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0 INTRODUCTION
1.1 Telecommunication Industry in Malaysia
The introduction of telephone services in Malaysia started in 1891 with the first
telephone exchange installed in Kuala Lumpur. There were only 21 telephones in Kuala
Lumpur supported by 400 miles of telephone and telegraph lines during the initial
development stage. The telecommunications system was regarded fairly advanced
particularly in Peninsular Malaysia by 1908. In 1985, Telekom Malaysia introduced mobile
services into Malaysia, since then, the government granted a number of license to private
sector telecommunication operations in an effort to develop the countrys telecommunication
industry and infrastructure. Malaysian Communication and Multimedia Commission
established as a regulatory body.
In the past 5 years ago, the telecommunication industry in Malaysia has been led by
only three most popular companies: Maxis, Digi and Celcom. The services that are offered
by the companies have significantly helped people to make their daily lives easier. The three
companies has been competing with each other to be at the top and leading the industry.
However, the number of telecommunication companies that are operating in fulfilling the
needs of people to communicate in Malaysia is increasing. The telecommunication market
has been dominated by major telecommunication companies such as Umobile and Tune
Talk. The telecommunication market structure in Malaysia is become oligopoly due to the
competition in the telecommunication market. In order to maintain their position in the
market, they would have to consider the possible reaction of rivals to its own pricing, output
and advertising decisions.
Maxis Berhad
1.2.2
Axiata Group Bhd. is an investment holding company, which engages in the provision of
mobile communication and network transmission related services. The firm operates through the
following segments: Malaysia, Indonesia, Bangladesh, Sri Lanka, and Others. It also offers
technical and management services on an international scale with investments in subsidiaries, joint
ventures, and associates.
Axiata has controlling interests in mobile operators in Malaysia, Indonesia, Sri Lanka,
Bangladesh and Cambodia with significant strategic stakes in India and Singapore. In addition, the
Malaysian-grown holding company has stakes in non-mobile telecommunications operations in
Pakistan. The Groups mobile subsidiaries and associates operate under the brand name Celcom
in Malaysia, XL in Indonesia, Dialog in Sri Lanka, Robi in Bangladesh, Smart in Cambodia,
Idea in India and M1 in Singapore. Added to this, the Group has established a communications
infrastructure solutions and services company called edotco. Axiata has blazed a path across the
region; from 40 million customers, pre-demerger, to over 250 million across 8 countries, in six
years, making Axiata one of the largest mobile players in Asia.
Financial statements are historical documents while financial ratios show relatonships
that have existed in the past . Analysts , investors and business decision makers are
primarily interested in the current condition and future condition rather than the past . Past
financial ratios are useful tool for them to use as a basis for making financial condition
predictions .
Item
2014
2013
2012
2014
2013
2012
(8.30)
1.3
1.9
1.8
3.9
6.8
Return on Assets
9.5
10.2
10.5
4.8
6.3
6.3
Return on Equity
36.4
29.5
26.4
10.4
12.8
13.1
67.7
66.0
66.5
16.7
19.2
21.3
MAXIS BERHAD
Item
2014
2013
2012
Revenue (RM'000)
8,388,502
9,084,452
8,966,828
Change in amount
( 695,950 )
117,624
166,907
340,936
719,224
1,203,680
( 8.30% )
1.29%
1.86%
1.82%
3.92%
6.82%
2014
2013
2012
A percentage change in net sales is the rate at which net sales is increasing or
decreasing. It is the growth rate of a company in sales. Percentage changes in net sales of
Maxis Berhad remain constant from 2012 to 2013, however, there is 8.3% decreased in net
sales in year 2014. This is because Maxis introduced worry-free propositions in the way they
charge for data and roaming. The impact of voice and SMS was a factor in their financial
performance.
Meanwhile , percentage chages in net sales of Celcom Axiata Berhad slightly increased
from 2012 until 2014 . Net sales has increased from 6.82% in 2012 to 3.92% in 2013 and it
is continue increased to 1.82% in 2014 . According to Celcom Axiata Berhad annual report ,
Celcom Axiata Group keep provide the service with the latest technology which is 4G LTE .
The service can be reachable even though the consumer is in the rural area .
2.2.2 Return on Assets
Return on assets = net profit / total assets*100
MAXIS BERHAD
Item
2014
2013
2012
2014
2013
2012
1,724,824
1,772,255
1,860,519
2,344,413
2,738,577
2,879,577
9.52%
10.23%
10.45%
4.77%
6.30%
6.27%
Return on assets measures efficiency of the business in using its assets to generate net profit.
