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DYLAN RABIN PEREIRA , SECTION 12

Modular Programme Assignment

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Please complete the form (in capital letters) and attach it securely to the
submitting your assignment.

Student ID: 0343892

Programme: BACHELOR OF BUSINSESS (HONS) BANKING & FINANCE

Name of module: INTRODUCTION TO FINANCE

Name of tutor: MOHAMMAD HASSAN SHAKIL

Module code: FIN60104

Assignment title: INDIVIDUAL

Due date & time: 22 OCTOBER 2020, 5PM

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Date: 22 OCTOBER 2020

Word Count: 1697

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 DUAL AWARD PROGRAMME - ASSIGNMENT Mark*

FEEDBACK

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subject to moderation and approval
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Title of Your Award: BACHELOR OF BUSINESS (HONS)

Module Name and Code : FIN60104

Name of Tutor: MOHAMMAD HASSAN SHAKIL

Assignment Title: FINANCE INDIVIDUAL ASSIGNMENT

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assignment:
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2
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tables inaccurate

Any additional comments (if there is any):

Assessed by: Date:

Table of Contents
1.0 COMPANY BACKGROUND.......................................................................................3
2.0 RATIO ANALYSIS......................................................................................................4
2.1 LIQUIDITY...........................................................................................................................4
2.2 FINANCIAL LEVERAGE...................................................................................................5
2.3 ASSET MANAGEMENT......................................................................................................6
2.4 PROFITABILITY.................................................................................................................7
3.0 RECOMMENDATIONS..............................................................................................8
4.0 REFLECTIVE WRITING............................................................................................9
REFERENCES...............................................................................................................10
APPENDIX.....................................................................................................................12

1.0 COMPANY BACKGROUND

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DRB-HICOM Berhad is an investment holding company founded by the merging of two individual companies
known as HICOM (incorporated in 1910) and DRB (incorporated in 1990). Its majority shareholders include the
likes of prominent businessman Syed Mokhtar and other institutional investors such as EPF. It is a conglomerate
that have interests in the automotive core business of manufacturing, assembly and distribution as well as
diversifying into industries such as logistics and hospitality. DRB-HICOM is headquartered in Shah Alam,
Malaysia and has grown rapidly around Southeast Asia which comprises of 52,000 employees (DRB-HICOM,
n.d.). DRB-HICOM’s vision is to be the first to lead the growth of Malaysia in areas of DRB-HICOM’s core
businesses such as its Proton Holdings (DRB-HICOM, n.d.). The latest financial performance of DRB-HICOM
shows a net loss of RM306.08million in the second quarter of 2020 which can be reflected by the impact of
COVID-19 and the Movement Control Order (Aman, 2020).

2.0 RATIO ANALYSIS

2.1 LIQUIDITY

Liquidity Ratios of DRB-HICOM

Year/Ratio Current Quick Cash
2019 0.48 0.41 0.04
2018 0.57 0.48 0.06
2017 0.54 0.46 0.05
2016 0.49 0.43 0.02

Figure 1.0: Liquidity Ratios of DRB-HICOM (Table)

Liquidity Ratio
0.6

0.5

0.4

0.3

0.2

0.1

0
2016 2017 2018 2019

Current Quick Cash

Figure 2.0: Liquidity Ratios of DRB-HICOM (Graph)

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According to the above, its current ratios increased from 2016 to 2018 but declined in 2019 that shows DRB-
HICOM is facing financial distress whereby it is over-leveraged since its below 1. Secondly, its quick ratio had
the same trend of increasing and decreasing all below 1 in 2019. Hence, its inability to stay solvent would be a
bad sign for investors. Thirdly, its cash ratio is extremely below 1 and only increased a little and dropping in
2019. This proves its dire need of cash on hand in order to pay off its current debt. The overall low liquidity
ratio can be contributed to the increase of its current debt prior to 2016 to support its weak core business, Proton
Holdings Berhad, which accumulated losses and a weak competitive position in the automotive industry
(Surendran, 2016). On the bright side, Malaysian Rating Corporation (MARC) has affirmed DRB-HICOM’s
healthy liquidity position to withstand the impact of the COVID-19 pandemic due to its unrestricted cash
balances that can meet the upcoming obligations and stay afloat in the future (The Star, 2020).

