalan Ampang), M Residence (Rawang), Icon City (Petaling Jaya), and Ferringhi Residence (Batu Ferringhi, Penang).

UEM Sunrise Berhad is a public-listed Company and one of Malaysia’s leading property developers. It is the Flagship Company for township and property development businesses of UEM Group Berhad and Khazanah Nasional Berhad. UEM group is wholly-owned by Khazanah, the strategic Investment fund of the government of Malaysia. The Company has core competencies in macro township development; high-rise residential, commercial, retail and integrated developments; as well as property management and project & construction services. The company is renowned for its numerous award-winning high-rise and landed residential; commercial and mix-use developments in Iskandar Puteri, Kuala Lumpur's affluent Mont' Kiara enclave, the Kuala Lumpur City Centre, Cyberjaya, Shah Alam, Bangi and Seremban.

Selected ratios for the three financial years of 2015, 2016 and 2017 are as follows:

	Mah Sing Group			UEM Sunrise Group
	2017	2016	2015	2017	2016	2015
Activity Ratios
Total Asset Turnover	0.41	0.48	0.47	0.20	0.14	0.15
Fixed Asset Turnover	18.71	21.49	28.38	7.70	6.14	7.48

Liquidity Ratios
Current Ratio	3.00	3.10	3.43	2.56	2.25	3.02
Quick Ratio (Acid-Test)	2.63	2.86	3.30	2.35	2.02	2.78

Profitability Ratios
Gross Profit Margin	26.12%	25.20%	25.55%	28.27%	27.72%	30.01%
Net Profit Margin	12.23%	12.24%	12.46%	8.25%	10.34%	17.33%
Return on Equity	7.67%	9.44%	10.51%	3.22%	2.65%	4.23%

Leverage Ratios
Debt Ratio	34.91%	38.33%	44.31%	48.38%	46.81%	39.73%
Debt/Equity Ratio	0.54	0.62	0.80	0.94	0.88	0.66

Required:

Compare the performance of these two companies based on all the ratios above.

Identify two ratios that will be important to banks in evaluating loan application from these companies.

Identify two ratios that investors will consider in deciding to invest in any of these two companies.

Expert Solution

Mah Sing Group	UEM Sunrise Group
	2017	2016	2015	2017	2016	2015
Activity Ratios							a. Analysis & Comparison
Total Asset Turnover	0.41	0.48	0.47	0.2	0.14	0.15	$ sales generated per $ of total assets employed are much lower for UEM, in all the 3 yrs. Compared to Mah Sing.
Fixed Asset Turnover	18.71	21.49	28.38	7.7	6.14	7.48	$ sales generated per $ of fixed assets employed are also much lower for UEM, in all the 3 yrs. Compared to Mah Sing.

Liquidity Ratios
Current Ratio	3	3.1	3.43	2.56	2.25	3.02	Coverage of current , ie.operating liabilities by the readily- cashable current assets are also less for UEM, though it is decreasing over the 3 yrs. For Mah Sing.
Quick Ratio (Acid-Test)	2.63	2.86	3.3	2.35	2.02	2.78	Coverage of current , ie.operating liabilities by the even-more readily- cashable current assets are also less for UEM, though this ratio also decreases over the 3 yrs. For Mah Sing.

Profitability Ratios
Gross Profit Margin	26.12%	25.20%	25.55%	28.27%	27.72%	30.01%	UEM had posted much higher gross profit margin , in all the 3 yrs., than Mah Sing--which is improving in 2017.
Net Profit Margin	12.23%	12.24%	12.46%	8.25%	10.34%	17.33%	Mah Sing has comparatively, higher net profits in the last 2 yrs.---indicating higher operating costs for UEM, in those yrs.
Return on Equity	7.67%	9.44%	10.51%	3.22%	2.65%	4.23%	Very low return on equity , in all the 3 years, for UEM --- mainly due to low net profit margin coupled with low sales generated on assets(ie.both profit margin & Asset utilisation are lower when compared to Mah Sing.)

Leverage Ratios
Debt Ratio	34.91%	38.33%	44.31%	48.38%	46.81%	39.73%	Debt component(Total liabilities to total assets) is decreasing in Mah Sing over the 3 yrs.(more of equity funding of assets) whereas, it is steadily increasing over the same 3 yrs. In UEM
Debt/Equity Ratio	0.54	0.62	0.8	0.94	0.88	0.66	Corroborates the above---Steady increase of equity , over the 3 yrs. In Mah Sing ---contrasted by steady increase of debt, over the same 3 yrs. In UEM----Must be the reason for low net profit margin , with higher interest costs , for UEM

b.Two ratios that will be important to banks in evaluating loan application from these companies.

Leverage Ratios

Debt Ratio

Debt/Equity Ratio

Both, together with the net profit margin --- will help to know the already-existing level of debt , to assess the firm's capacity to honor regular interest payments as well as repayment of principal.

c.Two ratios that investors will consider in deciding to invest in any of these two companies

The Profitability Ratios namely,

Gross Profit Margin--- to know the margin left to cover other Ohs

Net Profit Margin---- to know the final income that will be available to them, as also the efficiency of operations & costs under control or not.

Return on Equity----- which compares the net income to the capital employed to earn it.

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