This report is written and designed with a main purpose for every potential investor reference and guideline related to consumer products market. It is mainly for a better and clear understanding about the conditions and trends of the market. In addition, it might also used for finding out the latest update news which may impact the investment strategy. This investment analysis report have been established to provide some suggestion on a right choice for a future investment, helping in carry out a good financial decisions and may contribute a good achievement with an overall success as an investor. In this investment analysis report, I chose two companies from consumer products industry which involving Carlsberg Brewery Malaysia BHD and Guinness Anchor BHD as an investment target. There are some reasons of why it is a good decision and why it has being a necessity to invest in this industry. Over the periods, investing in consumer products market can be a good strategy since this industry always stable over the time. This sector has a steady and constant growth even during the both bull and bear market. Bull and bear market is used to determine the upward and downward market trends where bull market is generally connected to capital gains with an increasing in future prices while bear market is a price decline in the stock market. Based on the market movement and the market affordability, it can be shown that the market demand from the consumer goods industry will always exist all over the periods of the time, no matter in the time of expanding economy in particular industrial revolution or even during the time of recession where the economy is contracting. In this rising competitive market, it has been expected to be increase in the future and have a continuously growth. Therefore it is a profitable business to invest in which will give every investor a better prospect of higher return and also far greater chance for success.
2.1 Carlsberg Brewery Malaysia BHD Carlsberg Brewery Malaysia Berhad is one of the 50 breweries of Carlsberg all around the world. It is a Malaysia-based company which principally engaged in the manufacturing of beer, stout, shandy and non-alcoholic beverages for the establishment of marketing and distribution in the home market and for export purposes. Carlsberg Malaysia Brewery BHD was incorporated in December 1969 as a public company and was listed on the Main Board of the Bursa Malaysia Securities Berhad on January 1972 under consumer products sector along with the locally brewing of Carlsberg Green Label beer. It becomes No. 1 beer brand with more than 50% share of the Malaysian Beer Market. During 2001 to 2005, Carlsberg Brewery Malaysia Berhad has created a rapid progress by generate an increasing significant profit as a proof. Carlsberg Malaysia provides various types of beer for every drinker which designed with different taste and lifestyles for every occasion. It has different target market since there are different types of customer therefore each product unit is different from one another. Presently, the production has been expanded to several SBUs (Strategic Business Units) which includes Carlsberg Green Label, Carlsberg Gold, Carlsberg Special Brew, Kronenbourg 1664 and 1664 Blanc, Asahi Super Dry, Somersby Apple Cider, SKOL Beer and Super Beer, Danish Royal Stout, Corona Extra, Jolly Shandy Lemon and Nutrimalt as non-alcoholic beverages. Furthermore, Carlsberg Brewery Malaysia Berhad through its subsidiaries including Carlsberg Marketing Sdn Bhd and Luen Heng F & B Sdn Bhd which located in Malaysia, Carlsberg Singapore Pte Ltd and Lion Brewery (Ceylon) Plc in Sri Lanka, has take part in the wide range expansion of imported international beer brands in particular Hoegardeen, Stella Artois, Budweiser, Grimbergen and Beck's. This company has a great achievement of being 7 of 9 world's top international beer brands and it has strengthened their power in beer industry. In addition, Carlsberg Malaysia has being at the forefront of product quality and innovation which always led the market with a dynamic product launches, massive consumer campaigns and be a recognizable popular beer. The company has been championing many Corporate Social Responsibility initiatives focusing on environment, community, workplace and marketplace.
2.2 Guinness Anchor BHD Guinness Anchor Berhad was incorporated in 1964 with the name of "Guiness Malaysia Limited", and then it was changed the name to "Guinness Malaysia Berhad" in 1966. GAB was legally formed in 1989 by the merger of Guinness Malaysia Berhad and Malayan Breweries (Malaya) Sdn Bhd whose parent companies were Guinness Overseas Ltd (GOL) and Malayan Breweries Ltd (the present Asia Pacific Breweries Ltd). GOL is owned by Diageo Plc which is nominated as the world's leading premium drinks group with an outstanding collection of brands across spirits, wine and beers. GAB manufactured and marketed various types of brands such as Tiger Beer, Guinness Beer, Heineken, Anchor Smooth, Anchor Strong, Kilkenny, Anglia Shandy, Malta, Paulaner, Strongbow and Sol. It is the largest market shareholder of Malaysian Beer and stout industry with 57% of the market share and GAB had revenue of more than RM 1.2 billion in the financial year ending 2009. Today, GAB has becomes the major producer and market leader of Malaysian beer and stout industry in Malaysia and following the merger, GAB has been listed on the Main Board of Bursa Malaysia during the same year. GAB operates the Sungei Way Brewery across Peninsular Malaysia, as well as Sabah and Sarawak which started the operations in 1965 and it was located in Selangor by occupying the land area of 23.72 acres (96,000 m2). GAB has workforce of more than 560 employees. GAB is the first and only Brewery in Malaysia to receive the Hazard Analysis Critical Control Point Certification from the Ministry of Health and received the ISO 9001:2008 certification, having fulfilled the additional requirements of ISO 9001:2000. GAB has delivered 10 consecutive years by revenue, profit and market share expansion. It has strong brand equity which may drives to market growth and caters consumer palates. GAB also has approximately 30,000 sales and distribution points throughout Malaysia which prove that GAB has wide distribution network and also strong relationships with its business and trade partners. During last few years, GAB has received number of awards involving StarBiz - ICR Malaysia Corporate Responsibility Awards 2009 for Workplace and 2010 for Community Investment; the Enterprise Asia's Asia Responsible Entrepreneurship Awards 2011 for Investment in People; Malaysia HR Awards (Silver recognition in the Employer of Choice category) and most recently, the Malaysian Dutch Business Council Malaysian Sustainability Awards for Workplace Best Practices and Community Investment.