2.2 FINANCIAL LEVERAGE

Financial Leverage Ratios of DRB-HICOM

Year/Ratio Total Debt Debt-Equity Equity Multiplier
2019 0.76 3.2 4.2
2018 0.76 3.2 4.2
2017 0.77 3.3 4.3
2016 0.80 3.9 4.9

Figure

Financial Leverage Ratio

6

0
2016 2017 2018 2019

Total Debt Debt-Equity Equity Multiplier

Figure 4.0: Financial Leverage Ratios of DRB-HICOM (Graph)

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As for leverage ratios, its total debt ratio had a falling trend from 2016 which stopped in 2018 and unchanged in
2019. Its debt ratio below 1 explains its position that a greater portion of total assets covers more than its total
debt. Secondly, its Debt-Equity ratio took a huge drop in 2017 and was roughly the same until 2019. Although
the ratio is relatively high since most of the company’s funding comes in the form of debt, the company
improved an astounding 0.7x by increasing its equity. Thirdly, its equity multiplier had very similar trend with
its Debt-Equity indicating the company is using high amount of debt to finance its assets especially in 2016,
hence its company’ financial leverage was lower in 2019 compared to 2016, showing an improvement. The high
financial ratios especially the debt-equity and equity multiplier, is due to its strong acquisitions before 2016
which increased the company’s total debts that saw new subsidiaries such as Pos Malaysia in 2012, Composites
Technology Research Malaysia (CTRM) and Konsurtium Logistik in 2013 (TheEdge, 2014). However, DRB-
HICOM received a grant of RM1.1b from the government in 2017 of which was used to reduce its debt that
explains the slight decline of its debt-equity and equity multiplier from 2017 to 2018 (Adilla, 2017).

2.3 ASSET MANAGEMENT

Asset Management Ratios of DRB-HICOM

Year/Ratio Inventory Turnover Receivables Turnover Payables Turnover
2019 3.8 3.3 1.6
2018 4.5 3.9 2.0
2017 4.6 3.1 1.6
2016 6.2 2.8 1.8

Figure 5.0: Asset Management Ratios of DRB-HICOM (Table)

Asset Management Ratio

7

0
2016 2017 2018 2019

Inventory Turnover Receivables Turnover Payables Turnover

Figure 6.0: Asset Management Ratios of DRB-HICOM (Graph)

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As for management ratios, its inventory ratio was at an alarming high in 2016 but had a falling trend until 2019.
This indicates the company had inadequate inventory in 2016 that would have resulted in stock shortages.
Secondly, its receivables turnover saw an increasing trend to 2018 but declined in 2019 showing the company
pursued a higher ratio for a short period where collections were fast and on a timely basis. Thirdly, its payable
turnover ratio fluctuated throughout 2016-2019. The low payable turnover ratios indicates slow debt payments
due to its companies’ strength of favourable credit terms with its debtors. For instance, its favourable credit
terms such as raising RM3.5B for a period of 30 years under the Sukuk Wakalah programme allows DRB-
HICOM to make slower payments and help increase their margins (Idris, 2019). Although there was weak sales
that saw a big decline in receivables ratio in 2019, analysts has predicted that Proton Holdings will be a key
beneficiary of the expansionary SST exemption by eventually making their products attractively priced that
would increase its sales of DRB-HICOM and hopefully increase its receivables ratio again in the future (Borneo
Post , 2020).

2.4 PROFITABILITY

Profitability Ratios of DRB-HICOM

Year/Ratio Profit Margin Return on Asset Return on Equity
2019 4.4% 1.1% 4.5%
2018 1.6% 0.4% 1.9%
2017 -2.2% -0.6% -2.6%
2016 -7.2% -2.1% -10.3%

Figure 7.0: Profitability Ratios of DRB-HICOM (Table)

Profitability Ratio
6

-2

-4

-6

-8

-10

-12
2016 2017 2018 2019

Profit Margin Return on Asset Return on Equity

Figure 8.0: Profitability Ratios of DRB-HICOM (Graph)

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Lastly, for profitability ratios, its profit margin was negative in 2016 but had an increasing trend towards 2019,
which meant the company was able to reduce its expanses and effectively converting sales into net income.
Secondly, its ROA had a similar increasing trend but not as steep as its profit margin. However, the company
was improving over the subsequent years by converting invested capital into net income. Thirdly, its ROE was
very low in 2016 , but improved tremendously to a stable record of 4.5% in 2019. Shareholders warned DRB-
HICOM of its poor decisions, hence it shifted its focus on productive assets over the years that improved it ROE
drastically. For instance, strategic partnership with Geely for Proton Holdings saw recorded higher returns that
was mainly contributed by better performance of its automotive division such as the model Proton X70 and its
increased completion volume of the AV8 military (Yusof, 2019). This can be proven by an analysts research
that Proton, with its newer models, will make up 32% and 34% of net profitability for 2020 and 2021
respectively, indicating an increased profitability ratios in the future (Mahalingam, 2020).

