Risk Analysis Of Decentralized Renewable Energy Infrastructures – Competitive Position Of Eco World Development Group Berhad

Case Analysis

Discuss about the Risk Analysis Of Decentralized Renewable Energy Infrastructures.

The objective of the study is to conduct a critical analysis relating to the competitive position of Eco World Development Group Berhad and compare the company’s performance with the SP Setia Berhad and MAH Sing Group Berhad. The report would be discussing the competitive issues that is faced by the Eco World Development Group Berhad by benchmarking the company with the competitive firms SP Setia Berhad and MAH Sing Group Berhad. The analysis would be critical it offers a transparent picture and understanding of the main issues that would be influencing the business and the management. Besides, the study would be offering appropriate recommendations that would be addressing the vital business faced by the Eco World Development Group Berhad and improving its productivity as well.

Eco World Development Group Berhad has kepts its brand spread across the three key economic regions in the Malaysia that includes 18 development of projects in total (Ecoworld.my 2018). It also comprises of the new townships, integrated commercial development, luxury high-rise apartments and business parks. The company has expanded its operations both across the local and international markets. Over the years the company the company has grown in the form of well-known and respected industry players in the property sector of Malaysia. The expansion of company is facilitated by the vital developments in the commercial development since the government backing has resulted in company’s expansion.

Eco World Development Group Berhad is the Malaysian public listed company that is primarily engaged in the property development. The company’s operation is spread across the three economic regions in Malaysia having 18 development projects (Ecoworld.my 2018). The company currently has approximately 8,052.7 acres of land bank with total gross development value of RM 87.5 billion. With the help of Eco World International, the brand has expanded its operations to London, United Kingdom and Sydney & Melbourne, Australia.

The current report is based on the discussion of the competitive scenario of Eco World Development in comparison to its benchmark companies. Eco World is faced with intense competition from the other companies both in the domestic and international markets. Presently, Eco World faces competitions from SP Setia Bhd and MAH Sing Group BHD in the Malaysian markets. In spite of the intense competition Eco World is driven by the mission of creating a better tomorrow which is powered by the team of experience and dynamic team. The brand of Eco World is expected to attain growth in the coming years.

Value Points	Eco World BHD	SP Setia	MAH Sing Group BHD
Target Customer	Eco World BHD targets the customers from the Melbourne and Sydney in Australia.	The target market for SP Setia is primarily the Asian markets.	The target customers for MAH Sing Group BHD is the professional and multinationals that demands green office.
Benefits	Offers virtual design benefits along with construction of commercial property with the computer aided designs and technology of modelling.	Benefits provided by SP Setia includes a unique design ranging 2300 to 3000 square foot having lift lobby as well.	MAH Sing Group BHD provides its customers with the integrated designs for constructions through technical aid.
Price	Eco World VHD offers 10 per cent price discount to its premium customers	SP Setia offers 15 premium price to its customers	MAH Sing BHD gives 20 per cent premium discount to its customers.
Customer Value	Building Long term customer value with its customers.	SP Setia holds the integrity and safeguards customer’s privacy with the help of company’s confidential information policy.	MAH Sing BHD provides long term its customers with the long term outlook for residential property market.

Company Background

Table 1: Table depicting Customer Value Proposition

(Source: As Created by Author)

The primary purpose of selecting Eco World Development Group Berhad is because the company has been growing and attaining new heights. The company is helmed as the most renowned and respected players in the Malaysian property industry. In spite of the strong international presence, Eco World faces intense competition from the other industry players. The rationale for my choice of company is primarily because of its market presence for more than 15 years. This helps in analysing the company’s present market trend and a comparative market position with other industry participants.

Financial analysis can be defined as the evaluation of the profitability, stability and viability of the organization from its financial statement (Deegan 2013). Ratio analysis refers to the quantitative analysis of the information that is contained in the financial statement of an organization.

The return on invested capital represents the percentage of sum that an organization is making for every percent over the cost of capital (Robson, Young and Power 2017).

