BBPW3203

OUM BUSINESS SCHOOL

SEMESTER 8/ TAHUN 2017

BBPW3203

FINANCIAL MANAGEMENT II

NO. MATRIKULASI : 770713135708001

NO. KAD PENGENALAN : 770713135708
NO. TELEFON : 0198865713
E-MEL : NIZZATIKAH@OUM.EDU.MY

PUSAT PEMBELAJARAN : BINTULU LEARNING CENTER

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CONTENTS PAGES

INTRODUCTION 2

1. SHIN YANG CORPORATION BERHAD 3

2. 7-ELEVEN MALAYSIA HOLDINGS BERHAD 4

3. COMPARISON 5

4. CONCLUSION 8

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INTRODUCTION

The key factor in ensuring business’s long term success is the management of its
working capital. As such, in order for a business to continue, a company must be able to
generate enough cash to meet its short term needs. Often, a company will resort to short-
term loan or any other various short-term financing sources available in order to meet
their needs. Short term financing is defined as any liability for a company that needs to be
paid in a period of one year or less. Therefore, according to Aliahmed (2014), it is used
primarily as a tool to finance accounts receivable or for building up inventories. Some of
the sources of short-term financing ranges from spontaneous and non-spontaneous
financing to many other alternative sources for instance factoring, account receivable,
and inventory financing. In order to qualify for a short term financing, it is important for
a business unit to have a positive cash flow and ability to cover their short term liabilities.
The interest rate incur is determined by economic situation and prime rate and some
premium determined by the lender based on what risk is the company to them (Peavler,
2016). In studying the sources of short-term financing and its relationship with nature of
business and financial market condition, this assignment will focus on two public listed
companies from the trading and service sector namely Shin Yang Shipping Corporation
Berhad and 7-Eleven Malaysia Holdings Berhad. Both of these public listed companies,
to certain extent, resorted to short term financing in order to meet their short term needs
in 2014 and 2015.

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1. SHIN YANG SHIPPING CORPORATION BERHAD

Shin Yang Shipping Corporation Berhad was incorporated on 5 September 2004

as a private limited company under the name of Shin Yang Shipping Corporation Sdn.
Bhd. Subsequently, they were converted to a public limited company with present name
on 20 November 2009 (http://www.syshippingcorp.com.my). Their business is focused
on shipping and ships building. These two main businesses represent their core revenue
streams and are synergistic as they construct the vessels used in their shipping operations.
However, in supporting their core business areas, Shin Yang Shipping Corporation
Berhad also undertake ship repair and maintenance for third parties as well as their own
shipping operations. Shin Yang Corporation Berhad shipping activities cover both
Malaysian and International route spanning South East Asia (Brunei, China, Hong Kong,
India, Indonesia, Japan, Thailand, Korea, Papua New Guinea, Philippines, Vietnam,
Singapore and Taiwan) and Middle East (Saudi Arabia, Qatar (including Umm Saied,
Doha Port, Ras Laffan Port), UAE (including Saqr Port, Ras Al Khaimah Port, Fujairah
Port, Oman and Bahrain). In total, there are currently 299 vessels in operation. Other than
that, their ship building activities include building and repairing, as well as metal
fabrication service. Some of the vessel types are tug boat, cargo vessel, anchor handling
tug, navy training vessel, landing craft, platform supply vessel, workboat, barge, seismic
support vessel, floating dock, pneumatic cement carrier and escort tug.

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2. 7-ELEVEN MALAYSIA HOLDINGS BERHAD

On the other hand, 7-Eleven Malaysia Holdings Berhad was incorporated in 4

June 1984 through its wholly-owned subsidiary, 7-Eleven Malaysia Sdn. Bhd. as the
owner and operator of 7-Eleven stores in Malaysia. 7-Eleven Malaysia is the single
largest convenience store chain with more than 1,800 stores nationwide, serving over
900,000 customers daily (7-Eleven Annual Report, 2014). This has made 7-Eleven
Malaysia a prominent icon in the retailing scene for over 30 years. Their business activity
is primarily in retailing of convenient products that are available to customer for 24 hours
apart from many other in-store services. Their in-store services related to payment
gateway for various bills payment, mobile reload, Touch ‘n Go and AstroNjoi reload,
MOL Points, and MOLPay Cash. Other than that, 7-Eleven also offers Gift Cards and
BOXIt - a parcel locker service whereby online shoppers can now collect their purchase
from selected 7-Eleven stores at their convenience. BoxIt is an alternative to mailboxes to
allow shoppers a safe and reliable way to receive packages, an ideal drop off solution for
shoppers who are always on the go (www.7eleven.com.my).