3.0 RECOMMENDATIONS

Firstly, DRB-HICOM’s low liquidity ratios indicates the company is facing financial troubles. Hence, one way
to improve its liquidity ratio is applying long-term financing to invest in promising projects. For instance,
investment projects includes Proton X70 and other Geely models such as SX11 SUV and VF11 showed high
demand from local and other ASEAN countries (TheEdgeMarkets, 2019). Therefore, its 10-year agreement that
allows Proton to market these models to ASEAN countries clearly proves the need for long-term financing to
remove its high current debt which allows the company to save liquidity and put it to good use. Secondly, its
high debt-equity and equity multiplier indicates the company is insolvent. Nonetheless, one effective practice to
lower these ratios would be debt-restructuring by asset disposals of non-strategic subsidiaries. For instance, the
disposal of asset such as Alam Flora for RM944.6 million was utilized in pairing down its debt and helped
DRB-HICOM position itself as a major automotive and logistics player (MARC, 2018). Therefore, disposal of
more non-core assets like its hospitality businesses in the future would be able to set a comfortable financial
position for the company without the fear of insolvency. Thirdly, its high inventory turnover shows insufficient
inventory to support its strong sales. Hence, an appropriate solution for the company would be formulating an
effective inventory management to improve efficiency of inventory control and its delivery system. For
instance, the company still adopts the older versions of Commerce Plus and e-Community Supplier Exchange
(Precise) for its inventory management (Yap, 2004). Hence, the company should allocate funds for RAIN RFID
solutions which is a wireless sensing technology that helps improve confidence in quantity of inventory and
accurately meet demand (West, 2019). This will reduce stock shortages and lower its inventory turnover ratio.
Lastly, although all profitability ratios increased, return on assets (ROA) was behind compared to other
profitability ratios. Hence, a common solution would be implementing cost cutting initiatives. For example, its
reported that Proton Holdings has managed to cut component cost by 10% in 2018 after teaming up with Geely
to afford bulks of raw materials such as steel coins and resin (TheEdgeMarkets, 2019). Hence, other initiatives
should be taken like reducing more of its warehouse that would cut expenses and help increase its net income
and increase its ROA.

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4.0 REFLECTIVE WRITING

I understood the requirements of the assignment as the learning goals was to identify the issues of the chosen
company by evaluating the company’s financial aspects through ratio analysis. Hence, I started my assignment
by planning which company I wanted and came to know about DRB-HICOM through its renowned subsidiaries,
Proton Holdings. Nonetheless, I integrated a plan on the objectives that needed to be achieved such as
understanding the companies background, analysing financial statements with the 4 required ratios and
providing recommendations. The beginning stage of my assignment involved basic information gathering on the
background of DRB-HICOM. I searched the company’s website and was able to point out the company’s
attributes, target audience, products provided and track record. Referring to the background of DRB-HICOM
had a good and powerful first impression to me as a student and also as an investor since a background tells a
story of what a company stood for (Robinson, 2019). Second stage was the ratio analysis, I downloaded and
analysed annual reports for the past 4 years from Bursa Malaysia and I questioned the significance of different
aspects of the annual reports. Hence, I began to realize how annual reports provided pertinent information on the
health of DRB-HICOM to its shareholders. While calculating the ratios through its balance sheet and income
statement. I was able to learn and apply skills of formulating diagrams and tables based on the computed results
of my analysis. Therefore, this would help me a be a better financial analyst if I were to pursue this ambition, as
its main role is to screen through data and identify opportunities for investment recommendations (Segal, 2020).
Moreover, I applied financial ratios as a tool for quantitative analysis such as the liquidity, leverage and
profitability in real market scenarios as I began to see the importance of identifying trends and evaluating the
company short and long term financial performance. As for recommendations in the final stage, I began to
ideate solutions on the problems DRB-HICOM were facing based on my analysis. For instance, I delegated my
recommendations that suited different aspects of the ratios such as the company’s high current debt and
inventory shortages. Hence, with sufficient news articles that I have researched, I understood that presenting
effective solutions comes with a strong knowledge of the external factors such as the automotive industry and
the state of the economy (Housel, 2012). This shows that my proposed recommendations has to take both
internal factors and external factors into account for DRB-HICOM to succeed.

