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Dutch Lady Milk Industries Berhad

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1.0 Company Profile

Dutch Lady Milk Industries Berhad or Dutch Lady Malaysia is one of the leaders
in the quality branded dairy business in Malaysia. It was incorporated in 1963. Besides
that, it was listed on Bursa Malaysia in 1968 and it was the first milk company in
Malaysia to be listed on Bursa Malaysia. It is subsidiaries of Royal Friesl and Campina, a
Dutch multinational corporation and one of the largest milk companies in the world.

Dutch Lady Malaysia manufactures and sells a wide range of quality dairy
products and fruit juices for the home and export market such as Growing-up Milk,
Powdered Milk, Condensed Milk, Cultured Milk, Yoghurt and Fruit Juice Drinks.
Besides that, the company also introduces the growing up milk powder specifically for
children like Dutch Lady 123 and Dutch Lady 456.

The products of Dutch Lady Malaysia are all halal-certified whereby Muslim can
consume their products without worrying. Besides that, their products also fulfill quality
standards like ISO 9001. In 2010, Halal Policy statement was introduced by Dutch Lady
Malaysia. This is because the company wishes to outline the commitment to provide
Halal products to Muslim consumers by adhering to Halal requirements which set high
standards for hygiene, quality, safety and sanitary conditions. Besides that, the
Companys halal food sourcing and production throughout the supply chain are in
compliance to DLMI Halal standards and Jabatan Kemajuan Islam Malaysia (JAKIM)
requirements.

Like other listed company, Dutch Lady Malaysia also involves in cooperate social
responsibilities activites. For example, company shares the benefits of milk to more than
30,000 school children annually by participating in the Programe Susu 1 Malaysia
(PS1M). Besides that, Dairy Development Programme (DDP) has helped local farmers
with higher production of milk in both quality and volume, ensuring sustainability of
milk supply.

The Companys factory is located in Petaling Jaya and it employs 600 Malaysians.
Currently, Dutch Lady Malaysia is the market leader in key milk categories such as UHT
milk, Sterilised milk and Growing-Up Milk.

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2.0 Company Overview

DUTCH LADY MILK INDUSTRIES BERHAD

Market: Main Market

Sector: Consumer Products

Stock Code: 3026

Market Capital (RM): 3.032b

(Source: Investing.com, 3/4/2014)

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3.0 Common Size Analysis

Balance Sheet

Analysis of Common size balance sheet for 5 consecutive years

Common size balance sheet is a standardized balance sheet which is presenting all
items in percentage terms. This will help investors to compare the company financial
position across the years or with competitors. In this analysis, it includes Dutch Lady
Milk Industries Berhads 5 years balance sheet start from 2008 until 2012. Basically, the
analysis will discuss on Dutch Lady Milk Industries Berhads assets, liabilities and equity
in 5 years. 5 years common size balance sheet is attached at the end of the analysis.

Assets

Current Assets

From the common size balance sheet, we can found out that most of the assets are
current assets. The current assets include inventories, trade and other receivables,
prepayments and cash. From 2008 to 2012, the percentages of current assets are roughly
80% on total assets. It is because Dutch Lady Milk Industries Berhad is a FMCG
company which highly depends on the sales of the products. Basically, the percentage for
inventories remains constant from 2008 to 2012 which is 20% - 25%. In other words, the
sales or turnover of the company may not fluctuate and stable. For trade and receivables,
it has been decrease for 5 consecutive years. It starts with 40.60% in 2008 and decrease to
4.23% in 2012. It may indicate that the ability to collect debt of Dutch Lady Milk
Industries Berhad has been improved. It can bring good images to the company. This is
the reason why the cash and cash equivalent of Dutch Lady Milk Industries Berhad
shows the increasing trend. From 2008 to 2012, the percentage of cash and cash
equivalent has been increased from 8.24% to 53.52% which is a massive increment.
When the company able to collect debt more effectively, it will increase the cash and
cash equivalent. Thus, during 2012, Dutch Lady Milk Industries Berhad is able to pay
dividend which is more than the net profit as they have plenty of cash in hand.

