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Genting Plantations Berhad financial statement analysis

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Genting Plantations Berhad Financial Analysis

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Genting Plantations Berhad Financial Analysis

Introduction

The paper is aimed at presenting an objective and comprehensive financial statement analysis for a publicly-traded company, Genting Plantations Berhad. The analysis is based on the company's financial statements for the ten years between 2011 and 2020. As such, the analysis will explore various financial performance metrics of the company over the ten years to recommend the company's financial health. The paper will highlight if the company has demonstrated effective management over the years as evidenced by its performance. The overall intention is to evaluate the company’s suitability for investment purposes. It will, therefore, explore the income statements, statements of financial position, and statements of cash flow through the calculation and analysis of various financial ratios. The various ratios to be presented in the paper include liquidity, gearing, profitability, risk, share performance, and efficiency. The decision to or not invest in the company is significantly determined by the financial ratios because they present a magnifying lens through which the potential investors and other stakeholders such as lenders can clearly understand its stability. However, despite being a necessary source of critical information regarding investment decisions, financial ratio analyses are not sufficient determinants of the same. Investors are always advised to consider other factors that may affect the performance of a company, including competition, nature of the industry, inflation, and political factors. The paper will specifically focus on (Genting Plantations Berhad (herein referred to as the company) and not the Genting Berhad Group.

Background of the Company

Core Business

Genting Plantations Berhad commenced its operations in 1980 as a subsidiary of Genting Berhad, with its headquarters in Malaysia, Kuala Lumpur. Its core businesses are plantation and manufacturing. The company operations are spread over a land area of approximately 64,600 Ha in Malaysia and another 182,800 Ha situated within its plasma scheme in Indonesia. Currently, the company operates various oil mills in the two locations (Genting Plantations Berhad, 2019). The company is also specialized in mainstream manufacturing operations for palm-based products and recently ventured into property development as a strategic approach towards unlocking the treasurable value of its landbank within Malaysia and Indonesia. The endeavor is rooted in various technological investments such as genomics to boost its output productivity and sustainability.

Vision and Directors

According to Genting Plantations Berhad (2021), the progress of the business is deeply rooted in its strategic vision and inspiration to emerge as a leader in the plantation sector. It seeks to engage aggressively in value addition initiatives and enhance its business’ returns on investments continuously. Overall, the company is keen to strengthen its competitive position through the adoption of new technologies. The pursuit of its vision is steered by its acknowledgment of employees through continuous development, motivation, and the creation of highly rewarding environments (Genting Plantations Berhad, 2021). The company’s vision also outlines its commitment towards market orientation and customer-oriented approach to business by emphasizing product quality and diversity. By the end of 2018, the company ranked fourth in terms of market capitalization in its sector; with 7.94 RM billions in the capital (Genting Plantations Berhad, 2019). Its strong background is centered on the existence of firm leadership by its corporate board; head by Gen. Dato’ Seri DiRaja Tan Sri (Dr.) Mohd Zahidi bin Hj Zainuddin (R) (Chairman of the board). The chairman works in conjunction with other eight directors to drive the business towards the achievement of its goals and objectives.

Development of the Company

The company’s inception dates back to 1977 when it was incorporated as a private limited company in Malaysia. The company gained a listing on the Malaysian Bursa, and ever since, the company has undergone a massive transformation to emerge among the region's leading palm plantation firms. Its operations began on a landbank of 13,700 Ha in the early 1980s and have expanded over time to own more than 240,000 Ha in Malaysia and Indonesia. The expansion across the two territories occurred during the greenfield and brownfield acquisitions between 1988 and 2004 (Genting Plantations Berhad, 2021). Due to the increasing scarcity of arable land in Malaysia, the plantation ventured into Indonesia where it acquired additional land in 2005 and has continuously expanded its landbank to its current ownership of more than 178,00 Ha in the region. Genting Plantations currently operates eleven oil milling facilities; ten in Malaysia and four in Indonesia, all of which are capable of producing up to 665 metric tons of output per hour (Genting Plantations Berhad, 2021).

