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PROJECT PAPER

FIN 328
IOI CORPORATION BHD

WAN MUHAMMAD AFIQ BIN WAN BURHANUDDIN

2008534937

FATIN AFIQAH BINTI MUHAMAD

2008535071

FAHIMAH BINTI ABD RASHID

2008590535

NURUL HASYIMAH BINTI MOHAMED

2008721819

PREPARED FOR:
ENCIK KHAIRUL ZHARIF BIN ZAHARUDIN

DIPLOMA IN INVESTMENT ANALYSIS


FACULTY OF BUSINESS MANAGEMENT
UNIVERSITI OF TEKNOLOGI MARA
UITM ARAU, PERLIS
APRIL 2011

Page | 1

DECLARATION OF ORIGINAL WORK

DIPLOMA IN INVESTMENT ANALYSIS


FACULTY OF BUSINESS MANAGEMENT
UNIVERSITI OF TEKNOLOGI MARA
UITM ARAU, PERLIS

DECLARATION OF ORIGINAL WORK


We, WAN MUHAMMAD AFIQ BIN WAN BURHANUDDIN (I/C Number: 900611-086389), FATIN AFIQAH BT MUHAMAD (I/C Number: 900901-025402), FAHIMAH
BINTI ABD RASHID (I/C Number: 900812-12-6096), NURUL HASYIMAH BINTI
MOHAMED (I/C Number: 900704-01-6064),
Hereby, declare that:

This project paper have not been shown and accepted either locally and

overseas and do not been submitted for other degree level.


This work is made by our own and independent based on the relevant

information.
All sources that we have collected were specifically acknowledged.

Page | 2

WAN MUHAMMAD AFIQ BIN WAN BURHANUDDIN


900611-08-6389
2008534937

FATIN AFIQAH BINTI MUHAMAD

FAHIMAH BINTI ABD RASHID

900901-02-5402

900812-12-6096

2008535071

2008590535

NURUL HASYIMAH BINTI MOHAMED


900704-01-6064
2008721819

LETTER OF SUBMISSION

Page | 3

Of 2011

The Head of Program


Diploma in Investment Analysis
Faculty of Business Management
Universiti Teknologi MARA
02600 Arau, Perlis

Dear Sir,

Submission of Project Paper


Attached is the project paper with a title of Company Analysis in order to
accomplish the requirement by the Faculty of Business Management for courses
Diploma in Investment Analysis of Universiti Teknologi MARA.
Thank You.

Page | 4

WAN MUHAMMAD AFIQ BIN WAN BURHANUDDIN


900611-08-6389
2008534937

FATIN AFIQAH BINTI MUHAMAD

FAHIMAH BINTI ABD RASHID

900901-02-5402

900812-12-6096

2008535071

2008590535

NURUL HASYIMAH BINTI MOHAMED


900704-01-6064
2008721819

LETTER OF TRANSMITTAL

Of 2011

Page | 5

The Head of Program


Diploma in Investment Analysis
Faculty of Business Management
Universiti Teknologi MARA
02600 Arau, Perlis

Dear Sir,

Submission of Project Paper


Attached is the project paper with a title of Company Analysis in order to
accomplish the requirement by the Faculty of Business Management for courses
Diploma in Investment Analysis of Universiti Teknologi MARA.
Thank You.

Page | 6

WAN MUHAMMAD AFIQ BIN WAN BURHANUDDIN


900611-08-6389
2008534937

FATIN AFIQAH BINTI MUHAMAD

FAHIMAH BINTI ABD RASHID

900901-02-5402

900812-12-6096

2008535071

2008590535

NURUL HASYIMAH BINTI MOHAMED


900704-01-6064
2008721819

PREFACE
The purpose of this project is to fulfil the requirement needed in order to
accomplish our syllabus in Diploma in Investment Analysis (DIIA). This project paper
will be beneficial for our prospective future in related fields.

Page | 7

In the process of doing this project paper, we are not only get useful
information and experienced the truth meaning of group co-operation. Furthermore,
by doing the presentation it will create self-confidence and interpersonal skills in
dealing with public when start working later.
With the combination of fundamental and technical analysis, as well as the
evaluation of the historical data of the stock price, we believe it could give some
guidance to reader kindly evaluate our recommendation. The main objective on
doing this is to provide in depth in comprehensive studies on company analysis.
In our research concerning the above studies, we have employed
various modes. Most of the data regarding the company are compiled from annual
report, government publications and other references.
Finally, we hope that this project has fulfilled the entire requirement
needed to obtain Diploma in Investment Analysis offered by Universities Technology
Mara.

ACKNOWLEDGEMENTS
All my praises and gratitude to Allah, the Merciful, for His kindness and for
meeting we with many wonderful people who, with His Grace, have had helped us
tremendously in the successful completion of this research.

Page | 8

With a lot of love, we would like to thanks our lecturer, Sir Khairul

Zharif Zaharudin which acts as well as our guidance by giving us advices and
guidelines in order to ensure this project work properly. Our group also would like to
thanks to the rest who has contributed and involved in our project either directly or
indirectly. We appreciate all your commitment and cooperation.
This project paper was form to analyze the ability of company in issuing
shares and how capable we as managers to manage portfolio to be selected by our
client, investor. Even though there were many obstacles and challenges, we still
managed to cope with it.
Last but not least, we would like to apologize if there has any weakness in
our project. We hope it will be useful and such an effort for those who are interested
to make it as a guidance for the future.

May Allah bless us.


Amiin

Page | 9

TABLE OF CONTENT

Declaration of original work

ii-iii

Letter of submission

iv-v

Letter of transmittal

vi-vii

Preface

vii

Acknowledgement

ix

CHAPTER ONE: INTRODUCTION


1.0

Overview

CHAPTER TWO: ECONOMIC ANALYSIS


2.1

Overview

2.2

The World Economy

2.2.1

Developed Country

2-6

2.2.2

Developing Country

6-11

2.2.3

Third World Country

11-14

2.3

2.4

2.5

Asian Country

15

2.3.1

Singapore

16-17

2.3.2

Indonesia

18-19

Malaysia

19

2.4.1 Analysis and Comment

20-21

2.4.2 Monetary Policy in Malaysia

21-24

Diplomatic Relation

25

2.5.1 Japan

25

2.5.2 South Korea

25

2.5.3 India

26

2.5.4 Morocco

26

2.5.5 Yemen

26-27

2.5.6 Zambia

27

2.5.7 Indonesia

27-28

2.5.8 Singapore

28

Page | 10

CHAPTER THREE: INDUSTRY ANALYSIS


3.1

Overview

3.2

Nature of Industry

3.3

Market Player

29
29-38
38

CHAPTER FOUR: COMPANY ANALYSIS


4.1

Introduction

39

4.2

IOI Company

39

4.2.1 Company Background


4.2.2 History

40

4.2.3 Vision and Mission

41

4.2.4 Main Economics Activities

4.3

39-40

41-42

4.2.5 Economic Outlook

43

4.2.6 List of Board of Director

43

4.2.7 Thirty Largest Shareholders

44-45

4.2.8 SWOT Analysis

46-47

KL Kepong Bhd
4.3.1 Company Background

47

4.3.2 History

48

4.3.3 Vision and Mission

48

4.3.4 Main economic activities

49-50

4.3.5 Economic Outlook

50

4.3.6 List of Board of Director

51

4.3.7 Thirty Largest Shareholders

51-52

4.3.8 SWOT Analysis

53-54

CHAPTER FIVE: FUNDAMENTAL ANALYSIS


5.1

Overview

55

5.2

Financial Ratio Analysis

55-75

5.3

Market Ratio

76-77

5.4

CAPM Analysis

78-80

Page | 11

CHAPTER SIX: TECHNICAL ANALYSIS


6.1

Introduction

81

6.2

Simple Moving Average

81-83

6.3

Moving Average Convergence and Divergence

84-86

6.4

Stochastic

86-88

6.5

Line

89-90

6.6

Candlestick Chart

91-92

6.7

Price Moving, Averages and Volatilities

93-95

CHAPTER SEVEN: CONCLUSION


7.1

Conclusion

96

7.2

Recommendation

97

CHAPTER EIGHT: APPENDIX

98-107

CHAPTER NINE: REFERENCE

108-111

Page | 12

EXECUTIVE SUMMARY

The purpose of doing this project paper is basically to analyse the


performance and potential growth of IOI Corporation as one of the leading company
in the plantation sector. The research is then used to measure the performance of
the company in meeting the potential investors expectation towards the company.
Researcher used five types of analysis which are economic analysis, industry
analysis, company analysis, fundamental analysis and lastly technical analysis. The
data is gain by using two major sources which are database; UiTM Arau data stream
and Yahoo Finance. Then Microsoft Excel 2007 is used to interpret the data.

Page | 13

CHAPTER 1
INTRODUCTON
1.1

Overview

Before making any investment, investor usually make the analysis of the share they
considering. The objective of doing this is to know whether the shares can give any
benefits to the investors. Investors will make decisions whether to buy or sell the
shares based on the analysis they have make.
Investors usually make a few analyses that related to the shares. This is to identify
the steps on making any decisions regarding the shares. So our group have done
this analysis to help potential investors in making their investment decision.
In this analysis, our group focuses on one of the best companies in Malaysia and
one of the leading companies in plantation industry. The company name is IOI
Corporation. Our group analyzed this company based on a few analysis and they
are:
1.1.1 Economic analysis
1.1.2 Industry analysis
1.1.3 Company analysis
1.1.4 Financial analysis
1.1.5 Technical analysis
Based on all this analysis, our group will try to recommended the best suggestions
to help investors to make their decisions whether to buy, sell or hold the investment
in this company.

Page | 14

CHAPTER 2
ECONOMY ANALYSIS

2.1

Overview

Economy analysis is one of the systematic approaches to measure the optimum use
of resources. It will help investors gain insight into the underlying condition of the
economy and the potential impact it might have on the behaviour of the share
prices. It sets the tone for the entire security analysis process. It can go so far as to
include a detailed examination of each sector of the economic situation, Asian
economic situation and the domestic economy that is Malaysia. Purpose of
economy analysis is always the same that is to establish a sound foundation for the
valuation of common stock.
2.2
World Economy
2.2.1 Developed Country
Developed country is to describe the countries that have high level of developed
followed some criteria which is a contentious issue and is surrounded by fierce
debate. There must be high Gross Domestic Product per capita, must good in
industrialization. The Human Development Index also will measure whether the
country is developed country or not. However, there are anomalies exist when
determine the developed country status. There are some lists of countries that
already being announced as developed country according to their rank1. (For
complete list, please refer to Appendix 1)
2.2.1.1 Japan
Japan is located in East Asia. It is located in the Pacific Ocean. Japan has a total of
6,852 islands extending along the Pacific coast of Asia. About 73 percent of Japan
is

forested,

mountainous,

and

unsuitable

for agricultural, industrial,

or residential use. Japan also known as the good in making infrastructure. Japan's
population is estimated at around 127.3 million 2. Japan has the longest life
expectancy rate in the world.3 While the emperor retains his throne as a symbol of

1 http://www.indexmundi.com/japan/economy_profile.html
22 http://en.wikipedia.org/wiki/Japan3 http://data.worldbank.org/country/japan

Page | 15

national unity, actual power rests in networks of powerful politicians, bureaucrats,


and business executives.
Table 1: Japan Economics Performance
2008

2009

2010

Gross Domestic Product


(current prices)

5231.44

5385.27

6107.08

Gross Domestic Product


(per capita)

38,268

39,738

33,804

Gross National Income (per


capita)

5143.3

5381.15

6023.39

1.38

-1.35

-0.7

Balance of Payment

1889.5

1448.7

1550

Domestic Investment

NIL

NIL

NIL

24 551 812
047

11 834 116 165

1.154 trillion

Inflation rates

Foreign Direct Investment

Economic Cooperation

China 18.88%, US 16.42%, South Korea8.13%,


Taiwan 6.27%, Hong Kong 5.49%, Australia 6.29%,
Saudi Arabia 5.29%, UAE 4.12%,

Major Economic
Advantages

Japan is well-known with their good in science and


technology.

Gross Domestic Product of Japan shows increase in year 2008 to 2009. Japan has
done fairly well in coping with global economic meltdown, but a lot still needs to be
done in order to fully counter this growing menace 4. Japan has the highest gross
public debt in the world.
The Gross National Product shows increasing firstly at 2008 to 2009, but there are
decrease in 20105.The changes of GNP of Japan are due to the Japan economic

3
44
5

http://www.economywatch.com/economic-statistics/Japan/GDP_Constant_Prices_National_Currency/

http://www.nber.org/papers/w3737

Page | 16

performance. Increase in job opportunity help to increase the GNP 6. It is also


because of the nations important exports. The level and quality of investment also
give impact to the changes of the GNP of Japan.
Inflation always happened in Japan. From the table, Japan has decrease in inflation
rate in 2008 to 2009. The inflation changes are because of the financial crisis in
Japan. The table shows that Japan has negative inflation rate. But in 2010, the
inflation started to stable and the inflation rate is positive again.
A positive figure indicates a trade surplus while a negative value represents a trade
deficit. Because Japans economy is highly export-led, trade data can give critical
insight into developments in Japans economy and changes into foreign exchange
rates. The Balance of Payment in Japan did not too much move because Japan has
a strong total value of import and export.
Japan's outflows of foreign direct investment (FDI) have increased dramatically in
recent years, to the point where Japan has become the world's largest overseas
direct investor.7 Japan's reputed aversion to foreign capital and Western investment
practices, Japan's volume of M&A transactions grew at a compound annual growth
rate.8
Japan makes economy cooperation with other country such as China 23.2%, US
10.1%, Japan 5.8%, Hong Kong 5.3%. These are export countries. There are also
economy cooperation with imports countries China 16.8%, Japan 15.3%, US 9%,
Saudi Arabia 6.1%, Australia 4.6%.9a,9b
Japan attracts foreign investors with their ability as the country has the most
technologically-powerful economy after US and China. Foreign investors think that
Japan always has a stable economy situation and they believe that they will get a
good income if they invest in Japan. The economy advantages of Japan is Japan is
6 http://knowledge.wharton.upenn.edu/article.cfm?articleid=2212
7

http://www.nber.org/papers/w3737

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2212

9a http://www.indexmundi.com/japan/economy_profile.html9b http://www.indexmundi.com/facts/japan/export-valueindex

Page | 17

well-known with their good in science and technology. Japan takes out their ability to
conquer most all of the world with their product.

2.2.1.2South Korea
South Korea is also known as Republic Korea. It is located in East Asia of the Korea
Peninsular. South Korea lies in a humid continental and humid subtropical climate.
Table 2: South Korea Economics Performances
2008

2009

2010

Gross Domestic Product


(current prices)

Nil

770.54

852.82

Gross Domestic Product


(per capita)

38,268

39,738

29,835

Gross National Income


(per capita)

988.59

839.74

960.03

4.7%

2.8%

3%

43515.5

58122

53544.5

Inflation rates
Balance of Payment

Page | 18

Domestic Investment
Foreign Direct
Investment

Nil

Nil

Nil

11711804

11482972

13069289

Economic Cooperation

China 23.2%, US 10.1%, Japan 5.8%, Hong Kong


5.3%, Saudi Arabia 6.1%, Australia 4.6%.

Major Economic
Advantages

Inflexible labor market, over dependence on exports


and rapidly aging population to drive economic growth

South Korea has achieved an incredible record of growth and integration into the
high-tech modern world economy. Korea has advanced in developed economy to
attain GDP per capita. South Korea is the first major of ODA. South Korea separate
the annual economy aid to North Korea has been more than twice.10
The Gross National Product of South Korea does not much move. South Korea
made a free trade agreement with United State. This way will attract other country to
make relation with South Korea in imports and exports.
The changes in inflation rate from 2008 to 2010 is because of South Korea adapted
an export-oriented economic strategy to fuel its economy. South Korea was
the seventh largest exporter and tenth largest importer in the world11. The South
Korean economy's high growth potential and apparent structural stability, South
Korea suffers perpetual damage to its credit rating in the stock market due to the
belligerence of North Korea.12
Because of financial crisis, South Korea has problem in Balance of Payment in
2008. In 2009, the Balance of Payment of South Korea becomes stable again. The
financial crisis is because of the credit rating in the stock market.
South Korea also makes economic cooperation with the other countries. For
example, South Korea makes import with China 23.2%, US 10.1%, Japan 5.8%,

10 http://en.wikipedia.org/wiki/Economy_of_South_Korea
11 http://en.wikipedia.org/wiki/Economy_of_South_Korea
12 http://en.wikipedia.org/wiki/Economy_of_South_Korea
Page | 19

Hong Kong 5.3% and also makes exports with China 16.8%, Japan 15.3%, US 9%,
Saudi Arabia 6.1%, Australia 4.6%.13
South Korea have inflexible labour market, overdependence on manufacturing
exports and rapidly aging population to drive economic growth. This is the speciality
of the South Korea and this will make foreign country to come into the South Korea.
2.2.2Developing Country
The development of a country is measured with statistical indexes such as Gross
Domestic Product, Gross National Product, life expectancy, the rate of literacy and
others. Developing countries is a term generally used to describe a nation with a low
level of material well being. Since there is no single definition of the term developing
countries is recognized internationally, the levels of development may vary widely
and some developing countries have higher average standards of living 14. The
differences between developing countries and developed countries are that
developed countries are more economically developed.
The aspects that will be discussed are the nations Gross Domestic Product
and Gross National Product, the nations inflation rates, the nations trade, the
nations domestic and foreign investment, the nations economic cooperation and
the nations major economic advantages.
We have chosen to study India and Morocco economic performances as they are in
the categories of developing countries. (Refer to appendix 2)

2.2.2.1 India
India had experienced a rapid economic growth following strong economic reforms
from the post-independence socialist economy towards a market-based economy.
13 http://www.indexmundi.com/south_korea/gdp_real_growth_rate.html
14 http://en.wikipedia.org/wiki/Developing_country
Page | 20

By 2008, India had established itself as the world's second-fastest growing major
economy.15
Table 3: India Economic Performance
2008

2009

2010

Gross Domestic Product


(current prices)

1,258.96 billion

1,268.88 billion

1,597.5 billion

Gross Domestic Product


(per capita)

1,065.06

1,058.23

1,264.84

1,080

1,220

Nil

9.701%

14.966%

8.608%

Balance of Payment

(131.87 billion)

(31.221 billion)

(105.386 billion)

Domestic Investment

Nil

Nil

Nil

33,033 million

27,098 million

21,007 million

Gross National Income


(per capita)
Inflation rates

Foreign Direct Investment

Economic Cooperation

China 10.94%, US 7.16%, Saudi Arabia 5.36%, UAE


5.18%, Australia 5.02%, Germany 4.86%, Singapore
4.02%

Major Economic
Advantages

India gross domestic product is the fifth largest after


USA, China, Japan and Germany

Gross domestic production of India (current prices) is experiencing a rising trend. It


is due to the increasing of economic activities in India itself. The economic activity of
India is rising because of the economic advantages that attract foreign corporations
to make investment in India. The economic advantages of India will be discussed
later on. The gross domestic product (per capita) of India is decreasing may be due
to the financial crisis of 2007 2010 but on the year of 2010, the gross domestic
product (per capita) for India has increased. This may due to the government
actions to overcome the financial crisis.
The gross national income (per capita) for India is on increasing trend from year
2008 to 2009. This is due to the increasing of job opportunities and education
opportunities for Indians as there are many major corporations are willing to invest
15 Paromita Shastri (2008-05-31). "Economy cools as inflation fears rise".
Page | 21

in India as they can gain benefits from the economic advantages of India. This will
provide the Indians with more job opportunities thus increased their life standard
and income.
The inflation rate in India is increasing from the year 2008 and 2009 and decreased
in the year 2010.The rising of inflation rate may be a concerned to India government
as the rates is increasing from 9.701% to 14.966% as the rate is much higher than
5% but in the year 2010, the inflation rate of India is decreasing to 8.608%, the
lowest inflation rates compared between the year 2008 until 2010.
From the table above, the balance of payment is increasing from year 2008 to 2009
but decreased drastically in the year of 2010. In the year 2009, the India economy
has shown a drastic growth rate in their trade and business sector. This is because
there are many investments made by foreign companies and resulting in decline of
their imports thus increases the figures of their balance of payment. Furthermore,
their reliance in on external assistance also has decreased since the liberalization of
the economy. However, due to the global economic decline, their imports and
exports had decreased and the balance of payment of India is rising drastically from
(31.221 billion) in 2009 to (105.386 billion) in 2010. In the recent financial period
however, India exports and imports has showed positive growth due to the global
economic recovery.
The foreign direct investment of India had showed a declining trend. This is because
the strictness of the government in their foreign direct investment policies. However,
due to the economic advantages of the country and the economic reforms, it had
attracted major foreign companies and many countries to form an economic
cooperation with and India has established their country as one of the most rapidly
growing country in Asia Pacific region. India is also a member of World Trade
Organization (WTO), South Asian Free Trade Area and The Group of Twenty
Finance Ministers and Central Bank Governors (G-20).
The economic advantages of India are16; i) Geographically strategically located; ii)
Largest democracy with stable political system; iii) Private sector is the backbone of
the economy; iv) India gross domestic product is the fifth largest after USA, China,
Japan and Germany; v) Rapidly growing consumer market with 250 million strong
middle-class income.