Considering the ROIC of Eco World the company has reported a relatively lower ROIC than its peers. Over the last three years the ROIC has improved gradually but less than the industry participants. SP Setia BHD reported a ROIC of 6.77 in 2015 though declined to 5.55 and 5.39 in 2016 and 2017 respectively. While MAH Sing Group BHD reported a ROIC of 8.17 in 2015 but declined to 6.15 and 5.49 in 2016 and 2017 respectively. In spite of the lower ROIC Eco World BHD generates better returns and has used its capital effectively while SP Setia in spite of generating attractive returns on the invested capital has failed to capitalize in the later years. MAH Sing Group BHD has represented a better performance on its return however its stocks are witnessing a decline due to the fluctuating market demand.

Net profit margin represents the percentage of revenue that is leftover following the operating expenditure, interest, taxes and preferential stock dividends that has been subtracted from the organizations total revenue (Beatty and Liao 2014).

SP Setia BHD is ranked at the top in terms of the net profit generated by the company while Eco World have represented a better position in net profit margin as there has been a steady rise in net margin over the last three years. MAH Sing Group has kept a relatively stable net profit margin and it is generating better net margin over the total sales revenue (Henderson et al. 2015). Eco World reported a lower net profit margin during 2015 with figures standing 2.57% however it gained strength in 2016 and 2017 as the net profit margin improved to 5.08% and 7.17% respectively.

Key Issues

Return on assets is referred as the indicator of the company is earning profits from its total assets (Macve 2015). The ratio provides an idea how efficiently the management is using its assets to generate earnings.

Eco World is standing in the lower position in converting its investment from its net profit in comparison to its competitors. The ROA for MAH Sing Group BHD stands better in throughout the three years. SP Setia BHD is ranked second behind the MAH Sing group from 2015 to 2017. At the time of studying the ROA of Eco World the management has done a better job in making the judicious choice in allocating the resources. Alternatively, it is understood that the company is making a better profit with lower amount of investment.

The current ratio refers to the liquidity ratio which measures the organization’s capability to pay the short-term and long term obligations (Khan 2015). The understand this capability, the current ratio takes into the account the current total assets of the company relative to its current total liabilities.

Eco World BHD is ranked in third position in comparison to the industry rivalry. This represents that SP Setia BHD and MAH Sing Group has reported a better current ratio and are more capable of paying their obligations. The current ratio for Eco World BHD reflects that the company’s operating cycle is moderately efficient and is able to pay its current liabilities with reduced inventory turnover. While the liquidity of MAH Sing Group BHD is stronger reflecting that the company has stronger efficiency cycle. The liquidity for MAH Sing Group has relatively been strong and stable among the others.

The quick ratio represents the measure of how well the company is able to meet its short term financial obligations (Hoskin, Fizzell and Cherry 2014). The ratio measures the dollar amount of liquid assets is available for each dollar of the current liabilities.

The quick ratio for Eco World is ranked in the third place as MAH Sing BHD and SP Setia has reported a higher quick ratio during the span of three years. The liquidity position of Eco World cannot be termed as the best among its competitor. The above stated figure explains that MAH has better ability of meeting its short term obligations with the company having most amount of liquid assets in comparison to Eco World and SP Setia.

The financial leverage represents that how well an organization is able to manage its assets in relation to its equity (Mullinova 2016). A higher financial leverage ratio represents that the company uses higher debt and liabilities in managing its finance.

Comparative Value Proposition

Eco World BHD is having the moderate financial leverage while SP Setia degree of financial leverage is the highest. MAH Sing Group leverage is the lowest. Eco World is not very highly leveraged and with appropriate amount of financial leverage the company increase the returns for the shareholders. MAH Sing Group financial leverage is decreasing over the span of 2015 to 2017 while the SP Setia financial leverage is increasing over the years. Eco World has managed to stabilize the financial leverage as the ratio remained 2.33 and 2.31 for both 2016 and 2017.

The cash flow per sale represents how efficiently the business is operating in terms of its net sales or revenues (Mullinova 2016). This provides the investors with the idea of a company’s capability in turning the sales into the cash.

