Discuss about the Study On the Small Medium Enterprise In Malaysia.
The report is prepared to evaluate the financial performance of companies listed on Bursa Malaysia. For this purpose, two companies have been chosen from telecommunication sector and these two companies include Axiata which is the main company and Maxis communication being the competitor. Axiata is the leading telecommunication group operating in Asia that has investment in network infrastructure, mobile network operations and digital internet companies that serves approximately 350 million subscribers in eleven countries across the region (Axiata.com 2018). It has placed itself as leader in the telecommunication market of Malaysia. In terms of revenue, Axiata is the biggest mobile operator and has the plan of making its tower unit of the five biggest worlds by year 2020. This telecom company combines together the best in the region in terms of connection, innovating and talent. A range of innovative telecommunications services is provided by organization and products along with having a diverse portfolio in communication infrastructure, mobile network and digital services. There are six mobile operators in which Axiata has controlling operators under the brand names XL in Asia, Celcom in Malaysia, Robl in Bangladesh, Dialog in Sri Lanka, Ncell in Nepal and smart in Combodia and have strategic interest in M1 in Singapore and Idea in India (Axiata.com 2018). Axiata Digital was established by company in year 2012 for capturing rapid growth in internet business. A portfolio of twenty nine digital brands including seven joint ventures and three subsidiaries are built by Axiata digital that helps in servicing growing demand in mobile advertising, mobile money, entertainment, e commerce and education.
Maxis communication is obsessed with providing constantly expanding universe of digital applications with the best access. Organization continuously evolves to provide customers with unrivalled suite of end to end communications and innovative experience from just being a leading company. Enterprise customers are providing fixed connections, mobility solutions and enables business to engage their customers in a meaningful ways using a digital platform. It is ensured by organization that superior customer experiences are enjoyed by customers. Maxis are the largest telecommunication provider operating in Malaysia. There is long term commitment on part of organization for expanding the coverage of 4G LTE so that internet service enjoyed by customers is uncompromised (Maxis 2018).
Maxis Telecommunication Company intends to provide better quality service with larger coverage and compared to competitors, the price they charge for the service are extremely high. Despite the high price for their service, the share of market enjoyed by Maxis Berhad is huge. This is indicative of the fact about how well competitive competence is possessed by the organization. Maxis will continue to enhance their position as differentiated value propositions to the customers along with leveraging quality and coverage of network. The impact of progressive termination of arrangement of network sharing is accounted for in year (Maxis, 2018). It is expected that the service revenue will decline along with decline in earnings before interest, tax, depreciation and amortization.
The financial performance of Maxis communication and Axiata has been compared over the past five years by the application of ratio analysis tool. Ratio helps in analyzing the financial data of reporting entity that assist in financial and investment decision making (Adam 2017). Performances of companies have been evaluated in terms of issues pertaining to efficiency of operations, potential investments; credit policies and borrowers credit worthiness. Evaluation of company’s financial performance using ratio analysis has been done in terms of efficiency, liquidity, solvency and profitability position.
The profitability positions of companies have been evaluated by the computation of net profit margin, return on total assets and return on equity. This ratio helps in measuring the efficiency of firms in generating profits.
Net operating profit generated by company is measured by dividing net profit of company by total amount of revenue generated. For Maxis communication, the net profit margin has increased from 19.51% in year 2013 to 20.31% in year 2015 and further to 25.20% in year 2017. It is indicative of the fact that net profit margin has increased year on year implying that company has become efficient in converting sales into actual profit.
When looking at the figures of Axiata, it can be seen that ratio has reduced by a considerable percentage from 19.23% in year 2013 to 16.75% in year 2015 and further 5.28% in year 2016 respectively. However, ratio increased by fewer percentage in year 2017 to 7.93%. This drastic fall in ratio value is indicative of the fact that company has not been efficient in converting their sales into actual profit (Gaonkar et al. 2018). Lower profit margin depicts that efficiency of organization in converting sales has reduced. Therefore when comparing the net profit margin of both the companies, it can be seen that Maxis communication is more efficient in converting their sales.
Return on assets is the amount of profit that each dollar of assets generates. It helps in measuring the efficiency of company in managing its assets to produce profits. Return on assets has reduced initially from 10.23% in year 2013 to 9.52% and 9.20% in year 2014 and 2013 respectively and has increased subsequently to 10.25% and 11.39% in year 2016 and 2017 respectively. It is suggested by the figure that efficiency of organization in utilizing the assets for revenue generation has reduced initially and has increased thereafter.