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Non-Current Assets

Non-current assets for Dutch Lady Milk Industries Berhad are consisted of
property, plant and equipment and intangible assets. It is same with current assets which
is remaining constant for 5 consecutive years. The percentage for non-current assets is
around 20% to 25% in these 5 years. For property, plant and equipment, it shows a
decreasing trend but in a slower rate. In other words, the decreasing of percentage of
property, plant and equipment is due to the depreciation and amortization. Besides that, it
also shows that Dutch Lady Milk Industries Berhad do not have major acquisition or
selling of non-current assets. Intangible assets also show the similar trend as compare to
property, plant and equipment. It has a decreasing trend but in slower rate.

Liabilities

Current Liabilities

For Dutch Lady Milk Industries Berhad, the current liabilities include trade and
other payables, provision and current tax liabilities. The percentage of current liabilities is
decreased from 43.21% in 2008 to 33.95% in 2011. In 2012, the percentage is raise and
achieves 42.27%. The possible reasons for the raise are increment in revenue and high
amount payment of special interim payment. Trade and other payables generally is the
debt that Dutch Lady Milk Industries Berhad owes to creditor. Trade and other payables
shows a decreasing trend from 2008 to 2011 which is from 41.61% to 30.57%. It means
that Dutch Lady Milk Industries Berhads ability in paying debt is good. However, the
percentage is increased from 30.57% in 2011 to 38.28% in 2012. In other words, Dutch
Lady Milk Industries Berhad has increased their short term debt to finance the operation
of business. It may due to extensive marketing campaign of company like Drink more
do more and introduction of new products like Dutch Lady Chocolate Drink and Dutch
Lady ActivGold. For current tax liabilities, it shows increasing trend from 2008 to 2012,
which is from 1.51% to 3.94%. Since the current tax liabilities are depend on the net
income, it is normal that the percentage of the current tax liabilities also increase.

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Non-Current Liabilities

The percentage of non-current liabilities is only 1%-2% of the total. In other


words, Dutch Lady Milk Industries Berhad does not depend on the long term debt to
finance their business. The only item in non-current liabilities is deferred tax liabilities.
Generally, deferred tax liabilities are records the fact that the company will pay more
income tax in the future due to transaction that took place during the current period. The
trend of the deferred tax liabilities for Dutch Lady Milk Industries Berhad is fluctuating
across these 5 years which is around 1%-2%.

Equity

From the common size balance sheet, we can see that Dutch Lady Milk Industries
Berhad uses more equity financing rather than debt financing. In 2012, the percentage of
the equity is 56.47% and the liability is 43.53%. From 2008-2011, the percentage of the
equity is higher than the percentage of the liability. There are two items in equity which
are share capital and retained earnings.

Share capital is the fund that rose by the company by issuing shares. Basically, the
company has constant of the amount in share capital. In other words, Dutch Lady Milk
Industries Berhad does not raise any new shares in these 5 years. Thus, it means that the
Dutch Lady Milk Industries Berhad have enough capital to run their business.

For retained earnings, it has been increased from 2008 to 2011 which is 33.82% to
48.97%. In other words, Dutch Lady Milk Industries Berhad able to put in more income
in order to funding their business. However, the retained earnings are dropped to 39.75%
in 2012. It is because Dutch Lady Milk Industries Berhad is giving out their special
interim dividend and the amount is greater than the new profit that company earns.
Therefore, it will decrease the retained earnings.

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Income Statement

Analysis of Common size income statement for 5 consecutive years

Common size income statement is a standardized income statement which is


presenting all items in percentage terms. It is ease to assists any party to read and
compare the income statement. In this analysis, it includes Dutch Lady Milk Industries
Berhads 5 years income statement start from 2008 until 2012. Basically, the analysis will
discuss on the revenue, gross profit, operating profit, profit before tax, net profit,
dividend and additional to retained earnings of Dutch Lady Milk Industries Berhad in 5
years. 5 years common size income statement is attached at the end of the analysis.

Revenue

Basically, revenue is income which company receives from his ordinary business
activity. Dutch Lady Milk Industries Berhad able to increase their revenue by 24% from
year 2008 to 2012 which is around RM 170 million. As compare to one of their main
competitors, Nestle (Malaysia) Berhad able to achieve increment of 17% from year 2008
to 2012. In other words, Dutch Lady Milk Industries Berhad performs better than Nestle
(Malaysia) Berhad in these 5 years. The increase of revenue is mainly due to high
demand of companys core products like milk powder and liquid dairy products.