Financial Ratios Analysis Financial ratio analysis is important as the basic tool for every business which may help in illustrate the business planning process involving SWOT (Strength, Weakness, Opportunities and Threats). It plays a vital role in business strategy planning which is usually used for analyzing the company performance since it was derived from the company's financial statements information. Financial ratio analysis has several strengths including it will be very useful in identifying any areas of significant changes or notice any unusual fluctuations in the business organization process. In addition, it can record how the business performance was over time by highlighting the areas of good and bad performance which may directly attract the user's focus of attention. By doing the examination in financial ratio analysis, every entrepreneurs and business owners can easily track progress by setting of specific goals. There are hundreds of financial ratios available that can used by any company but some of the ratios are only applicable to industry-specific and not to all businesses. Deciding which financial ratios are appropriate and may apply to the business is important and becomes a necessity since users can make inferences about the financial performance and condition of its operations, as well as the company's attractiveness for investment target from the level and historical trends of these ratios. In addition, different users of financial ratio analysis such as investor, bankers, creditors and management may exercise the analysis for decision making purposes. It shows the company efficiency in operating and management of the business and it indicates how well the company has done in earning the profit and asset utilization. In this report, there are some financial ratios has been provided as a guideline for every potential investor to make a comparison of financial performance between Carlsberg Brewery Malaysia and Guinness Anchor Berhad in order to meet a final conclusion on which company should be invest in. The ratios will be shown as below including profitability ratio, investment ratio, liquidity ratio, financial leverage ratio and performance ratio, as well as the evaluation and analysis of the ratios. The ratios is calculated based on the company's three years published accounts which including 2009, 2010 and 2011.
Carlsberg Brewery Malaysia BHD
Profitability Ratio Return on Equity 26.495 22.995 14.791 Return on Total Assets 17.293 14.311 8.056 Return on Revenue 11.156 9.739 7.283 Gross Profit Margin (%) 37.598 35.195 30.028 Operating Profit Margin (%) 15.343 13.316 10.058 Return on Capital Employed (%) 22.94 18.962 10.852
Investment Ratio P/E Ratio 14.502 18.233 Dividend Yield 9.177 3.965 Dividend Payout 1.331 0.723
Liquidity Ratio Current Ratio 1.456 1.311 1.121 Quick Ratio 1.209 1.134 0.956
Financial Leverage Ratio Interest Coverage Ratio (times) -38.003 111.113 Total Debt Equity Ratio 0.0355 0.091 0.017 Leverage Ratio 0.526 0.602 0.832
Performance Ratio Gross EPS (Sen) 54.35 43.58 24.90 Dividend (Sen) 58.00 18.00
Guinness Anchor BHD
Profitability Ratio Return on Equity (%) 35.109 32.423 32.102 Return on Total Assets (%) 26.473 23.046 21.974 Return on Revenue (%) 12.183 11.239 11.046 Gross Profit Margin (%) 32.75 29.5 28.469 Operating Profit Margin (%) 17.018 15.692 15.465 Return on Capital Employed (%) 35.45 30.939 29.587
Investment Ratio P/E Ratio 16.9 15.248 12.979 Dividend Yield 5.325 5.325 6.721 Dividend Payout 0.9 0.812 0.872
Liquidity Ratio Current Ratio 3.281 2.647 2.373 Quick Ratio 2.8 2.173 1.971
Financial Leverage Ratio Interest Coverage Ratio (times) 560.834 576.136 249.559 Total Debt Equity Ratio 0.0 0.0 0.0 Leverage Ratio 0.326 0.407 0.461
Performance Ratio Gross EPS (Sen) 60.00 50.50 47.00 Dividend (Sen) 54.00 41.00 41.00
Analysis and Evaluation
Profitability Ratios Profitability ratio is the ratios that most frequently used in financial ratio analysis and also becomes one of the ratios that every firm must be concerned with. Profitability ratios are commonly used to indicate and determine the overall company's performance and efficiency on how well a company is performing in terms of its business ability to generate profits as compared to expenses which incurred over a specific time period. It also may used in established the company's bottom line and its return to the company's investors. Generally in most of the ratios, a company can be indicate is doing well in their performance by having a higher value compared to the competitor's ratio or the same ratio from previous period. There are two categories of profitability ratios involving margins and returns. Ratios that show margins reflect the company's capability to interpret the sales dollars into profits at various stages of measurement. Meanwhile, ratios that show returns indicate the company's power to measure the overall efficiency in generating returns to its shareholders. There are some examples of profitability ratios such as return on equity, return on total asset, return on revenue, gross profit margin, operating profit margin and return on capital employed. Return on Equity This ratio is probably the most essential ratios to investors in the company for making a decision on the investment because it measures profitability related to ownership which means that it will show the return on the money that the investors have put in the company. Generally, higher percentage values have favorable meaning which means that the company is efficient in generating income on new investment. As the table 3.1.1 and 3.1.2 shown above, the ROE