Looking at figures for Axiata Limited, it can be seen that value is recorded at 8.12% in year 2013 compared to 6.41% and 5.94% in year 2014 and 2015 respectively. This is indicative of decline in ratio with a further fall at 1.61% and 2.77% in year 2016 and 2017 respectively. This shows that ratio has been falling year on year indicating that the efficiency of assets in generating net income or profits has reduced. Comparing the performance of both organizations in terms of their profitability generated by assets, it can be deduced that Maxis communication is efficient as against Axiata in utilizing their assets (Ahmad and Saifudin 2014).
Return on equity helps in measuring the amount of profit generated by each dollar of equity that is the profitability generated by shareholder investment. Return on equity for Maxis has increased from 29.46% in year 2013 to 36.41% and 41.40 in years 2014 and 2015 respectively. Furthermore, there was fall in ratio from 42.63% in year 2016 to 31.12% in year 2017. It is indicated by figures that ratio has increased initially and declined by fewer percentage subsequently. This implies that efficiency of company in generating return on investment has increased and thereafter has declined (Ahmadi et al. 2017).
Return on equity for Axiata on other hand has reduced from 16.53% in year 2013 to 13.93% in year 2014 and 12.95% in year 2015. There was a further decline in ratio to 3.98% in year 2016 and an increase to 6.35% in year 2017 respectively. This decline in figure suggests that the profitability of investment of shareholder has reduced considerably. It can be seen that percentage of return on equity generated by Maxis communication is significantly higher than that of Axiata.
From the analysuis and evaluation of above figures presented for bioth the organization, it can be inferred that the profitability position of Maxis communication is better than Axiata.
The liquidity position of companies is evaluated by computation of ratio such as current ratio, quick ratio and cash ratio. It helps in measuring the ability of organization to meet their short term financial obligations. Current ratio of Maxis communication is recorded at .506 in year 2013 and .616 in year 2014. The ratio fell to .576 in year 2015 and further to .493 in year 2016 respectively. Nevertheless, an increase in ratio value to 0.570 in year 2017 was witnessed. It can be seen from the figure that there was not much fluctuation in the ratio. This is indicative of the fact that there is not much decline in current ratio for meeting their short term obligations (Osman et al. 2016).
Current ratio for Axiata on other hand is recorded at 1.149 in year 2013 and ratio fell further to .788 and .789 in year 2014 and 2015 and further to .517 in year 2016. Ratio figure increased substantially to 0.645 in year 2017 indicating that the ability of current assets to meet the short term payments of company has increased in recent year. Comparing the current ratio for both the companies, it can be seen that current ratio for Axiata is more than Maxis communications implying that the current assets of Axiata are more capable of meeting their short term obligations compared to Maxis communication (Axiata.com 2018).
Quick ratio for Maxis communication increased initially from 0.487 in year 2013 to .613 in year 2014 and decreased subsequently to .573 and .491 in year 2015 and 2016 respectively. Ratio further increased to .569. For Axiata on other hand, there was a considerable decline in ratio from 1.141 in year 2013 to .780 and .777 in year 2014 and 2015 respectively. Ratio in year 2016 and 2017 is recorded at .509 and .636 respectively.
Cash ratio fluctuated from .221 in year 2013 to .265 in year 2015 and further to .153 in year 2017 respectively. The ability of organization to meet its current obligations using cash has decreased subsequently. On other hand, there was a drastic decline in cash ratio for Axiata from 0.8 in year 2013 to 0.48 in year 2014 and further to .44 and .263 in year 2015 and 2016 respectively. This fall in ratio is indicative of the fact that there is not enough cash to meet the short term obligations.
The capital structure of company is evaluated by the computation of debt to equity ratio, equity ratio and debt ratio. Debt to equity ratio has increased year on year from 1.88 in year 2013 to 2.82, 3.5 and 3.16 in year 2015, 2015 and 2016 respectively. Ratio in year 2017 is recorded at 1.73. This increase in debt ratio until year 2016 indicates an increase in financial leverage of company indicating that total liabilities of company has increased and it fell in year 2017.
Debt to equity ratio for Axiata on other hand has increased from 1.03 in year 2013 to 1.47 in year 2016 and thereafter reduced to 1.29 in year 2017. It can be seen that fall in debt to equity ratio indicates that the advantage of increased profit that is brought by financial leverage may not be taken by company.
Equity ratio has initially decreased from 0.35 in year 2013 to 0.22 in year 2015 and thereafter increased to 0.37 in year 2017 respectively. Increase in equity ratio is favorable for company as it depict that company is worth investing for investors to finance the company. Companies having higher ratios are required less financing. Equity ratio for Axiata is recorded at 0.49 in year 2013 and fell to 0.40 in year 2016 and it increased further to 0.44. Increase in ratio is indicative of the fact that company has lower risk in lending and company is more sustainable to creditors.