16

http://www.aph.gov.au/house/committee/jfadt/india/indiach3.pdf

Page | 22

2.2.2.2 Morocco
Moroccos economy is considered as a relatively liberal economy which is governed
by the law of supply and demand.17 Since 1993, the country has followed a policy
of privatization of certain economic sectors which used to be in the hands of
the government.18 Morocco has become a major player in the African economic
affairs,19 since then and The World Economic Forum placed Morocco as the 2nd
most competitive economy in North Africa behind Tunisia, in its African
Competitiveness Report 2009.20
Table 4: Morocco economic performance
2008

2009

2010

Gross Domestic Product


(current prices)

88.897 billion

91.374 billion

103.482 billion

Gross Domestic Product


(per capita)

2,850.80

2,899.46

3,248.95

2,520

2,770

Nil

4.229%

(1.574%)

2.164%

Balance of Payment

3,791.4 million

5,472.3 million

3843 million

Domestic Investment

Nil

Nil

Nil

Foreign Direct Investment

2,466,288,000

1,970,324,000

3,500,000,00

Economic Cooperation

Spain 22.02%, France 20.22%, India 4.91%,


Italy 4%

Major Economic
Advantages

Low labor costs and world's largest exporter of


phosphate

Gross National Income (per


capita)
Inflation rates

# Estimation in 2010
17

http://en.wikipedia.org/wiki/Economy_of_Morocco

18

Leonard, Thomas M.. Encyclopedia of the Developing World. Taylor & Francis. pp. 1085.ISBN 0-4159-7663-4.

19

http://www.moroccobusinessnews.com/Content/Article.asp?idr=18&id=1299

20

http://www.weforum.org/en/initiatives/gcp/Africa%20Competitiveness%20Report/index.htm

Page | 23

The gross domestic product for Morocco is on an increasing trend. This is due to the
diversification of the economy that includes a multi-disciplinary approach to the
development of non-agricultural sector, including the creation of special sector
zones in industry, tourism and services outsourcing. Furthermore, the transformation
also includes higher educational system and the Morocco government had also
introduced an approach that sustained the small-business development and
prospection of external markets. All of these contributed to the stable economy
growth in Morocco. Despite economic crisis, Morocco economy is not badly affected
because the Morocco main economic activity is in agriculture sector. In 2009, King
Mohammed VI has launched two national economic strategies, that is, Plan Maroc
Vert and Plan Emergence.21 Additionally, phosphates production, which accounted
for more than a third of 2008 exports, is being restructured for greater value.22
The gross national income (per capita) for Morocco is increasing from the year 2008
to 2009. This may be due to the higher income of the country as the government is
trying to diversify its economy in order to become more competitive and integrate
further into the global economy as they are trying to reach higher growth levels in
their economy.
The level of inflation rates for Morocco can be considered as low in 2008 but in 2009
the country is experiencing a deflation. This probably caused by the reduction in the
supply of money or credit and also decreases in investment spending either by
personal or government. Deflation can caused economic depression since there is a
lower level of demand in the economy. In 2010, the inflation rate is rise again to
2.164% and the rates is positive and low.
As for Morocco balance of payment, it has emerged as an exporter of manufactured
and agricultural products, as well as a growing tourism destination. In 2008,
Morocco Foreign Trade Minister Abdellatif Mazouz said that members of the
government have agreed to a plan focused on four major areas namely, a concerted
export development strategy, the regulation of imports, market and economic
monitoring, and the adaptation of regulations and working practices in order to
maintain their surplus balance of payment account.23

21 The first seeks to create 1.5m jobs in the agriculture sector, and add around 7.65 billion to GDP through 10.8
billion of investments by 2020, while the second will establish new industrial zones and boost training to increase
efficiency

22 http://en.wikipedia.org/wiki/Economy_of_Morocco
Page | 24

The foreign direct investment of Morocco shows a decline in 2009, as the global
economy is declined due to the global financial crisis is affecting the amount of
foreign direct investment inflows in Morocco as well as other developing countries.
However, the government is expecting that the foreign direct investment inflows will
increase to US$3.5 billion as the global economy is recovering and the Moroccos
economy is expected to expand 4 percent in 2010. This will attract foreign investors
especially in energy, financial services and telecommunications sectors.
Morocco also has established a major economic cooperation with many major
countries all over the globe. In 1996, Morocco signed an Association Agreement with
the EU to forms the basis for the progressive liberalization of trade with the EU and
established a Euro-Mediterranean Free Trade Area in 201024. Besides that,
Germany together with France, Spain, Saudi Arabia, Italy and China are the
Moroccos major trading partners. Some of them are important for the countrys
tourism industry. In addition, in 2006, Morocco entered a Free Trade Agreement
(FTA) with the US, and in 2008 entered into an advanced status in its 2000
Association Agreement with the EU.
Morocco's economy benefits from the country relatively low labour costs, and its
location near to Europe, which support the key areas of their economy such as
agriculture, light manufacturing, tourism, and transfer of funds. Morocco is also the
world's largest exporter of phosphate, which has long provided a source of export
earnings and economic stability.25
2.2.3.Third World Countries
The term Third World was originally coined in times of the Cold War to distinguish
those nations that are neither aligned with the West (NATO) nor with the East, the
Communist bloc. Today the term is often used to describe the developing countries
of Africa, Asia, Latin America and Oceania. (Refer to appendix 3)
The aspect of economic indicators that will be discussed are the nations Gross
Domestic Product and Gross National Product, the nations inflation rates, the

23 http://www.magharebia.com/cocoon/awi/xhtml1/en_GB/features/awi/features/2008/09/22/feature-02
24 http://www.bmz.de/en/what_we_do/countries_regions/naher_osten_mittelmeer/marokko/index.html
25 http://www.indexmundi.com/morocco/economy_overview.html
Page | 25

nations trade, the nations domestic and foreign investment, the nations economic
cooperation and the nations major economic advantages.
We have chosen to study about Zambia and Yemen economic performances as they
are in the categories of third world countries.

2.2.3.1 Zambia
Zambia is one of Sub-Saharan Africa's most highly urbanized countries. About onehalf of the country is concentrated in a few urban zones strung along the major
transportation corridors, while rural areas are under-populated.
Table 5: Zambia Economic Performance
2008

2009

2010

Gross Domestic Product


(current prices)

$14.38 billion

$12.81 billion

$16.192 billion

Gross Domestic Product


(per capita)

$1,140 billion

$990 billion

$1,500 billion

Gross National Income


(per capita)

$11.93 billion

$12.47 billion

Nil

12.4 %

13.4 %

8.5%

Balance of Payment

($1,038,740,000
)

($405,598,000)

0.615 billion

Domestic Investment

Nil

Nil

Nil

$938,620,000

$699,150,000

Nil

Inflation rates

Foreign Investment

Page | 26

Economic Cooperation

South
Africa(24.2%),Switzerland(13.7%),China(12.4%),
Tanzania(6.9%), Democratic Republic of the
Congo(6.6%), Zimbabwe(5.5%),Thailand(4.7%)

Major Economic
Advantages

Zambia has the potential for significantly increasing


its agricultural output; currently, less than 20% of its
arable land is cultivated.
Sources: worldbank.org

Gross domestic production of Zambia (current Prices, US Dollar) is experiencing an


unstable trend. The governments programme of rigorous structural adjustment has
led to many job losses in recent years, although it initially failed to deliver the
promised economic growth. In fact, only in the last few years have rates of economic
growth raised. Growth rates of six per cent have been forecast for both 2010 and
2011. This is still largely due to the investment boom in the mines on Zambias
Copper Belt, the largest copper mining and smelting area in Africa. Numerous largescale international projects will help underpin the positive growth trends.26
This makes Zambia No. 29 in world rankings according to Inflation in year 2010. The
world's average Inflation value is 8.5 %; in the previous year, 2009, Inflation for
Zambia was 13.4 % for Zambia in 2010 27.A further aim is to tackle the widespread
corruption. In the 2009 Corruption Perceptions Index (CPI Index), Zambia improved
its ranking again and is now placed 99th (2007: 115th) out of 180 countries.
Look at the Zambia inflation rate, data use from each year being forecasted by
forecaster rather than end-of-period. Inflation rate stated on 2008 (12.4%) is lower
than 2009 (13.4%) and 2010 (8.5%) was decline cause of government consideration
action of inflation rate.
Next, at economic cooperation the South Africa is a country undergoing major import
and export co-operation with Zambia. This is because the main commodity imported
from the other countries such as machinery, transportation equipment, electricity,
petroleum product, fertilizer, foodstuffs and clothing. South Africa to Zambia 24.2%
and then followed by Switzerland (13.7%) and China (12.4%) . The other countries
are Tanzania (6.9%) and Democratic Republic of the Congo (6.6%), Japan (4.6%),
26 Federal Ministry for Economic
27 Economic watch, http://www.economywatch.com/economic-statistics/Zambia
Page | 27

Zimbabwe (5.5%) and Thailand (4.7%). In, fact because of politically of Zambia is
not too stable.28
2.2.3.2Yemen
At unification, both the Yemen Arab Republic and the Peoples Democratic Republic
of Yemen were struggling underdeveloped economies. In the north, disruptions of
civil war and frequent periods of drought had dealt severe blows to a previously
prosperous agricultural sector
Table 6: Yemen Economic Performance
2008

2009

2010

Gross Domestic Product


(current prices)

$26.92 billion

$26.37 billion

$31.27 billion

Gross Domestic Product


(per capita)

$1,175 billion

$1,118 billion

$2,700 billion

Gross National Income(per


capita)

21.97 billion

$25.03 billion

Nil

19.0 %

3.7 %

12.14%

Inflation rates (%)


Balance of payment
Domestic Direct Investment
Foreign Direct Investment

($1.251)

($2.565billion)

($1.391 billion)

Nil

Nil

Nil

$1.55 billion

$129.1 million

Nil

Economic corporation

China (23.3%), India (20.4%), Thailand (19.1%),


Japan (7.2%), UAE (5%), US (4.2%).

Major economic
advantages

Yemen's economy is weak compared to most


countries in the Middle-East, mainly because
Yemen due to small oil reserves and depends
heavily on the oil it produces.
Sources: worldbank.org

Based on the table above, the Gross Domestic Product (GDP), the world's average
GDP (Current Prices, US Dollars) value is US$ 31.27 Billion; Yemen is less than the

28

http://www.wikipedia/zambia

Page | 28

average. In the previous year, 2009, GDP for Yemen was US$ 26.37 Billion GDP for
Yemen in 2010 was or will be 24.44% more than it was or will be in 2009.
Balances of payment (US Dollars) for Yemen in year 2010 is US$ -1.391Billion. This
makes Yemen No. 134 in world rankings according to balance of payment in year
2010. In the previous year, 2009 balance of payment for Yemen was US$ -2.565
Billion balance of payment for Yemen in 2010 was or will be 45.77% less than it was
or will be in 200929
Next is inflation rates, which is in 2008, the inflation rate are higher with 19.0%. In
the year 2009 the decreasing of inflation rate from 19.0% to 3.7% as the rate is
much lower than 5% may be a concerned to Yemen government ,but then 2010 are
up little bit than 2009 with 12.14%.
Looking at economic cooperation, China was Yemen main import sources, and then
followed by India 20.4%) and Thailand (19.1%). The other countries are Japan,
United Arab Emirates. In fact, there were joint activities by the two countries such as
holding the Malaysian-Yemeni festival in the Yemeni capital Sanaa in March 2010
and holding the symposium on exploring investment opportunities in Yemen30.
Yemen major economic advantages are mainly depends on their small oil reserves
and depends heavily on the oil it produces. Oil constitutes a large part of the state
budget and the decline in oil prices will affect Yemen, but oil is not the only source of
income for Yemen. Recently, this country had discovered gas which will be export,
and can generate income for Yemen. Yemen had been consulting experts on the oil
reserve to calculate the level of benefit in addition to the promising gas projects so
that they can increase to the expenditure on development projects.31

29 Balance of payment- Economicmywatch.com


30 http://www.almotamar.net/en/8221.htm
31 http://www.almotamar.net/en/5606.htm
Page | 29

2.3ASEAN
ASEAN is the short form name for Association of Southeast Asian Nations where it
was established on 8th August 1967 in Bangkok in the purpose to create strong cooperation together among ASEAN countries and other countries. For each time in
November, the important meeting will be held in discussing current news. ASEAN
was preceded by an organisation called the Association of Southeast Asia that is
usually called ASA, an alliance including Philippines, Malaysia and Thailand that
was formed in 196132.
Also listed are participants of the ASEAN Regional Forum (ARF), an organization
throughout the Asia-Pacific region whose objectives are to foster dialogue and
consultation, and to promote confidence-building and enhance preventive diplomacy
in the region. The ASEAN is an organization on the Southeast Asian region that
aims to push up economic growth rapidly, development in social and cultural
development among its members and to bring peace among region. (Refer to
appendix 4)

32 http://en.wikipedia.org/wiki/ASEAN
Page | 30

2.3.1Singapore
Singapore also known as Republic of Singapore is a Southeast Asian city-state off
the southern tip of the Malay Peninsula with the population of 5,076,700 in 2010 (as
in estimation). Besides, Singapores port is categorized as one of the five busiest
ports in the world33
Table 7: Singapore Economic Performance
2008

2009

2010

Gross Domestic Product


(current prices)

184554.7million

171703.8million

203884million

Gross Domestic Product


(per capita)

55,800

54,800

62,100

193.3 million

182.2 million

424.3 million

6.6 %

0.6 %

2.8 %

Balance of Payment

(131.87 billion)

(31.221 billion)

(105.386
billion)

Domestic Investment

Nil

Nil

Nil

$10.9 billion

$16.9 million

Nil

Gross National Income (per


capita)
Inflation rates

Foreign Direct Investment


Economic Cooperation

Hong Kong 11.6%, Malaysia 11.5%, United States


11.2%, Indonesia 9.7%, China 9.7%

Major Economic
Advantages

Strong and stable manufacturer sector, high skilled


workers and has a strategic port

33 http://en.wikipedia.org/wiki/Singapore
Page | 31

Based on the table 2 above, we can conclude that year 2008 to 2010 states the
increasing in GDP(current prices) which is due to the unpredictable negative
changes that occur in external environment (also can cause adverse impact to
economy growth of Singapore). So that, global economics issues can effect forecast
of Singapore future economics. GNI in 2008 to the latest year 2010 showing that
Singapore level of labour decreasing, different from the other country. Probably it is
causing by migration of population to the other country. However, the global financial
crisis that occurred in 2008 to 2009 has causing a sharp impact on Singapores;
luckily it was recovered quickly with strong performance in later period.
Balance of payment showing negative value since 2008 to 2010. In 2008 the value
are -131.87, then move to -31.221 in 2009,the up to -105.386 in 2010 which is
showing that export is more than import. It might be Singapore is facing with
problem to obtain their profits.
The next is inflation rates, which is in 2008, the number are still in normal with 6.6%.
Unfortunately, in 2009, it was declined to 0.6 %, then 2010 are up little bit than 2009
with

2.8%434.

Even

though

Singapore

generally

enjoys

fairly

low

level

of inflation rates, due to the higher cost in transport, housing and food have caused
inflation rates to increase significantly from the year 2007 to 201035.
Looking at economic cooperation, Malaysia was Singapore main import sources,
and then followed by Hong Kong (11.6%) and United States (11.2%). The other
country are Indonesia and China (9.7%) and Japan (4.6%).In fact, United States
and Singapore has signed a bilateral free trade agreement on May 6, 2003 and the
agreement entered into force on January 1, 200436.
With the strong and stable manufacturer sector, high skilled workers and has a
strategic port Singapore can be the best port for other countries, with the high skilled
of workers, this enable Singapore to generate more Gross National Income(GNI) in
future.

34

http://www.mas.gov.sg/resource/eco_research/eco_dev_ana/Recent_Economic_Developments.pdf

35 http://www.state.gov/r/pa/ei/bgn/2798.htm#foreign
36 The growth of U.S. investment in Singapore and the large number of Americans living there enhance
opportunities for contact between Singapore and the United States. Many Singaporeans visit and study in the
United States. Singapore is a Visa Waiver Program country.

Page | 32

2.3.2Indonesia
Indonesia also known as the Republic of Indonesia, this country is a founding
member of ASEAN and a member of the G-20 major economies. In 2010, the
population reached to 237, 556, 36, as this indicate that Indonesia are the world's
largest number population of Muslims37.
Table 8: Indonesia Economic Performance
2008

2009

2010

Gross Domestic Product


(current prices)

536.73 billion

549 billion

708.54 billion

Gross Domestic Product


(per capita)

2245

2349

4200

Gross National Income


(per capita)

517.66

529.77

Inflation rates

9.49%

4.9%

5.12%

1956.43

5776.58

(20480.75)

Balance of Payment

688.56

37 http://en.wikipedia.org/wiki/Indonesia
Page | 33

Domestic Investment
Foreign Direct Investment

Nil

Nil

Nil

9.3 million

4.8 million

Nil

Economic Cooperation

Japan 20.7%, US 10.2%, Singapore 9.2%, China


8.5%,SouthKorea 6.6%, Malaysia 4.5

Major Economic
Advantages

Rapid economic growth, low labor cost and


increasing skilled workforce

Gross Domestic Product (GDP) in 2008 a little bit down with 536.73 billion, however
in 2009 and 2010, the amount increase slowly to 549 billion and 708.54 billion plus
the manufacturing sector contributes almost 27.9% to the Indonesian GDP. On the
other side, 38.5% are contributed by tertiary sector which is the faster spreading of
technology IT services given impact to some extent economic movements downturn
around 2000s38. In reflecting from GDP, Gross National Income (GNI) also increases
from year to year. This excellent economic movement bring Indonesia as one of the
developing country in ASEAN.
Look at the Indonesia inflation rate, data use from each year being forecasted by
forecaster rather than end-of-period, according to an index of 2000=100 for average
consumer prices39. Inflation rate stated on 2008 (9.49%) is much higher than 2009
(4.9%) and 2010 (5.12%), besides it also related to global financial crisis that
occurred during that period.
Japan is a country undergoing major import and export co-operation with Indonesia
with 9.3million in 2008 and the next year. This is because the main commodity
imported from Indonesia to Japan is oil, liquid natural gas, coal, fare revenue,
textiles, machinery electrical equipment and others. However, direct investment from
Japan to Indonesia decrease due to economic stagnation faced by Indonesia
(causing by Asia economic crisis in 1997), but still Japan is the main investor to
Indonesia40.

38 http://www.economywatch.com/world_economy/indonesia/structure-of-economy.html
39 http://www.economywatch.com/world_economy/indonesia/economic-forecast.html
40 http://www.id.emb-japan.go.jp/birelEco_id.html
Page | 34

In the viewing major economic advantages, there are a few factor effect Indonesian
growths such as rapid economic growth, low labour cost and increasing skilled
workforce. Side income of this country also including producing rice, tea, coffee,
cocoa, spices, rubber, copra, peanuts, eggs and palm oil.

2.4Malaysia
Malaysias economy record has been one of Asians best. From a country
dependent on agriculture and primary commodities in sixties, Malaysia has today
become an export driven economy spurred on high technology, knowledge based
and capital intensive industries. Malaysias tried to reduce their import but increase
amount of export by continuing efforts to boost domestic demand and to wean the
economy off of its dependence on exports. As an oil and gas exporter, Malaysia has
profited from higher world energy prices, although the rising cost of domestic
gasoline and diesel fuel, combined with strained government finances, has forced
Kuala Lumpur to reduce government subsidies.

Malaysia struggled economically

during the 1997-1998 Asian financial crisis and applied several valuable lessons to
its economic management strategies that contributed to the economys resilience to
the 2008-2009 global financial crisis. The Economy of Malaysia is a growing and
relatively open state-oriented and newly industrialised market economy.

Table 9: Malaysia Economics Performances


Items / Years

2008

2009

2010

Gross Domestic Product

$227 229 million

$193 438 million

$236 592 million

Gross National Product

$220.2 million

$189.3 million

$228.4 million

5.43%

0.65%

1.62%

$159 965 million

$123316.5millio
n

$163667.1millio
n

Inflation Rate
Imports

Page | 35

$204012.3millio
n

$159976.9millio
n

$196 878 million

$3 956 million

$9 039 million

$21 031 million

Foreign Direct
Investment

$ 7.3 Billion

$ 1.4 Billion

1.38 Billion

Interest Rate

3.25%

2.00%

2.75%

Exports
Balance of Payment

Economic Cooperation

China (13.9%), Japan (12.5%), Singapore (11.1%),


Thailand (6%), South Korea (4.6%), Taiwan (4.2%),
German (4.2%)

Major Economic
Advantages

Industrial sector (48.1%), services sector (44.6%),


manufacturing (7.3%)

2.4.1

Analysis and Comment

1.

Gross Domestic Product (GDP)/ (PER CAPITA)

The GDP in year 2008 is $227 229 million and the amounts fall in year to $193 438
million but the amounts climb back to $236 592 million for year 2010. While the GDP
per capita for year 2008 is 5.21 % and the year 2009 is -2.47 % and for year 2010 is
5.82 %. The amount of GDP and GDP per capita is fall in year 2009 because of
amount of export and import decrease in year 2009.
2.