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3. COMPARISON

In both 2014 and 2015, Shin Yang Shipping Corporation Berhad based on their
financial reports, sourced their short term financing from trade credits (2014:
RM36,387,906, 2015: RM32,092,200), bank overdraft (2014: RM 9,136,499, 2015: RM
7,464,568), banker’s acceptance (2014: RM 59,589,000, 2015: RM 22,061,000),
revolving credits (2014 & 2015: RM 42,000,000),as well as customer’s advance (2014:
RM 14,629,620, 2015: RM 795,121)which is from the contract for shipbuilding. Trade
payables (2014: RM 1,112,783,816, 2015: RM 917,950,294) which are normally settled
on 30 to 90 day (2013: 30 to 90 days) terms are payable to subsidiaries and related
companies for the purchase of goods and services. Bank overdrafts, revolving credits, as
well as banker’s acceptance are secured by charges over leasehold land and buildings of
the Group. Bank overdraft is a type of financing provided when the company makes
payments from their business current account exceeding the available cash balance
(Investopedia, 2017). Meanwhile, banker’s acceptance is a short-term debt instrument
issued by a company that is guaranteed by a commercial bank. Banker's acceptances are
issued as part of a commercial transaction that is frequently used in money market funds.
They are traded at a discount from face value on the secondary market, which can be an
advantage because the banker's acceptance does not need to be held until it matures
(Investopedia, 2017). Revolving credit is a formal line of credit whereby bank guarantees
the availability of funds up to a maximum amount during the specified period. For this
service, the bank is receiving a commitment fee from the company although they are
required to reduce the loan amount to zero for at least once a year (Ali Ahmed, 2014).
However, in 2015 the company is spending more in the same borrowing (except for
advanced from customers) as compared to 2014 due to weaken economic condition. In
2014, the fluctuations in the fuel prices and unexpected political tensions arising in the
Middle East regions and the US economy towards the second half of the year has put the
shipping industry in a very challenging situation though they are in initial recovery to the
economic cycle. Therefore, the short term financing is mostly useful in their operation
pertaining to strengthening the shipping route. The shipbuilding activities on the other

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hand, showed signs of recovery with a slight positive margin with the steady growth for
new book orders of shipbuilding contracts mainly from the oil and gas sector and
resource based sectors, apart from international players in Middle East region, European
Countries and South East region, which will occupy the shipyards for the next two years.
Meanwhile, in 2015 the international shipping market is facing a severe situation in dry
bulk shipping due to plunging rates for carrying commodity products. Furthermore,
shipbuilding for the oil and gas sector was at its lower path due to downsizing or
minimization of their capital expenditures toward the oil and gas industry players
(Annual Report, 2015). These are resulted from the economic uncertainties, especially
with the crude oil price having plunged by more than half due to the global crude oil
supply issue, deepened by economic uncertainties in the US and European countries and
political tensions arising in the Middle East regions.

Contrary to situation in Shin Yang Shipping Corporation Berhad, for the financial
year 2014, 7-Eleven Malaysia Holdings Berhad recorded increment in growth through
both expansions of the new stores and same stores sales. The same stores sales growth
was 4.7% compared to -0.1% in 2013. According to their 2014 Annual Report, 7-Eleven
Malaysia Holdings Berhad Group generally has been financing its operations through
internally generated funds. Their operating expenses are more on display and marketing
activities. During the year, they embarked on many innovative and creative promotional
campaigns as a reward for existing customers and to attract new customers to the stores.
These activities include monthly themed promotions across entire network. Examples of
these in 2014 were events such as Hari Raya, Valentine’s Day, Chinese New Year, Drink
Dairy,7-Eleven Slurpee Day and a highly successful Bolario Football redemption
promotion. With such growth, 7-Eleven was able to retire its short term borrowings on
bankers’ acceptance and revolving credit from the year 2013. However, they still have
other short term borrowing sourced from secured term loan (RM 819, 000), hire purchase
and finance lease liabilities (RM 4, 876, 000), and trade credits to suppliers ranged from 7
to 60 days and upon request could be extended up to 90 days. Term loan is a loan from a
bank for a specific amount that has a specified repayment schedule and a fixed or floating
interest rate (Investopedia, 2017) and in 7-Eleven Malaysia Holdings Berhad, their term