Debt ratio for Maxis communication is recorded 0.65 in year 2013 which increased to 0.74 and 0.78 in year 2014 and 2015 respectively. However, ratio fell further to 0.76 and 0.63 in year 2016 and 2017. Fall in debt ratio is favorable as it lowers the dependence of company on third parties. Ratio for Axiata on other hand is recorded at 0.51 in year 2013 and 0.54 in year 2014 and 2015. This increased to 0.60 in year 2016 and 0.56 in year 2017. However, debt ratio for Axiata is below Maxis communication which indicates that former company is less leveraged compared to later.
Efficiency ratio helps in measuring the efficiency with which the assets are managed by firm. Efficiency of organization is evaluated by computation of day’s sales outstanding, fixed asset turnover and total asset turnover.
Days sales outstanding has increased year on year from 38.04 in year 2013 to 42.23 in year 2014 and further to 67.07 and 66.38 in year 2016 and 2017 respectively for Maxis communication. This increase in day’s outstanding sales is indicative of the fact that the credit collecting policy of company is not efficient. Ratio for Axiata on other hand increased from 53.25 in year 2013 to 72.60 and 80.82 in year 2015 and 2016 respectively. However, there was fall in ratio to 67.26 in year 2017. Fall in ratio is a good sign for company depicting that credit policy of company has improved.
Total asset turnover of Maxis communication has reduced from 0.52 in year 2013 to 0.45 and 0.44 in year 2015 and 2016 respectively. It is indicated that assets are being utilized by company efficiently and there is unlikely to have production or management problems. Ratio for Axiata on other hand is recorded at 0.42 in year 2013 which reduced to 0.35 and 0.30 in year 2015 and 2016 respectively. It is indicated by the figures that Axiata is less efficient in utilizing the assets compared to Maxis communication.
For Maxis communication, there is a continuous fall in fixed asset turnover ratio from 0.59 in year 2013 to 0.53 and 0.51 in year 2015 and 2017 respectively. This fall in ratio indicates that efficiency of fixed assets in generating revenue has fallen. On other hand, ratio for Axiata has reduced from 0.54 in year 2013 to 0.43 in year 2015 and further to 0.36 and 0.42 in year 2016 and 2017 respectively. In recent year, ratio has increased indicating efficiency of fixed assets. Nevertheless, Maxis communication is more efficient in utilizing their assets to generate revenue compared to Axiata.
From the analysis of ratios of Maxis communication and Axiata, it can be inferred that former is more profitable and liquid compared to later. Furthermore, Maxis communication is more efficient in utilizing their assets as against Axiata.
The above chart depicts the movement in price of stocks of two companies. Red line indicates the movement in share price of Axiata and Maxis communication share price is indicated by blue line. It can be seen from the chart that the movement in share price is Axiata is highly volatile in year 2017 and 2016 compared to previous years. Share price of Maxis communication on other hand has also been fluctuating in second half of year 2016 and during 2017. However, in the current date, the share price of Axiata limited is more than Maxis communication. Therefore, investors would be more inclined towards investing in share of Axiata as compared to Maxis communication.
Maxis continued to face challenge in the prepaid segment in the course of intense competition that is evident by fall in subscription. The subscriber base has shrunk and the company has been struggling to stem the decline in total number of subscribers. Operations of company have also been hampered due to introduction of goods and service that has resulted in decline of earnings and revenue. Despite the enhancement of most popular postpaid mobile, Maxis continues experiencing decline in the base of its subscriber (Ahmadi et al. 2016).
Strategy of differentiation is implemented by Maxis Berhad as it is difficult to lower the production cost in telecommunication solution market (Wong et al. 2016). This will help in remaining competitive with competitors such as Celcom, Digi and U-Mobile. Therefore, Maxis focuses on differentiation strategic and focusing on merchandizing features and innovation that will help in fulfilling needs of customers.
Furthermore, from the analysis of financial performance of Maxis communication, it can be seen that current assets of organization has reduced in recent year which is not sufficient enough to meet the short term obligations. Cash balance and level of inventories has also reduced indicating that company is facing liquidity issue (Fam et al. 2018). Moreover, the time for which receivables remains outstanding has increased indicating that credit policy of company is not efficient.