REFERENCES

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Adilla, F. (2017) ‘DRB-HICOM receives RM1.1b grant from government’, News Strait Times, 6 October
[Online]. Available at: https://www.nst.com.my/business/2017/10/288185/drb-hicom-receives-rm11b-grant-
government (Accessed: 22 October 2020)

Aman, A.S. (2020) ‘DRB-HICOM slips into red, revenue at RM2bill in Q2’, News Straits Times, 28 August
[Online]. Available at: https://www.nst.com.my/business/2020/08/620275/drb-hicom-slips-red-revenue-rm2bil-
q2#:~:text=DRB%2DHICOM%20Bhd%20posted%20a,00%20billion%20revenue (Accessed: 22 October 2020)

Borrock, K. and Fong, K. (2018) ‘Asset sale to fund Proton’s operations’, The Edge Markets, 13 August
[Online]. Available at: https://www.theedgemarkets.com/article/asset-sale-fund-protons-operations (Accessed:
22 October 2020)

DRB-HICOM (2019) DRB-HICOM Annual Report 2019 [Online]. Available at:

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_d
etails?ann_id=2974903 (Accessed: 22 October 2020)

DRB-HICOM (2018) DRB-HICOM Annual Report 2018 [Online]. Available at:

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_d
etails?ann_id=2877006 (Accessed: 22 October 2020)

DRB-HICOM (2017) DRB-HICOM Annual Report 2017 [Online]. Available at:

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_d
etails?ann_id=2778692 (Accessed: 22 October 2020)

DRB-HICOM (2016) DRB-HICOM Annual Report 2016 [Online]. Available at:

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_d
etails?ann_id=2688960 (Accessed: 22 October 2020)

Mahalingam, E. (2020) ‘Proton to boost DRB-HICOM earnings’, The Star, 3 March [Online]. Available at:
https://www.thestar.com.my/business/business-news/2020/03/03/proton-to-boost-drb-hicom-earnings
(Accessed: 22 October 2020)

Malaysian Rating Corporation Berhad (2018) ‘MARC AFFIRMS DRB-HICOM’S RATING WITH STABLE
OUTLOOK’, 23 November [Online]. Available at: https://www.marc.com.my/index.php/marc-rating-
announcements/975-marc-affirms-drb-hicom-s-ratings-with-stable-outlook-2018112 (Accessed: 22 October
2020)

Robinson, R. (2019) ‘Writing a Business Plan’, The Balance, 28 October [Online]. Available at:
https://www.thebalancesmb.com/writing-business-plan-company-history-1200837 (Accessed: 22 October 2020)

Segal, T. (2020) ‘Becoming a Financial Analyst’, Investopedia, 24 June [Online]. Available at:
https://www.investopedia.com/articles/financialcareers/06/financialanalyst.asp#:~:text=The%20main%20role
%20of%20a,leads%20to%20other%20career%20opportunities (Accessed: 22 October 2020)

Surendran, S. (2016) ‘MARC lowers DRB-HICOM debt rating’, The Edge Markets, 9 September [Online].
Available at: https://www.theedgemarkets.com/article/marc-lowers-drb-hicom-debt-rating (Accessed: 22
October 2020)

The Borneo Post (2020) ‘DRB-HICOM’s affected by Covid-19, modest recovery expected’, 29 June [Online].
Available at: https://www.theborneopost.com/2020/06/29/drb-hicoms-affected-by-covid-19-modest-recovery-
expected/ (Accessed: 22 October 2020)

The Edge Markets (2019) ‘New models seen helping rehabilitating DRB-HICOM’s Proton branding’, 15 May
[Online]. Available at: https://www.theedgemarkets.com/article/new-models-seen-helping-rehabilitating-
drbhicoms-proton-branding (Accessed: 22 October 2020)

10
The Edge Markets (2019) ‘ DRB-HICOM’s longer term prospects still promising’, 22 January [Online].
Available at: https://www.theedgemarkets.com/article/drbhicoms-longerterm-prospects-still-promising
(Accessed: 22 October 2020)

The Edge Markets (2014) ‘DRB HICOM to focus on logistics sector’, 15 January [Online]. Available at:
https://www.theedgemarkets.com/article/special-report-drb-hicom-focus-logistics-sector (Accessed: 22 October
2020)