Gross National Product (GNP)

The GNP of Malaysia in year 2008 is $220.2 million and the amounts dropped to
$189.3 million for year 2009 while the amounts are rising in year 2010 to $228.4
million. The value decreased in year 2009 is because of the amount of export is also
decreased.
3.

Inflation Rate

For the year 2008 the inflation rate is high compare to year 2009 and 2010. The
amount in year 2008 is 5.43%, while in year 2009 is 0.65% and year 2010 is 1.62%.

Page | 36

4.

Import and Export

The amount of an import in year 2008 is $159 965 million and the amount is fall in
year 2009 is $123 316.5 million and in year 2010 is $163 667.1 million. While the
amounts of an export for year 2008 is $204 012.3 million, the amounts dropped to
$159 976.9 million in year 2009 and the increased to $196 878 million in year 2010.
In compared of an import and an export the amounts of an export is higher than an
import because the government want to reduce the amounts of an import and tried
to boost in an export. Other than that the higher value of export is ensure the
positive value in balance of payment.
5.

Balance of payment (BOP)

The amounts of balance of payment (BOP) in year 2008 is $3 956 million while in
year 2009 is $9 039 million and in year 2010 is $21 031 million. The amounts of bop
is increased year over year and this is good for the country because the current
account is more than capital and this also course of increased in value in export
and decreased in value of import.

2.4.2

Monetary Policy in Malaysia

Monetary policy is the actions of central bank or other regulatory committee that
determine the size and rate of growth of the money supply.41 It is maintained trough
certain actions taken by the central bank such as increasing the interest rate or the
amount of money in the bank reserves. Monetary policy can be either of
expansionary42 or contractionary43. Monetary policies in Malaysia is governed and
controlled by the Central Bank of Malaysia (BNM). BNM is responsible for the
development and the stability of financial system in Malaysia. In Malaysia, there are
several policy set out by the BNM such as overnight policy rate. Overnight policy
rate is an overnight interest rate set by BNM for monetary policy direction 44. The
41 http://www.investopedia.com/terms/m/monetarypolicy.asp
42 an expansionary policy increases the total supply of money in the economy more rapidly than usual
43 contractionary policy expands the money supply more slowly than usual or even shrinks it
44 Overnight Policy Rate is the interest rate at which a depository institution lends immediately available funds
(balances within the central bank) to another depository institution overnight

Page | 37

changes in OPR will affect base lending rate (BLR), short-term interest rates, fixed
deposit rate, foreign exchange rates, long-term interest rates, the amount of money
and credit, and, ultimately, a range of economic variables. Thus it shows that the
changes in OPR set up by the BNM will have effect in others interest rates in
Malaysia and OPR can be said as an underlying instrument for BNM to control the
money supply and interest rates in our country. Besides OPR, BNM also used open
market operations and national reserves as the underlying instrument in order to
determine the money supply and to stabilize the monetary condition in our economic
framework.
Table 10: Malaysia overnight policy rate
Year

Overnight Policy
Rate (%)

2006

3.5

2007

3.5

2008

3.25

2009

2010

2.75

In the year of 2006, the overnight policy rate in Malaysia is 3.5% due to the
increasing trend in inflation rates. Due to the increasing demands of commodities
that result in the significant upward pressures on the prices of resources worldwide,
it has pushed the inflation levels high to 3.61% the highest level since the Asian
Financial Crisis. In order to maintaining price stability and achieving the maximum
sustainable level of economic growth, the Bank took the actions to normalize the
interest rate in order to allow monetary policy to be better place to respond to risk of
higher inflation. In 2007, the overnight policy rate of Malaysia still unchanged due to
the challenges of inflationary pressures and the rising risk from unstable global
financial markets.
During 2008, the overnight policy rate of Malaysia is declining to 3.25% from the
previous years. This is because in the year of 2008, the policy is focused turned to
restraining the insignificance of the domestic economic slowdown. The reducing in
overnight policy rate is taken to stimulate the monetary supply to ensure that the

Page | 38

monetary conditions remain accommodative and supportive of consumption and


investments activity in order to expand the economic activities.
In 2009, the overnight policy rate of Malaysia is reduced until 2%. This is to support
the economy from further declined due to rapidly weakening in global economy. With
the decelerating inflation rate, the Bank has reduced the interest rate to ensure that
it will lead to an increase in borrowings which then resulting in higher domestic
consumption.
In 2010, the rate rose to 2.75% due to rapid economic growth driven by a strong
expansion in private consumption and a rebound in private investment. The
increasing in overnight policy rate is to overcome the financial imbalances and
ensuring that the rising interest rates would not interrupting the sustainability of
private sector demand in driving economic growth.
Table 11: Malaysia gross international reserves
Year

Gross International
Reserves (US$ Billions)

2006

8245732

2007

10134482

2008

9153600

2009

9667775

2010

10649829

In order to maintain and achieving financial stability, the Bank had the power to
control Malaysia international reserves. Increasing in international reserves show
that the intent to reduce the money supply in the country and otherwise. It is to
control the availability of Ringgit in the economy as well as maintaining the value of
Ringgit compared to US Dollar. In 2007, Malaysias gross international reserve is
decreasing from the previous year. It is due to the rising of the inflation rates and
reduced the risk of declining in Ringgit due to the high risk from the global financial
market condition.
In 2008, the Bank had reduced the international reserves in order to increase the
amount of Ringgit in the economy due to the domestic economic slowdown. The
Page | 39

increasing amount of Ringgit in the economy will stimulate the domestic


consumption and encourage people to invest and spending money in order to
achieve sustains economic growth.
During year 2009 and 2010 period, the amount in international reserves is on a
rising trend due to the rapid economic growth and the recovery of the global
economic condition. The objective of the policy during these years is to further
enhance the economic stability and experiencing higher rate of economic growth
from the private investment. The Bank had taken actions to prevent from having
excessive money supply in the market that will result in depreciation of Ringgit
value. Furthermore, it also helped increase the efficiency of domestic liquidity
management.
Open market operations is the buying and selling of government securities on the
open market by a central bank45. In 2006, the Bank has introduced the Bank Negara
Monetary Notes which able the Bank to issue new instrument to manage the excess
liquidity in both conventional and Islamic financial market. During the year, the policy
concentrated on managing the excess liquidity due to large inflows from
international trade and inward portfolio management.
During 2007, a floating rate version of the Bank Negara Monetary Notes was
introduced to expand the mechanism of debt instrument used for managing liquidity
in the financial market. The increasing volatility in global financial markets also has
increased the operational flexibility through a diverse and effective set of monetary
instruments in order for the Bank to continue to manage liquidity effectively.
In 2008, the lending of benchmark Malaysian Government Securities through repo
transactions is on a high demand. This is due to the high demand for short term
investment as well as compliance to prudential regulations set up by the Bank.
Several development initiatives have been implemented during the year. The Bank
has introduced a competitive variable rate multiple price auction process for
commodity murahabah transactions and as well as made available its liquidity
facility to insurance companies and takaful operators regulated and supervised by
the Bank.
In 2009, the Bank had undertaken some measures to improve their operational
efficiency in the financial markets. On 2 July 2009, the Bank introduced a Bank
45 The usual aim of open market operations is to control the short term interest rate and the supply of base
money in an economy, and thus indirectly the total money supply

Page | 40

Negara Monetary Notes based on the murabahah concept. It is a certificate of


indebtedness arising from a deferred mark up sale transaction of an asset. Overall,
the conditions in the domestic money market were generally stable in 2009. It
continues to operate under a surplus liquidity environment.
During 2010, the focus of open market operations is to ensuring the normalization of
monetary policy is being transmitted to the money market. During the year, the Bank
introduces several changes to the features of monetary instrument. Range Maturity
Auction is introduced to allow flexibility in determining the maturity range for
uncollateralized borrowings. Another enhancement of monetary operations is the
automation of Commodity Murabahah Programme transactions in the Fully
Automated System for Issuing/Tendering.
2.5Diplomatic Between Malaysia and Other Country
2.5.1. Japan
Malaysia

and

Japan

economic

relationship

involved

government

officials,

representatives of trade and industry and academicians in a Joint Study Group. In


2005, both countries have agreed upon the Japan Malaysia Economic Partnership
Agreement. It consists of a Free Trade Area (FTA) component and bilateral
economic cooperation and covers trade in industrial and agricultural goods, trade in
services, investment, and rules of origin, customs procedures, standards and
conformance, intellectual property, competition policy, enhancement of business
environment, safeguard measures and dispute settlement. The cooperation areas
included are agriculture, forestry and commodities, education, human resource
development, information and communication technology (ICT), small and medium
enterprises, science and technology, tourism and environment. Besides, Japan also
has an embassy located in Kuala Lumpur, which was established in 1957 and
Malaysia also has an embassy that is located in Tokyo. Furthermore, both countries
government had visited each other on multiple occasions including notable visits
that include the King of Malaysia to Japan and the Emperor and Empress of Japan
visited Malaysia.
2.5.2

South Korea

Korea first established diplomatic relations with Malaysia in February 1960. The
Malaysian Embassy in Korea was built in May 1962 and the Korean Embassy was
built in Malaysia in April 1964. Many Korean officials have visited Malaysia over the
years including former Korean President Kim Young-sam in 1996, Prime Minister
Page | 41

Goh Kun in 1997, former Korean President Kim Dae-jung in 1998 and current
President Lee in December 2005. Malaysian officials have also visited Korea
including Prime Minister Mahathir in 1993 and 2000, Deputy Prime Minister Anwar
Ibrahim in 1996, Minister of Foreign Affairs Syed Hamid Albar in 1999, Sultan
Salahuddin Abdul Aziz Shah in 2001 and Prime Minister Abdullah Ahmad Badawi in
2004. Recently, both Prime Minister, Dato Seri Haji Mohd Najib bin Tun Haji Abdul
Razak and President Lee Myung-bak had met upon to agree the possible KoreaMalaysia Free Trade Agreement that will benefited the both countries. In 2010,
South Korea was Malaysia's 13th largest trading partner, exporting electrical
materials, medical parts, iron and steel to Malaysia while importing mineral fuels,
electrical products and mechanical appliances from Malaysia.
2.5.3

India

Malaysia and India had established trade relationships years before the
Independent. During that time spices are the main component of trading between
the two countries. As the economics of both countries has expanded since then, the
economic relationships of both countries are also strengthening over time. Both
countries have a high commission that is located in New Delhi and Kuala Lumpur.
In 2010, Malaysia and India established the Malaysia-India Comprehensive
Economic Cooperation Agreement (MICECA). It is a comprehensive agreement that
covers trade in goods, trade in services, investments and movement of natural
persons. Malaysia and India also have agreed to undertake cooperation in several
areas such as infrastructure development, human resource development, science
and technology, including health, creative industries, tourism, SMEs and finance.
2.5.4. Morocco
Malaysia and Morocco have maintained cordial bilateral relations since establishing
diplomatic relations in 1996. To date, both countries have signed several
agreements and Memorandum of Understanding. Among them included Trade
Agreement (1997), Economic, Technical, Scientific and Cultural Cooperation
Agreement (2001), Avoidance of Double Taxation Agreement (2001), Air Service
Agreement (2001) and Promotion and Protection of Investment Guarantee
Agreement (2002). Embassy of The Kingdom of Morocco is located at Jalan
Ampang and Malaysia Embassy is located in Rabat, Morocco.
2.5.5. Yemen

Page | 42

The relationships between Yemen and Malaysia had progressed over the years.
Major exports from Malaysia to Yemen were iron and steel products, palm oil, wood
products and processed food while imports from Yemen were mostly crude
petroleum, seafood and metal products. In 2007, the commercial exchange between
Malaysia and Yemen is set to grow from the current relatively limited volume as the
joint economic trade committee of both countries is making headway to unlock
business potentials available in both countries. As a result, in 2009, trade between
the two countries amounted to RM986.4 million with Malaysia's exports to Yemen
hitting RM720.9 million and imports reaching RM265.6 million. The relationships of
both countries is said to be strengthen as both countries officials have discussed
trade cooperation relations between their countries in 2010. Yemen's ambassador to
Malaysia Abdullah al-Muntasir and Malaysian Minister of International Trade and
Industry, Dato' Sri Mustapha Mohamed confirmed the importance of both countries
participations in international trade fairs and special promotions for investment and
tourism opportunities.46
2.5.6Zambia
In 2011, Malaysia and Zambia had established economic cooperation by the
involvement of Malaysias Kulim Hi-Tech Park and Japan International Cooperation
Agency in constructing a special economic zone in order to develop Zambia as a
middle income country. Through this project, the Government of Zambia has been
exposed to opportunities to secure trade and investment from Asian countries,
namely Malaysia, India, Thailand and hopefully from Japan as well and to
strengthen its capability to manage increase in trade and investment in a
sustainable manner with capacity development of Zambia Development Agency and
its related Ministries and organizations in partnership with private sector.47 As overall
goal, the project expects actual investment from Asia and creation of job
opportunities in Zambia. Zambia Finance and National Planning Minister, Dr.
Situmbeko Musokotwane also said that a Malaysian Islamic banking institution had
been given a license to operate in Zambia.48
2.5.7Indonesia
46 http://www.almotamar.net/en/8221.htm
47 http://www.impactalliance.org/ev_en.php?ID=49126_201&ID2=DO_TOPIC
48

http://biz.thestar.com.my/news/story.asp?file=/2011/6/20/business/20110620121704&secbusiness

Page | 43

The economic relationships between Indonesia and Malaysia have continued to


strengthen over the years, supporting by major cooperation between the two
countries. Malaysia and Indonesia relations between the two countries are important
as both countries are experiencing a stable economic growth and expanding
economic activities. In 2010, Malaysia prepared an economic strategy to boost trade
and investment ties with Indonesia for mutual benefits as well as to boost the
economic ties between the two countries. Besides that, both country leaders are still
trying to improve the bilateral relations between them and both countries have
agreed that the process of economic integration between Malaysia and Indonesia
can be further strengthened, not just in the area of two-way trade but also tourism,
food security, energy, the halal industry as well as finance and Islamic banking.
Malaysia and Indonesia also have agreed to establish a joint committee at the
ministerial level to plan, coordinate, monitor and review the implementation of the
cooperation on agricultural pact. Malaysia embassy is located in Jakarta and there is
three other consulate office of Malaysia located in Indonesia. Indonesia high
commission also located in Kuala Lumpur and Indonesia also has three other
consulate office located throughout Malaysia.
2.5.8. Singapore
The economic relationship between Malaysia and Singapore is reflected in the
strong economic cooperation between both countries such as in trade and
Investment, financial services and tourism. A large number of Malaysian is also
working and become resident in Singapore. As members of ASEAN, the trading
activities between both countries are high. The amount of import and export
between the both countries is increasing over the years. But in recent years, the
relationship between Malaysia and Singapore is not as strong as before as both
countries has to resolve several issues among them in order to strengthen the
relationships between the two countries that have been build before. High
Commission of Malaysia is located at Jervois Road Singapore while High
Commission of the Republic of Singapore is located at Jalan Tun Razak. This shows
that the existing relationships between the both countries.

Page | 44

CHAPTER 3
INDUSTRY ANALYSIS

3.1

Overview

Industry analysis is one of the market assessment tools that designed to provide an
idea of the complexity about business of a particular industry that we doing
research. Industry analysis involves reviewing the political, economic and market
factors that will influence the way the industry develops. Major factor that influence
the industry analysis can include the power wielded by suppliers and buyers,
likelihood of new market entrants and the conditions of competitors.
3.2

Nature of industry

Every industry has its own characteristics that can be evaluated to foresee the
condition of the industry or to be more specific to know what prospect the industry
has. IOI is categorized in plantation sector.
Industry Analysis from 2006 to 2010
Agriculture in Malaysia makes up twelve percent of the nation's GDP. Sixteen
percent of the population of Malaysia is employed through some sort of agriculture

Page | 45

in 2006.49 Large-scale plantations were established by the British. Malaysia


maintains a humidity level around ninety percent because of its location close to the
equator. The weather stays hot and humid all year round. Malaysia is very populated
with hills and large scale agriculture requires a high amount of flat land. 50Last time,
they used traditional way to produce those products to the market. Now, Malaysia
has many new technologies and this also help producers to produce high quality n
quantity in the product. Malaysia introduced oil palm and rubber in 1970. In 1980s,
Malaysia is well known as the biggest natural rubber producer51.
To make sure Malaysia remain competitive in the global market, the government has
formulated National Agricultural Policy which guides the national development of
agriculture based on vision of sustainable development within dynamic environment.
Malaysia has their objective. Government planned to maximize income through the
optimal and efficient utilization of existing resources. Government make strategies
and implementing mechanism that addresses national concerns on agricultural
development. These are also included food security, productivity, inflation, private
sector investment in agricultural, exports and imports.52
In the agriculture sector, there are many competitors from other country. This is
because, there are too many developed country that can make the unoriginal
products. There are many ways to produce these products. Malaysia is one of the
countries that maintain the original product. These also happened in biodiesel
demand. Biodiesel demand also becomes low because of unoriginal products. Palm
oil prices no longer strong and at the lower price. 53 Demand in shortage suggest
upside trends on palm oil prices. These are totally effect the economy position so,
Malaysia has planned their future direction for palm oil industries. Malaysia put
much dependent on the trade relations it shares with buyers around the world.

49

Sime Darby Annual Report 2006

50

www.wikipedia.org/malaysia

51

www.economicplantation.com

52 www.wikipedia.com/commodity
53 Sime Darby Annual report 2006
Page | 46

Malaysia relies on export to expand market. Palm oil is the major generator of
foreign exchange in Malaysia. 54
The Malaysia Investors Association (MIA) has urged the government to look into the
need to provide better roads in East Malaysia, particularly those leading to the
plantations. The population of agriculture for East Malaysia was too small. So, the
Federal Government has allocated RM 4.7 billion for the development and
maintenance for uses in agriculture sector.55
There are companies that related to agriculture sector. For example Sime Darby
BHD (Sime Darby) , Golden Hope plantations Bhd and Kumpulan Guthrie Bhd.
These companies had undertaken a merger that had created the countrys fourth
biggest company on Bursa Malaysia. 56
Prime minister, Datuk Seri Najib Tun Razak had publicly requested GLCs to divest
non-core assets and focus on their areas of strengths, and Sime Darby is the top
candidate. Prime Minister of Malaysia wants to upgrade Malaysians plantation
product so that we can import our product to another countries. To make sure our
economy and our standard same as other countries, Malaysia must also good in
plantation services so that we can export our product to another countries so that we
can increase our economy stability.57
In other ways, Malaysians plantation sector remain strong and supportive of a long
term uptrend agriculture commodities prices. The absence of a price catalyst would
see plantation stocks along with crude palm oil. (CPO) prices remain range-bound in
the immediate term.58 Research from OSK, in maintaining overweight call on the
sector, the Bull Run in the commodity has not come to an end as there has not been
any sign of buying frenzy.

54 www.wikipedia.com/commodity
55 www.wikipedia.com/commodity
56 www.wikipedia.com/commodity
57 www.wikipedia.com/platationmanagement
58 http://www.gentingplantations.com/news/2006/index.htm
Page | 47

Ministry has provided services such as collecting, analyzing and restoring


information and agricultural data through science and provide report to farmers. In
the reports, there are references and about agriculture management system. This
can help people to make knowledge more about plantation and agriculture sector.
However, according to the research, 24% of the land area in Malaysia is conquering
by agriculture alone.59
At one time, Malaysian rubber support one third of worlds export market (in rubber).
However, the production of the rubber has decreased because most of the rubber
estate is switching to a more profitable product, for example, palm oil. Malaysia also
exports other types of product such as timber, pepper, and tobacco. In 2001, rubber
production has been increased. Malaysia has earned a good reputation around the
world for its high quality and well priced of rubber products. Malaysia supply some
different rubber products such as gloves, components for automobile, belts, and
hoses to different countries such as USA, Japan, and countries in Europe. Besides
rubber and palm oil, tin and petroleum are the main mineral resources that are major
significant in the Malaysia.
By the way, in plantation sector, there is not that much easier. Weather is one of the
problems for planters to take care of the plant. For example, what had happened at
Kuching, Sarawak in 2010, they suffered from hot weather with the impact being
more severe in Philippines where approximately 300,000 tonnes of rice production
had been lost since March. This is because of the volcano did not shoot ash high
enough. This is one of the challenges for planters in plantation sectors. Malaysia
also has make collaboration with other country such as Indonesia.

There are reasons why oil palm plantations cover millions of hectares in the world.
These are because of the crops are not in the same line of productivity. These can
be proving where every single hectares of oil palm, 5,000 kilograms of crude palm
oil can be produce.60
Year 2006 Analysis
59 www.wikipedia.com/plantationmanagment
60

JourneytoForever.com

Page | 48

In 2006, Malaysia representing more than 1% (3.5 million metric tons) from total
exports of crude palm oil to another big country such as China. The factor of these
happen is because of Malaysias economy expanded to 5.9% in 2006.61 GDP in
2006 was better than 5.2% than 2005, and was mainly boasted by high demand
from other country for Malaysias palm oil and rubber. There are also demand for
other product such as electronics and electrical products. By the way, the economy
of Malaysia has increased in the second quarter to 6.2%. 62These are also because
of the effect increasing of demanded in plantation sector. For the whole 2006, the
strong performance of the rubber and palm oil production helped enabled the
agriculture sector to rise to 6.5% compared to 2,5% in year 2005. The stability of
economy in 2006 is one of the factor the performance of plantation sector are good.
Plantation group is one of the biggest groups that make export to the other country.
Plantation sector gave a lot of contribution to the Malaysia especially in 2006. They
showed a lot of increase in export product to the overseas. 63
Year 2007 Analysis
The world economic is continue to expanding for the fifth consecutive year in 2007,
although at a more moderate pace, at the middle of high crude oil prices and
uncertainties in the economy of the US. While growth is relatively lower than 2006
performance, it is nevertheless remain strong with further expansion in economic
activities, especially in the increasing rapidly emerging economies.