The prepaid business of Axiata has been facing issues in terms of packaging and pricing and the group has taken stance on some key issues that defines the regulatory landscape of telecom. This include the rationalization of regulatory charges and fees along with policies of specific taxation for promotion of long term economic growth, maximization of spectrum allocation for ensuring efficient usage and suitable regulations development (Kasiran et al. 2016). In addition to this, there are issues related to geopolitical and human capital. There are several external and internal issues faced by organization in recent years and some other strategic issues faced include other issues such as review of spectrum strategy, new spectrum brand availability, same service same rules for over the top, competition, net neutrality and framework of digital revolution. Operational risk of company is attributable to issues related to control such as drop calls, network congestion and network coverage upgrade (Kasiran et al. 2016). It can be seen from analysis of financial data that there has been considerable increase in day’s sales outstanding indicating issue with the credit policy of company.
From the strategic and operational issues presented for Maxis communication, it is required for organization to build on coverage and capabilities along with taking measures to address priority and timing issue. Financial strategy that can be implemented by maxis for remaining competitive is to lower down the calling rates. Organization can operate efficiently by collaborating with telecommunication provider that would help in cost minimization (Yusof et al. 2016). Therefore, maximization of resource productivity would help in achieving business unit and corporate objectives.
The main focus of Axiata Berhad on other hand should be to focus on enhancing customer experience and quality of network. In order to drive revenue and perform efficiently, for both postpaid and prepaid business, organization should focus on high value customers. In addition to this, total amount of debt should be reduced for maintaining financial leverage at its optimum level. The credit policy of Axiata Berhad and Maxis communication should be strengthened so that the receivables are collected on faster basis (Osman et al. 2016). Adequate measures should be taken to utilize fixed assets and total assets efficiently in sufficient generation of revenue.
Conclusion:
The report is prepared to demonstrate the activities of two companies from telecommunication sector listed on Bursa Malaysia. Maxis communication and Axiata Berhad is the leading telecommunication service provider in Malaysian market. From the analysis of financial performance of both the organization, it can be seen that maxis communication is generating more profits as against to Axiata. However, Axiata is efficient in maintaining its liquidity position compared to Maxis that is facing liquidity issue in recent years. Maxis solvency position is better compared to Axiata. Maxis are more efficient in utilizing their assets for revenue generation compared to Axiata. There are strategic issues faced by both the organizations for which separate recommendations have been provided.
Bibliography and References list:
Adam, S., 2017. The effectiveness of knowledge management towards organisational performance of internet business in Malaysia. Malaysian Journal of Business and Economics (MJBE).
Ahmad, N. and Saifudin, A.M., 2014. Supply chain management in telecommunication industry: The mediating role of logistics integration.
Ahmadi, H.B., Petrudi, S.H.H. and Wang, X., 2017. Integrating sustainability into supplier selection with analytical hierarchy process and improved grey relational analysis: a case of telecom industry. The international Journal of Advanced Manufacturing Technology, 90(9-12), pp.2413-2427.
Axiata.com. 2018. Axiata Group – One of Asia’s largest telecommunications groups. [online] Available at: https://www.axiata.com/ [Accessed 25 Jul. 2018].
Fam, S.F., Prastyo, D.D., Loh, S.L., Utami, S. and Yong, D.H.Y., 2018. Total Productive Maintenance Practices in Manufacture of Electronic Components & Boards Industry in Malaysia. Journal of Telecommunication, Electronic and Computer Engineering (JTEC), 10(2-8), pp.97-101.
Gaonkar, D.N., Castanha, J., Subhash, K.B., Chang, L. and Chen, R., 2018. Importance-performance analysis of telecommunication industry.
Kasiran, F.W., Mohamad, N.A. and Chin, O., 2016. Working Capital Management Efficiency: A Study on the Small Medium Enterprise in Malaysia. Procedia Economics and Finance, 35, pp.297-303.
Maxis.com 2018. Maxis – Best 4G Network for Smartphones | Maxis. [online] Available at: https://www.maxis.com.my/en/personal/whats-new.html [Accessed 25 Jul. 2018].
Osman, Z., Mohamad, L. and Mohamad, R., 2016. An Empirical Study of Direct Relationship of Service Quality, Customer Satisfaction and Bank Image on Customer Loyalty in Malaysian Commercial Banking Industry.
Wong, C.Y., Chandran, V.G.R. and Ng, B.K., 2016. Technology Diffusion in the Telecommunications Services Industry of Malaysia. Information Technology for Development, 22(4), pp.562-583.
Yusof, M.M., Ismail, Z. and Rahim, N.Z.A., 2016. The Adoption of Open Innovation and Co-Creation in Malaysian Telecommunication Industry. Advanced Science Letters, 22(8), pp.2047-2051.
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