The company’s commitment to its business line was boosted by its establishment of the ACGT Sdn Bhd- a wholly-owned subsidiary- in 2006 to conduct its scientific research for crop improvement. Since 2014, the company has been embarking on a downstream investment to transform into a fully integrated palm oil manufacturer through the establishment of the Genting Integrated Biorefinery Complex. It has also partnered with the Musim Mas Group to complement its initiative. Genting has also ventured into property development activities intending to unlock the potential of its strategically located land area. Johor Premium Outlets was launched by the company in 2011 s the first facility of its kind in Malaysia and the South-Eastern Asia region. It opened the second premium outlet in 2017, The Genting Highlands Premium Outlets, with a leasable area of approximately 275,000 sq., Ft (Genting Plantations Berhad, 2020). Overall, Genting has grown from a simple plantation establishment to operate four fully-pledged business divisions, including downstream manufacturing, property development, biotechnology, and plantations. The company’s biotechnology division is currently committed to technologies such as genomics, biostatistics, metagenomics, breeding, and seed production for crop quality improvement under the stewardship of the Scientific Advisory Panel. The technologies are behind the success of the company’s downstream manufacturing division as exemplified by the establishment of the Biorefinery Complex in Sabah (Genting Plantations Berhad, 2021). The property division, Genting Property Sdn Bhd, has been critical for the implementation of various projects since 1993. For example, the Genting Cheng Perdana in Meka. Over the years, it has continuously implemented successful property projects in the residential and commercial sectors. The plantations division holds firmly onto the estates and oil mills on which the company's core business is driven across its vast land bank in Malaysia and Indonesia.

Market Development

Genting has continuously evolved in its market development over the years as its business expanded. The company’s market development over the years can be significantly attributed to the operational diversification strategy that saw the business evolve from a pure plantation operator to a multi-division entity. Through its vision of adopting a market-driven and customer-oriented approach to business, Genting has over the years realized substantial market development through its emphasis on quality and diversity. Specifically, the company’s portfolio diversification has seen it develop in different markets. For example, its foothold in Indonesia has been deeply rooted in the expansive acquisition of additional land banks as well as entering into joint ventures (Genting Plantations Berhad, 2021). For example, it acquired a controlling share of 63.2% in an Indonesian Joint Venture company in 2012 at the cost of US$116 million in a bis do access additional 74,000 Ha of oil palm in Kalimantan, Indonesia (The Edge, 2012). Other joint ventures include the JV entity-Global Agripalm Investment Holdings Pte and the Sin Tek Huat Group in a bid to strengthen its grip on the palm oil industry. The company’s market development has been recently boosted by the rising palm oil product prices across the globe (Mung, 2020).

Market development for the company has also been evidenced in the property development area as evidenced by the establishment of two premium outlets in different locations in Malaysia, including the Genting Highlands Premium Outlets and the Johor Premium Outlets (Genting Plantations Berhad, 2021). Overall, the company has recorded substantial market developments in its plantation (palm oil) and property divisions by leveraging the biotechnology and downstream manufacturing divisions to realize its vision.

Technology and Expertise

The company’s success in its property and plantation businesses has been significantly boosted by the adoption of vast and agile modern technologies. For instance, Genting's biotechnology division is deeply rooted in the partnerships with technology-based companies such as ACGT and GAT for the development of useful technologies useful for the business. The partners collaborated with Genting to sequence three genomes, including oil palm, jatropha, and Ganoderma which are critical for the betterment of understanding oil palm yield (Genting Plantations Berhad, 2021). Its commitment to technology and expertise is informed by the formation of the Scientific Advisory Panel (SAP); which is mandated to provide scientific and technical advice on the various R&D initiatives at the company. Members of the SAP are experts in various fields, including biostatistics, metagenomics, breeding, and seed production (Genting Plantations Berhad, 2021). The company, therefore, leverages the advent of modern technology and expertise to drive its R&D initiatives in line with its corporate vision in the marketplace.

General Prospect

Given the historical and current expansive progress demonstrated by Genting in its business, the general prospect would be its sustained growth, expansion, and increased competitiveness in the global market. First, the concept of diversifying its business divisions from the traditional plantations to property, biotechnology, and downstream manufacturing, Genting could successfully harness new markets in the future. The adoption of modern technology is a potent thrust for the company to hone its commitment to quality, customer orientation, and market competitiveness in the industry. The rising palm oil product prices across the globe also give the company sufficient growth prospects by increased profitability. The company's expansion of its land bank is a firm basis for the sustainable supply of inputs to the manufacturing process; thus, ensuring that its markets are not disrupted by short supplies. Genting’s strategic entry into joint ventures also gives the business a prospective ability to penetrate new markets in different regions across the world by leveraging the new business relationships. For instance, entry into a joint venture with a company operating in a new market would make it easy for Genting to penetrate such markets in the image of the resident companies. The investment of Genting in biotechnology and R&D activities under the stewardship of the SAP also increases the chances of developing more modern technologies as well as improved quality of its products; thus, stimulating its competitiveness.