64

Global inflation

affected to the manageable levels although it has back edge upwards due to high
crude oil prices. Growth prospects for the Malaysia economy remain favourable in
2007, despite uncertainty in the global economic environment. With strong domestic
economic basics enable the economy to grow at 6.0% in 2007. In plantation sector,
the rubber-based industry continued to register growth of 8.0%. 65 In line higher
domestic and external demand, sales of rubber products are also increased during
the same period. Rubber gloves are largest component of the rubber-based
61

Malaysia Economic Report 2006/2007 : Economic Management Outlook

62

Malaysia Economic Report 2006/2007 : Economic Management Outlook

63

Malaysia Economic Report 2006/2007 : Economic Management Outlook

64

Malaysia Economic Report 2007/2008 : Economic Management Outlook

65

Malaysia Economic Report 2007/2008 : Economic Management Outlook

Page | 49

industry. By the way, the sales of latex also catheters also registered double digit
growth of 66.5%. Malaysia rubber gloves made from natural rubber latex are highly
demanded for their unique mix of high elasticity and tensile strength of properties as
well as excellent film-forming characteristic.

66

The production of crude palm oil in 2007 is recorded lower output of 15.7 million
tonnes. In the early part of the year, major floods destroyed newly matured trees and
disrupted harvesting activities in the southern of Malaysia. Production of crude palm
oil in Johor is the worst- hit by the floods. The production declined by 15.5% during
the first quarter of 2007. Better estate management and higher quality agriculture
inputs are partially offset the negative impact of unfavourable weather. Higher palm
oil prices are encouraging better efficiency in oil palm harvesting. 67 By the way, the
production of crude palm oil decreased 8% during the first 6 months of 2007. The
flood-affected areas in 2007 caused lower output of other product. However, oil
extraction rate for the same period improved to 20%. The total oil palm planted area
is to increase by 2.7% to 4,277,548 hectares in 2007. It is owned by the private
plantation companies and federal government. The new oil palm areas are mainly
in Sarawak and Sabah. By the way, Sabah has the largest oil palm area. Malaysia
remains the largest palm oil producers in the world. 68
The global stock of palm oil is expected to decrease in 2007. This is because of the
supply increased demand from major markets. Palm oil stock in Malaysia for the first
six months averaged drop to 17.9%. Projection of higher world demand palm based
bio fuel industry as well as tight supply is expected to push crude palm oil prices
higher. The average crude palm oil price for the first 7 months of 2007 showed
increased of 60.4% per tonne in the corresponding period of 2006. The local
delivered crude palm oil price soared to an all-time high per tonne in June 2007. 69
Rubber production for the first six months of 2007 declined 3.5%. The decline was
mainly due to the wintering season and excessive rainfall, especially in the first

66 Malaysia Economic Report 2007/2008 : Economic Management Outlook


67 Malaysia Economic Report 2007/2008 : Economic Management Outlook
68 Malaysia Economic Report 2007/2008 : Economic Management Outlook
69 Malaysia Economic Report 2007/2008 : Economic Management Outlook
Page | 50

quarter of the year.70 For the year, production of rubber is projected to expand 1.3%
with increase output in the second half of the year. Rubber planted areas continued
to decline causes the prices low.
Year 2008 Analysis
The global economy has been affected since the second half of year 2007 by high
crude oil prices at record levels coupled with the spill over effects of the sluggish US
economy due to the burgeoning banking credit crisis and the subprime loan
deterioration. The surging fuel, food and commodities prices aggravated the already
worsening global inflationary pressure.71Despite this challenging global scenario, the
Malaysian economy has performed relatively well. The National Economy registered
a stronger 6.3% Gross Domestic Product (GDP) growth rate in 2007, from 5.9%
the year before.72
The fall in commodity prices is not all bad news. Consumers benefit from lower
prices and manufacturers had lower costs. Importing countries also can get
reduced an import bills, but for developing countries like Malaysia which are
commodity exporters, the losses far outweigh the benefits, as export earnings fall
and millions of producers suffer reduced incomes.
For the past few years there has been a boom in prices of most commodities. Some
analysts even has predicted that there had been a structural shift in commodity
trends and the boom would last many years, instead of being part of the usual
boom-and-bust cycle. Other analysts saw the super-boom as partly driven by real
demand increase especially in China but also significantly driven by speculators.
This is now proving correct. There is a slowdown in demand, but more importantly a
flight from commodity markets by speculators, due to the global financial crisis and
the deepening recession.73
The year 2008 will be remembered as one of extremes, particularly by those in the
commodity industry. The earlier part of the year saw soft commodity prices being
70 Malaysia Economic Report 2007/2008 : Economic Management Outlook
71 2008, Annual Report IOI Corporation Berhad
72 2008, Annual Report IOI Corporation Berhad
73 http://www.twnside.org.sg/title2/gtrends/gtrends227.htm
Page | 51

driven to unprecedented highs by optimism, increase in adverse weather-related


occurrences and excessive speculation in the commodity market. Such high
commodity prices could not be sustained, and the decline in prices accelerated in
the last quarter of the financial year under review. The sharp fall in edible oil prices
together with that of crude petroleum has caught many industry participants off
guard. Mostly the favourable palm oil prices to be sustainable for a much longer
period, underpinned by buoyant crude petroleum prices.74
The major International Food Policy Research Institute (IFPRI) Report stated that
the causes of the 2008 global food crisis were similar to that of the 1972-74 food
crisis, in that the oil price and energy price was the major driver, as well as the
shock to cereal demand from bio fuels at those time, low interest rates, devaluation
of the dollar, declining stocks, and some adverse weather conditions. Unfortunately
the IFPRI states that such shocks are likely to recur with several shocks in the
future; compounded by a long history of neglecting agricultural investments.75
The world is now in the grip of possibly the worst financial crisis it has ever seen.
The subprime disaster and its fallout on commodity and foreign exchange markets
had significantly raised the prospects of a worldwide recession next year. As part of
the global family, the commodity market will be affected by this financial crisis-to
what extent, only time will tell.76
Year 2009 Analysis
As predicted last year, 2008 until early 2009 was an extremely challenging one for
the world as a whole.77 The weak global economy mentioned hereinabove had
caused the prices of the commodity under the commodity market stable to decline
significantly from the highs of last year. The main cause was the poor off-take due to
demand destruction. Natural rubber prices were adversely affected, primarily by the
struggling automobile industry. Crude palm oil (CPO) prices were very volatile
during the period of the financial year as can be seen from the wide trading range. 78
The straight average of the monthly MPOB price for the period of the financial year
74 2008, Annual Report Kuala Lumpur Kepong Berhad
75 http://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_price_crisis
76 2008, Annual Report Kuala Lumpur Kepong Berhad
77 2009, Annual Report Kuala Lumpur Kepong Berhad
Page | 52

was RM 2,079 per metric tone, a drop of 19% from the 2008 average as the market
took its cue from declining soy oil and fossil fuel prices. 79

The participants of

commodity market should realize that the system is quite volatile and can quickly
turn. Therefore, by open the opportunities to be sized, just as much as to the
dangers to be dodged.80
Over in Asia, we have been fortunate that the worst effects of the recession such as
high unemployment and inflation have not been as acute as in the West. 81 To
address the persistent labour shortage faced by the plantation industry, among the
plantation industry has stepped-up the monitoring of harvesters out turn to ensure
increased productivity and maximization of output. Recruitment of workers,
especially skilled tall palm harvesters, has also been intensified in response to the
increasingly critical industry-wide scarcity of experienced harvesters.82
Since the second half of 2009, it showing a sharp rise in commodity prices which
bodes well for our business. The soybean crop failure in Argentina coupled with
steady demand for crude palm oil from India and China, have provided some
stability to crude palm oil prices and given a confidence to ongoing replanting
programmed in Malaysia and aggressive new plantings in Indonesia by certain
plantation company.83
Although the global financial crisis appears to be moderating, the lingering effects of
high unemployment and low demand, as is the possibility of a downturn in
commodity prices.84 The Malaysian economy was not spared from the global
downturn and registered a decline in the first two quarters of 2009 after grinding to a
halt in the fourth quarter of 2008. Major commodities including palm oil experienced
78 2009, Annual Report Kuala Lumpur Kepong Berhad
79 2009, Annual Report Genting Berhad
80 2009, Annual Report Kuala Lumpur Kepong Berhad
81 2009, Annual Report Kuala Lumpur Kepong Berhad
82 2009, Annual Report Genting Berhad
83 2009, Annual Report Kuala Lumpur Kepong Berhad
84 2009, Annual Report Kuala Lumpur Kepong Berhad
Page | 53

sharp declines followed by substantial fluctuations in prices in line with the major
commodities bust cycle exacerbated by the wild swings in demand and supply
conditions. Activities in the domestic property market also slowed down in tandem
with the decline in overall economic growth.85
In commodity market was not spared the fallout from the financial crisis because of
the prudence demands that most company does by prepared from plantation sector
for all possible outcomes.

Year 2010 Analysis


2010 was a year of contrasting developments for the oil palm plantation sector. The
low biological crop cycle and capricious weather patterns had adverse effects on
productivity. Consequently, crude palm oil (CPO) production in Malaysia fell for a
second consecutive year in 2010, the first back-to-back annual decline in at least
three and half decades. The national average oil yield contracted for the year, hitting
the lowest level since 2002.86 Nevertheless, commodity prices and in particular that
of crude palm oil and rubber, have been resilient in the face of uninspiring global
economic indicators. The commodities market has also been helped by the growth
in demand from China, India and other Asian countries.87
For the plantation sector, the unforeseen drop in production may have been
somewhat of a dampener on one hand, but on the other hand, the palm oil markets
bullish price dynamics were a shot in the arm. Bolstered by resilient global demand
and a surge in capital inflows into the commodities space, CPO prices strengthened
markedly in 2010, predominantly during the second half of the year.

85 2009, Annual Report IOI Group Berhad


86 2008, Annual Report Genting Berhad
87 2010, Annual Report Kuala Lumpur Kepong Berhad
Page | 54

The average price of Malaysian CPO in 2010 was RM2, 701 per metric tones, an
increase of 21% from RM2, 236 in 2009, according to the Malaysian Palm Oil Board
(MPOB). The uptrend in prices, coupled with moderately higher export volumes,
lifted the countrys total earnings from exports of palm products to RM59.8 billion in
2010 from RM49.7 billion in the previous year.88
In Malaysia, the commodity market mainly outperformed the broader national trend
to register an increase in crop production for the year, on the back of an
improvement in yields in the Sabah estates.89
In the nut shell, we can see that plantation sector conquer more than 50% in the
economy in Malaysia. Plantation exported products to big countries in the world
such as China. The plantation generated 11.4 million metric tons of crude palm oil.
Since the value of palm oil increase by year to year, so we can conclude that crude
palm oil helps the economic growth in Malaysia. Almost half of Malaysia consists of
oil palm, and the country has become the worlds largest producer and exporter of
palm oil after Indonesia. Plantation also is the friendly-sector because plantation will
not use more dangerous products. For plantation, the main product used natural
resources. In the future, Malaysia should increase the productivity and the quality of
the crude palm oil and rubber because this plant really helped the economic growth
in Malaysia. With this plant, Malaysia can be the biggest country export crude palm
oil and rubber to the world.90
From the industry analysis above, investors may find that it is attractive to invest in
the plantation industry because from the 5 years of analysis that we have done,
plantation sector is a sector with a good performance. It conquers more than 50% of
Malaysian economy and major contributor in our national income. The industry also
said to be in a growing phrase. This is because in Malaysia the crude palm oil
market is a new market and has a big potential to attract more investor in the
futures.

3.3Market Player
88 2008, Annual Report Genting Berhad
89 2010, Annual Report Genting Berhad
90 Malaysia Economic Report 2009/2010 :Economic Management Outlook
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CHAPTER 4
COMPANY ANALYSIS

4.1

Introduction

Company analysis examines a companys relatives strength and weakness within


its industry or industries. Once industries analysis has identified a potential
investment area, the companies within the industry need to be evaluated. At this
level, we look into every single significant detail from competitive position to financial
position and also the management.
4.2

IOI Company

4.2.1. Background

Page | 56

IOI Corporation Berhad (MYX: 1961) or commonly referred to as IOI, was


incorporated on 31 October 1969 as Industrial Oxygen Incorporated Sdn Bhd. IOI is
one of Malaysia's biggest conglomerates that started off from industrial gas
manufacturing. It ventured into property development in 1982, followed by oil palm
plantations in 1985. As at June 2009, IOI Group employs more than 30,000
personnel of more than 23 different nationalities in 15 countries.
IOI is listed on the main board of the KLSE (now known as Bursa Malaysia).
Subsidiaries IOI Properties Berhad and IOI Oleo chemical Industries Berhad
(Industrial Products) were separately de-listed from the exchange and duly
privatized under IOI Corporation Berhad in April 200991 and March 200692,
respectively.
IOI also owns 2 resort hotels namely Marriott Putrajaya Hotel and Palm Garden
Hotel in Putrajaya. In 2005, IOI Properties was ranked second in The Edge's
Malaysia Top 10 Property Developers Award.
The group is currently headed by Tan Sri Lee Shin Cheng, the executive chairman.
Lee has two sons and four daughters, all were trained as lawyers. 93 Lee and his
family's control of IOI Corporation is held via Progressive Holdings Sdn Bhd.
Although all of Lee's children work for the company, sons Dato Lee Yeow Chor and
Lee Yeow Seng are given more prominence as seen in their representation in IOI
Corporation Berhad board of directors.
Today, IOI Group is internationally known as a leading global integrated palm oil
player with operations stretching the entire palm value chain from seedlings to
plantations to crop oil extraction to diverse value-added manufacturing across major
continents - serving global markets in more than 65 countries. Close to its homebase in Malaysia, the Group is also prominently known as one of the leading
property developer with significant investment holdings of prime real-estates. IOI

91 IOI Corp to buy out property arm. New Straits Times, 5th Feb 2009
92 IOI gets SC nod to take unit private. New Straits Times, 25th Oct 2005
93 IOI chairman's passion

for his oil palms . New Straits Times, 31st Oct 2009

Page | 57

Group employs more than 30,000 personnel of more than 23 different nationalities in
15 countries.
4.2.2.History
The idea of initiating international Olympiads in informatics for school students was
proposed to the 24th General Conference of the United Nations Educational,
Scientific and Cultural Organization (UNESCO) in Paris by the Bulgarian delegate
Professor Sendov in October 1987. This plan was included into the Fifth Main
Program of UNESCO for the biennium 1988-1989 (Section 05 215). In May 1989,
UNESCO initiated and sponsored the first International Olympiad in Informatics
(IOI).
The IOI is one of five international science Olympiads. The primary goal of the IOI is
to stimulate interest in informatics (computing science) and information technology.
Another important goal is to bring together exceptionally talented pupils from various
countries and to have them share scientific and cultural experiences.
The IOI is organized annually in and by one of the participating countries. Each
participating country typically sends a delegation of four pupils and two
accompanying adults. The pupils compete individually and try to maximize their
score by solving a set of informatics problems during two competition days. The
problems have been algorithmic programming problems to be solved on a personal
computer. Cultural and recreational events are organized on the remaining days.

4.2.3. Vision and Mission


Vision
To be a leading corporation in the field by producing high-quality products can
survive in the long term with great achievements in the volume and profitability.94
We shall strive to achieve responsible commercial success by satisfying our
customers needs, giving superior performance to our shareholders, providing
rewarding careers to our people, cultivating mutually beneficial relationship with our

94 2010 Annual Report IOI Corporation Berhad


Page | 58

business associates, caring for the society and the environment in which we operate
and contributing towards the progress of our nation. 95
Mission
Palm Oil

covers the growth of Malaysia

palm oil, world's largest

palm oil

producer, and development and biodiversity of Malaysia palm oil. It also covers
the status of Malaysia as the world's largest palm oil producer, market trends and
outlook in terms of threats from the development of Indonesia palm oil, palm
biodiesel, crude palm oil prices and windfall tax plus
matrix

the profile, comparative

and SWOT analysis of the industry leading players: Sime Darby, IOI

Corporation

Berhad

and

Kuala

Lumpur

Kepong

Berhad

96

4.2.4Main Economics Activities

Plantation
Plantation is IOI's biggest income generator. As at June 2009, about 65 per cent of
the conglomerate profits come from its oil palm plantations. The group operates
152,000 hectares of oil palm plantations in Malaysia and 83,000 hectares in
Indonesian. It has 12 palm oil mills with total milling capacity of 4.1 million tonnes
per year at its 80 estates throughout Malaysia.
With oil yield of some 6 tonnes per hectare per year at its matured estates, IOI is the
most efficient plantation company in the world. Malaysia's oil palm average yield for
the last 20 years is stagnant at 4 tonnes per hectare per year97

Property

95 2010 Annual Report

IOI Corporation Berhad

96 www.reportlinker.com

97 Raising oil palm yields. New Straits Times, 25th Jan 2008
Page | 59

IOI's property businesses can be categorized into real estate development and
property investment holding branching out to leisure and hospitality. The property
segment contributes around 18 per cent of the groups earnings.98

Manufacturing of oleo chemicals and specialty fats


IOI is the largest vegetable oil based oleo chemical manufacturer in Asia - held
under wholly owned entities IOI Oleo chemical Industries Bhd and Pan Century Oleo
chemical Sdn Bhd with a combined capacity in excess of 750,000 tonnes per
annum99
These plants produce fatty acids & esters, glycerine, soap noodles, fatty alcohols,
and metallic striates - that have various industrial applications in the production of
food, pharmaceutical, cosmetics, personal care, home care, industrial detergent/
surfactants and lubricant products. Products derived from oleo chemicals are more
readily biodegradable and hence do not pose a threat to the environment. This is
because oleo chemicals are derived from renewable resources, as compared to
petrochemicals which are obtained from exhaustible or non-renewable petroleum.
IOI's specialty fats businesses are operated under Loders Croklaan, with
manufacturing facilities in the Netherlands, North America, and in Malaysia (with
combined production capacity of more than a million tonnes per year). Loders
Croklaan's customer base includes global food giants like Unilever, Nestle, Cadbury
and Kraft. IOI's sales offices are spread out in 8 countries serving customers in 65
countries.
Specialty fats provide special function and/or unique solution in food applications
and branches out to nutrition or health supplement applications. These fats are use
in pastries, confectionery, snack foods and ready-to-eat meals.

4.2.5Outlook Based on Annual Report


Prospects for the Groups resource-based manufacturing business are expected to
remain mixed, with compressed margins in the refinery sector but stable volume and
98 IOI CORPORATION BACKGROUND
99 IOI to buy Aditya Birla's Pan Century for RM423 million. New Straits Times, 8th Dec 2006
Page | 60

margins in the oleo chemical and specialty oils and fats sectors. The plant
expansions in the Netherlands and in Johor will place the Group in a good position
to tap emerging opportunities. The enzymatic lipid modification manufacturing
process used by the Group in the specialty oils and fats business holds great
promise as it fulfills the quest for healthier edible oils and also offers unique
solutions that cannot be met with conventional lipid modification techniques.100
4.2.6List of Board of Director
Board of Director

Position

Tan Sri Dato Lee Shin Cheng

Executive Chairman

Dato Lee Yeow Chor

Executive Director

Lee Yeow Seng

Executive Director

Lee Cheng Leang

Executive Director

Datuk Hj Mohd Khalil B Dato Hj Mohd


Noor

Sir Independent Non-Executive Director

Chan Fong Ann

Independent Non-Executive Director

Quah Poh Keat

Independent Non-Executive

Tan Sri Dato Lee Shin Cheng

Executive Chairman

100

IOI Company 2010 Annual Report

Page | 61

4.2.7 Thirty Largest Shareholders101

Name of holder

% of Issued Capital

Progressive Holding Sdn Bhd

19.38

Progressive Holding Sdn Bhd

16.00

Employees Provident Fund Board

11.26

Amanah Raya Trustee Bhd(Skim Amanah


Saham Bumiputera)

3.07

Anhow Holdings Sdn Bhd

1.93

Amanah Raya Trustee Bhd (Skim Amanah


Saham Bumiputera)

1.86

Maybank Normenies (Tempatan) Sdn Bhd.