Eco World can be ranked in the middle position in terms of cash flow over sales. The cash flow ratio of Eco world during the span of three years have reported a fluctuating trend. The sales for Eco World BHD grew without the similar growth in the operating cash flow from the year 2011 to 2013. The company though reflected its ability of turning the sales into the cash following the negative slump in 2015. SP Setia is better placed in this aspect while the MAH Sing Group BHD is not in the favourable position with the cash flow per sale representing a declining trend.

Strategic analysis is used to assess the micro and the macro environment that comprises of business environment analysis, industry analysis, competitor analysis, operations and organization analysis (Robson 2015).

PESTLE Analysis is regarded as the analytical business tool used in strategic business planning (Hill 2017). It is regarded as the strategic framework for understanding the external influence on the business.

Malaysia is ranked 12^th in Asia and 39^th in world in respect of the political stability. To keep up the pace with the rapidly growing neighbours, the government of Malaysia has undertaken a FDI friendly occurrence (Hill, Jones and Schilling 2014). The Malaysian investment development authority provides incentives to overseas owners which includes both the tax and non-tax incentives such as grants and soft loans.

The prediction for 2017 GDP growth ranges from 4.3% to 4.7% reflecting a faster growth than in 2016. The Malaysian GDP per capita is determined to rise in 2017 which also brings a rise in consumption (Tradingeconomics.com 2018). The GDP in Malaysia was worth 314.50 billion USD for the year 2017. The increase in the rate of inflation impacts the price of the products which ultimately impacts the purchasing power of the consumer and also alters the demand supply models of the economy.    

Rationale of my Choice of Company

The active working population of Malaysia is anticipated to grow by 1.6 percent in the next decade. With the rate of literacy standing 95 per cent and ever rising number of education graduates Malaysia provides a significant pool of talent for potential investors (Aithal 2016). The affirmative action policies favours the ethnic Malaysian population seeking opportunities. Apart from the increasing population, foreign employees and overseas student in the country have increased the market segment and potential market share.

The technological environment of Malaysia represents that the e-commerce is being pushed as the major drivers of economic growth to increase the income status of Malaysian (Hillson and Murray-Webster 2017). The government and the private sector are investing in the technological and digital structure.

The issue concerning green surrounding of late has attracted the intention of citizens more widely. Construction organization has undertaken goal of waste minimization by undertaking bio-composting facility (Fozer et al. 2017). Pollution controls and energy consumption is regarded as the factor that creates an impact on the business process of a firm.

The companies act 2016 came into the existence and it is applicable for all the industries in Malaysia. The newer regulations are bought into the action to reduce the costs of conducting business and improving the flexibility in management of company affairs.

Factors	Low	Medium	High
Political	ü
Economical		ü
Social		ü
Technological			ü
Environmental		ü
Legal	ü

The porter’s five forces analysis is used to assess the structure of the industry to understand the attractiveness of the industry (Belton 2017). The porter’s five forces is employed to create strategy on several issues identified by the company;

Competitive Rivalry: Eco World BHD appears to be very high since there are some industry players that are competing with the company (Moon et al. 2014). Eco World BHD faces direct competition from the companies such as SP Setia and MAH Sing Group BHD that offer luxurious houses in Malaysia.

New entrants threat: Eco World BHD recognized that the threat from the entry of new firm is lower or in other words the threat is medium (Ouma and Oloko 2015). There are several regulations and rules that should be dealt with the new companies.

Threat of substitute: For Eco World BHD the threat of substitute is lower. It is difficult for other competing firms to bring substitute products since there are very few companies involved in commercial construction (Panwar et al. 2016).

Bargaining power of buyers: Presently the purchasing power of the purchasers varies however the bargaining power currently for the purchasers seems to be high as there is good demand for high-end residency and luxury offices (Dawes 2018).

Financial Analysis

Suppliers bargaining power: The suppliers bargaining power appears to be higher because deriving profit in the commercial construction industry is a time taking element. The long-time taken for getting the supplies with higher costing of labour results in higher prices.

Five Forces	Level of Forces	Impact on Industry Attractiveness
Competitive Rivalry	High	Neutral
New Entrants Threat	Low to Medium	Favourable
Substitutes threat	Low	Neutral
Buyers bargaining power	Medium to High	Favourable
Suppliers bargaining power	Medium to High	Neutral

The analysis above provide that two forces are favourable to the construction industry. Conclusively, the construction industry is moderately profitable.