Gross profit

Gross profit is the sum left after revenue minus the cost of goods sold. In year
2012, the gross profit of Dutch Lady Milk Industries Berhad is 39.30% of revenue. It
shows improvement from year 2008 which is only 25.98%. The increment of gross profit
is due to Dutch Lady Milk Industries Berhad ability to reduce their cost of goods sold.
From the common size income statement, we can see that the cost of goods sold in year
2008 and 2012 is indifferent. Besides that, the cost of goods sold in year 2008 is 74.02%
of revenue and 60.70% in 2012 which is a decrease of 10.32%. Introduction of new
technology and innovation in product are possible reasons of reduction of cost of goods
sold.

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Operating profit

Operating profit is known as earnings before interest and tax (EBIT). Operating
profit is the income that company earns after deduct the operation expenses like
administrative expenses, transportation, sales commission and so on. Basically, the
operating profit for Dutch Lady Milk Industries Berhad also show increasing trend which
is increase from 8.17% in 2008 to 18.43% in 2012. This is because the effect of
increment in gross profit. We can see that the percentage of the operating expenses do not
fluctuate much across these 5 years. Generally, the ranges of the percentage are from 19%
to 24%. In other words, the operating expenses of Dutch Lady Milk Industries Berhad do
not change across these 5 years.

Profit before tax

Profit before tax is computed by using operating profit minus interest expenses.
Basically, profit before tax can tell us how much money company spends to pay their
interest cost. Besides that, it also shows that company is financed more to debt finance if
company pays a lot of interest cost. Dutch Lady Milk Industries Berhads profit before
tax also shows an increasing trend which is increase from 8.13% in 2008 to 18.79% in
2012. It is believed that the reason of the increasing is due to increase in gross profit. As
we can see from the common size income statement, the finance cost of Dutch Lady Milk
Industries Berhad is very low which is below 1%. The highest finance cost is 0.32% in
2012. Thus, we can see that Dutch Lady Milk Industries Berhad do not depend much on
debt financing.

Net profit

Net profit is the earning of the company after deducting all the expenses, interest
cost and tax. Sometimes, net profit also referred as net income or net earnings. Basically,
net profit is the key indicator for the company performance. It can measure how effective
a company in doing business to maximize the profit. The net profit for Dutch Lady Milk
Industries Berhad is only 5.99% in 2008 and increase by 8% and result in 13.99% in
2012.It shows a great improvement. As mentioned earlier, the reduction in cost of goods
sold is the main reason of the increment in net profit. Other than that, the increase of the

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revenue also play important role in increment of net profit. The net profit margin of
Dutch Lady Milk Industries Berhad is good as compare to Nestle (M) Berhad. Nestle (M)
Berhad net profit margin is only 8.8% in 2008 and 11.1% in 2012. Thus, Dutch Lady
Milk Industries Berhad shows a great improvement.

Dividend

Dividend is a form of profit distribution to the shareholder who is the owner of


the company. From the income statement, we can see that the dividend payment remains
constant from year 2008 to 2012 which is around 5%-7%. However, it shows a drastically
increase in 2012 which is roughly 19%. The increment of the dividend is due to the
distribution of special interim dividend.

Additional to retained earnings

Basically, retained earnings are the earnings that company does not distribute to
the shareholders as dividend but use for company future operation. In most cases,
earnings that retained by company is to invest in research and development, expansion of
business and so on. Additional to retained earnings referred to the earnings that company
adds from net profit to the retained earnings account for every year. The additional to
retained earnings are increasing across the year 2008 to 2011 for Dutch Lady Milk
Industries Berhad. It increases from 0.09% to 7.61%. However, the additional to retained
earnings for Dutch Lady Milk Industries Berhad shows negative in the year of 2012
which is -4.88%. In other words, there is no additional to retained earnings but a
reduction of retained earnings. It is because the special interim dividend that distributed
in year 2012 is more than the net profit. In other words, Dutch Lady Milk Industries
Berhad paying more dividend than their net profit.

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4.0 Financial Ratio Analysis

Financial ratio is the relationships determined from a firms financial information.