(Pledge Securities Account for Progressive
Holding Sdn Bhd)

1.79

Amanah Raya Trustee Bhd (skim Amanah


Saham Bumiputera)

1.78

Progressive Holding Sdn Bhd

1.75

Kumpulan Wang Persaraan


(Diperbadankan) Sdn Bhd (UBS AG
Singapore for Crystal Palace Investment
Limited)
AMSEC Nominees (Tempatan) Sdn Bhd
(Pledge Securities Account AmIslamic
Bank Bhd for Progressive Holding Sdn Bhd
Cartaban Nominees (Asing) Sdn Bhd
(exempt Authorised Nominees for State
Street Bank and Trust Company (West CLT
OD67)
Citigroup Nominees (Asing) Sdn Bhd (UBS
AG Singapore for Crystal Palace
Investment Limited)
Cartaban Nominees (Asing) Sdn BHd
(Exempt Authorised Nominees for Bank
Sarasin Rabo (Asia) Limited (AC Client
Frgn)
Amanah RAya Trustee Bhd Amanah
Saham Didik)

1.65

1.57

1.39

1.36

0.85

0.84

101 IOI Company 2010 Annual Report


Page | 62

HSBC Nominees (Asing) Sdn Bhd (BBH


and Co Boston for Vanguard Emerging
Market Stock index Fund
Citigroup Nominees (Tempatan Sdn Bhd
( Exempt Authorised Nominees for
Prudential Fund Management Bhd
Citigroup Nominees (Asing) Sdn Bhd (UBS
AG Singapore for Narisa Heights
Investment Limited

0.75
0.73
0.73

HSBC Nominees (Asing) Sdn Bhd ( TNTC


for Saudi Arabian Monetary Agency)

0.68

AmanahRaya Trustees Bhd ( Amanah


Saham 1 Malaysia

0.68

Cartaban Nominees (Asing) Sdn Bhd


(Government of Singapore Investment
Corpration Pte Ltd for Government of
Singapore (C)
Citigroup Nominees (asing) Sdn Bhd (UBS
AG Singapore for Happy Palace Investment
Limited
Valuecap Sdn Bhd
HSBC Nominees (Asing) Sdn Bhd (BNY
Brussels for Market Vectors Agribusiness
ETF )
HSBC Nominees (Asing) Sdn Bhd (Exempt
Authorised Nominees for JPMorgan Chase
Bank, National Association ( USA)
HLB Nominees (Tempatan) Sdn Bhd
(Pledged Securities Account for
Progressive Holdings Sdn Bhd
(KLM/2009/1377)
Citigroup Nominees (Asing) Sdn Bhd
( Royal Bank of Scotland as Depository for
First State Asia Pacific Leader Fund (CB
LDN)
RHB Capital Nominees (Tempatan) Sdn
Bhd (Pledge Securtiy Account Rickoh
Holdings Sdn Bhd ( 071001)
Amanah Raya Trustees Bhd ( Public
Islamic Dividend Fund)
HSBC Nominees (Asing) Sdn Bhd ( Exempt
Authorised Niminees for JPMorgan Chase
Bank, National Association ( UAE)

0.67

0.61
0.61
0.60
0.59

0.58

0.53

0.51
0.47
0.44

Page | 63

4.2.8 S.W.O.T Analysis

Strengths
The Board assumes full responsibilities for the overall financial performance of the
Company performance. We can conclude that IOI Corporation is doing well although
the company is having a downturn during 2009 that caused by the global financial
crisis. Among IOI, KL Kepong and Industry, IOI profit is the highest. This is indicate,
IOI productivity keep increasing over the years. By that it showing IOI assets
management for it is positive giving positive return. Therefore we can say that IOI
position is much stable compared to KL Kepong and industry.
Weaknesses
In contrast, IOI is taking a lot of debt to finance their operations and expenses.
However, the company still able to meets their obligations as a borrower and did not
have any problems in paying their interest.

Page | 64

Opportunities
Company establishment
IOI Corporation Bhd is a big company in Malaysia. This company is easy to make
business dealing with the former or new customer. This is because most of the other
company already give their trust to IOI Corporation Bhd. IOI Corporation Bhd also
aggressively advance toward completion RSPO certification efforts for all existing
and new holdings. IOI Corporation also has advance efforts to implement Controlled
Palm sourcing in European Market. Evaluate demand for same in Asia and North
American markets and expand to those markets if warranted. Furthermore, IOI
Corporation Bhd also expand dialog with markets, key client and NGO stakeholders
with regards to IOI Groups continuing effort to advance the supply and end market
use Roundtable on Sustainable Palm Oil Certificated Sustainable Palm Oil. This
company also can create more opportunity in the future because they are now
among the establish company in plantation industry in our country as long as they
keep focus and booster their performance and concern with their establishment
named in this field.
Threads
Strong Competitors
IOI Corporation Bhd has to build itself more perfectly as it is well-known competitors
in the plantation sector but with different approach named by KL Kepong.

4.3 KUALA LUMPUR KEPONG COMPANY


4.3.1Background
Kuala Lumpur Kepong Bhd is a Malaysian multi-national company. The core
business of the group is plantation (oil palm and rubber). The company has
plantations that cover more than 250,000 hectares in Malaysia (Peninsular and
Sabah) and Indonesia (Belitung, Sumatra and Kalimantan). Since 1990s, the
company

has

diversified

its

business

activities

such

as

resource-based

manufacturing (oleo chemicals, derivatives and specialty chemicals), property


development and retailing (personal care products, toiletries and foods) with
Page | 65

worldwide presence. The company is listed on the Bursa Malaysia and is Malaysias
third-largest palm oil producer. KLK was ranked 1816th in the Forbes Global 2000
Leading Companies, with market cap of USD 7.26 billion.102
4.3.2History
The Kuala Lumpur Rubber Company, Limited ("KLR")(1906-1960)
KLR was founded in London, in 1906 to oversee some 600 ha; Plantations (rubber
and coffee) in Malaya (now Malaysia) in 1907, the shares of KLR were listed on the
London Stock Exchange.103
Kuala Lumpur-Kepong Amalgamated Ltd ("KLKA")(1960-1973)
In 1960, KLR changed its name to KLKA. The group started to plant oil palm in
Fraser Estate. The group's first mill, the Fraser Mill was opened in 1967. In 1971,
KLKA opened its Head Office in Kuala Lumpur. The next year, KLKAs tax residence
was transferred from the United Kingdom to Malaysia.104
In 1973, Kuala Lumpur Kepong Berhad ("KLK") was incorporated in Malaysia and
under a Scheme of Reconstruction; KLKA went into voluntary liquidation with KLK
taking over the assets and liabilities of KLKA. The company's shares are listed on
the stock exchanges of Kuala Lumpur, Singapore and London. In 1979, the Head
Office was moved from Kuala Lumpur to Ladang Pinji, Perak.105

4.3.3Vision and Mission


Vision
To re-invest profit earned. To maintain a high standard of business ethics and
practices, fulfil our social responsibilities in the community in which we operate.
102

106

KL Kepong Annual Report 2010

103 KL Kepong Annual Report

2010

104

KL Kepong Annual Report 2010

105

KL Kepong Annual Report 2010

106

KL Kepong Annual Report 2010

Page | 66

Mission
To offered quality products and services at competitive prices and being a good and
responsible corporate citizen.107
4.3.4Main Economics Activities

Plantation
Plantation is the core business of KLK. Currently, KLK has more than 250,000 of
plantations areas in Malaysia and Indonesia. The annual production for fresh fruit
bunches (FFB) is 3.1 million tonnes. KLK's own mills and refineries will then process
the crop into crude palm oil, RBD palm oilmen and steering, and kernel oil and cake.
Meanwhile, in 2010, the production of rubber was approximately 23 million kg. As of
September 2010, the geographical distribution of the group's plantations is as
follows:
Region

Area (ha.)

Percentage

Peninsular Malaysia

69,261

28%

Sabah, Malaysia

40,359

16%

Indonesia

139,126

56%

Total

248,746 (100%)

The core division of the sector is KLK Oleo, one of the largest palm oil based oleo
chemicals producer in the world. KLK marked it entrance into oleo chemicals back in
1991, with the opening of Palm-Oleo Sdn. Bhd. Currently, KLK Oleo consists of nine
companies, six in Malaysia, two in China and one in Europe . The full list of the
companies is shown below.108
Country

Company

Business

Malaysia

Palm-Oleo Sdn. Bhd.

Fatty Acids & Glycerin

107

KL Kepong Annual Report 2010

108

KL Kepong Annual Report 2010

Page | 67

KSP Manufacturing
Sdn. Bhd.

Soap Noodles

Palmamide Sdn.
Bhd.

Ethylene Bis-Stearamide
& Alkanolamides (Diethanolamides/Monoethanolamide
s)

KL-Kepong Oleomas
Sdn. Bhd.

Fatty Alcohols, Methyl Esters& Methyl Ester Sulfonate

Palm-Oleo (Klang)
Sdn. Bhd.

Fatty Acids, Glycerine, Soap Noodles & Fatty Esters

KLK Bioenergy Sdn.


Bhd.

Biodiesel

Taiko Palm-Oleo
(Zhangjiagang) Co.,
Ltd.

Fatty Acids and Glycerine, soap noodles, & soap bars

Shanghai Jinshan
Jingwei Chemical
Co., Ltd.

Amines, dimethylacetamide,esters, & surfactants

KLK Emmerich
GmbH

Fatty acids, hydrogenated fatty acids & glycerine

China

German
y

Others
KLK also owns Dr. W. Kolb Holding AG, a producer of non-ionic surfactant
in Switzerland and Stolthaven (Westport) Sdn. Bhd., a common user liquid storage
terminal at Westport, Port Klang.109

Property
KLK owns KL-Kepong Country Homes Sdn. Bhd. Notable residential areas
developed by KLK are Desa Coalfields & Bandar Seri Coalfields, both in Sungai
Buloh, Selangor.110

Retailing
109

KL Kepong Annual Report 2010

110

KL Kepong Annual Report 2010

Page | 68

Crabtree & Evelyn is a retailer of personal care products, toiletries, home fragrance
products and fine foods with the headquarters in Woodstock, Connecticut, USA. The
brand is sold in 40 countries.111

4.3 5Outlook Based on Annual Report


Despite the improved outlook, we remain guarded against a downturn in the
Western economies and possible bubbles in the Asian region which may undermine
the strength and sustainability of a global recovery. We shall therefore press on with
those prudent measures adopted in the past year, but at the same time explore
opportunities to expand and enhance our businesses in terms of size, profitability
and value. We project a double-digit growth in FFB production based on the
expectation of recovery of palms from last years biological stress, and increased
contributions from rising yields of young fields as well as harvest from new fields.
We also have in place measures to keep costs at their current levels. These,
together with an assumption of firm commodity prices, and barring unforeseen
circumstances, give us the confidence to project better earnings and profits for the
next financial year, as well as embark on major capital expenditure projects and
replanting to support growth in new areas.112

4.3.6List of Board of Directors.113


Board of Director

Position

R. M. Alias

Chairman

Tan Sri Dato Seri Lee Oi Hian

Chief Executive Officer

Roy Lim Kiam Chye

Executive Director

Dato Lee Hau Hian

Non-Independent Non-Executive Director

111

KL Kepong Annual Report 2010

112

KL Kepong Annual Report 2010

113

KL Kepong Annual Report 2010

Page | 69

Datuk Abdul Rahman bin Mohd. Ramli

Independent Non-Executive Director

Tan Sri Dato Thong Yaw Hong

Independent Non-Executive Director

Dato Yeoh Eng Khoon

Independent Non-Executive Director

Kwok Kian Hai

Independent Non-Executive Director

4.3.7Thirty Largest Shareholders114


Name of shareholder

% of Issued Capital

Batu Kawan Bhd

45.65

Employees Provident Fund Board

10.66

Lembaga Kemajuan Tanah Persekutuan


(FELDA)

4.43

AmanahRaya Trustee Bhd Skim Amanah


Saham Bumiputera

1.58

Cartaban Nominees (Asing) Sdn Bhd


Exempt AN for State Street Bank & Trust
Company (West CLT OD67)

1.31

Valuecap Sdn Bhd

1.27

Malaysia Nominees (Tempatan) Sdn Bhd


Great Eastern Life Assurance (Malaysia)
Bhd (Par 1)

1.07

AmanahRaya Trustees Bhd Amanah


Saham Wawasan

0.97

Cartaban Nominees (Asing) Sdn Bhd


State Street London Fund FSIB for First
State
Asia Pacific Leaders Fund

0.97

Batu Kawan Bhd

0.92

HSBC Nominees (Asing) Sdn Bhd BBH


and Co Boston for Vanguard Emerging
Markets Stock Index Fund
HSBC Nominees (Asing) Sdn Bhd BNY
Brussels for Market Vectors Agribusiness
ETF
AmanahRaya Trustees Bhd Amanah
Saham Malaysia

114

0.67
0.62
0.60

KL Kepong Annual Report 2010

Page | 70

Kumpulan Wang Persaraan


(Diperbadankan)
Cartaban Nominees (Asing) Sdn Bhd
BBH (LUX) SCA for Fidelity Funds South
East Asia
Citigroup Nominees (Tempatan) Sdn Bhd
Exempt AN for Prudential Fund
Management Bhd
Cartaban Nominees (Asing) Sdn Bhd
Government of Singapore Investment
Corporation Pte Ltd for Government of
Singapore (C)
AmanahRaya Trustees Bhd AS 1Malaysia
HSBC Nominees (Asing) Sdn Bhd
Exempt AN for JPMorgan Chase Bank,
National
Association (U.K.)
Citigroup Nominees (Tempatan) Sdn Bhd
Employees Provident Fund Board
(Nomura)
HSBC Nominees (Asing) Sdn Bhd
Exempt AN for JPMorgan Chase Bank,
National
Association (U.A.E.)
Pertubuhan Keselamatan Sosial
Amsec Nominees (Tempatan) Sdn Bhd
Amtrustee Bhd for CIMB Islamic Dali Equity
Growth Fund (UT-CIMB-DALI)
HSBC Nominees (Asing) Sdn Bhd
Exempt AN for JPMorgan Chase Bank,
National
Association (BVI)

0.57
0.52
0.51

0.49

0.48

0.47

0.46

0.41

0.38
0.38

0.37

Permodalan Nasional Bhd

0.32

HSBC Nominees (Asing) Sdn Bhd


Exempt AN for JPMorgan Chase Bank,
National
Association (Norges BK Lend)

0.32

Citigroup Nominees (Tempatan) Sdn Bhd


Employees Provident Fund Board (PHEIM)

0.30

Citigroup Nominees (Asing) Sdn Bhd


Exempt AN for OCBC Securities Pte Ltd
(Client A/c NR)
HSBC Nominees (Asing) Sdn Bhd
Exempt AN for JPMorgan Chase Bank,
National
Association (Deka Intl S.A.)
Yeoh Chin Hin Investments Sdn Bhd

0.30

0.29

0.29

Page | 71

4.3.8 SWOT Analysis

Strengths
KL Kepong is a large company with a good total asset. They has increased their
total asset every year since 2006. KL Kepong also has increase in net income in
2010. They also has decrased their debt since 2009. This shows that they can pay
their debts to the debtors and to avoid financial risk. They also have high in profit
because they has increased their profit in 2010.
Weaknesses
However, KL Kepong is very weak and not liquid. Their performance always change
year by year. KL Kepong did not maintain or increase their performance year by
year.

Page | 72

Opportunities
Company establishment
KL Kepong Plantation Bhd is one of big companies in Malaysia. KL Kepong Bhd
also trusted by other company because of they have strength position in the market.
KL Kepong Bhd have a Building University Relationships. These group foster
relationships with local universities by participated their career fair and talks to
attract graduate with good leadership calibre to fill various job vacancies in line with
its succession plan. KL Kepong Bhd also has a long-term relationships have been
developed with non-profit organisations such as New Horizon and Persatuan
Daybreak, which support the disabled. KL Kepong also gives financial aid to several
foundations which assist the economically and physically disadvantaged.
Threads
Strong Competitors
KL Kepong has to build itself more perfectly as it is well-known competitors in the
plantation sector but with different approach. From the company analysis, it is
attractive to investor for making an investment in the IOI Corporation since it is an
established company and have a good reputation. Furthermore, IOI also is a leading
company in the plantation industry compared to KL Kepong.

Page | 73

CHAPTER 5
FUNDAMENTAL ANALYSIS
5.1Overview
Fundamental Analysis examines a companys relatives strengths and weakness
within its industry or industries. Once industry analysis has identified a potential
investment area, the companies within the industry need to be evaluated. At this
level, we look into every single significant detail from competitive position to financial
position and also the management. (Refer to appendix 5, 6, and 7)
5.2

Financial ratios

TOTAL ASSETS
20000000
18000000
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0

2006
2007
2008
2009

Ke
po
ng
KL

Pl
an
ta
tio
n

Sa
wi
t

Sa
ra
wa
k

bu
na
n

O
il
Ri
m

Pa
lm

Sa
ra
wa
k

Pl
an
ta
tio
n

G
en
tin
g

IO
I

2010

Interpretation: The amount of total assets in a company can determines the size of
the particular company. From the chart above, we can conclude that the closest
competitor of IOI is KL Kepong. Based on this finding, we can made comparisons
between the performance of IOI, KL Kepong and Industry Average performance.
From the figures above also, total assets of the companies can also represent the
market share of the company. It is the alternative method to calculate the market
share of the company since revenue of the company may fluctuate from time to
time.

Page | 74

SALES
16000000
14000000
12000000

IOI

10000000

Industry
KL Kepong

8000000
6000000
4000000
2000000
0
2006

2007

2008

2009

2010

Interpretation: Revenue is the amount of sales generated by a company after the


deduction of returns, allowances for damaged or missing goods and any discounts
allowed. The sales number reported on a company's financial statements is a net
sales number, reflecting these deductions. As we can see the chart above, IOI
Corporation has collect the highest sales among KL Kepong and industry. In the
year 2006, it began with 6 million, then increase more in 2008 which is the amount
stated is near to 15 million. Hence, sales of KL Kepong are still under IOI with 4
million in 2006 and increase to 7 million in 2008. The reason is, due to size of the
firm and strong position of IOI in market, it helps the company to generate more
profit. Compared to industry, the graph does not having huge changes. It can be
seen in 2006, there is a little increase but then the graph becomes flat until 2010.

Page | 75

COST OF GOODS SOLD


12000000
10000000
IOI

8000000

Industry
KL Kepong

6000000
4000000
2000000
0
2006

2007

2008

2009

2010

Interpretation: From the information in both companies financial statement we can


found that, as the amount of sales increases, the cost of goods sold also increasing
and vice versa. The cost of goods sold is mainly affected by the level of sales and
the level of inventories is affected by the amount of cost of goods sold. From the
graph above, we can see that IOI COGS is above the industry average and KL
Kepong. The trend for IOI is almost the same with KL Kepong and the industry
average but in 2010, COGS for KL Kepong is increasing differed from IOI and
industry average. As the industry leading company, IOI trend influenced the industry
average trend, which is the reason why IOI and industry average trend is almost the
same. As stated above, the level of COGs is affected by the level of sales, as sales
increase, the amount of COGS is also increasing. This is because the amounts of
COGS were extracted from the level of sales generated by the company.

Page | 76

NET INCOME
2500000
2000000
IOI
Industry

1500000

KL Kepong
1000000
500000
0
2006

2007

2008

2009

2010

Interpretation: Net income for both companies is above industry and the trend is
the same. The trend is increasing from year 2006 until 2008 and there is major
declining in year 2009. In year 2010, the trend is rising again. From the line chart
above, we can see that the differences in net income between the two companies.
IOI net income is higher than KL Kepong and this is due to the size of the company.
As we have discussed earlier, IOI Company is a bigger company than KL Kepong
and it is one of the leading company in the industry. The production of goods and
the demand for IOI Company production is higher than KL Kepong and based on the
annual report of both companies, we found that the land area for plantation and
cultivation of palm oil for IOI is bigger than KL Kepong. That is the reason why the
company can generate more income than KL Kepong. Furthermore, IOI is able to
generate more income compared to other companies in industry because most of
the IOI capital structure is come through debt and enabled the company to acquire
more assets in order to increase their production and total income. By taking a lot of
debt also makes the company net income fluctuates greater compared to other
companies. This is because the net income of the company fluctuates in line with
the fluctuation of the interest rate.

Page | 77

TOTAL ASSETS
20000000
18000000
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
2006

IOI
Industry
KL Kepong

2007

2008

2009

2010

Interpretation: From the line chart above, we can see the difference of total assets
between IOI and KL Kepong and both companies total assets is above industry
average. As we can see, there is a huge differences between IOI and KL Kepong,
that is because the size and the life span of the company, is affecting the amount of
total assets that the company acquired. We can also see the percentage of changes
in total assets for both companies also different. From the trend above, the amount
of change in total assets of IOI is bigger than KL Kepong. This is because, IOI have
the large capital structure that majorly comes from debt financing enabling the
company to acquire more assets. Overall, both companies have the same trend
between years 2006 until 2010. In 2006 until 2008, both companys total assets are
increasing but there is slight decrease in 2009. This may due to the weak global
economy that caused price to decline significantly. Due to the global economic
recession, it also was resulting in high unemployment and low demand in plantation
sector. In 2010, the amount is increasing again as the economy is experiencing a
upward trend since the global economy has stable again.

Page | 78

1. Liquidity ratio
Liquidity ratio is calculated to measure the company abilities to meet their short term
obligations. Current ratio, quick ratio and net working capital is included in liquidity
ratio. This ratio shows the company efficiency in managing their short term
obligations by using the current assets that the company acquired.

