SCHOOL OF ARCHITECTURE, BUILDING AND DESIGNFOUNDATION IN NATURAL AND BUILT ENVIRONMENT

Assignment: Financial Ratio Analysis

Company Name: LBS

Group Members:

Michelle Tung Man Kaye 0324175

Boon Li Ying 0323839

Lee Xin Ying 0322432

Basic Accounting (ACC30205)

Lecturer: Ms. Tay Shir Men

Submission Date: 4th February

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Table of Content

Contents Page

Brief History of LBS 1

Recent Development 2

Profitability Ratio (Year 2012 & 2013) 3 – 4

Liquidity Ratio (Year 2012 & 2013) 4

Stability Ratio (Year 2012 & 2013) 5

Price Earning Ratio (Year 2012 & 2013) 6

Share Price (Current share price) 7 - 9

Investment Recommendation 10

Appendices 11 – 17

References 18

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Brief History of LBS

This company was founded by Dato’ Seri Lim on June 29, 2000 and is headquartered in Petaling Jaya, Malaysia. He was appointed as the Chairman of LBS Bina Group Berhad on 6 December 2001. He was initially involved in the supply and transportation of sand, aggregates, earth and ball clay for construction of infrastructure works such as earthworks, sewerage works, roads and drainage. Subsequently, he ventured into construction of houses, shops and factory buildings. LBS Bina Group Berhad is a prominent property developer in Malaysia. Having been around for more than 20 years, LBS Bina has built a strong reputation for developing high quality properties all over Malaysia and abroad. LBS would then expand further in 1992 when it ventured into the property development sector through the Jelapang Maju Light Industrial Park in Perak. . That would be the springboard to more projects as LBS continued to grow exponentially. Before long, the company was undertaking several large projects including its flagship projects like the Taman Perindustrian Bukit Serdang Seksyen 14, Taman Pinggiran Putra and the very popular Bandar Saujana Putra, which was a mega project. Since then, LBS has continued to expand and grow where it is among the primary players in the Malaysian market while it is expanding further outside the country into China, seen as one of the most challenging markets in the world. Today, LBS is involved not only in property development but in several other related areas like property management, building materials and landscaping, among others.

LBS Bina Group Bhd. is a management and investment holding company, which engages in the property development business. It operates through the following segments: Property Development, Management & Investment, Trading & Others, Construction, and Racing Circuit. The Property Development segment develops residential, industrial and commercial properties. The Management & Investment segment focuses on investment holding and provision of management services. The Trading & Others segment involves in trading of building material, insurance agent, and selling of membership and covering insurance products. The construction segment undertakes in the building, project planning and implementation contracting activities.

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Recent Development

Property developer LBS Bina Bhd is targeting to achieve sales worth RM1bil from 12 projects with a gross development value of RM1.7bil to be launched in 2015. These are mainly residential properties, priced at below RM500,000 a unit, located in in the Klang Valley, Pahang and Johor. LBS Bina managing director Datuk Sri Lim Hock San added the company would ascertain there is no delay in the land approval of projects this year compared to last year as it can drag LBS’s revenue.

For the current year, Lim pointed out that the properties to launch would comprise of both residential and commercial properties of 81% and 19% respectively, adding that more than half of the residential properties would be priced below RM500,000.

Moreover, Lim noted that the company would be launching projects with a GDV of RM6bil in the next three year in Selangor, Pahang and Johor comprising of both residential and commercial projects. “We are confident and bullish with the new launches over the next three years,” he said.

The company’s property sales jumped 38% to RM234mil for first quarter ended March 31, 2015, from RM169mil in the corresponding quarter a year ago due to BSP21 sales that contributed about 68% of total sales.

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Profitability Ratio (Year 2012 & 2013)

Profitability Ratios 2012 2013 InterpretationReturn On Equity (ROE)

Net ProfitAverage O /E

×100 %

39,003,430516,690,656.5

×100 %

= 7.5 %

397,323,654699,735,858

×100 %

= 56.8 %

ROE in year 2013(56.8%) is higher than year 2012(7.5%), show that the business, LBS is earning a higher return on the capital in 2013.

Net Profit Margin Ratio (NPM)

Net ProfitNet Sales

×100 %

39,003,430509,644,355

×100 %

= 7.7 %

397,323,654533,532,722

×100 %

= 74.5 %

NPM in year 2013(74.5%) is higher than year 2012(7.7%), show that the business’ overall expenses are lower and controlled better in 2013 compare to 2012. This resulting in high net profit for the business in 2013.

Gross Profit Margin Ratio (GPM)

Gross ProfitNet Sales

×100%

146,227,906509,644,355

×100 %

= 28.7 %

168,577,154533,532,722

×100 %

= 31.6 %

GPM in year 2013(31.6%) is higher than year 2012(28.7%), show that the cost of goods sold expense is in well managed in 2013 compare to 2012.

General Expenses Ratio (GER)TotalGeneral Expenses

Net Sales×100 %

67,470,147509,644,355

×100 %

= 13.2 %

85,596,945533,532,722

×100 %

= 16 %

GER in year 2013(16%) is higher than year 2012(13.2%), this means that general expenses are not in well managed and resulting in a lower NPM.