The Star (2020) ‘MARC affirms DRB-HICOM sukuk, lowers outlook to stable’, 7 August [Online]. Available
at: https://www.thestar.com.my/business/business-news/2020/08/07/marc-affirms-drb-hicom-sukuk-lowers-
outlook-to-stable (Accessed: 22 October 2020)

Yusof, A. (2019) ‘Analysts upbeat on DRB-HICOM’s FY19 results fuelled by Proton X70 and AV8 Project’,
News Straits Times, 3 March [Online]. Available
at:https://www.nst.com.my/business/2019/03/465535/analysts-upbeat-drb-hicoms-fy19-results-fuelled-proton-
x70-and-av8-project (Accessed: 22 October 2020)

APPENDIX

11
 Ratios Calculations
(RM’000)
Liquidity

Current: Current Assets/ Current Liabilities

2016: 14,023,227/28,709,477 = 0.49

2017: 15,506,354/28,637,494 = 0.54
2018: 15,407,513/26,852,954 = 0.57
2019: 15,417,900/ 31,832,489 = 0.48

Quick: Current Assets – Inventory/ Current Liabilities

2016: 14,023,227 -1,760,627/28,709,477 = 0.43

2017: 15,506,354 – 2,285,452/ 28,637,494 = 0.46
2018: 15,407,513 – 2,388,600/ 26,852,954 = 0.48
2019: 15,417,900 – 2,220,513 / 31,832,489 = 0.41

Cash: Cash/ Current Liabilities

2016: 550,999/28,709,477 = 0.02

2017: 1,544,331/28,637,494 = 0.05
2018: 1,604,589/26,852,954 = 0.06
2019: 1,359,283/31,832,489 = 0.04

Financial Leverage

Total Debt: Total Assets – Total Equity/ Total Assets

2016: 42,041,503 -8,502,443/ 42,041,503 = 0.80

2017: 44,044,826 -10,254,313/ 44,044,826 = 0.77
2018: 42,730,441-10,098,124/ 42,730,441 = 0.76
2019: 41,675,403- 9,842,914/ 41,675,403 = 0.76

Debt-Equity: Total Debt/ Total Equity

2016: 33,539,060/ 8,502,443 = 3.9

2017: 33,790,513/ 10,254,313 =3.3
2018: 32,632,317/ 10,098,124 =3.2
2019: 31,832,489/ 9,842,914 = 3.2

Equity Multiplier: Total Assets/ Total Equity

2016: 42,041,503/8,502,443 = 4.9

2017: 44,044,826/ 10,254,313 =4.3
2018: 42,730,441/10,098,124 =4.2
2019: 41,675,403/ 9,842,914 =4.2

Asset Management

Inventory Turnover: Cost of Goods Sold / Inventory

2016: 11,001,547/ 1,760,627 =6.2

2017: 10,556,030/ 2,285,452 =4.6
2018: 10,780,708/ 2,388,600 =4.5
2019: 8,331,130/ 2,220,513 =3.8

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 Receivables Turnover: Sales/ Accounts Receivables

2016: 12,172,941/ 4,274,409 =2.8

2017: 12,058,334/ 3,859,027 =3.1
2018: 12,250,565/ 3,156,288 =3.9
2019: 9,998,149/ 3,048,070 =3.3

Cost of Goods Sold/ Accounts Payable

Payables Turnover: 2016: 11,001,547/ 6,155,527 =1.8
2017: 10,556,030/ 6,430,740 =1.6
2018: 10,780,708/ 5,333,056 =2.0
2019: 8,331,130/ 5,117,896 =1.6

Profitability

Profit Margin: Net Income/ Sales

2016: (871,621)/ 12,172,941= -7.2%

2017: (264,592)/ 12,058,334= -2.2%
2018: 192,219/ 12,250,565= 1.6%
2019: 439,124/ 9,998,149= 4.4%

Return on Assets: Net Income/ Total Assets

2016: (871,621)/ 42,041,503= -2.1%

2017: (264,592)/ 44,044,826= -0.6%
2018: 192,219/ 42,730,441= 0.4%
2019: 439,124/ 41,675,403= 1.1%

Return on Equity: Net Income/ Total Equity

2016: (871,621)/ 8,502,443= -10.3%

2017: (264,592)/ 10,254,313= -2.6%
2018: 192,219/ 10,098,124= 1.9%
2019: 439,124/ 9,842,914= 4.5%

13