The uses of financial ratio includes help the investors to do comparison between business
firm, determine the performance level of business firm and so on. By using financial ratio
as tools, investors able to determine whether is it worth to invest in particular business
firm or not. In this analysis, few important financial ratios are computed from the
financial statement of Dutch Lady Milk Industries Berhad. Besides that, 5 years ratios are
computed to look at the trend of the performance and justifications will be made.

Current Ratio


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Current
1.91 2.40 2.20 2.00 1.78 1.15
Ratio

Current Ratio
3

2.5

1.5
Current Ratio
1

0.5

0
2012 2011 2010 2009 2008

Current ratio is used to analysis a companys liquidity. Basically, current ratio is


computed to see the ability of company to handle short term debt by using short term
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assets (current asset). In 2012, Dutch Lady Milk Industries Berhad is able to achieve 1.91
for current ratio. In other words, it means that Dutch Lady Milk Industries Berhad has
RM1.91 in current asset for every RM1.00 in current liabilities.

From the chart above, we can see that the current ratio of Dutch Lady Milk
Industries Berhad keep increasing from 1.78 in 2008 until 2.40 in 2011. However, it is
dropped by 0.49 in 2012 which is 1.91. This is because company has higher current
liabilities in 2012. As the company is quite active in different marketing campaign, it
increases the debt of the company. Besides that, launching of new products like Dutch
Lady Chocolate drink also increase the current liabilities as more money is spent.
However, if compare with the industry indicator, Dutch Lady Milk Industries Berhad is
doing a great job as the ratio of 1.91 is higher than 1.15 which is industry indicator.

Quick Ratio


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Quick
1.37 1.71 1.52 1.41 1.18 0.59
Ratio

Quick Ratio
1.8
1.6
1.4
1.2
1
0.8 Quick Ratio
0.6
0.4
0.2
0
2012 2011 2010 2009 2008

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Quick ratio is also known as acid-test ratio. From the formula, it is similar with
current ratio, just need to exclude the inventories for current assets. It is because
inventories have the least liquidity. Thus, quick ratio measures a company's ability to
meet its short-term obligations with its most liquid assets. For Dutch Lady Milk
Industries Berhad, the quick ratio in 2012 is 1.37.

From the chart above, we can see that the trend of the quick ratio is similar with
the trend of current ratio. It starts with 1.18 in 2008 and reaches the peak at 1.71 in 2011.
However, the ratio is declined to 1.37 in 2012. The reason of the decline is due to
increment in current liabilities as company is expanding their business. As compare to
industry indicator, Dutch Lady Milk Industries Berhad can be regarded as healthy in its
liquidity. This is because 1.37 is higher than 0.59 which is industry indicator.

Debt-Equity Ratio


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Debt-Equity
0.77 0.54 0.56 0.56 0.79 0.77
Ratio

Debt-Equity Ratio
0.9
0.8
0.7
0.6
0.5
0.4 Debt-Equity Ratio
0.3
0.2
0.1
0
2012 2011 2010 2009 2008

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Debt to equity ratio is one of the ways to find out a company financial leverage.
From the debt to equity ratio, we can found out the company whether using more towards
to debt financing or equity is financing. However, there are certain industry like auto
manufacturing industry has higher debt-equity ratio due its high capital intensive industry.
For Dutch Lady Milk Industries Berhad, the debt-equity ratio in 2012 is 0.77 which
shows high debt financing.

For debt to equity ratio, Dutch Lady Milk Industries Berhad able to maintain
constant from year 2009 to 2011 which is around 0.5 to 0.6. Basically, the main reason of
Dutch Lady Milk Industries Berhad has higher debt to equity ratio is due to the increasing
of current liabilities. Besides that, the retained earnings also decrease due to the payment
to shareholders for the dividend. Dutch Lady Milk Industries Berhad is able to maintain
the ratio as per industry indicator which is also 0.77. It is suggested that Dutch Lady Milk
Industries Berhad need to reduce their current liabilities or retain more earnings in next
fiscal year in order to lower the ratio.