Financial Position and Trend

The financial trend demonstrated by the company over the ten years can be demonstrated in figure 1; below:

Figure 1: Excerpt of Genting 10-year profit and loss

Drawing from Figure 1, it is evident that the company reported positive net profits over the ten years between 2011 and 2020. Notably, the company’s highest net profit was reported in 2017 (RM622.251 Million) followed by 2014 with RM527.948 million and 2012 with RM302.919 million. The fourth most profitable year for the company was 2013 (RM302.754 million) while the fifth was 2011 with RM296.603 million. However, FY2016 recorded the lowest net profits (RM45,102 million). The graphical representation of the company’s profitability over the ten years can be demonstrated as follows (Figure 2).

Figure 2: Genting Profitability 2011 – 2020

Revenue

The revenue reported by the company over the ten years demonstrated a similar trend to that of the net profits generated each year. According to the information in Figure 3, the company reported the highest revenue generation in 2017 (RM746.646 million), and the lowest was reported in 2015 (RM329.940 million). According to the graphical presentation below, the company’s profits increased with increasing revenues and declined with declining sales revenue.

Figure 3: Revenue Vs. Profits

Cost Of Sales

 

Figure 4: Profit/Revenue/Cost Of Sales

The company’s cost of sales hit the highest in 2018 (RM92.243 million) followed by 2015 and 2017 with RM69.608 million and RM665.206 million respectively. The cost of sales was the lowest in 2011 (RM37.72 million). Overall, the profitability of the company demonstrated a positive correlation to the sales revenue generated by the business. However, the cost of sales did not correlate symmetrically with the revenue generated.

Liquidity

The liquidity of a company demonstrates its ability to leverage its short-term assets to settle its short-term debt obligations (liabilities). The various liquidity ratios include the current and the quick ratio. The former is a metric for the company’s financial capability to repay all its current liabilities using its current asset base. The latter evaluates if a company’s financial outlay regarding quick assets is strong enough to repay the outstanding short-term liabilities (Laitinen, 2018). The current and quick ratios of Genting for the ten years between 2011 and 201 can be demonstrated as follows (Figure 5):

Figure 5: Liquidity Ratios

From the graphical presentation, the company maintained positive (favorable liquidity) over the ten years. Specifically, liquidity ratios exceeding one are deemed favorable because they symbolize a company's ability to meet its short-term financial requirements using the target base (Laitinen, 2018); either the current or quick assets. The company’s current and quick ratios were highest in 2015. The current ratio was 62.37 while the quick ratio was 62.35. The lowest, however favorable still, were reported in 2017 (current ratio = 4.14 = Quick ratio = 4.14). Overall, the company was favorably liquid over the ten years under analysis.

Gearing / Leverage

Business entities can use equity or debt as a source of finances to sustain their operations. Gearing or leverage refers to how various elements of a business organization are financed; either debt or equity, or a combination. Minimal or zero reliance on debt financing is considered financially favorable for the business's health and performance. The avoidance of debt financing by business organizations is deemed favorable because it minimizes or eliminates the burdens and risks associated with debt financing (Laitinen, 2018). For instance, the extensive dependence on debt financing is burdensome and risky to a business because of various aspects such as the regular repayment of interest and the principal amounts. Moreover, market fluctuations such as those witnessed during inflation cause increased cost of debt to the business; thus, eating into the business’ finances. Therefore, low or declining debt dependency is always recommended for rational businesses at any time that they can rely on other sources of finances. In the case of Genting Plantations, the leverage or gearing position over the ten years under review can be demonstrated as follows (Figure 6):

Figure 6: Leverage ratios for Genting Plantations 2011 – 2020

The debt to equity ratio demonstrates the extent to which a company’s equity is financed by debt. It relates the total equity to the total liabilities to establish the proportion of the equity attributable to every financial unit of the total liabilities (Laitinen, 2018). According to the analysis in Figure 6, the company’s management has been keen to maintain minimal debt financing concerning its total equity base. The company maintained a debt to equity ratio below 0.5; implying that only less than half of the company's equity was attributable to the debt over the period. The highest debt to equity ratio recorded by Genting Plantations over the ten years was 0.363 (36.3%) in 2017. The ratio implies that every financial unit (say dollar) of equity debt is only attributable to 36.3 cents of the company’s total equity.  According to Laitinen (2018) equity to debt ratios greater than one are indicators of increased gearing and insolvency of a business because it is unable to repay the debt using its equity. Therefore, Genting maintained substantial solvency over the ten years under review. The second-highest level of leverage for Genting over the ten years under review was recorded in 2018 (0.254) followed by 2019 (0.238) and 2015 (0.229). The company’s lowest level of debt to equity ratio was reported in 2014 (0.009). Overall, the company demonstrated substantial solvency over the ten years regarding the debt to equity ratio.  

