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Apollo vs. Oriental Food

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    Introduction

    The main objective of producing this report is to evaluate and compare 2 listed companies from the same industry and country, and hence come out with a recommendation in an investment plan from a financial analyst’s perspective. In this report, we will be focusing on the evaluation of the investment value of two companies from snacks and confectionary industry in Malaysia: Oriental Food Industries Sdn. Bhd. and Apollo Food Holdings Berhad. The two companies have the similar company size and both of them are the market leaders in the industry; hence it is worth an investigation to compare the value of the company share. A combined analysis will be conducted in later section based on annual financial reports as well as quarter financial reports.

    Analysis on the annual financial reports will contribute to the evaluation on the overall performance and stability of the company over a medium term observation period to cater the needs of long-term investors while the analysis on the quarter financial reports will contribute to the evaluation on the performance of the company over a short term observation period to cater the needs of the short-term investors.

    Background of Company

    1.0.1.1 Oriental Food Industries Sdn Bhd

    Oriental Food Industries Sdn Bhd was established and incorporated in 1978 with its manufacturing plants are located in Air Keroh Industrial Estate in Malacca. As one of the leading companies in the snack food and confectionery industry in Malaysia, Oriental Food Industries has tried hard to make a benchmark in the industry. In general, Oriental Food Industries Sdn Bhd’s product lines can be divided into four main lines: snack food, wafer, potato snacks, and bakery products. Each of the product lines has its distinctive naming and most of them are well known by the households in Malaysia.

    For instance, Rota potato chips, Super Ring chips, Jacker wafer, and more. Oriental Food Industries Holdings Berhad (“OFIH”) was incorporated on 8 June 1996 Malaysia under the Companies Act, 1965 as a public limited company, and was listed on the Second Board of Bursa Malaysia Securities in August 2000 and was subsequently transferred to the Main Board on 13 October 2003. Currently, OFIH is listed on the Main Market of Bursa Malaysia Securities Berhad. OFIH is principally an investment holding company while the OFIH Group has subsidiaries which are engaged in the following activities:

    1.0.1.2 Apollo Food Holdings Berhad

    Apollo Food Holdings Berhad is a Malaysia-based investment holding company, engages in the manufacture, trading, marketing, and distribution of compound chocolate confectionery products in Malaysia. The company was incorporated on 5th March 1994 as a private limited company under the name Apollo Food Holdings Sdn Bhd, based in Johor Bahru, Malaysia.

    It subsequently converted into a public company on 8th September 1994 and changed its name to the present name. Apollo Food Holdings Berhad’s wholly-owned subsidiaries are Apollo Food Industries (M) Sdn Bhd, which is engaged in manufacturing and trading in compound chocolates and chocolate confectionery products and cakes, and Hap Huat Food Industries Sdn Bhd, which is engaged in the distribution and marketing of compound chocolates and chocolate confectionery products and cakes. Both subsidiaries market their products in Malaysia and in other Asian countries.

    The main products of Apollo Food Industries Sdn Bhd are chocolate wafer products, layer cakes, chocolate layer cakes, and Swiss roll products. The company distributes its products in Singapore, Indonesia, Thailand, the Philippines, Vietnam, China, Hong Kong, Taiwan, Japan, India, the Middle East, Mauritius, and Maldives. The corporate goal of the company is to always fulfil the customer needs and requirements by implementing the latest equipment and technology. The group always emphasizes their products’ quality and standard in order to meet customer requirements. They also constantly strive to determine and provide the resources needed to implement and maintain the quality management system and continually improve its effectiveness. Last but not least, the company will ensure the quality 7  assurance procedures, the company had accredited with HALAL imposed to an Islamic country.

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    1.0.2

    Corporate Structure of the Organisation and Management

    Team
    Like most of the corporates, the management team of both companies is divided
    into three levels: Strategic Management (top level), Tactical Management (middle level) and Operational Management (low level), which the responsibilities of each management level are as shown below:

    Figure 1: Management Levels with Respective Responsibilities i

    Both Oriental Food Industries Sdn Bhd and Apollo Food Holdings Berhad do not have the detailed organisation chart for all the three management levels, except the structure of the board of director and the identities of the key executives of the company. However, both companies do update the shareholders about any changes in the board of director and top management level from time to time. Hence, although not all information on every management level is revealed, this does not impact much on the investment decision suggested in this report.