Total Debt Ratio


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Total Debt
0.44 0.35 0.36 0.36 0.44 0.56
Ratio

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Total Debt Ratio
0.5
0.45
0.4
0.35
0.3
0.25
Total Debt Ratio
0.2
0.15
0.1
0.05
0
2012 2011 2010 2009 2008

Total debt ratio can be computed by using total liabilities divided by total assets.
Total debt ratio can be used by investors to determine the portion of the debt in financing
the company assets. In 2012, the total debt ratio for Dutch Lady Milk Industries Berhad is
0.44. In other words, Dutch Lady Milk Industries Berhad has RM 0.44 for every RM1
assets.

From the chart above, the trend of total debt ratio is similar to the trend of the
equity to debt ratio. It starts with 0.44 in 2008 and decrease until 0.35 in 2011 and
eventually up to 0.44 in 2012. Therefore, we can conclude that the debt financing has
been increased in 2012. Too depend on debt financing may lead to possible risk of
bankrupt as company may not able to pay creditor. However, Dutch Lady Milk Industries
Berhads total debt ratio is considered healthy among industry s it is below the industry
ratio.

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Inventory Turnover


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Inventory
6.17 5.42 6.16 8.04 7.03 6.09
Turnover

Inventory Turnover
9

4 Inventory Turnover

0
2012 2011 2010 2009 2008

Inventory turnover is a ratio showing how many times a company's inventory is


sold and replaced over a period. In other words, it is a common measure of the firms
operational efficiency in the management of its assets. The higher the ratio is, the more
efficiency the firm manage its inventories. It is important because the holding cost of the
inventory is high, if the firm hold the inventory for long period, it will incur more cost.
Besides that, inventory may become obsolete if it is kept for long period. However, some
business firm has low inventory turnover like jewelry business and art gallery. In 2012,
the inventory turnover for Dutch Lady Milk Industries Berhad is 6.17. In other words, it
means that company turnover the inventory 6.17 times per year.

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As from the chart, we can find that Dutch Lady Milk Industries Berhad has a
inconsistent trend on the inventory turnover. In 2009, the company is able to make the
highest inventory turnover in these 5 years which is 8.04 times. This is because company
left little inventories in hand at that particular year. As compare to industry indicator,
Dutch Lady Milk Industries Berhad is able to reach the standard of the industry which is
6.07. In other words, the efficiency of Dutch Lady Milk Industries Berhad in managing
their inventory is in moderate level.

Receivables Turnover


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Receivables
54.54 22.08 9.45 7.33 6.07 12.24
Turnover

Receivables Turnover
60

50

40

30
Receivables Turnover

20

10

0
2012 2011 2010 2009 2008

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Receivable turnover basically is to measure a business firms effectiveness in
collecting debt. Higher ratio in receivable turnover means that business firm is effective
in collecting the debt. However, business firm which is solely depending on the cash
sales will have 0 values in receivables turnover. For Dutch Lady Milk Industries Berhad,
it achieves 54.54 times in 2012.

From the chart, the receivables turnover for Dutch Lady Milk Industries Berhad
increases drastically especially in 2011 and 2012. It starts with 6.07 in 2008 and able to
achieve 22.08 in 2011 and 54.54 in 2012. We can say that the value of the receivables
turnover is too high in 2012. It may not indicate the firm is very effective in collecting
debt. The main reason of Dutch Lady Milk Industries Berhad has very high value of
receivables turnover is due to the reduction in current liabilities. As compare to the
market indicator, Dutch Lady Milk Industries Berhad is considered outstanding in
receivables turnover as the industry indicator is only 12.24 times only.

Profit Margin


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Profit
13.99% 13.33% 8.99% 8.73% 5.99% 10.40%
Margin

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Profit Margin
16

14

12

10

8
Profit Margin
6

0
2012 2011 2010 2009 2008

Profit margin is a popular financial ratio used to measure the profitability of a


business firm. A high profit margin indicates that the company able to control the cost
and maximize profit more efficiently. However, the profit margin will be different for
different industries. For example, jewelry and art gallery will have high profit margin as
compare to fast moving consumer goods industry. In 2012, Dutch Lady Milk Industries
Berhads profit margin is 13.99%. It means that, Dutch Lady Milk Industries Berhad
generate RM0.14 for every RM1.00 of sales.