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loan is on floating rate basis while hire purchase is on a fixed interest rate. Due to the
cash flow interest risk these financing activity is putting the company into, 7-Eleven
decided to maintain a mixed of fixed and floating rate borrowing.

Meanwhile, 2015 has been a year of strong headwinds in the retail operating
environment and 7-Eleven is not exempted from its effects. The introduction of the Good
& Services Tax (GST) on the 1 st of April 2015 has made a major impact in the retail
industry in Malaysia as a whole. However, in response to this, 7-Eleven Malaysia
Holdings Berhad continues to deliver values to their up to 900, 000 customer they are
serving. Their commitment in providing great shopping experience to consumers is
strengthen through the product mix, good management, new and improved merchandise,
expansion of fresh food and beverage offerings, increased store outlet numbers and
further additions to in-store services. As a result, their cash flows remain robust at that
time enabling the Board to approve an interim dividend that was paid on 31st March
2016 representing an almost full pay-out of their profits in the year. However, same store
sales showed a marginal decline of 3.6% as a result of the GST impact on sales values
(Annual Report, 2015). Thus, in 2015, the only short term financing they were bearing is
from hire purchase and finance lease (RM2, 053, 000) and trade credits payable to
merchandise and phone reload coupon suppliers ranged from 7 to 60 days term.

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CONCLUSION

In conclusion, the many factors contributing to economic condition affect the

operational activities of a company. In order to continue their business specifically in
daily operation, a company may opt for short term financing spanning from overnight to
12 months. For example, for a business that needs extra capital due to seasonal demand,
short term loan is a viable option. It is easy to qualify for it because it is tied to immediate
sales and as long as the company has a positive cash flow. It does not need a larger asset
as collateral hence the high fees charged for the service. In this assignment, it is clear that
Shin Yang Shipping Corporation Berhad has opted for more financing options to survive
in their shipbuilding and shipping business as these two required quite a large amount of
money for operation and the risk associated with them. Apart from that, economic tension
in the money market that determine the interests has impacted the company in profit
making hence the down slop of the profit for the year 2014 and 2015 as compared to the
precedent year. With their close relationship with oil and gas industry and the
introduction of GST for the first time in Malaysia, Shin Yang Shipping Corporation
Berhad cannot help but to face the big challenge in their operations. However, for 7-
Eleven Malaysia Holdings Berhad, things are better as their retailing activity although
directly affected by the GST implementation, their market equity remains competitive
due to their unrivaled position in the industry. The shift in consumer spending behavior
due to GST implementation has not impacted them much as they continue giving them
great shopping experience even at odd hours as well as continuously improving their
product mix and in-store services. Therefore, it is still possible for them to generate
money to internally finance their operations and fully retiring banker’s acceptance and
revolving credits from the year 2013.However, in every situation, before determining the
best short term financing option for the company, it is fundamental to firstly understand
the needs the financing is going to fulfill.
(2196 words)

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APENDIKS

RUJUKAN / REFERENSI

Annual Report (2014), Shin Yang Shipping Corporation Berhad, retrieved from
www.bursamalaysia.com

Annual Report (2015), Shin Yang Shipping Corporation Berhad, retrieved from
www.bursamalaysia.com

Annual Report (2014), 7-Eleven Malaysia Holdings Berhad, retrieved from

www.bursamalaysia.com

Annual Report (2015), 7-Eleven Malaysia Holdings Berhad, retrieved from

www.bursamalaysia.com

Aliahmed, Huson Juhor (2014). Financial Management II.2nd Edition.Open University

Malaysia.

Peavler, Rosemary (2016). Short-Term Business Loans and Debt Financing: Debt
Financing for Your Business for Short Term Working Capital Needs. Retrieved
from www.thebalance.com

www.investopedia.com