    The organisation chart of the board of directors is as shown below:

    • Board of Directors
      Executive Directors
      Audit Committees
    • NonExecutive Directors
    • Nomination Committees
    • Remuneration Committees

    The organisation chart of the key executives from the top management of the company is as shown below:

    • Board of Directors
    • Managing Director
    • Chief Financial Officer
    • Executive Director
    • Head of Operation of Production Lines

    The organisation chart of the board of directors is as shown below:

    • Board of Directors
    • Executive Directors
    • Non-Executive Directors

    The organisation chart of the key executives from the top management of the company is as shown below:

    • Board of
      Directors
      Executive Chairman /
      Managing Director
      Company
      Secretary
      Sales
      Director
    • Executive Director

    Oriental Food Industries Sdn Bhd pays its dividends thrice a year, every 2nd, 3rd and 4th quarter of its accounting year. This has definitely boosted the confidence and satisfaction among the shareholders as distribution of dividends quarterly also indicating that the company is making profit for every quarter.

    From Figure 14, it is shown that throughout year 2011 to year 2012, the company was facing a decline of 4.1 million in their gross profit (refer to Figure 14), which is believed to have impacted the growth and movement of the share price negatively. From the movement of the dividends yield as illustrated in Figure 15 and the 17

    movement of the share price in Figure 16, it can be observed that the management distributed fewer dividends during the year, to have a more liquid cash flow and a higher net profit despite of the reduced gross profit of the year. Hence, although the gross profit of the company in 2012 dropped by 9.7% with respect to the previous year, the share price on the same year had only dropped by 5.6%.

    3.0.1.2 Apollo Food Holdings Berhad
    According to our findings from the evaluation on the balance sheet and income statement of Apollo Food Holdings Berhad throughout year 2009 – 2012, we deducted that Apollo Food Holdings Berhad is a stable share with consistently well performance, which the management strives hard to satisfy the shareholders better by manipulating the dividends yield accordingly to the profit movement. With reference to Figure 18, it can be observed that the management had strived hard to please their shareholders by increasing the dividends yield every year regardless of their profit movement as shown in Figure 17.

    Below are the highlighted performances of the company throughout year 2009 – 2012:

    It can be observed that Apollo Food Holdings Berhad has been consistently doing well throughout the years, with a fluctuation of less than 5.5 million in their gross profit throughout the 4 years. This indicates that the management is doing well in maintaining the sales performance.

    From Figure 19, it can be observed that the share price of Apollo Food Holdings Berhad does not show great growth or decline of more than 0.5 after a great increase of 0.64 between year 2009 and 2010. The consecutively 3-years less fluctuated share price has proven that the company had been doing well in maintaining the performance of the operation with respect to the expectation of the shareholders.

    Comparison on Financial Ratios

    In this section, we will be comparing the financial ratios of the two companies from five dimensions: Profitability, Liquidity, Debt, Activity, and Market. Descriptionii

    Dimensions
    Profitability

    Ratios Introduced

    Ability to generate earnings as compared Gross Profit Margin to expenses incurred during a period of Net Profit Margin
    time.

    Operating Profit Margin
    Earnings Per Share
    Return on Asset
    Return on Equity

    Liquidity

    Ability of the company to convert an Current Ratio
    asset to cash quickly.

    Quick Ratio

    Financial

    Measure of use of financial instruments Debt Ratio

    Leverage

    or borrowed capital to increase potential Time Interest Earned Ratio return of an investment.

    Activity

    Ability to convert accounts within its Inventory Turnover
    balance sheets into cash or sales.

    Inventory Turnover Period
    Total Asset Turnover

    Market

    Measure investor response to owning a P/E Ratio
    company’s stock and also the cost of Market/Book Ratio
    issuing stock.

    Gross Profit Margin and Net Profit Margin
    Gross Profit Margin indicates the company’s financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold.
    Net Profit Margin measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted. It shows how much of each ringgit earned by the company is translated into profits and growth of this margin is highly related to the share price growth as this leads directly to higher level of profitability.