From the chart, Dutch Lady Milk Industries Berhad shows improvement in profit
margin from 2008. In 2008, the profit margin is 5.99% and keeps increasing until 13.99%
in 2012. It shows that Dutch Lady Milk Industries Berhad is a profitable company. The
main reason of the increasing in profit margin is due to increase in sales and reduction in
cost of goods sold. Comparing with industry indicator, Dutch Lady Milk Industries
Berhad is a well performer as its profit margin is beyond the industrial standard which is
10.40%.

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Return on Assets


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Return on
32.23% 27.12% 20.78% 21.50% 14.78% 9.29%
Assets

ROA
35

30

25

20
ROA
15

10

0
2012 2011 2010 2009 2008

Return on Assets (ROA) is one of the popular indicators for investor to determine
the profitability of business firm. Sometimes, it is also referred as Return on Investment
(ROI). Investors use ROA to know how efficient the company using their assets to
generate profit. Dutch Lady Milk Industries Berhads ROA is 32.23% which is the
highest from year 2008 to 2012 in 2012.

Generally, the trend of ROA is similar with the trend of profit margin. The ROA
for company in 2008 is 14.78% and keeps increasing until 32.23% in 2012. It shows that
Dutch Lady Milk Industries Berhad is keep improving in efficiency of converting their
assets to generate more profit. The reason of the increasing trend is due to increment in

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net income of the company and the total assets remain consistent across these 5 years.
The market indicator for ROA is 9.29% which is much lower than Dutch Lady Milk
Industries Berhads ROA in 2012. In other words, Dutch Lady Milk Industries Berhad is
beyond the market standard which is outstanding in terms of ROA.

Return on Equity


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Return on
57.08% 41.71% 32.35% 33.56% 26.39% 34.66%
Equity

ROE
60

50

40

30
ROE
20

10

0
2012 2011 2010 2009 2008

Return on Equity (ROE) is the ratio that measure how business firms generate
income from the equity financing. In other words, it measure how effective the company
use shareholders fund to operate business and generate income. ROE is popular financial
ratio for investor as they need to choose company which can utilize their money to gain
profit. Dutch Lady Milk Industries Berhads ROE is 57.08% in 2012.

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Again, the trend of ROE for Dutch Lady Milk Industries Berhad follows the trend
of the ROA and profit margin. In 2008, the ROE recorded is 26.39% and it keeps
increasing and reaches the peak in 2012 which is 57.08%. The reduction in equity and
increasing in profit are the reasons why the ROE is high in 2012. However, Dutch Lady
Milk Industries Berhad is considered a blue chip for investor as the ROE is above
industry standards for 2 consecutive years. Market indicator is 34.66% whereby Dutch
Lady Milk Industries Berhads ROE for 2011 and 2012 are 41.71% and 57.08%
respectively.

Earnings per share


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Earnings
193 169 100 94 67 -
per share

EPS
250

200

150

EPS
100

50

0
2012 2011 2010 2009 2008

Earnings per share (EPS) are the allocation of the net income of the company to
its outstanding shares. Basically, EPS is used to measure the efficiency of a company to

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generate income from the investors fund. It is similar to ROE but there is difference
between ROE and EPS. EPS can give a clearer picture to investor on actual earnings for
one share on hand. In 2012, Dutch Lady Milk Industries Berhads EPS achieve the
highest in the history which is RM193 per share.

From the chart, the EPS is keep increasing from 2008 to 2012 which is from
RM67 per share until RM193 per share. There is an improvement of almost 200% from
year 2008. The reason of the EPS achieve highest in history is due to the increase in net
income and the outstanding shares remains the same from year 2008 to 2012. In other
words, Dutch Lady Milk Industries Berhad able to generate more profit without raising
any funds by issuing shares in this particular period. Thus, the company is very effective
in generating profit from investors fund.