CURRENT RATIO
6
5

IOI

Industry
KL Kepong

3
2
1
0
2006

2007

2008

2009

2010

Interpretation: Current ratio measures the company ability to pay their short term
obligations using their current assets. Higher current ratio is more preferable as it
indicates that the company is more liquid and did not have any problems in meeting
their short term obligations. From the line chart above, the current ratio of IOI is
above the industry average and the current ratio trend of IOI and industry average is
similar except for KL Kepong. There is slight increase between 2006 and 2007 and
the current ratio of IOI dropped from 5 times to 2.9 times in 2008. This is due to the
increasing current liabilities of the company and it is due to the massive increasing
amount in short term debt financing and inadequate amount of liquid assets in the
company as the company debt structure is high. In 2009, the current ratio of the
company rise due to the decreasing amount in short term financing. For the year
2010, there is a slight increase in the current ratio of the company from the previous
year. for KL Kepong, in 2007, the company current liabilities is decreasing and the
company current liabilities slightly decreasing further in 2008 but the trend is rising in
the year 2009 and 2010.
Page | 79

QUICK RATIO
4
3.5
3

IOI

2.5

Industry
KL Kepong

2
1.5
1
0.5
0
2006

2007

2008

2009

2010

Interpretation: Quick ratio is a tool to determine whether the company is dependent


on the inventories to meets their short term obligations. High quick ratio indicates
that the more liquid the company. Quick ratio of IOI is rising during year 2006 and
2007 but fall sharply in year 2008. In year 2009 and 2010, the quick ratio of the
company is on an increasing trend again. From the trend above, we can conclude
that on year 2008, the company short term obligations are increasing drastically.
This is because the trend in the quick ratio is almost the same with the trend in
current ratio. So, we cant conclude that the company is dependent on their
inventories level to meets their short term obligations. The company current asset is
greater than the industry but their inventories level is even higher than the industry.
This indicates that the company may face liquidity risk as if the quick ratio is fall
sharply; it shows that the company may have problems with their liquidity
managements. For KL Kepong, the company quick ratio is lower than industry
average. This shows that KL Kepong strongly depend on their inventories to meets
their short term obligations.

Page | 80

NET WORKING CAPITAL


7000000
6000000
5000000

IOI

4000000

Industry
KL Kepong

3000000
2000000
1000000
0
2006

2007

2008

2009

2010

Interpretation: Net working capital shows the difference in total current assets and
total current liabilities of the company. Positive amount indicates that the company is
able to meets their short term obligations and it is also indicates that the company is
liquid. Net working capital of the company is increasing from year 2006 till 2008.
However, in year 2009 there is a slight decrease in the companys net working
capital, but in the year of 2010, its net working capital bounce back to RM5 727 476.
Net working capital of KL Kepong on the other hand, shows a steady increasing
trend from the year 2006 till 2010. As comparison to the industry average, both
companies net working capital is better than the average. This indicates that, both
companies do not have any problem in meeting their short term obligation. Similarity
in the trend of NWC for IOI, KL Kepong, and the industry itself can be explain by the
core activities of these companies that is plantation and cultivation of palm oil, which
have less reliability on current liabilities.
Overall, liquidity ratios of IOI are stable although there is a decreasing trend in the
year 2008, which was caused by the global financial crisis that affects the industry
performance due to lower demand in the international market. Bear in mind that
Malaysian oil palm production support almost 50-percent worlds crude palm oil
demand.

115

We can conclude that IOI is able to meet its day to day operating

expenses and satisfy their short term obligations based on their current ratio, quick
ratio and net working capital. We also can conclude that the company has adequate
cash and other liquid assets to service its debt and operating needs efficiently.
115 MPOBs introduction speech by Mr. Jamil Sastrowordoyo
Page | 81

2. Leverage ratio
The leverages ratios measures the extent to which the firm uses debt to finance its
investment, how well the firm can meet its payment obligations and the financial risk
related to the financing used.

DEBT RATIO
0.4
0.35
0.3

IOI

0.25

Industry
KL Kepong

0.2
0.15
0.1
0.05
0
2006

2007

2008

2009

2010

Interpretations: Debt ratio is used to measure the percentage of total funds or total
debt provided by the creditors. Total debt includes current liabilities and long term
liabilities, therefore higher debt ratios indicate the firm has borrowed too much and
vice versa. As stated above, IOI movements showing high percentage between
Industry and KL Kepong which means that IOI has borrowed too much (debt) in
order to acquire their assets. From year 2006 to 2008, IOI record keeps increasing,
but then in 2008 to 2009 it becomes flat and at the end in year 2010, it decrease to
27.58%. Compared to Industry and KL Kepong, KL Kepong percentage is the
lowest, means that this company dependency to financial institution is low and might
be running business by using their own capital. IOI in 2009 shows highest debt ratio,
66.54%. The balanced of 33.46% represent the owners capital or equity.

Page | 82

DEBT TO EQUITY RATIO


0.8
0.7
0.6

IOI

0.5

Industry
KL Kepong

0.4
0.3
0.2
0.1
0
2006

2007

2008

2009

2010

Interpretation: Debt to equity ratio shows the proportion of the debt and equity the
company is using in their capital structure. Higher ratio shows that the company is
able to financing their day to day operations and expanding expenses but too high
ratio shows that the company may have high financial risk as the company failed to
pay their interest in debt financing. The IOI debt to equity ratio can be can be
considered as low in 2006 and 2007. It means that most of the company capital is
comes from their common stock holders thus required a low amount of debt to
finance their day to day operations. As the company was hit by the financial crisis in
2008, the requirement of financing is getting higher in order to overcome the crisis.
Thus the amount of long term debt is raising in order to meets the company
financing requirement. In 2009 and 2010, the ratio is on declining trend. As the
company has recovered from the crisis, and the financing requirement is low, the
amount of debt is decreasing and the company has fully meets certain amounts of
their short term obligations but the company still have the obligations for their long
term financing as the maturity period for long term financing is even longer than the
short term financing.

Overall, the debt to equity ratio of the company is high

compared to industry and KL Kepong. This is because most of the company capital
structure is come through debt in order to operate in large quantity so that it can
remains as the leading company in the industry. Lower ratio is preferable because it
shows the financial risk faced by the company if they were unable to meets their
long term debt. IOI debt to equity ratio is higher than industry except in 2006, where
industry ratio is exceeding IOI. KL Kepong can be considered having a low debt to
equity ratio and investors may choose to invest in KL Kepong to avoid financial risk.
Page | 83

TIMES INTEREST EARNED


40
35
30

IOI

25

Industry
KL Kepong

20
15
10
5
0
2006

2007

2008

2009

2010

Interpretation: Times interest earned is used to show the ability of the company to
meet its fixed interest payment and the amount of debt that the company is liable to
settle. Although the IOI times interest earned is below the industry average, it is still
stable and it indicates that the company long term debt had been well managed.
From year 2006 until 2008, IOI times interest earned is on an increasing trend and
in year 2009 and 2010, the amount is declining. From the information on the
company income statement, it shows that the company interest payment on long
term debt is increasing but the company operating income also experiencing the
increasing trend. Thus, the company is still able to meets their interest payment on
long term debt although the amounts is increasing is over years. For KL Kepong,
their times interest earned are above the industry average. This is because their
operating profits growth is bigger than their interest expenses.

Overall, leverage ratio shows that the IOI capital structure is mainly comes from debt
as the ratios shows that IOI trend is higher than KL Kepong and industry average. It
indicates that the company is relying on debt financing to finance their day to day
operations. It is good in term of expanding as the company is able to expand more
trough the large capital they acquired but the company also may face higher
financial risk. This is because if the company did not meet their debt financing
obligations the company can be declared bankrupt. For KL Kepong, the company
risk is lower but the company cannot expanding their operations as the capital they
gained trough shareholders is not enough to financing their expanding expenses.
However IOI managed to meets their debt financing as the times interest earned
Page | 84

shows that the company did not have any problems to pay their debt financing
obligations.

3. Profitability ratio
The profitability ratios measure the combined effects of liquidity, asset management
and debt management on overall operating results of the firm. It relates to the firms
ability to satisfy the firm goal to maximize the owners wealth, to attract new capital
and to grow over time.

GROSS PROFIT MARGIN


0.45
0.4
0.35
IOI

0.3

Industry

0.25

KL Kepong

0.2
0.15
0.1
0.05
0
2006

2007

2008

2009

2010

Interpretation: This ratio is used to measure the firms ability to control cost of
goods sold relative to its sales revenue, the relative contribution margin from sales.
A high gross profit is a sign of good management in the company inventories. This is
because; a high gross profit margin indicates that the company is able to fully utilize
their resources thus reducing the cost of production. As we can see above, IOI gross
profit margin is from the year 2006 to 2010 below KL Kepong gross profit margin
except in year 2009 whereby IOI gross profit margins is higher than KL Kepong. KL
Kepong has gain more profit than IOI. For industry, the amount stated is much better
than IOI and KL Kepong. A gross margin may increase due to any of the following
factors 1) Higher sales prices, cost of goods sold remaining constant 2) lower cost
of cost of goods sold, sales prices remaining constant.

Page | 85

OPERATING PROFIT MARGIN


0.3
0.25
IOI

0.2

Industry
KL Kepong

0.15
0.1
0.05
0
2006

2007

2008

2009

2010

Interpretation: Operating profit margin also known as basic earning power ratio.
Operating Profit Margin is used to measures the productivity of assets in providing
returns for both stockholders. As we can see from the above graph, from 2006
to 2010, there was little change noted by the IOI. It could be argued that the
trends happened at the company were flat, no increase or decrease. This means
that the productivity of assets produced by the IOI is the same. In contrast to the IOI,
KL Kepong experienced fluctuating trends. Look at the years 2006 to 2008, an
increase while in 2009, however, of depreciation and bounce back in 2010. As
for industry, there were increasing trend from year 2006 to 2007. But then the
figures is decreasing from year 2008 and continues to 2009 and bounce back in
2010 for KL Kepong.

Page | 86

NET PROFIT MARGIN


0.25
0.2
IOI
Industry

0.15

KL Kepong
0.1
0.05
0
2006

2007

2008

2009

2010

Interpretations: Net profit margin is used to measures the after tax profit per ringgit
of sales after deducting all expenses including interest and taxes. Besides, the
ability for the firm to get higher returns indicates a better growth prospect, and
therefore higher margin is preferable. A firm with high net profit margin are
assume as having advantageous position to continue running in long term to
survive in the face of falling selling prices, rising cost of production or declining
demand for the product. For example, IOI company in 2006 having upward trends
but down too much in 2009 then bounce back in 2010. In year 2008, the economy
is having a major financial crisis that resulted in increased in interest rate. Since IOI
financial structure is mainly comes from debt financing, this will reduce the company
net profit as it has to pay a higher interest payment. That is the reason why the
company net profit in 2009 fluctuate higher that the industry and KL Kepong.
However this company net profit margin is still above KL Kepong. Compared

to

KL Kepong, there is upward movement in the year 2006, but then fall in 2009 a
little, but in this year KL Kepong has overcome IOI net profit margin. In 2010, KL
Kepong faced downward trends that

are below IOI. After all we knew that for a

company with low net profit margin, it is difficult to withstand with these adversities.

Page | 87

RETURN ON EQUITY
0.3
0.25
IOI

0.2

Industry
KL Kepong

0.15
0.1
0.05
0
2006

2007

2008

2009

2010

Interpretations: It is used to measure of the rate of return on the investment of the


common stockholders or net worth. Therefore higher return is better as it indicates
higher return for the owners of the firm. Return from investment for IOI companies is
above industry and the trend is upward for IOI and KL Kepong. The trend is
increasing from year 2006 until 2008 and there is major declining in year 2009, the
same trend happened to IOI, KL Kepong and Industry. In year 2010, the trend is
rising again. From the line chart above, we can see that the differences in return
between the two companies. IOI return in 2009 having sudden down due to high
interest rate. Whenever IOI face with high interest rate this can give huge impact to
company return because it has to pay a large amount of interest. Therefore, it
relates highly with debt financing. High debt will causes more company income
being used for the debt payment and reducing the return to their shareholders.

Page | 88

RETURN ON ASSET
0.14
0.12
0.1

IOI
Industry

0.08

KL Kepong
0.06
0.04
0.02
0
2006

2007

2008

2009

2010

Interpretation: Return on total asset is used to measure a firm overall return on all
of its assets investment. Return on assets indicates the productivity of assets in
producing revenues and the firm ability to control costs in its operation. Hence,
higher ratio is more desirable than lower ratio. Return on total asset for both
company and industry since 2005 to 2008 were having increasing trends however in
the year 2009, there is a primary declining in the year 2009. From 2006 to 2010,
IOIs return on asset shows a quite spectacular growth that consistently beat its
competitor and the industry itself. As for industry, the graph shows an increase in
the years 2006 to 2008. However, in 2009 there is a very drastic downward due to
the global financial crisis in 2008 and it is also faced by the IOI and KL Kepong. In
2010, it bounces back as normal.
Overall from the above chart we can say that among IOI, KL Kepong and Industry,
IOI profit is the highest. This indicates that, IOI productivity keep increasing over the
years. As we can see, the total amount sold in 2006 is reached to 6 million, then
move upward to 15 million in 2008. This showing that IOI assets management for its
is positive giving positive return. Therefore we can say that IOI position is much
stable compared to KL Kepong and industry.

Page | 89

4. Activity ratio
This set of ratios measures the effectiveness and efficiency of the firm in managing
its assets. It relates the payoff from investment in certain assets.

INVENTORY TURNOEVER
8
7
6

IOI

Industry
KL Kepong

4
3
2
1
0
2006

2007

2008

2009

2010

Interpretation: Inventory turnover is used to measure how effectively a firm is using


its resources or assets. Also this ratio is used to measure how many times the firm
turnover its inventories and indicate the effectiveness of inventory management. IOI
utilization inventory show increase 10% since 2006 to the year 2008, then in 2008 to
2009 it increase again and however become flat in 2009 and 2010. This indicated
that IOI is holding excessive and unproductive stock compared to KL Kepong and
Industry. KL Kepong trend are not having much changing, from 2007 to 2009, it
keeps up with 5%, but down to 3.92% in the year 2010. As for industry analysis, in
2006 there is upward movement until 2007, then going down in 2008 and bounce
back in 2009. I

Page | 90

ACCOUNT RECEIVABLES TURNOVER


18
16
14
IOI

12

Industry

10

KL Kepong

8
6
4
2
0
2006

2007

2008

2009

2010

Interpretation: Account receivables turnover measure the company efficiency in


managing their account receivables. It reflects the number of times the present
amount of accounts receivable have to be collected over and over again in a year.
From the line chart above, the IOI ARTO is high compared to the KL Kepong but
low compared to the industry average and the trend is increasing through all the
year except in 2007 and 2010, there is slight decreased in the companys ARTO and
in year 2010, the company ARTO is high compared to industry average and KL
Kepong. It indicates that the company is able to generate sales trough their account
receivables. For the year 2010, the company ARTO is high above the industry
average. We can conclude that the company may having a stricter policy in giving
credits to their customers and this should concerned the company as it may reduce
the company sales as it may lead to lost or foregone sales and reduce the company
sales level. For KL Kepong, the company should maintain their current policy and
should be more efficient in managing their account receivables in order to generate
more sales. Higher ARTO is preferable because it show the company is efficient in
managing their account receivables to generate their sales. But a very high ARTO
will indicates that the company is giving too little credit or the company is offering
restrictive credit terms or having strict policy in managing their account receivables.
This will leads to lost or foregone sales. Lower ARTO is not preferable because it
shows that the company is not efficient in using account receivables in generate
sales.

Page | 91

TOTAL ASSETS TURNOVER


1
0.9
0.8
0.7

IOI

0.6

Industry

0.5

KL Kepong

0.4
0.3
0.2
0.1
0
2006

2007

2008

2009

2010

Interpretation: Total assets turnover is calculated to indicate how efficiently the


company assets are being used to support sales. It reflects the amount of sales
generated by the company using their fixed assets. From the line chart above, both
companies TATO is above the industry average but IOI TATO is below KL Kepong
except in year 2009. IOI TATO is increasing until 2009 and decrease in 2010. Same
with IOI, KL Kepong TATO was also experienced an increasing trend but the trend
has declined in 2009 but increasing in year 2010. In IOI financial statements, in year
2010, there is massive decline in their sales. That is the reason why the company
TATO is declining in year 2010. For KL Kepong, the declining in 2009 is caused by
the declining in their sales for that particular year. The difference in the time frame
may be due to the effects of financial crisis in year 2008. For IOI, the company
acquired assets to generate their sales, however, in 2009, their assets are declining
and this is affecting the company for the next financial year. although the company
assets is increasing again in 2010, but early period in 2010, the level of sales may
be low due to the decreasing amount of total assets at the end of 2009. For KL
Kepong, the declining trend in 2009 may be due to the financial crisis in 2008. The
company is having problems in acquiring assets in 2009 as the company did not rely
on long term financing and the company may have problems in expanding their
company thus resulting in declining of the sales level. Overall, both companies
resources are being well managed and both companies are able to realize a high
level of sales from theirs asset investments. The industry trend is declining from the
year 2008 and it is different from the IOI and KL Kepong because the industry trend

Page | 92

is the average of the industry players. So, changes in each industry player will affect
the industry performance.
Overall, IOI is still efficient in managing their assets to generate more sales. From
the ratio calculated above, although some of the ratio likes total asset turnover and
inventories turnover is below the KL Kepong trend, but the IOI is still can be
considered efficient in managing their assets. This is because compared to KL
Kepong, the IOI trend is low but compared to industry average, the IOI trend is still
above. It indicates that the company is still performing well compared to other
companies in the same industry.

SUSTAINABLE GROWTH
0.25
0.2
IOI
0.15

Industry
KL Kepong

0.1
0.05
0
2006

2007

2008

2009

2010

Interpretation: It is hard to explain the findings on the sustainable growth that has
been calculated. It is because the capital structure of the industry players is differed
according to the company policies. However, we found that the IOI sustainable
growth is higher than the KL Kepong because IOI capital structure is mainly comes
from the debt financing. The company may not paying dividends to their
shareholders as the company have obligations to meets their short term and long
term financing. This indicates that the company growth rate is higher because the
company is able to expanding their operations since they have large capital
structure. For KL Kepong, the company is being cautious as it does not rely much
on debt financing thus it will limit their operations as the company have small capital
structure. They just rely on the shareholders capital and retained earnings to
expand their operations. From the chart above also we can see that the company is
Page | 93

on a growing stage. Although the company is a long established company, they able
to grow by enter the new market or industry.
From the financial ratios above, we can conclude that IOI Corporation is doing well
although the company is having a downturn during 2009 that caused by the global
financial crisis. From the liquidity ratio, IOI is having adequate liquid assets to meets
their short term obligations. The liquidity ratio of IOI also high compared to KL
Kepong and industry average. From the leverage ratio, we can see that IOI is taking
a lot of debt to finance their operations and expenses. However, the company still
able to meets their obligations as a borrower and did not have any problems in
paying their interest. From the profitability ratio, we can conclude that IOI can
generate high income compared to other companies in the plantation sector.
However, the company have to pay a big amount of interest thus, reducing the
company ability to pay dividends to their shareholders. Lastly, from the activity ratio,
the company is efficient in managing and utilizing their assets to generate income.
Although the company activity ratio is lower than KL Kepong but compared to
industry average the performance of the company is higher. It means that the
company performance is higher compared to other companies in the industry.
The company growth rate also higher compared to KL Kepong. However, the
company may not be able to pay dividends to their common shareholders as the
company have to pay a large amount of interest. This is because the company
capital structure mainly comes from debt. But, the company can use the debt
financing to further expanding their operations thus increase the growth rate of the
company itself. It is profitable for investor in the long term investment horizon as the
company share prices will increase resulting from the growth effects.

Page | 94

5.3Market Ratio

KLCI INDEX
1600
1400
1200
1000

KLCI Index

800
Price Index

600
400
200
38
71
38 7
89
39 8
08
39 0
26
39 2
44
39 7
62
39 9
81
39 3
99
40 4
17
40 8
35
40 9
54
3

IOI COORPERATION

KL KEPONG

Close Price

4.61

21.3

+/-

-0.2

-1.8

13391

1536

PE Ratio

13.3

22.4

Dividend Yield

3.7

2.8

High

4.74

21.5

Low

4.61

21.22

Earnings Per Share

0.35

0.95

Volume

Page | 95

Close Price refer to the last trading price recorded when the market closed on the
day. Whenever the closing price is up or down more than 5% than the previous
days, the entire listing for that stock is bold-faced. However, if you buy tomorrow
stock, it will not keep same because the price is always changing. IOI close price is
4.61 whereas KL Kepong shows 21.3, which are higher than IOI.