Besides, this ratio could help both company management and investors to have a view on how well
the company could convert its investments in assets into profits. Maxis Berhad had decreasing
trend for ROA from year 2012 to year 2014. The negative percentage of ROA is unfavourable to
investors because it shows that the company is ineffectively managing its assets to produce
greater amounts of net income. This is because Maxis invested significantly in modernising their
network, and expansion plans to provide the best sales and service experience to customers.
The three year average for return on assets of Maxis Berhad was 10.07% while Celcom Axiata
Berhad was 5.78% . This higher percentage for Maxis Berhad reflects a more efficient use of its
assets and higher earnings from products and services sold per company asset . Both companies
have strong return on assets that goes to show the loyal base of customers each brand name of
the two companies has .
2.2.3 Return on Equity
Return on equity = net profit / total equity*100
MAXIS BERHAD
Item
2014
2013
2012
2014
2013
2012
1,724,824
1,772,255
1,860,519
2,344,413
2,738,577
2,879,577
Total Equity
4,737,767
6,016,816
7,057,305
36.41%
29.46%
26.36%
10.39%
12.81%
13.08%
Return on equity ratio (ROE) is a profitability ratio from the investor's point of view. In other
words, ROE is a profitability ratio that measures the ability of a company to generate profits from its
shareholders investments. Maxis Berhad had increasing trend for ROE from year 2012 to year
2014. This higher ratio indicated that the company is using its investors' funds effectively.
The return on equity for Maxis Berhad averaged 30.74% while Celcom Axiata Berhad
averaged 12.09% . An observation of this profitability measure shows that Maxis Berhad is possibly
much more attractive for potential investors for its ability to effectively manage and use funds
generated through shareholders equity .
2014
2013
2012
2014
2013
2012
Revenue (RM'000)
8,388,502
9,084,452
8,966,828
5,681,537
5,995,184
5,960,987
3,114,456
3,533,039
3,761,794
67.73%
65.99%
66.48%
16.65%
19.23%
21.31%
Gross profit rate is a measure of the profitability of the company products. Gross profit
rate fall from 66.48% in year 2012 to 65.99% in year 2013, a decline of 0.49%. Gross profit
rate has increased for 1.74% from year 2013 to year 2014. The gross profit rate of Maxis
Berhad is fluctuated from year 2012 to year 2014, means the company is operating
inefficiency and frequent changing customer demand of companys products in the
perception of investors. Gross Profit increased in year 2014 due to Maxis first launching the
4G LTE network, now covers key market centres and state capitals, offering four times faster
downloads and a better video streaming experience.
However , gross profit rate for Celcom is slightly fall from 2012 until 2014 . Celcom
Axiata had a risky year in 2013 when the rate fell in 2.08% which is from 21.31% to 19.23% .
It continue for the next year which is drop again in 2.58% of 21.31% . The average of gorss
profit rate for Maxis Berhad is 66.73% and Celcom Axiata Group averaged 19.06% . The
decline in Celcom Axiata Group gross profit rate was mainly driven by its IT transformation
programme. The company also faced IT system issues, and this has affected its capability to
launch new products in a speedy manner . The currency performance in Malaysia and
Indonesia ( which is PT XL Axiata Tbk ) was so bad and contributed to the profit rate
performance .
2014
2013
2012
2014
2013
2012
3.7
4.2
5.7
0.8
1.2
1.3
11,348,231
11,816,983
Accounts Receivable
turnover rate
8.6
9.6
9.7
6.1
6.9
8.4
0.98
0.95
1.24
0.5
0.7
0.9
Current Ratio
Working Capital
(RM'000)
2,652,126
2014
2013
2012
2014
2013
2012
8,316,369
9,239,861
10,390,539
4,183,248
3,660,444
2,768,153
10,558,993
8,040,911
7,738,413
3.71
4.23
5.69
0.79
1.15
1.34
Current Ratio
Current ratio is to measure a company ability to pay short term obligations. Although Maxis
Berhad had decreasing trend for current ratio from year 2012 to year 2014, but according to rule of
thumb for the ratio of current assets to current liabilities which shows a good financial position of a
company is 2:1, so Maxis not having trouble getting paid on their receivables or having long
inventory turnover.
Average current ratio for Maxis Berhad was 4.54 compared to Celcom Axiata Berhad was 1.09
. It tells that Maxis Berhad has more current assets to cover its short term liabilities and makes
Maxis Berhad a safer and more financially strong company compared to Celcom Axiata Berhad .