Price-Earnings Ratio


Formula:

2012 2011 2010 2009 2008 Industry


Indicator
Price-Earnings
19.00 17.47 17.58 12.36 13.43 19.08
Ratio

PE Ratio
20

15

10
PE Ratio

0
2012 2011 2010 2009 2008

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Price-Earnings ratio (PE ratio) is a valuation tool that tells you how much you are
paying for each $1 in earnings per share a stock generates. PE ratio is the quick way to
look at the valuation of the stock. For example, let say the share price for a company is
RM30.00 per share while the earning per share is RM3.00. The PE ratio will be 10 and it
means that investor need 10 years times to breakeven the investment if investor buys the
share at the market price. Thus, we can say that the PE ratio is the future prospect of
investor towards the company because it depends on the market price. For example, if the
company have market price at RM10.00 and EPS at RM1.00, the PE ratio will be 10.
Investor thinks that the company has bright future prospect and the market price increase
to RM15.00. Now, the PE ratio becomes 15. Therefore, we can say that the higher the PE
ratio, the better the company is. However, high PE ratio may bringing the risk of
overprice by investor. In 2012, Dutch Lady Milk Industries Berhads PE ratio is 19.00
which is highest across these 5 years.

From the chart above, we can see that the trend of PE ratio is increasing from year
2008 to 2012 expect in 2009. Basically, Dutch Lady Milk Industries Berhad is awell-
established company in industry. Therefore, it has a high PE ratio because investor thinks
that the company is worth to invest. As compare to industry indicator, the PE ratio of
Dutch Lady Milk Industries Berhad is considered moderate.

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5.0 Market Share

5 Years Share Price

(Source: Bursa Malaysia)

From the chart provided by bursa Malaysia, Dutch Lady Milk Industries Berhads
share price increased drastically from mid of 2011 until mid of 2012. It increased from
RM20.00 until RM47.00. Increment of the share price in the period is more than 100%.
The price level is maintained in the price range of RM45.00-RM47.00 from 2013 to the
current year.

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5 Year KLSE Index

(Source: Yahoo Finance)

As compare to the KLSE index, the share price for Dutch Lady Milk Industries
Berhad shows a different trend. It may due to the nature of the business of Dutch Lady.
As we know, KLSE index will be influence by the volume of the transaction in the share
market. In booming economic condition, the volume will be high as investor and
speculator are busy involved in transaction. Thus, it will raise the index of KLSE.
However, if the country is facing economic recession, the index will be dropped. From
the graph above, the index shows an increasing trend from year 2010 until 2011. It has a
slightly drop in year 2012. Then, it keep increasing until the present.

For Dutch Lady Milk Industries Berhad, the share prices generally keep
increasing start from mid of 2011 until 2012. Then, the share price maintains the level
until present. The nature of the business for Dutch Lady Milk Industries Berhad is
consumer products industry. In other words, although it is economic recession, people
still consume daily goods like milk, rice and so on. Thus, the share price trend for Dutch
Lady Milk Industries Berhad will be different as compare to KLSE index.

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Percentages of changes in share price (5 Years)

Percentage changes in share price


10

-2

-4

-6

-8
2014 2013 2012 2011 2010 2009
-10

* Dotted line indicate period between the years

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Based on the percentage of changes in the graph, we can conclude that the
changes of share price for Dutch Lady Milk Industries Berhad are not more than 10%. In
other words, the increase and decrease in the share price maximum will be around 8%. It
can be considered as a blue chip as the fluctuation of the share price is not that much as
compare other companies.

In 2009, the company has experience a major changes price in early of the year.
The share price has been increased by RM0.80 which is from RM9.10 until RM9.90. The
percentage of the increment is 8.9 %. On the particular day, the volume of the transaction
is also reach a high number which is 101 Lot. Thus, it is believed that the increment of
the share price is due to active of the transaction. However, the company is also
experience highest drop for percentage in share price at the end of the year. On that day,
the share price is dropped from RM12.66 to RM11.74 which is difference of RM0.92 or
7.27%.

In 2010, the share price is stable as compare to performance of the company in


2009. In September 2010, the share price is the highest on the month. The share price has
been increased from RM15.36 to RM16.50 which is increment of RM1.14 or 7.42%.
Besides that, the volume of the transaction is around 684Lot which is higher than usual.

The share price is most stable in year 2011 across these 5 years. Basically, the
changes of the percentage in the share price are not more than 5%. However, in the end
of the year of 2011, the share price experience a major drop which is from RM24.44 to
RM23.40 which is decrease of RM1.14 or 4.66%.