Volume is the amount shows the total number of shares traded of the day, it is listed
in hundreds. In order to get the right number traded, we must add "00" at the end of
the number listed. Based on table above, IOI Corporation Bhd has traded 1 339 100,
on the other side KL Kepong has traded 153 600. There is a huge distance of
amount traded between 2 companies.
Dividend yield is a ratio that shows how much a company pays out in dividends
each year relative to its share price. It is calculated by Annual Dividends per Share
divide by Price per Share. As we can see from above table, IOI Corporation Bhd pay
high dividend than KL Kepong. High-growth companies like IOI rarely offer dividends
because all of their profits are reinvested to help sustain higher-than-average
growth. This enable IOI to run in a long period compared to KL Kepong. Some of
company did not pay for dividend as IOI.
High and Low amount indicates the price range which is the stock has traded
throughout the day. In other meaning, these show the maximum and the minimum
prices that people have paid for the stock. Because IOI use stock split,
measurement, this enables public to buy their shares and this way is also used to
attract people to invest in their company. However KL Kepong amount is much
higher than IOI Corporation Bhd.
Earning per Shares formula is Net Income - Dividend on Preferred Stock divide by
Average Outstanding Shares. As usual IOI Corporation Bhd EPS are low than KL
Kepong. Two companies could generate the same EPS number; however one could
do so with less equity (investment), that is the company would be more efficient at
using its capital to generate more income than the other one. That is the different
between IOI and KL Kepong.

Page | 96

5.4

CAPM Analysis

Security Market Line (SML)


SML is the graphical depiction of the capital assets pricing modal it reflects the
investor required return for each level of systematic risk.
Figure 1
Return

4.95%
4.78%
4.46%
3.57%

3.11%
2.95%
2.20%
2.19
%
2.05%
1.97%

1.91%
1.84%
1.30%

SM
L Beta

1.01

1.22

1.41

1.03

Page | 97

1.32

1.5

IOI COORPERATION

KL KEPONG

Close price

4.61

21.3

+/-

-0.2

-1.8

13391

1536

PE Ratio

13.3

22.4

Dividend Yield

3.7

2.8

High

4.74

21.5

Low

4.61

21.22

Earning Per Share

0.35

0.95

volume

Figure 2

CAPM
2.5
2
1.5
1
0.5
CAPM
1.
5

1.
4

1.
3

1.
2

0
1.
10
00
00
1
00
00
00
00
01

RETURNS

BETA

Table 12: Indicators of CAPM


Company

Indicators
Page | 98

IOI
Genting Berhad
Rimbunan Sawit
KL Kepong
Sarawak Oil
Sarawak Plantation

Table 13: Market, company (return, beta and indicators)


Company

Actual

CAPM

Beta

Performance

2.95

SWKPLT

0.012921

2.202463

1.010185

Overvalued

SWKOIL

0.049456

2.188757

1.028707

Undervalued

KLKPG

0.044597

2.050029

1.216177

Undervalued

RMBNN

0.03107

1.972197

1.321355

Undervalued

GNTG

0.047792

1.909461

1.406134

Undervalued

IOI

0.035731

1.840287

1.499613

Undervalued

Return
RF

From the capital asset pricing method, we can calculate whether the company is
undervalued or overvalued. Thus, from the information that is available, the investor
can decide which the best company to invest in and provides return that is related
with the risk involved. Share that is undervalued indicates that the actual return is
above the expected return of the investment and share that is overvalued indicates
that the company expected return is above actual return.
Figure 1 shows whether the company is undervalued or overvalued. We can say
that the IOI, Genting Berhad, Rimbunan Sawit, KL Kepong and Sarawak Oil
Page | 99

common stock is undervalued since their actual return is higher than the expected
return and it is advisable to the investors to buy these companies common stock.
For Sarawak Plantation common stock, the company common stock is overvalued
since the company expected return is higher than the actual return and it is
advisable to the investor to sell this company common stock.
Figure 2 shows that all the companies share is in equilibrium, means that the share
provides return associate with the risk that the investor have to face.
From the CAPM analysis, IOI actual return is 3.57% and KL Kepong actual return is
4.46%. From this analysis, we should choose KL Kepong since the return is higher
and the risk associated with the shares is lower compared to IOI.

CHAPTER 6
TECHNICAL ANALYSIS
6.1

Introduction

Technical analysis is the study of how securities prices behave and how to exploit
that information to make profits while avoiding losses. The technical style of trading
is opportunistic. Your immediate goal is to forecast the price of the security over
some future time horizon in order to buy or sell the security to make a cash profit.
The strength of technical analysis there is flexibility with regard to the underlying
instrument. Traders who specialize in currencies, stock, bond or commodities may
easily apply their technical expertise to other instrument.

6.2

SIMPLE MOVING AVERAGE

Simple moving average is simple, or arithmetic, moving average that is calculated


by adding the closing price of the security for number of time periods and then
dividing this total by the number of time periods. Simple moving average can be
used to quickly identify whether a security is moving in an uptrend or a downloading
Page | 100

depending on the direction of moving average. Short-term averages respond


immediately to changes in the price of the underlying, while long-term averages are
slow to react. For example, when a moving average is heading upward slopping
moving average with the price is above it, the security is in an uptrend. Conversely,
a downward sloping moving average with the price below can be used to signal a
downtrend.

SIGNAL: 5 day moving average is a short term moving average and 20 day moving
average is a medium term moving average. From the chart above, we can see that
5 day moving average respond quickly to the change in price and vice versa. As the
5 day moving average crossover the 20 day moving average, the price of the
company common stock is on a rising trend. As the 5 day moving average crossover
and below the 20 day moving average, the price of the company common stock is
on downward trend. At current, we can see the 5 day moving average is above the
20 day moving average. As this happen, it is advisable to investor to buy the share
now because the price will appreciate in future and we can sell it at a higher price.
Historically, there are 3 indicators of buying and selling the companys common
stock before during October until April. Buying indicators is when the short term
moving average cross over the medium short term average and selling signal is

Page | 101

when the medium short term average crossover the short term average. After that,
we can see that the companys common stock is on a sideway trend.

SIGNAL: 5 day moving average is a short term moving average and 20 day moving
average is a medium term moving average. From the chart above, we can see that
5 day moving average respond quickly to the change in price and vice versa. As the
5 day moving average crossover the 20 day moving average, the price of the
company common stock is on a rising trend. As the 5 day moving average crossover
and below the 20 day moving average, the price of the company common stock is
on downward trend. At current, the 5 day moving average is above the 20 day
moving average and it is advisable to the investor to buy the share now and sell it
later at a future date with a higher price. Historically, we can see that there are other
indicators of buying and selling on the chart above. Buying indicators is when the
short term moving average cross over the medium short term average and selling
signal is when the medium short term average crossover the short term average.

Page | 102

Based on the analysis, it is recommended for the investor to buy both shares. This is
because both companies show an increasing trend in price movements.

6.3

MOVING AVERAGE CONVERGENCE DIVERGENCE (MACD)

Moving average convergence divergence MACD is a trends following momentum


indicator that show the relationships between two moving averages of price.
MACDs calculated by subtracting the 26 day exponential moving average (EMA)
from the 12 day (EMA). 9 day (EMA) of the MACD called the signal line is the
plotted on top of MACD, functioning as trigger for buy and sell
IOI

S
IGNAL: The moving average convergence divergence of IOI at current indicates
that investors should hold the companys common stock because the price is
already on a downward trend. This is because, at the moment, the trend of MACD is
below the equilibrium line. It indicates that the price of the share is on a downward
trend and the trend is predicted to move further below the equilibrium line in the
Page | 103

future. This will indicate that the companys common stock price will be on a
downward trend in the future. Furthermore, before the price moving downward, we
can see that on the chart, there are descending triangle pattern. We can conclude
that, the price will be on a downward trend after the pattern. Moreover, we can see
that the price of the share is on a downward trend from July until September. During
the period, investor may hold the investments and waits for other signal indicating of
buying or selling time.

SIGNAL: The company moving average convergence divergence at the moment


indicates that it is the right time to buy the companys common stock.

This is

because the MACD trend is at the equilibrium line and will move above the
equilibrium line. This indicates that the companys common stock value will
appreciate in the future enabling the investor to make profits from capital gain.
Overall, during our study period, we can see that there is a signals indicating of
buying and selling. On early period of our study time horizon, we can see that there
is an upward channel pattern. When the MACD line crossover the equilibrium line on
Page | 104

upward trend, it indicates that the price will increase later and it signal the right time
to buy. When the MACD line crossover the equilibrium line on a downward trend, it
indicates the right time to sell as the price will decrease in the future. The decline in
price in after the upward channel pattern is caused by the double top pattern. At
current, we assume that the trend will be on an upward trend as there is a rising
wedge pattern. We can conclude that after the pattern appeared, it is a signal that
the price will be on an upward trend because the price will appreciate in value after
the pattern appeared.
From both analyses, it is recommended to the investor to invest in KL Kepong
shares compared to IOI. This is because KL Kepong shows an increasing trend
while IOI price movement show a downward trend.

6.4

STOCHASTIC

The stochastic oscillator is momentum indicator that uses support and resistant. It
contains two lines, for the first line is the %K, which is essentially the raw measure
used to formulate the idea of momentum behind the oscillator. While, the second
line is %D, is simply a moving average of the %K. The %D line is considered to be
the more important of the two lines as it is seen to produce better signals. The
stochastic oscillator is plotted within a range of zero and how and signals
overbought conditions above 70 and oversold conditions below 30.

Page | 105

SIGNAL: As shown in the chart above, there is an existence of sideways trend.


The price movements is constant from october until middle of december. Besides
that, we also can see there is a descending triangle pattern. This will indicates that
the price movements will be on a downward trends. So, it is advisable to the investor
to sell the shares before the price is going to a downward trends. We also can see
that on the middle of July, price had break through the support level on a decreasing
trend. This will indicates that the price movement will be on a downward trend.
Currently, the price movement is decreasing and investor is advice to hold the
shares until there is a bullish signal in the price movement. This is because past
history might happen and technicians also believe that previous trends will repeats
in the future.

Page | 106

SIGNAL: Based on the above chart, on early September the price trends indicate an
increasing channel pattern that cause the price to move upwards. The investor is
advisable to buy the shares because the price is expected to increase further. Then,
at the end of December until January, the movement shows a Double Top pattern. It
will cause the price to move on a decreasing trend from January to the end of
February. In this case, the investor is advised to sell the shares because the price
will decrease. Besides, in March until the end of July the price movement indicates a
rising wedges pattern that will cause the price to move in an upward trend. At this
point, the investors are advised to buy the shares and sell it at a higher price later.
This will enable the investors to make profits from capital gain.
From both analyses, it is recommended to the investor to buy KL Kepong shares
because the price movement show an increasing trend while IOI shares show a
decreasing trend.

Page | 107

6.5

LINE

The most basic of the four charts is the line chart because it represents only the
closing the closing prices over the time frame. Line charts do not provide visual
information of the trading range for the individual points such as the high, low and
opening prices. However, the closing

price is often considered to be the most

important price in stock data compared to the high and low for the day and this is
why it is the only value used in line charts. Normally, chartist use line chart to
determine the price trend of the common stock. In order to determine the pattern,
chartist usually uses point and figure chart, candle stick chart or bar chart.

SIGNAL: The line chart above shows the trend of the companys common stock
over the five years period. As we can see from the line chart above, from 2006 until
the middle of 2007, the trend is drastically rising on a long term period. Then, the
companys common stock is on a downward trend until early 2008 and shows that
the trend is on a short term period. From early 2008 until late of 2009, the trend is
Page | 108

rising again and the trend becomes stagnant before it decrease again in early 2011.
It is advisable to the investor to hold their investment and waits until the trend is
rising again in future.

SIGNAL: The KL Kepong line chart also shows the trend of the companys common
stock.

From the year 2006 until late of 2007, we can see that the companys

common stock is on a rising trend. After that, the trend is decreasing on a short term
period. Later, the trend is drastically decreasing until early 2008. From the year 2008
until 2011 we can see that the line chart above shows that the companys common
stock is experiencing a long term upward trend. It is advisable to the investor to buy
the common stock as the trend is increasing for a long term period.
From both analyses, it is recommended to the investor to buy KL Kepong shares
because we can see that from the line chart above, we can see that KL Kepong is
on a rising trend. For IOI Company the share is on a decreasing trend.

Page | 109

6.6

CANDLESTICK CHART

The candlestick charts are closely related to bar chart. The structure of the
candlestick also consists of four major price; high, low, open, and close. At the most
basic level, candlestick chart are easier to view than bar chart. In addition,
candlestick chart provide particular trading signal. The body of the candlestick bar
chart is formed by the opening and closing price.

SI
GNAL: Based on the chart above, it shows that the price in the early September
started with the shares price being closed lower than the opening price, the body is
in shading pattern indicates that the price is on a downward trend, with the opening
price at the top and the closing price at the bottom. On November, the movement
shows a pattern that is known as Double Top. Based on this pattern, the price trend
is expected to decrease. Next, in the early of April, the price has break through the
support level that will cause the price to move further decline. The investors should
sell the share before the price is going to decrease. At current, the investor is advice
to sell the share because the trend shows a repeated trend and it is expected that
price will decrease in the future.
Page | 110

SIGNAL: Early September shows that the shares are traded at a lower price, and
then the trend shows a bullish trend during the next month. Investor is advised to
buy the share during the middle of September because the price is expected to rise
later. It turn out the price movement is on an upward trend at the beginning of
September to the end of December. While, in the early of January the movement
shows a Double Top pattern. For the investors who have the companys share they
should sell their share because the price is expected to decline. In contrast, if the
investors who want to buy the shares, they should wait until the price decrease at a
lower price. Next, at the end of February the future price might be on an upward
trend again because of the previous pattern. Currently, at the September the shares
closed higher than the opening price, indicates that the volume of trading is
increasing. It is advisable to the investor to buy the shares now because it is
expected that the price will increase in future repeating a previous trend.
From both analyses, it is recommended to the investor to invest in the KL Kepong
shares because the price shows an increasing trend compared to IOI Company that
is on a decreasing trend.

Page | 111

6.7

PRICE MOVING, AVERAGES AND VOLATILITY

SIGNAL: From the above chart, 20 day moving averages refer to a short term
moving average whereas 50 day moving averages refer to long term moving
average. So that, from the above chart whenever there is a sign (cross between the
lines) this will give sign whether to buy, sell or hold. When long term moving average
is above the short term moving average, price will on a downward trend. So, it is
advisable to investor to sell the shares before the crossover. Moreover, the price has
penetrated the support line and we can conclude that the price will move on a
downward trend. At the buying signal, we can see that the long term moving
average is below short term moving average. So, the price of the common stock is
on an upward trend. At the selling signal, short term moving average is below long
term moving average. We can say that, the price will decrease in the future. At
current, investors should hold the investments and waits for the future trends and
patterns, whether it is a selling signal or buying signal. This is because, at current,
long term moving average is above short term moving average, and indicates that
the price is on a downward trend.

Page | 112

SIGNAL: From the above chart, we can say at the beginning the price is on an
increasing trend which is investors are advice to buy. At the selling signal, short term
moving average line is below long term moving average. At the selling point in
February, it is advisable for investor that has the shares, to sell. Whenever this
happen, it is preferable for investor to sell the shares before the crossover because
the price will move on a downward trend after the crossover. In contrast, when short
term moving average is above long term moving average, it is a buying signal
because the price will move on an upward trend. At current, the price is on a
downward trend because the long term moving average above the short term
moving average and it is suggested to sell. Lastly, at the end, the price is saying will
increased in future because it is expected that the short term moving average will
crossover the long term moving average on an upward trend, result in the increasing
in price trend. It is suggested to investors to buy the share because the price will
increase in future enable them to make profits from capital gain.
From both analyses, we strongly suggest that KL Kepong shares are better than IOI.
It is because the price of KL Kepong share will appreciate later in the future
according to the trend that is available. For IOI the price is moving on a decreasing
trend and it is not profitable for the investor to invest in the IOI share.

Page | 113

Overall, from the technical analysis, we strongly suggest investors to invest in KL


Kepong because the price is on an upward trend; enable the investors to make
profits from the capital gain. It is because the investors will buy at a low price and
then sell them at higher price. For IOI, the indicators shows that the price will further
decline and it is not profitable to investors to invest in the company.

Page | 114

CHAPTER 7
CONCLUSIONS AND RECOMMENDATIONS

7.1

CONCLUSION

We can conclude from the economic analysis, currently, Malaysia economy is on a


growing phase. Malaysia has recovered from the global financial crisis during year
2009 and 2010. In 2011, we conclude that Malaysia capital market will grow and
attract more local and abroad investor.
From the industry analysis, we can conclude that the plantation industry is also on a
recovering phase. This is because, companies in the plantation industry is still
recovering from the financial crisis and needs capital to overcome the crisis. Thus it
will result in the growing stage at a future. This will help to raise the performance of
the plantation industry due to the increasing demand of palm oil in global market.
From the company analysis, it is attractive to investor for making an investment in
the IOI Corporation since it is an established company and have a good reputation.
Furthermore, IOI also is a leading company in the plantation industry compared to
KL Kepong.
In the fundamental analysis, we can conclude that the analysis is very useful for the
long term investor. It is because in the fundamental analysis we have to evaluate the
previous 5 years performance of the companies and making a prediction on the
future performances of the company. From the analysis that we have done, we
strongly suggest that investors to make an investment in IOI company because after
we evaluate the company performances based on the previous 5 years data, IOI is
more profitable and efficient in managing their company. Usually, fundamental
analysis is used to determine the intrinsic value of the shares and the performances
of the company are affecting the outcome.
However, in technical analysis, we are strongly recommended the investors to buy
KL Kepong shares. This is because, from the analysis based on the several types of
technical charting, the price movement of KL Kepong is on an increasing trend.
Unlike IOI, the share is moving on a downward trend. Usually, technical analysis is
used to determine the shares value on a short term period and technical analysis
ignores the condition and performances of the company.

Page | 115

7.2

RECOMMENDATION
Our group has comes with several recommendations for the potential

investors to assist them in making investment decisions regarding the two


companies.
The first recommendation that our group have come with to assist the potential
investors is that we strongly suggest for the investors to invest in both shares. This
is because the actual return that both shares provided are above the expected
return. It is profitable to investors as both shares provide positive return to the
investors. Besides that, by making a simultaneous investment, investors also can
diversified their risk and optimize their return.
Next recommendation is that for a long term investor, it is more suitable for them to
invest in IOI Corporation. This is based on the fundamental analysis we have come
out that for a long term investment purposes, IOI is more profitable compared to KL
Kepong.
Our last recommendation is that for a short term investment purposes, according to
the technical analysis that we have done, it is more suitable for the investor to make
an investment in KL Kepong. This is because, based on the technical analysis
outcomes, the price movement of KL Kepong is on a rising trend compared to IOI
that moves in a downward trend.

Page | 116

CHAPTER 8
APPENDIX

Appendix 1: Ranking of Developed Country


Rank

Countries

Norway

Australia

New Zealand

United States

Ireland

Liechtenstein

Netherlands

Canada

Sweden

10

Germany

11

Japan

12

South Korea

Appendix 2: The examples of developing countries


Malaysia

Ecuador

Nigeria

Philippines

Armenia

Costa Rica

Tunisia

Peru

Brazil

Croatia

Turkey

Hungary

India

Morocco

Estonia

Uruguay

Cambodia

Jamaica

Mexico

Vietnam

Sources: American Mathematical Society

Page | 117

Appendix 3: The example of third world countries


Timor Leste

Tanzania

Guinea Bissau

Malawi

Yemen

Ethiopia

Somalia

Burundi

Niger

Sierra
Leone
Madagasc
ar
Zambia

Sources: IMF-International Monetary Fund


Appendix 4: Example of ASEAN country116
Brunei

Myanmar

Cambodia

Malaysia

Indonesia

Vietnam

Thailand

Singapore

Philippines

Laos

Appendix 5: Ratio for IOI Company.


IOI
Current Ratio
Quick Ratio
Net Working Capital
Debt Ratio
Debt-to-Equity Ratio
Time-interest Earned
Net Profit Margin
Gross Profit Margin
Operating Profit Margin
ROE
ROA
ARTO
INTO
TATO
Sustainable Growth
Sales
Net Income
Cost of Goods Sold
Total Asset

2006
4.865678181
3.084851516
2744013
0.244294386
0.413625431
7.428906987
0.138107013
0.306480156
0.173932201
0.139840697
0.082592352
7.867798352
3.197434226
0.598031557
0.072127205
6109668
843788
4041883
10216297

2007
5.06443281
3.527646835
4659417
0.266975247
0.469212552
11.30129676
0.165547771
0.296646485
0.183787688
0.191504664
0.108963421
7.636812555
3.460815449
0.658199264
0.191504664
8952727
1482104
6097102
13601849

2008
3.112073895
1.925258205
5089908
0.346638959
0.710746803
13.89591207
0.152170191
0.270035006
0.182509898
0.265943987
0.12970378
9.299188553
3.665077922
0.852359972
0.157100618
14665369
2231632
10482559
17205605

2009
4.703696193
3.049622911
4730183
0.348655446
0.665492572
11.16463133
0.067361991
0.302805854
0.17739335
0.117838824
0.061736448
11.5687821
4.70941201
0.916487879
0.060970803
14600474
983517
9948647
15930897

2010
4.997864074
3.648949418
5727476
0.27583527
0.4430818
8.55098704
0.162295078
0.2578092
0.170116277
0.188833657
0.117556132
11.48509305
4.697244659
0.724335781
0.129677878
12542962
2035661
9077430
17316502

116 http://en.wikipedia.org/wiki/List_of_ASEAN_countries_by_GDP_%28nominal%29
Page | 118

Appendix 6: Ratio for KL Kepong Company.