Apart from the porter’s five forces analysis there are certain integrated computer designs that have led to Digitalization and forming the new forces of the construction industry. The process of Digitalization has resulted in forefront value chain in commercial property that comprised of both the designs and locations (Panwar et al. 2016). Digitalization, has resulted in the competitive market environment and customers are able to compare the quality and price through speedy progress in technologies.

Eco World have undertaken the initiatives and strategies which the company has undertaken to improve the sustainability across the operations. The company complies with the necessary business standards to make sure that all the process and systems are in place in administering its daily business operations for creating the quality development. The company has constantly promoted the safety work culture for a conducive work environment. It strives to attain excellence in every aspect of its operations. The management assures that sufficient resources and talents that are available to administer the operations of business.

Taking into the considerations the issues the company faces the issues relating to the delegation of responsibilities to the committee of the board. The issues related to the internal control of the management committee as well and reporting regarding the significant matters requires common understanding of improving the current system.

The success factors for Eco World BHD is largely because of the succession planning for the board of directors and senior executives by taking into the consideration the challenges and opportunities that is faced by the company and its subsidiaries. Another success factor for Eco World is its partnership expansion as the company acquired 27% stake in the Eco World International after the successful listing in Bursa Malaysia Securities Berhad.

Balance Score Card	Industry Specific KPI	Eco World	SP Setia BHD	MAH Sing Group BHD
Learning and Internal Growth	Training of Employees Number of new products	80% On regular basis	75%	65%
Process or Operations	New computer aided designs   Innovations Regular quality control	Regularly On continuous basis Medium	Irregular Always Good	Often Infrequently Poor
Perspective of consumers	Extent of consumer satisfaction Reputations in market place	High Very good	Medium Average	Infrequent Medium
Financial perspective	Return on asset Liquidity: Current Ratio	4.53 1.22	3.84 1.43	2.24 3

The Ansoff’s matrix is employed to provide strategic alternatives to Eco World in defining the business strategy;

Market Penetration: The market penetration strategy for Eco World is in the direction of gaining greater market share to help its current project gain wider share of customers in the Asian markets (Yin 2016). The schemes for customer reward for membership with the discounted price would help in penetrating the market for the company.

Ratio Analysis

Product development: Eco World can undertake the strategies for developing new product in order to increase the profit and the market share (Dawes 2018). Research and development in the present project would offer the consumer with the wider choice.

Market development: Eco World BHD is required explore the Asian market and target the potential customers in different geographical areas with other sections of Malaysian market (Howson 2016).  

Diversifications: Diversification refers to the strategic alternatives however it is risky strategy. Similarly, for Eco World BHD new designs in the property and newer marketing strategy can be undertaken to enter in the Asian markets (Arnold and Yildiz 2015).

Financial models are created on the countless assumptions leading to grossly imprecise forecast of figures and misguided decisions for investment. Therefore, financial model is hardly regarded as the tool for investment analysis and it aggravate investor’s biasedness (Modarres 2016). Conventional analysis such as porter’s five forces and PESTLE analysis are traditional tools. The porter’s five forces are out of date and in certain industries it is unable to meet the business goals. While PESTLE analysis is only limited to macro environment and ignores the internal capabilities of the company.

Conclusion: 

On a conclusive note, the financial analysis of Eco World BHD suggest that the company has reported a positive solvency and current ratio, demonstrating a stable financial position. Consistency in net profit and revenues portrays a positive trend in the direction of future growth in the competitive business market. The strategic analysis segment provides an explanation that the delegation of authority in committee management is problematic for the company. However, the Eco World has placed its focus on the technology related product to satisfy the consumer demand.