    With reference to Figure 21, it can be observed that change in gross profit does not correlate directly with the change in net profit margin which influences the share price directly. Changes in gross profit margin can
    never explain how good the company is doing as it does not reveal the actual profit that the company is making. As seen in the diagram, changes in gross profit margin from year 2009 to 2010 of both companies are observed to be directly proportional to their net profit margin. However, the changes in gross profit margin can no longer symbolize the changes in net profit margin for both companies, this might due to uncertain economic circumstances which the companies to spend more in expenses, leads to the changes in net profit margin which cannot be explained by the movement of gross profit margin. From the movements of the net profit margin of both companies as illustrated in Figure 21, it can be observed that both companies share the same growth pattern, that is, both companies experienced a slight gain in their net profit margin of around 2 (OFIH) – 4% (APOF) in 2010 compared with 2009, a severe drop of around 35 (APOF) – 42% (OFIH) in 2011 compared with 2010, and a gain of 7 (APOF) – 15% (OFIH) in 2012 compared with 2011.

    Hence, it can be concluded that in terms of net profit margin, Apollo Food Holdings Berhad had proven that it outperformed Oriental Food Industries Sdn Bhd most of the time, in terms of resistance to economic crisis as well as its recovery rate and growth rate.

    Earnings per Share:
    Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. It measures the returns to the shareholder for

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    every share invested. The higher the earnings per share is, the more effective the earnings performance of the company is.
    In this section, we will be comparing the EPS growth of each company by assessing the annual EPS of each company from 2009 – 2012 to evaluate the consistency of earnings performance of each company.

    As illustrated in Figure 22 above, the annual EPS growth of both companies is being in phase with each other, which both of them experienced declines and gains of EPS at the same point of time. This indicates that the decline in EPS might be caused by macroeconomics issue which impacts the entire industry.

    In general, both Oriental Food Industries Sdn Bhd and Apollo Food Holdings Berhad have shown to consistently perform well in terms of growth rate as well as recovery rate after a crisis or drop in EPS during an unforeseen circumstance. It can be also observed that Apollo Food Holdings Berhad had always outperformed Oriental Food Industries Sdn Bhd in terms of EPS value. However, the difference between the EPS of both companies are observed to be diminished at the same time, which indicates that the EPS of Oriental Food Industries Sdn Bhd is growing at a 24

    faster path than EPS of Apollo Food Holdings Berhad does, although their growth rate are in phase with each other.
    Return on Asset & Return on Equity:
    Return on total asset (ROA) measures the overall effectiveness of management in generating profits with its available assets. The bigger the ratio, the better it is. Return on equity (ROE) measures the return earned on the common stockholders’ investment in the firm.

    In overview, the ROA of Apollo Food Holdings Berhad is slightly higher than Oriental Food Industries Sdn Bhd throughout 2009 – 2012. This indicates that Apollo Food Holdings Berhad has always been more effective than Oriental Food Industries Sdn Bhd, in terms of how efficient the management in utilizing their available assets to generate the maximum profit.

    Similarly, the ROE of Apollo Food Holdings Berhad is observed to be slightly higher than Oriental Food Industries Sdn Bhd. This means that Apollo Food Holdings

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    Berhad is more efficient in generating profit with the equity contributed by the shareholders.
    Generally, the higher the company’s ROA and ROE, the better the company in terms of fulfilling the objective of shareholder wealth maximization.

    From Figure 27, it can be observed that both companies have a low debt ratio. Comparatively, Apollo Food Holdings Berhad is in a better financial position than Oriental Food Industries Sdn Bhd as its debt ratios over the year are relatively lower and more consistent.

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    Time Interest Earned Ratio:
    Time interest earned ratio is a measure for the company’s ability to meet its debt obligation.

    With reference to the diagram above, it can be seen that Apollo Food Holdings Berhad does not bear any interest cost at all throughout the years. This is mainly because the company’s policy of settling their debts within 7 – 60 days, and hence the management will not have to pay any interests on their debt. On the other hand, Oriental Food Industries Sdn Bhd is observed to be having an increasing time interest earned ratio from 2009 to 2012. This indicates that the company is holding excess earnings which should have been invested into other investments or projects to yield more returns.