in Carlsberg Brewery Malaysia is lower than ROE in Guinness Anchor Berhad. During the 3 years time, even though CBM shows a significant increase in the ROE value but yet the ROE of GAB is higher. Hence, GAB performs better than CBM. Return on Total Asset ROA ratios can be called as return on investment. It is usually used as an indicator and gives ideas to the investors in terms of measuring the business management efficiency in term of using its investment in assets to generate net income. ROA indicates the number of cents earned on each dollar of assets. Therefore, the higher the values are, the more profitable the company is. Based on the results of the calculation, the Return on Total Asset in GAB is higher compared to the ROA in CBM which means that GAB is perform better at converting its investment into profit compared to CBM. Return on Revenue Return on Revenue is a financial tool that used to measure of the company's profitability that compares net income to its revenue from year to year. This ratio may help the management in controlling the expenses. Intrinsically, the difference between net income and revenue is expenses, thus an increasing ROR means that the company is generating higher net income with lesser expenses which managed efficiently. The table of 3.1.1 and 3.1.2 indicates that GAB has a higher percentage of ROR every year compared to CBM. Hence, GAB does better in controlling the expenses to get a higher net income than CBM. Gross Profit Margin Gross profit margin is the ratio of gross profit to sales revenue. This ratio indicates how well a company controls the inventory cost and the cost of product manufacturing and afterwards passes on the costs to its customer. It reveals the financial performance by showing the proportion of money left over from revenues after calculating the cost of goods sold. Higher profit margin means that the company is doing efficiently in the business operation. Based on the table above, it shows that CBM has a higher gross profit margin during the three years' time compared to the gross profit margin of GAB. It implies that CBM is perform better and doing more efficiently in term of the balance of money proportion. Operating Profit Margin This ratio is also known as net profit margin. It is a measurement of the company's pricing strategy and operating efficiency. Operating profit margin analysis gives idea on how much the proportion of company's revenue left over after deducting from the payment of variable cost such as salaries and raw materials and also how much the company can generate on each dollar of sales. As the table of 3.1.1 and 3.1.2 shown, it shows that GAB has a higher operating profit margin than CBM. It means that GAB is more effective in converting sales into profit, in other hand, CBM are not generating enough sales and operating expenses of the company are not kept effectively. Return on Capital Employed ROCE is a ratio that used to measure the return of a business that can be achieved form the capital employed or from the company's assets. It indicates the company's capital investment in terms of efficiency and profitability. ROCE can be used to reveals how much the company is gaining from the assets and how much it is losing from its liabilities. Generally, the rate of ROCE should be higher than the rate of the company's borrowing or else shareholders' earning will be reduced as borrowing is increase. The calculation shows that GAB has a higher ROCE than CBM, therefore GAB is more profitable.
Liquidity Ratio Liquidity ratios are ratios that generally used to measure the company capability to fulfill its short term debt obligations by paying off all the liabilities when they fall due. Generally, if the value of liquidity ratios is greater than 1, it indicates that the company's financial performance is in a good condition because the short term obligations are fully covered and it is less likely fall into financial difficulties. The higher the liquidity ratios are, the higher the margin of safety will be for the company to satisfy its current liabilities. Short term creditors will prefer a high current ratio while shareholder will prefer a low current ratio so that there are more assets workings for the business growth. The most frequent used liquidity ratios in the company's performance analysis are current ratio and quick ratio. Current Ratio It is also called as working capital ratio which measures the solvency or liquidity of the business. It indicates the company's ability to meet short term liabilities and to see whether the firm has enough resources to pay its debts. High current ratio means that there is too much money is tied up in current assets that could be used to generate incomes. In other hand, low current ratio means that the company is unable to meet the debts as they fall due. As the table shows that GAB has higher current ratio than CBM which means that GAB can be categorized as healthy business and a desirable target of investment. Quick Ratio Quick ratio or acid test is an indicator of the business liquidity which measures the level of all assets that can be quickly convertible into cash and used to meet its short term liabilities. Current ratios are less stringent test which means that quick ratio provides more conservative measures because quick ratio excludes inventory. The higher the ratio, the healthier the company's position since the level of liquidity is higher. Based on the calculation, CBM's quick ratio is lower than GAB which means that CBM's current liabilities will be hardly met from the current asset without selling the inventory.