Priority Matrix
Higher                                 Schedule Priority                        Lower
Required (P1)	Work Stoppage	Regulatory	Audit Finding	Program Directives
Work stoppage may take place or contractual requirement may not be met
Significance (P2)	Higher impact on the construction	Cost reduction through present expenditure workaround	Stopping construction may create greater impact	System replacement
Higher cost of resources
Moderate (P3)	No Risk, moderate benfit	Lower Risk, moderate benefit	Medium Risk, moderate benefit	Higher Rsks, Moderate benefit
Moderate impact on resources and increase in time, cost and resources
Minor (P4)	No Risk, minor benefit	Lower Risk, Minor benefit	Medium Risk, minor benefit	Higher risk, minor benefit
Minimum impact on resources or cost of resources
Low (P5)	Administrative change	System or Procedure nuisance	Cost prohibition	Not feasible technologicall presently

There are certain recommendations that are provided below for Eco World BHD;

1. Implementing product diversity through technological advancement and product development together with the exclusion of projects that contributes less on the profitability.
2. Increasing the efficiency of the lean manufacturing and quicker payback investment is required for Eco World.
3. Eco World should offer extra importance on rebuilding the customer as well as the consumer loyalty with greater focus in dealing with the threats of growing competition in the current market.

A recommendations modelling is stated below that measures the anticipated outcomes based on the three variables namely the sustainability, acceptability and feasibility of recommendations.

Recommendations	Impacted Area of Business	Expected Outcomes	Suitability	Acceptability	Feasibility
Diversity in product: Creating product with the help of new product development.	R&D	Increasing customer contentment. Considering consumer spending power.	85% Appropriate for business that address competition	95% Consumers prefers diversity	100% Requires approval of CEO
Consumer Loyalty	Consumer service support: Sales and marketing department	Sales augmentation Expanding profitability	75% Would be offering business with better market advantage	85% Flexibility in management to implement policy	95% Strong capital structure can force policy application

To forecast the financial performance of Eco World scenario modelling is used to offer strategic implementation of the decisions in future. The key assumptions and outcomes usually comprises of accounting, finance, economics and philosophy of business. Financial spreadsheet modelling offer the forecasted scenario based on three variability which includes best case, moderate case and worst case.

The average percentage change +5% represented the forecasted change in percentage with the best case scenarios and it is held as the appropriate depending upon the stable financial status of Eco World for continuous growth in revenue and profits.

Eco World has derived net profit margin over the span of three years. Therefore, on the best case scenario the company would make profit in future and an improved strategy implementation would result in both long and short run business outcomes. While the worst case scenario is obtained by using -5% change and it is unlikely that in future any abrupt change would take place. Under the moderate case situation, the company may consider implementing necessary measures to improve competitive position in the market. Nevertheless, changes in the market environment can be reviewed regularly to realign the organizational strategies with the opportunities and threat.

	Most Likely		Worst Case
Financial KPI’s	Worst Case Scenario	Description	Best Case Scenario Forecast	Description
Profitability: Net Profit Margin %	2018: 16.30 2019:17.85 2020:18.62	It is not likely to take place and would continue in the difficult environment	2018:20.35 2019:21.23 2020:19.33	There is a record of growth over the period of three years and the company may positively increase its value
Liquidity: Current Ratio	2018:2.15 2019:0.74 2020:1.61	Even though in the worst case the company may have the capability of maintaining strong resources.	2018:2.69 2019:2.80 2020:2.55	Company maintains the ability of paying its debt and it’s in better position of meeting its debt obligations
Financial Health: Financial Leverage	2018:1.61 2019:1.76 2020:1.84	It is recommended to work safely since there are numerous uncertainty.	2018:2.01 2019:2.09 2020:1.91	The company is conservative and its favourable to shareholders.
Solvency: Free Cash per Net Income	2018:1.31 2019:1.44 2020:1.50	There is a stability of growth and future represents that the company may maintain its stability of cash flow.	2018:1.64 2019:1.71 2020:1.56	The growth stability would result in better flow of cash and would increase the ability of paying its debt.

The Eco World Development BHD has generated better net profit during the period of three years and in the best case situation the company would be generating better returns from its sales. The worst case scenario is forecasted based on negative five percent. It is not likely to happen in the upcoming future. The moderate case follows the average percentage trend and if applied the new strategy of Eco World BHD would face challenge.

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