The debt to assets ratio is a metric for the proportion of the company’s asset base attributable to debt financing. Similar to the debt to equity ratio, high debt to asset ratios are considered unfavorable while low ratios are deemed favorable to the business (Laitinen, 2018). The demonstration by the debt to asset ratio by Genting Plantations between 2011 and 2020 reinforces the argument for the busyness’ solvency over the period under analysis. The ratio hardly exceeded 0.27, with the highest being 0.0266 (2.6%) in 2017. The lowest debt to asset ratio reported by the company was 0.009 in 2014. Therefore, the trend demonstrated by the debt to asset ratio at Genting Plantations over the ten years further proved the company’s minimal leverage; thus, high solvency.

Further evidence for the company’s solvency over the years was justified by the debt to capital and asset to equity ratios over the ten years examined in the analysis. The debt to capital ratio compares the company's debt to the cumulative total of its equity and long-term liabilities. It reinforces the debt to equity ratio by highlighting the superiority or inferiority of a company’s equity to its debt level (Laitinen, 2018). The company’s highest debt to capital ratio was 0.266, recorded in 2017 while the lowest was 0.009 recorded in 2014. The asset to equity ratio compares the company’s equity to its asset base. Asset to equity ratios greater than one are considered favorable because they demonstrate a larger asset base compared to equity. The company maintained a debt to asset ratio greater than one over the ten years, with the highest being 1.254 in 2018 while the lowest was 1.009 in 2014. Overall, the company was fairly soluble over the ten years as evidenced by the less than one gearing ratios.

Efficiency

The efficiency financial ratios are metrics for a company’s ability to leverage its assets for income generation (Paul and Mukherjee, 2016). Santosuosso (2014) argues that they are financial proxies dependent on the information contained in the financial statements and are useful for investor decision-making. They include the inventory turnover, accounts receivable turnover, asset turnover, and the working capital ratio.

The efficiency ratios for Genting Plantations for the period between 2011 and 2020 can be demonstrated as in figure 7, below.

Figure 7: Efficiency ratios

Inventory turnover examines a company’s effectiveness in the management of its inventories by ascertaining the number of times the business sells its inventories over a certain period (Paul and Mukherjee, 2016). While the inventory turnover ratio varies across industries, Genting plantations maintained the ratio above 10 times over the ten years. It hit a high of 54.9 times in 2016 and a low of 10.53 times in 2011. The trend shows that the company was able to turn its inventory many times during the period.

The accounts receivable turnover is a metric for the company’s ability to convert its accounts receivable into cash over time. It shows the number of times a company can realize cash from its debtors (Paul and Mukherjee, 2016).  The higher the ratio, the more efficient is the business and vice versa. Genting’s receivables turnover was continuously positive over the period; hitting a maximum of 70.22 times in 2012 and a low of 6.79 times in 2015.

Asset turnover is a comparative metric that evaluates a company’s ability to leverage its assets for revenue (Paul and Mukherjee, 2016). Higher turnover ratios are considered favorable compared to low ratios. Genting was capable of maintaining the ratio positive; however minimal. It reached a high of 0.12 in 2017 and a low of 0.05 in 2018. This implies that the company would generate 12 and five cents in revenues from each dollar of assets.

The working capital ratio compares the company’s current assets and current liabilities. It implies that if a company maintains current assets greater than its current liabilities, it is efficient. The case is evident in the case of Genting as evidenced in the analysis. 

Profitability

Profitability ratios demonstrate a company’s ability to generate income relative o certain financial statement variables such as revenue, equity, and assets. The return on equity demonstrates the company’s ability to generate profits in relation to the shareholders’ equity. It shows the business's ability to reward investors for their investment (Paul and Mukherjee, 2016). Therefore, high ROE is favorable. The net profit margin highlights the proportion of net profits realizable from a unit dollar generated in sales Paul and Mukherjee, 2016). High profitability ratios imply high profitability, unlike low ratios. The return on assets shows the proportion of net profits attributable to a dollar invested in the company’s asset base. The gross profit margin relates the gross profits to the sales to establish the proportion of gross profits realizable from a unit dollar in sales (Paul and Mukherjee, 2016). Overall, high profitability ratios are deemed favorable. Genting’s profitability can be demonstrated as follows for the ten years under review (Figure 8).