2014
2013
2012
2014
2013
2012
15,531,479
15,477,427
15,760,137
8,316,369
9,239,861
10,390,539
4,183,248
3,660,444
2,768,153
10,558,993
8,040,911
7,738,413
11,348,231
11,816,983
12,991,984 ( 2,242,624 )
1,198,950
2,652,126
Working capital is to measure of company efficiency and it short term financial health. A
companys current assets must exceed it current liabilities. From the table above, it shown
that Maxis Berhad consistently having positive amount of working capital, which it able to
pay back creditor in the short term . Meanwhile , Celcom Axiata Berhad is began to suffering
losses .
2.3.3 Account Receivable Turnover Rate and Day to Collect Average Accounts Receivable
Accounts receivable turnover rate = revenue / accounts receivable
Day to Collect Average Accounts Receivable = Days / Accounts Receivable turnover rate
MAXIS BERHAD
Item
2014
2013
2012
8,388,502
9,084,452
8,966,828
970,453
946,720
922,284
3,062,390
2,679,905
2,112,098
8.64
9.60
9.72
6.11
6.86
8.36
Days
365
365
365
365
365
365
42.25
38.02
37.55
59.74
53.21
43.66
Revenue (RM'000)
2014
2013
2012
Accounts receivable turnover rate indicates how quickly receivables are collected. Generally a
high value of accounts receivable turnover rate is favourable and lower figure may indicate
inefficiency in collecting outstanding sales. Maxis Berhad had decreasing trend for accounts
receivable turnover rate from year 2012 to year 2014. In the accounting policy of Maxis, when the
debt becomes uncollectible, it is written off against the allowance account. Subsequent recoveries
of amount previously written off are recognised in the statement of profit or loss . Hence , a very
high value of account receivables turnover rate may bot be favourbale if it was achieved by
extremely strict credit terms since such policies may repel potential buyers .
Even though Celcom Axiata Berhad showing a good value of account receivables turnover rate
, a normal level of receivables turnover is different for different industries . Maxis Berhad able to
collect customers payments on account receivable is stronger than Celcom Axiata Berhad , with
Maxis Berhad taking 39.27 days on average compared to Celcom Axiata Berhad's 52.2 days .
While both companies collection period was longer than the normal business benchmark of 30
days , Maxis Berhad was much more successful and efficient in collection from its customers and
thus reduced the liability for risky accounts receivable .
2.3.4 Operating Cash Flow to current Liabilities
Operating Cash Flow to current Liabilities = Cash Flow from Operation / Current Liabilities
MAXIS BERHAD
Item
2014
2013
2012
2014
2013
2012
4,106,372
3,476,918
3,420,632
5,583,914
5,648,243
6,836,981
4,183,248
3,660,444
2,768,153
10,558,993
8,040,911
7,738,413
0.98
0.95
1.24
0.53
0.7
0.88
The Operating Cash Flow ratio is used to analysis the cash flow of the Group. It shows how
the cash flow in and out from the company. In flow of cash enable the Group to pay their bills and
liabilities. It measures the Group liquidity in short run as it related to reimburse their short term
obligations. From the table, the ratio is constant from year 2013 to 2014. Maxis Berhad is still able
to turn sales into cash.
Meanwhile , Celcom Axiata Berhad shows a decreasing movement for the cash flow from
operating activities from year 2012 until 2014 . The poor ratio indicates that the group is facing an
uphill task to increase their operation cash flow ratio to meet short-term liabilities and to raise its
liquidity for the uses of funding the business's other operations . Less flexibility is given when the
cash flow is low to finance the strategies in use for adapting the market changes .
MAXIS BERHAD
Item
Long Term Debt Ratio
2014
2013
2012
2014
2013
2012
74%
65%
60%
54%
51%
46%
2014
2013
2012
2014
2013
2012
74%
65%
60%
54%
51%
46%
Debt ratio indicates relative size of the equity position and shows percentage of assets
financed by creditors. Debt ratio gives general idea of the amount of leverage being used by
a company. A low percentage means that the company is less dependent on leverage. The
lower the percentage, the less leverage a company is using and the stronger its equity
position. However, the higher the ratio, the more risk that the company is considered to have
taken on. Maxis had increasing trend for the long term debt ratio from year 2012 to 2014.
This is because major liabilities of Maxis, example, payables and borrowings had increased,
due to weakening RM against USD and SGD, thus higher interest rates on the borrowings.
Maxis Berhad's three years average of long term debt ratio was 66.33% , compared to
Celcom Axiata Berhad lower average ratio of 50.33% . While many feel that debt from
creditors is more harmful because of the interest paid on the principle borrowed , the
advantage here is that once the creditor is paid back , they are gone and off the payroll .
Maxis Berhad approach to being more heavily financed through debt than equity may be in
an attempt to keep earnings per share at an increased level .