    Inventory Turnover & Inventories Turnover Period
    Inventory turnover is a ratio showing how many times a company’s inventory is sold and replaced over a period.
    Inventories turnover period indicates the days the company takes to sell the inventory on hand.

    Inventory Turnover & Inventories
    The Apollo Company’s inventory turnover is 9.03 which are slightly faster than Oriental Company’s inventory turnover of 7.90. This shows that the liquidity of the Oriental Company’s inventory is somewhat not efficient, it will affect the inventory lifetime. For example, some inventories might be not usable due to the over it lifetime. From the viewpoint of its collection period, the average payment period of Oriental Company is 32 days longer than Apollo Company, means that Oriental Company’s use longer time to collect their collection and it might bring negative effect to Oriental, which is lack of funds. That will cause the company lack of fund to invest or start their new project or even afford the expense for the current project. Total Asset Turnover

    Total asset turnover measures the efficiency of the firm in using its asset to generate sales or revenue. This can also reflect the pricing strategies of the company.

    time. This indicates that the management of Oriental Food Industries Sdn Bhd had been more efficient in utilising their asset to generate profit. This is good news to investors as although Oriental Food Industries Sdn Bhd has a comparatively smaller asset size than Apollo Food Holdings Berhad, the management has actually proved to have performed better in utilising the company’s asset.

    Price/Earnings (P/E) Ratio
    PE ratio is a valuation ratio of a company’s current share price compared to its pershare earnings. In general, PE ratio is an indicator for the company that how much the investors are expecting the earnings growth in the future to be.

    With reference to the diagram above, it can be observed that PE ratio of Apollo Food Holdings Berhad is relatively higher than Oriental Food Industries Sdn Bhd, which indicates that investors are willing to pay more to acquire Apollo Fod Holdings Berhad as they are expecting a comparatively greater return from the stocks in the future.

    Market/Book (M/B) Ratio
    Market/Book ratio is generally be used in determining whether a company share is overpriced or under-priced. A company share with M/B ratio greater than one usually means that the company share price is overpriced while company share with M/B ratio less than one means that the company share price is currently under-priced.

    Figure 34 shows that in general, M/B ratio of Apollo Food Holdings Berhad is higher than that of Oriental Food Industries Sdn Bhd. The historical curve also shows that for the recent 3 years, Apollo Food Holdings Berhad had a M/B ratio greater than 1, which might indicate that the stock is currently slightly overpriced. On the contrary, the historical data of Oriental Food Industries Sdn Bhd shows that the company share had been under-priced for the past 4 years.

    Strength:
    A lower P/E ratio will be an attraction to those investors who are unwilling to spend much on one company’s share and on the meanwhile wish to get their return back within a shorter period.
    Weakness:
    The lower net profit margin of the stock causes the share price to grow in a lower rate. However, it is observed that for recent years, the net profit margin of the company has been growing faster than its opponent, although it is still comparatively
    lower than its opponent, but the performance of the company is improving.

    Opportunities:
    Oriental Food Industries Sdn Bhd has a higher Return on Equity ratio and a greater Earning per Share growth rate than its opponent, this might be an excellent confidence boost to its investors and shareholders as the company has successfully proven itself to be a potentially profitable company which may generate profits in a more efficient way to their shareholders, as compared with their key opponent. Threats:

    As compared with its opponent, Oriental Food Industries Sdn Bhd has a higher debt ratio and times interest return ratio than Apollo Food Holdings Berhad. This indicates that the company is having a less liquid capital to invest in more projects, and the company will be influenced greater by the interest rate risk.

    Apollo Food Holdings Berhad

    • Consistent
    Share Price
    Movement

    • Slower
    Share Price
    Growth
    Strength

    Weakness

    Threats

    Opportunities

    • High PE
    ratio

    • No interest
    cost

    Figure 36: SWOT Analysis on Apollo Food Holdings Berhad

    Strength:
    As compared with its competitor, the historical data of Apollo Food Holdings Berhad had proven that the company has been performing consistently well. The share price movement is comparatively stable and have less fluctuation, although at times the share price was affected by the macroeconomic environment, the company had been proven to have strived hard to minimise every negative impact and to maximise every positive impact to its share price.