Figure 7: Profitability ratios

Remarkably, none of the profitability ratios for the company fell below 1% over the ten years. Despite the slow growth of return on equity and the return on assets, the company maintained positive performance over the year with significantly high gross and net profit margins.

Viability

Drawing from the various financial ratios presented in the analysis, Genting exhibits substantial viability in its business and financial performance. It presents favorable trends over the years; thus, being viable. The company operates under minimal risk given its nature of business across all its divisions.

Share Performance

The company's share performance can be demonstrated as follows for the ten years.

Figure 8: Share Performance

According to Figure 8, the company reported positive EPS over the entire period. The highest EPS was RM58.25 in 2011 and the lowest was RM16.6 in 2019. Despite annual fluctuations, the company managed to declare positive EPS over the entire period. Its PE ratio was also positive over the ten years, representing favorable share performance. The annual fluctuations could be attributed to external factors such as inflation and other economic forces.

Conclusion

Genting Plantations Berhad demonstrated recommendable financial performance over the ten years between 2011 and 2020. Given that the period was marked by various global forces, including the current COVID pandemic, the business successfully demonstrated favorable performance in terms of liquidity, solvency, profitability, efficiency, and share performance. Therefore, drawing from the perspective of financial analysis, the company is a viable investment opportunity.

 

 

References

Laitinen, E. (2018). Financial Reporting: Long-Term Change of Financial Ratios. American Journal Of Industrial And Business Management08(09), 1893-1927. https://doi.org/10.4236/ajibm.2018.89128

Mung, T. (2020). Genting Plantations 3Q net profit rises by three folds on higher palm prices. The Edge Markets. https://www.theedgemarkets.com/article/genting-plantations-3q-net-profit-rises-three-folds-higher-palm-prices.

Paul, P., & Mukherjee, P. (2016). A Critical Analysis of the Financial Efficiency of the Steel Industry in India. Asia-Pacific Journal Of Management Research And Innovation12(3-4), 242-249. https://doi.org/10.1177/2319510x17696651

Rehman, R., Syed, S., Hussain, M., Fraz, T., & Shaikh, S. (2020). Impact of wellness indicators on intellectual dimensions of medical teachers of Karachi: findings from a cross-sectional study. Journal Of The Pakistan Medical Association, (0), 1. https://doi.org/10.5455/jpma.19316

Santosuosso, P. (2014). Do Efficiency Ratios Help Investors to Explore Firm Performances? Evidence from Italian Listed Firms. International Business Research7(12). https://doi.org/10.5539/ibr.v7n12p111

Stoewen, D. (2017). Dimensions of wellness: Change your habits, change your life. The Canadian Veterinary Journal. La Revue Veterinaire Canadienne58(8), 861-862. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5508938/.

Su-Kubricht, L. (2019). The 8 Dimensions of Wellness. Rm.edu. https://rm.edu/blog/the-8-dimensions-of-wellness/.

The Edge. (2012). Genting Plantations- Sin Tek Huat JV to cultivate oil palm in Indonesia.. The Edge Markets. https://www.theedgemarkets.com/article/genting-plantations-sin-tek-huat-jv-cultivate-oil-palm-indonesia.

Zhuang, P., Wu, F., Mao, L., Zhu, F., Zhang, Y., & Chen, X. et al. (2021). Egg and cholesterol consumption and mortality from cardiovascular and different causes in the United States: A population-based cohort study. PLOS Medicine18(2), e1003508. https://doi.org/10.1371/journal.pmed.1003508

Genting Plantations Berhad. (2019). Annual Report. Kuala Lumpur. https://www.gentingplantations.com/wp-content/uploads/2019/04/GENP_AR-2018.pdf

Genting Plantations Berhad. (2021). Corporate Profile. Gentingplantations.com. https://www.gentingplantations.com/corporate_profile/.

 

 

 

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Instructions The theme is financial analysis – where you will be researching and analysing financial information to establish whether the company is well managed, promised some good potential, performed well and hence worth investing in. This is what you will have to recommend to your clients. The Process of Completion Choose a public listed company - listed in any stock exchange that has 10 years listing history. Download the Annual report of the company for the last 10 years. Read thoroughly the latest annual report to learn thoroughly about the company - from reading the chairman, statement, directors, statement, company structure, shareholdings, subsidiaries, list of properties and financial performance - Pr...
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Genting Plantations Berhad financial statement analysis

Instructions The theme is financial analysis – where you will be researching and analysing financial information to establish whether the company is well managed, promised some good potential, performed well and hence wort...

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