KL KEPONG
Current Ratio
Quick Ratio
Net Working Capital
Debt Ratio
Debt-to-Equity Ratio
Time-interest Earned
Net Profit Margin
Gross Profit Margin
Operating Profit Margin
ROE
ROA
ARTO
INTO
TATO
Sustainable Growth
Sales
Net Income
Cost of Goods Sold
Total Asset

2006
2.614981145
1.546757737
1134928
0.066312926
0.083878378
34.82124516
0.111378375
0.327851436
0.126379464
0.097050227
0.076726383
6.905380579
3.333809781
0.688880435
0.097050227
3916649
436230
2502671
5685528

2007
2.107386403
1.210859124
1232541
0.151725385
0.215653704
21.54309748
0.136978116
0.323634119
0.153631276
0.141115373
0.099283174
6.382313343
3.269713615
0.724810481
0.061227639
5067627
694154
3262687
6991658

2008
2.069747481
1.291919557
1713713
0.209309713
0.321438466
20.90652648
0.132475709
0.303436797
0.170862684
0.187942087
0.122381446
8.962397617
4.227096682
0.923802908
0.08244758
7855425
1040653
5267233
8503356

2009
2.564448025
1.836685298
1945546
0.203636443
0.310640789
12.50578022
0.091990337
0.292069246
0.129163445
0.108714771
0.071266524
7.345825882
4.981089338
0.774717499
0.033105023
6658308
612500
4508110
8594498

2010
2.673853257
1.653937149
2125335
0.184489947
0.280873223
20.58856035
0.135147583
0.292102022
0.160162315
0.168577121
0.110728904
9.524157424
3.915673499
0.819318417
0.088774003
7490626
1012340
5070852
9142509

Appendix 7: Ratio for Industry.


INDUSTRY

2006

2007

2008

2009

Page | 119

2010

Current Ratio

2.815772228

3.405296381

2.939032607

3.407455529

3.162563349

Quick Ratio

1.924385979

2.625379874

2.147770128

2.608038644

2.509399875

Net Working Capital

730599.5

1129417.667

1307906.5

1297255.667

1458865.167

Debt Ratio

0.217940947

0.19536211

0.232091142

0.239332271

0.194744929

Debt-to-Equity Ratio

0.493212132

0.368263006

0.553122265

0.540823086

0.380425448

Time-interest Earned

10.21073114

14.63975989

12.6284556

8.606500876

575.5525901

Net Profit Margin

0.214574038

0.223752935

0.205358425

0.146905381

0.185618399

Gross Profit Margin

0.333659954

0.400788364

0.371000956

0.326341685

0.360556561

Operating Profit Margin

0.188693975

0.26928077

0.259732808

0.203825679

0.25258498

ROE

0.119436194

0.179173397

0.23416013

0.112182647

0.130840863

ROA

0.076074137

0.11342335

0.123804886

0.065717871

0.081926583

ARTO

8.081489134

12.17533019

16.01465214

12.6735705

10.94169815

INTO

4.726769553

5.862600623

4.531749345

6.91125686

5.639903476

TATO

0.404751329

0.555987872

0.659830046

0.553737194

0.487301433

Sustainable Growth

0.102040709

0.147192499

0.181627532

0.08426261

0.101335306

Sales

1837678.5

2626275.667

4119089.167

3832511.333

3718241.333

Net Income

259631.8333

452885.3333

646153

330755.6667

599541.5

Cost of Goods Sold

1181417.833

1693246

2810530.833

2569192

2550822

Total Asset

3211808.667

4100297.5

5065553.5

4956433.167

5603904.667

Appendix 8: IOI Corporation Bhd Income Statement and Balance Sheet.

Page | 120

TYPE
WC06026
WC05350

WC01001

WC01051

WC01100

WC01101

WC01151

WC01149

WC01150

WC01250
WC01251

WC01255

WC01266

WC01251

WC01266

WC01255

WC01201

WC01084

WC01253

WC01254

WC01401
WC01451
WC01401
WC01451

DESCRIPTIO
N

2006

2007

2008

2009

2010

NATION

30/6/2006

30/6/2007

30/6/2008

30/6/2009

30/6/2010

6109668

8952727

14665369

14600474

12542962

4041883

6097102

10482559

9948647

9077430

1872492

2655795

3960163

4421109

3233691

492148

547797

593033

587885

559852

195293

199830

222647

230718

231841

29157

12725

12508

12930

13318

1062668

1645401

2676575

2590027

2133762

136515

144874

191790

231419

235352

6530

720

826

566

14182

20012

39680

68035

60346

47214

136515

144874

191790

231419

235352

20012

39680

68035

60346

47214

6530

720

826

566

14182

18327

16553

29900

21408

2415

540911

607655

698158

698190

670942

285

118984

31091

25903

12858

22419

15184

36531

1125421

1953757

3049066

1798548

2462387

196158

340109

683010

486943

1125421

1953757

3049066

1798548

2462387

196158

340109

683010

486943

485517

DATE OF
FISCAL
YEAR END
NET SALES
OR
REVENUES
COST OF
GOODS
SOLD(EXCL
DEPRECIATI
ON)
GROSS
INCOME
SELLING,
GENERAL &
ADMINISTRA
TIVE
EXPENSES
DEPRECIATI
ON,
DEPLETION
AND
AMORTIZATI
ON
AMORTIZATI
ON OF
INTANGIBLE
S
AMORTIZATI
ON OF
DEFERRED
CHARGES
OPERATING
INCOME
INTEREST
EXPENSE
ON DEBT
INTEREST
CAPITALIZE
D
NONOPERATING
INTEREST
INCOME
INTEREST
EXPENSE
ON DEBT
NONOPERATING
INTEREST
INCOME
INTEREST
CAPITALIZE
D
RESEARCH
&
DEVELOPME
NT
SALARIES
AND
BENEFITS
EXPENSES
EXTRAORDI
NARY
CREDIT PRETAX
EXTRAORDI
NARY
CHARGE PRETAX
PRETAX
INCOME
INCOME
TAXES
PRETAX
INCOME
INCOME
TAXES
MINORITY

485517

Page | 121

TYPE
WC06026
WC05350

WC02501

WC02649

WC02101
WC02201
WC02101

WC02001

WC02051

WC02001

WC02201
WC02999
WC03040

WC03051

WC03101
WC03151
WC03251

DESCRIPTIO
N
NATION
DATE OF
FISCAL
YEAR END
PROPERTY,
PLANT AND
EQUIPMENT
- NET
TOTAL
INTANGIBLE
OTHER
ASSETS NET
INVENTORIE
S - TOTAL
CURRENT
ASSETS TOTAL
INVENTORIE
S - TOTAL
CASH &
SHORT
TERM
INVESTMEN
TS
RECEIVABLE
S(NET)
CASH &
SHORT
TERM
INVESTMEN
TS
CURRENT
ASSETS TOTAL
TOTAL
ASSETS
ACCOUNTS
PAYABLE
SHORT
TERM DEBT
& CURRENT
PORTION OF
LONG TERM
DEBT
CURRENT
LIABILITIES TOTAL
WORKING
CAPITAL
LONG TERM

2006

2007

2008

2009

2010

########

########

########

########

########

6068853

5289554

5446537

5435808

5517578

415830

510661

514136

513830

513830

1264102

1761753

2860119

2112503

1932501

3453853

5805805

7499818

6007335

7160110

1264102

1761753

2860119

2112503

1932501

1230370

2735195

2895934

2464175

3881696

776541

1172312

1577059

1262058

1092108

1230370

2735195

2895934

2464175

3881696

3453853

5805805

7499818

6007335

7160110

10216297

13601849

17205605

15930897

17316502

243674

393035

622609

470776

422349

161553

249694

1096955

199091

428221

709840

1146388

2409910

1277152

1432634

2744013

4659417

5089908

4730183

5727476

2334231

3381663

4867178

5355303

4348281

Page | 122

DEBT
WC03255

TOTAL DEBT

2495784

3631357

5964133

5554394

4776502

WC03255

TOTAL DEBT

2495784

3631357

5964133

5554394

4776502

1230370

2735195

2895934

2464175

3881696

335496

423864

495843

469982

438208

746984

856954

965117

426156

289292

605267

625881

613788

624680

667552

6033923

7739258

8391361

8346290

10780181

605267

625881

613788

624680

667552

6033923

7739258

8391361

8346290

10780181

WC02001

WC03263
WC03426
WC03480
WC03501
WC03480
WC03501

CASH &
SHORT
TERM
INVESTMEN
TS
DEFERRED
TAXES
MINORITY
INTEREST
COMMON
STOCK
COMMON
EQUITY
COMMON
STOCK
COMMON
EQUITY

Appendix 9: KL Kepong Income Statement and Balance Sheet


TYPE
WC06026
WC05350
WC01001

WC01051

WC01100

WC01101

WC01151

WC01149

WC01150
WC01250
WC01251
WC01255
WC01266

DESCRIPTIO
N
NATION
DATE OF
FISCAL
YEAR END
NET SALES
OR
REVENUES
COST OF
GOODS
SOLD (EXCL
DEPRECIATI
ON)
GROSS
INCOME
SELLING,
GENERAL &
ADMINISTRA
TIVE
EXPENSES
DEPRECIATI
ON,
DEPLETION
AND
AMORTIZATI
ON
AMORTIZATI
ON OF
INTANGIBLE
S
AMORTIZATI
ON OF
DEFERRED
CHARGES
OPERATING
INCOME
INTEREST
EXPENSE
ON DEBT
INTEREST
CAPITALIZE
D
NONOPERATING
INTEREST

2006

2007

2008

2009

2010

########

########

########

########

########

3916649

5067627

7855425

6658308

7490626

2502671

3262687

5267233

4508110

5070852

1284079

1640057

2383625

1944687

2188027

707041

753290

791537

823689

834171

129899

164883

204567

205511

231747

1433

2889

4271

3978

3695

4096

5903

6883

7242

494984

778546

1342199

860010

1199716

14215

36139

64200

68769

58271

16299

NA

NA

25159

24178

Page | 123

INCOME
WC01251

WC01266

WC01255

WC01201

WC01084

WC01253

WC01254
WC01401
WC01451
WC01401
WC01451
WC01501

WC01601

WC01701

WC01551

WC01701

WC18192

WC18191

WC18198

WC01706

INTEREST
EXPENSE
ON DEBT
NONOPERATING
INTEREST
INCOME
INTEREST
CAPITALIZE
D
RESEARCH
&
DEVELOPME
NT
SALARIES
AND
BENEFITS
EXPENSES
EXTRAORDI
NARY
CREDIT PRETAX
EXTRAORDI
NARY
CHARGE PRETAX
PRETAX
INCOME
INCOME
TAXES
PRETAX
INCOME
INCOME
TAXES
MINORITY
INTEREST
EXTRA
ITEMS &
GAIN/LOSS
SALE OF
ASSETS
PREFERRED
DIVIDEND
REQUIREME
NTS
NET INCOME
BEFORE
EXTRA
ITEMS/PREF
ERRED
DIVIDENDS
PREFERRED
DIVIDEND
REQUIREME
NTS
DIVIDENDS
PROVIDED
FOR OR
PAID COMMON
EARNINGS
BEFORE
INTEREST
AND TAXES
(EBIT)
EBIT &
DEPRECIATI
ON
NET INCOME
USED TO
CALCULATE
BASIC
EARNINGS
PER SHARE

14215

36139

64200

68769

58271

16299

NA

NA

25159

24178

6589

6970

10451

12088

12156

500275

605395

646687

651486

694241

15500

110400

14645

8971

194733

65212

12756

570494

854559

1403249

852807

1345431

148568

172009

355976

244751

315562

570494

854559

1403249

852807

1345431

148568

172009

355976

244751

315562

3756

20295

48852

30111

54930

436230

694154

1040653

612500

1012340

NA

392972

584133

425986

479234

584709

890698

1467449

921576

1403702

714608

1055581

1672016

1127087

1635449

436230

694154

1040653

612500

1012340

Page | 124

WC01705

WC01751

NET INCOME
USED TO
CALCULATE
DILUTED
EARNINGS
PER SHARE
NET INCOME
AVAILABLE
TO COMMON

NA

NA

1040653

612500

1012340

436230

694154

1040653

612500

1012340

WC07011

EMPLOYEES

25593

NA

25000

25000

25000

TYPE

DESCRIPTIO
N

2006

2007

2008

2009

2010

########

########

########

########

########

3132955

3477455

3993941

4259468

4471040

124376

309487

293596

328527

321939

750694

997851

1246064

905045

1295014

1837678

2345559

3315692

3189145

3395061

750694

997851

1246064

905045

1295014

460471

495634

1159705

1292481

1255105

567188

794011

876487

906407

786487

460471

495634

1159705

1292481

1255105

1837678

2345559

3315692

3189145

3395061

5685528

6991658

8503356

8594498

9142509

WC06026
WC05350

WC02501

WC02649

WC02101
WC02201
WC02101

WC02001

WC02051

WC02001

WC02201
WC02999

NATION
DATE OF
FISCAL
YEAR END
PROPERTY,
PLANT AND
EQUIPMENT
- NET
TOTAL
INTANGIBLE
OTHER
ASSETS NET
INVENTORIE
S - TOTAL
CURRENT
ASSETS TOTAL
INVENTORIE
S - TOTAL
CASH &
SHORT
TERM
INVESTMEN
TS
RECEIVABLE
S(NET)
CASH &
SHORT
TERM
INVESTMEN
TS
CURRENT
ASSETS TOTAL
TOTAL
ASSETS

Page | 125

WC03040

WC03051

WC03101
WC03151
WC03251

ACCOUNTS
PAYABLE
SHORT
TERM DEBT
& CURRENT
PORTION OF
LONG TERM
DEBT
CURRENT
LIABILITIES TOTAL
WORKING
CAPITAL
LONG TERM
DEBT

165885

254283

274028

281481

266075

278418

493919

858991

627427

579612

702750

1113018

1601979

1243599

1269726

1134928

1232541

1713713

1945546

2125335

98606

566893

920844

1122726

1107089

WC03255

TOTAL DEBT

377024

1060812

1779835

1750153

1686701

WC03255

TOTAL DEBT

377024

1060812

1779835

1750153

1686701

460471

495634

1159705

1292481

1255105

179679

183584

213390

241239

220967

168795

176159

202913

308760

320145

712516

1067505

1067505

1067505

1067505

4494889

4919053

5537094

5634009

6005204

712516

1067505

1067505

1067505

1067505

4494889

4919053

5537094

5634009

6005204

4762290

5662105

6660851

7065495

7432438

WC02001

WC03263
WC03426
WC03480
WC03501
WC03480
WC03501
WC03451
WC03998

CASH &
SHORT
TERM
INVESTMEN
TS
DEFERRED
TAXES
MINORITY
INTEREST
COMMON
STOCK
COMMON
EQUITY
COMMON
STOCK
COMMON
EQUITY
PREFERRED
STOCK
TOTAL
CAPITAL

CHAPTER 9
REFERENCES
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http://www.economywatch.com/economicstatistics/Japan/GDP_Constant_Prices_National_C
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http://www.indexmundi.com/japan/economy_profile.html
http://www.nber.org/papers/w3737
2008, Annual Report Genting Berhad
2008, Annual Report IOI Corporation Berhad
2008, Annual Report IOI Corporation Berhad
2008, Annual Report Kuala Lumpur Kepong Berhad
2008, Annual Report Kuala Lumpur Kepong Berhad
2009, Annual Report Genting Berhad
2009, Annual Report Genting Berhad

Page | 126

2009, Annual Report IOI Group Berhad


2009, Annual Report Kuala Lumpur Kepong Berhad
2009, Annual Report Kuala Lumpur Kepong Berhad
2009, Annual Report Kuala Lumpur Kepong Berhad
2009, Annual Report Kuala Lumpur Kepong Berhad
2009, Annual Report Kuala Lumpur Kepong Berhad
2009, Annual Report Kuala Lumpur Kepong Berhad
2010 Annual Report IOI Corporation Berhad
2010, Annual Report Genting Berhad
2010, Annual Report Kuala Lumpur Kepong Berhad
An expansionary policy increases the total supply of money in the economy more rapidly
than usual
Balance of payment- Economicmywatch.com
contractionary policy expands the money supply more slowly than usual or even shrinks it
Economic watch, http://www.economywatch.com/economic-statistics/Zambia
Federal Ministry for Economic
http://biz.thestar.com.my/news/story.asp?file=/2011/6/20/business/20110620121704&secbu
siness
http://data.worldbank.org/country/japan
http://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_price_crisis
http://en.wikipedia.org/wiki/ASEAN
http://en.wikipedia.org/wiki/Developing_country
http://en.wikipedia.org/wiki/Economy_of_Morocco
http://en.wikipedia.org/wiki/Economy_of_Morocco
http://en.wikipedia.org/wiki/Economy_of_South_Korea
http://en.wikipedia.org/wiki/Economy_of_South_Korea
http://en.wikipedia.org/wiki/Economy_of_South_Korea
http://en.wikipedia.org/wiki/Indonesia
http://en.wikipedia.org/wiki/List_of_ASEAN_countries_by_GDP_%28nominal%29
http://en.wikipedia.org/wiki/Singapore
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2212
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2212
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http://www.almotamar.net/en/8221.htm
http://www.almotamar.net/en/8221.htm
http://www.aph.gov.au/house/committee/jfadt/india/indiach3.pdf
http://www.bmz.de/en/what_we_do/countries_regions/naher_osten_mittelmeer/marokko
/index.html
http://www.economywatch.com/world_economy/indonesia/economic-forecast.html
http://www.economywatch.com/world_economy/indonesia/structure-of-economy.html
http://www.gentingplantations.com/news/2006/index.htm
http://www.id.emb-japan.go.jp/birelEco_id.html
http://www.impactalliance.org/ev_en.php?ID=49126_201&ID2=DO_TOPIC
http://www.indexmundi.com/facts/japan/export-value-index
http://www.indexmundi.com/japan/economy_profile.html
http://www.indexmundi.com/morocco/economy_overview.html
http://www.indexmundi.com/south_korea/gdp_real_growth_rate.html
http://www.investopedia.com/terms/m/monetarypolicy.asp
http://www.magharebia.com/cocoon/awi/xhtml1/en_GB/features/awi/features/2008/09/22
/feature-02
http://www.mas.gov.sg/resource/eco_research/eco_dev_ana
/Recent_Economic_Developments.pdf
http://www.moroccobusinessnews.com/Content/Article.asp?idr=18&id=1299
http://www.nber.org/papers/w3737
http://www.state.gov/r/pa/ei/bgn/2798.htm#foreign
http://www.twnside.org.sg/title2/gtrends/gtrends227.htm
http://www.weforum.org/en/initiatives/gcp/Africa%20Competitiveness%20Report/index.htm
http://www.wikipedia/zambia
IOI chairman's passion for his oil palms . New Straits Times, 31st Oct 2009
IOI Company 2010 Annual Report
IOI Corp to buy out property arm. New Straits Times, 5th Feb 2009
IOI CORPORATION BACKGROUND
IOI gets SC nod to take unit private. New Straits Times, 25th Oct 2005
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JourneytoForever.com
KL Kepong Annual Report 2010
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Leonard, Thomas M.. Encyclopedia of


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the

Developing World. Taylor &

Francis.

Malaysia Economic Report 2006/2007 : Economic Management Outlook


Malaysia Economic Report 2006/2007 : Economic Management Outlook
Malaysia Economic Report 2006/2007 : Economic Management Outlook
Malaysia Economic Report 2007/2008 : Economic Management Outlook
Malaysia Economic Report 2007/2008 : Economic Management Outlook
Malaysia Economic Report 2007/2008 : Economic Management Outlook
Malaysia Economic Report 2007/2008 : Economic Management Outlook
Malaysia Economic Report 2007/2008 : Economic Management Outlook
Malaysia Economic Report 2007/2008 : Economic Management Outlook
Malaysia Economic Report 2007/2008 : Economic Management Outlook
Malaysia Economic Report 2009/2010 :Economic Management Outlook
Overnight Policy Rate is the interest rate at which a depository institution lends immediately
available funds (balances within the central bank) to another depository institution
overnight
Paromita Shastri (2008-05-31). "Economy cools as inflation fears rise".
Raising oil palm yields. New Straits Times, 25th Jan 2008
Sime Darby Annual Report 2006
Sime Darby Annual report 2006
The first seeks to create 1.5m jobs in the agriculture sector, and add around 7.65 billion to
GDP through 10.8
billion of investments by 2020, while the second will establish
new industrial zones and boost training to increase efficiency
The growth of U.S. investment in Singapore and the large number of Americans living there
enhance opportunities for contact between Singapore and the United States. Many
Singaporeans visit and study in the United States. Singapore is a Visa Waiver
Program country.
The usual aim of open market operations is to control the short term interest rate and the
supply of base money in an economy, and thus indirectly the total money supply
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www.reportlinker.com
www.wikipedia.com/commodity
www.wikipedia.com/commodity
www.wikipedia.com/commodity
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www.wikipedia.com/plantationmanagment
www.wikipedia.com/platationmanagment
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www.wikipedia.org/malaysia

Page | 130