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    Weakness:
    Meanwhile, we found out that the share price growth is comparatively slower than its competitor. The share price is growing, but it is getting slower, most probably due to its conservative management in always ensuring the share price moves with an expected volatility. This might cause a loss of interest of the investors to the stock who wish to maximise their return within a given period.

    Opportunities:
    Due to the company’s policy of settling debts within 7 – 60 days, the company does not bear any interest cost throughout the 4 years observation period. This is considered as one of the biggest advantages for the company as its cash flow is further more liquid than its competitor. The company hence has more available capital to be invested in more areas which is able to maximise the return of the investment. Threats:

    The P/E ratio of the stock is comparatively higher than its competitor, although it is still considered as at a healthy P/E ratio level, the higher P/E ratio indicates that the investors are expecting more earnings growth of the company in the future. In other words, the current share price growth might not be able to satisfy its current shareholders.

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    4.0

    Additional Information

    4.0.1

    Oriental Food Industries Sdn Bhd

    The group has prepared an unaudited condensed interim financial report for the year ended 31 March 2013. On 28 May 2013, the Board of Directors proposed that the third interim single tier dividend of RM0.02 per share amounting to RM1, 200,000 for the financial year ended 31 March 2013 on 60,000,000 ordinary shares of RM1.00 each will be paid on 3 April 2013, subject to the approval of the members at the forthcoming Annual General Meeting of the Company. As dividends will only be distributed when the company is making profit, this announcement from the management is actually giving a confidence boost to the investors. Moreover, by tracing back to the history of the company, Oriental Food Industries Sdn Bhd was established and incorporated in 1978. And from the beginnings, they have positioned themselves as a leading manufacturer in the snack food and confectionery industry in Malaysia. Since the company commenced, they had maintain a decent financial health and preserved its future prospects during the operation. The effort of uphold a good image build the goodwill and reputation of the group over time. For current period to date, the group has recorded higher revenue as a result of higher demand from customers as well as higher selling price in the snack food and confectioneries segment. We
    still can see the demand in the market even the market today became more competitive. Instead of keep pushing on sales, the company tend to deliver the customers with quality products and services. Customerdriven strategy is expected to hang on to a customer over time and create a long term trading relationship. The intangible value of company’s reputation and the loyalty of its customers might drive the company share price to rise.

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    4.0.2

    Apollo Food Holdings Berhad

    Latterly, the company has prepared a condensed consolidated interim financial statement for the year ended 30 April 2013. For the current quarter ended 30 April 2013, the group recorded its revenue of RM 54.697 million, a decrease of RM 1.496 million over the revenue of RM 56.193 million in the preceding year’s corresponding quarter. The lower revenue was due to lower sales for both the local and export markets during the festive month. The company’s profit before tax for the current quarter ended 30 April 2013 increased by RM 0.085 million to RM 9.574 million from RM 9.489 million in the quarter ended 30 April 2012. Yet the lower operating costs had contributed to the increase in profit. Despite of decreased revenue, Apollo Food Holdings Berhad is still able to generate profit out of the quarter’s earnings, which is expected to have successfully stimulated the interest and confidence of investors to buy or hold the company share.

    Besides, the company also reported the earnings per share of RM 0.40 compared to RM 0.27 during the same period last year. This has illustrated that the company is generating a profit from its operation which creates more value to the shares.

    4.0.3 Conclusion
    In short, the stock is floated in the stock exchange and may change price minute to minute. There are number of factors may determine this change. For
    instance, news events, positive or negative, can also influence the price of a stock. A share price closely related to the value of a company’s worth. It also represents company’s current value and reflects the future growth and earnings that investors expected.

    Conclusion and Recommendations

    Based on our findings from previous sections, we can conclude that both stocks are worth to be invested, and we have concluded that there is no “better” stock between OFIH and APOF as investors with different risk profile will have different opinions on each of them.

    Apollo vs. Oriental Food. (2016, May 05). Retrieved from https://graduateway.com/apollo-vs-oriental-food/

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