For 2012, the overall share price is good as most of the times the share price is
increased. Two major increments in share price are happened on February and March.
Percentages of change for these two particular months are 6.59% and 9%. At the end of
the year, the share price of company is recorded RM46.42 on last day in December which
is relative high as compare to 2011, RM23.88.

In 2013, the share price may not perform as good as in 2012. Company recorded
highest increment of share price in November which is 4.26% and a decrease of share
price in 4.63% in July.

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Comparison in between Dutch Lady Milk Industries Berhad and Padiberas Nasional
Berhad

BERNAS has a high liquidity as their current ratio and quick ratio is better than the
industry indicator. Dutch Lady Milk Industries Berhad is doing a great job as the current ratio
of 1.91 is higher than 1.15 which is industry indicator. Dutch Lady Milk Industries Berhads
quick ratio starts with 1.18 in 2008 and reaches the peak at 1.71 in 2011. However, the ratio
is declined to 1.37 in 2012. On the other hand, from year 2008 till year 2011, BERNAS quick
ratio increase gradually but in year 2012, it has decrease slightly. Both business firm has no
problem to cope with the short-term debt.

In terms of leverage, both business firms has high leverage as quite a lot of money is
borrowed to financed their business operation. The main reason of Dutch Lady Milk
Industries Berhad has higher debt to equity ratio is due to the increasing of current liabilities.
Furthermore, the retained earnings also decrease due to the payment to shareholders for the
special dividend. Same goes to BERNAS as they have a higher debt-equity ratio compared to
Dutch Lady. In other words, the risk of bankrupt for BERNAS is higher than Dutch Lady.

The efficiency of Dutch Lady Milk Industries Berhad in managing their inventory is
in moderate level. This is due to the inventory turnover of Dutch Lady is maintain same level
as the industry indicator which is 6.07. Besides that, it has an inconsistent trend on the
inventory turnover. Although, BERNAS has a lower inventory turnover which is 6.04 in year
2012 compared to its other years, but it is just slightly lower than the industry indicator which
shows that poor sales and excess inventory, the firm could be holding obsolete inventory and
not selling inventory fast enough.

In terms of receivables turnover, Dutch Lady Milk Industries Berhad starts with 6.07
in 2008 and able to achieve 22.08 in 2011 and 54.54 in 2012 which considered outstanding in
receivables turnover as the industry indicator is only 12.24 times only. In spite of this,
compared to BERNAS, it has a lower figure may indicate inefficiency in collecting
outstanding sales.

In terms of profitability of the business firm, BERNAS has not been effectively
generating profit from its assets and shareholders equity from year 2010 till 2012. Dutch
Lady Milk Industries Berhad shows improvement in profit margin from 2008, where profit
margin is 5.99% and keeps increasing until 13.99% in 2012. It shows that Dutch Lady Milk

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Industries Berhad is a profitable company. Comparing with industry indicator, Dutch Lady
Milk Industries Berhad is a well performer as its profit margin is beyond the industrial
standard which is 10.40%. In terms of ROA, it also shows that Dutch Lady done a better job
as compare to BERNAS. The ROA of Dutch Lady is keep increasing from 2008 until 2012.
For ROE, Dutch Lady Milk Industries Berhad had recorded 26.39% in 2008 and it keeps
increasing and reaches the peak in 2012 which is 57.08%. As compare, BERNAS has a lower
percentage of ROA and ROE compared to Dutch Lady which shows that the company is not
very efficient in generating profit.

BERNAS has lower EPS as compare to Dutch Lady because their company
performance is not stable and facing loss in these five years. Dutch Ladys EPS which keep
increasing from 2008 to 2012 this is from RM67 per share until RM193 per share. It means
that the company is able to generate more profit without raising any funds by issuing shares
in this particular period. For the PE ratio, BERNAS has a low PE ratio due to low expactaiton
of the investor towards the future prospect of the company. For Dutch Lady, the PE ratio is
high due to the awesome performance in recent years which convince investor to have
confident towards their future prospect.

In conclusion, both companies has a good liquidity position but has a high leverage.
In term of assets management and turnover, Dutch Lady is more efficiency in handling
inventories and receivables collection compared to BERNAS. Dutch Lady has high
profitability ratio is due to the milk consumption in Malaysia is constant.

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