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Financial Expenses Ratio (FER)Total Financial Expense

Net Sales×100 %

18,457,247509,644,355

×100 %

= 3.6 %

15,170,850533,532,722

×100 %

= 2.8 %

FER in year 2013(2.8%) is lower than year 2012(3.6%), this means that financial expenses are in well managed and resulting in a higher NPM.

Liquidity Ratio (Year 2012 & 2013)

Liquidity Ratio 2012 2013 InterpretationWorking Capital Ratio (WCR)

Total Current AssetTotalCurrent Liabilities

927,829,389520,720,661

= 1.8 : 1

925,492,766609,599,483

= 1.5 : 1

For every RM1 of current liability in the year 2013, LBS has RM1.5 of current assets to pay for it.During year 2012-2013, the WCR has decreased from 1.8:1 to 1:5:1. This means that the business will experience more difficulty in repaying its current liabilities compare to 2012.

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Stability Ratio (Year 2012 & 2013)

Stability Ratios 2012 2013 InterpretationTotal Debt Ratio (TDR)

Total LiabilitiesTotal Assets

×100 %

908,176,8341,435,008,317

×100 %

= 63.3 %

1,137,172,4372,009,812,670

×100 %

= 56.6 %

During year 2012-2013, TDR has decreased from 63.3% to 56.6%. This means that assets contributed by the business is increased in 2013 compare to 2012.

Inventory Turnover Ratio (ITR)

365÷ Cost of Goods SoldAverage Inventory

365÷ 363,416,44915,721,777.5

= 15.8 days

365÷ 364,955,56818,084,313

= 18.1 days

During year 2012-2013, ITR has increased from 15.8 days to 18.1 days. This means that this business sold its goods slowly and generated less cash to pay its liabilities in 2013 compare to 2012.

Interest Coverage Ratio (ICR)Interest Expense+¿Net Profit

Interest Expense

÷ 18,457,247+¿39,003,43018,457,247

= 3.1 times

15,170,850+¿397,323,65415,170,850

= 27.2 times

During the year 2012-2013, ICR has increased from 3.1 times to 27.2 times. This show that the business’ ability to pay off its interest expense is higher in 2013 compare to 2012.

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Price Earning Ratio (P/E Ratio, Year 2012 & 2013)

Price Earning Ratio 2012 2013 InterpretationP/E Ratio

Current Share PriceEarnings Per Share

1.359.70

= 0.14 years

1.3596.09

= 0.01 years

The P/E ratio measures how expensive a share is. The share price in 2013 (0.01 times) is less expensive compare to 2012 (0.14 time). This means the investor will have to wait longer in 2012 which is 0.14 years to claim back his original principal. While in 2013, an investor will need to wait a shorter time which is 0.01 years to recoup his investment.

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Share Price (Current Share Price)

LBS Bina Group Berhad (5789.KL)

FTSE Bursa Malaysia KLCI (^KLSE)

Based on the graph above, it shows that the share price for LBS Bina Group Berhad and index for FTSE Bursa Malaysia KLCI. Before determining whether to invest in either in a company or an overall market share KLCI, which company has a better percentage over the time period from 1st January 2015 to 31st December 2015 must be understood. Hence, we will compare 5

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different points from the graphs to determine the performance of them in the same time period.

The first point that we compare between LBS Bina Group Berhad and FTSE Bursa Malaysia KLCI are on 22nd January 2015 and 30th January 2015. The share price for LBS Bina Group Berhad on 22nd January 2015 is 1.6500 whereas the index for FTSE Bursa Malaysia KLCI is 1781.75. On 30th January 2015, the share price for LBS Bina Group Berhad is decreased to 1.5400 and the index for FTSE Bursa Malaysia KLCI is decreased to 1781.26. The decrease of share price is (1.5400 – 1.6500) / 1.6500 = -0.07%, whereas the index changes is (1781.26 – 1781.75) / 1781.75 = -0.0003%. This shows that the performance of the LBS Bina Group Berhad is worse than the FTSE Bursa Malaysia KLCI.

The second point we chose to compare between LBS Bina Group Berhad and FTSE Bursa Malaysia KLCI is on 6th May 2015 and 19th May 2015. The share price for LBS Bina Group Berhad on 6th May 2015 is 1.5600 whereas the index for FTSE Bursa Malaysia KLCI is 1820.97. The share price of LBS Bina Group Berhad on 19th May 2015 is increased to 1.6800 and the index for FTSE Bursa Malaysia KLCI is decreased to 1809.72. The increase of share price is (1.6800 – 1.5600) / 1.5600 = 0.08% and the decrease of the index is (1809.72 – 1820.97) / 1820.97 = -0.006%. Hence, the performance of LBS Bina Group Berhad during this period is better than FTSE Bursa Malaysia KLCI.

The third point is on 7th July 2015 and 24th July 2015. LBS Bina Group Berhad’s share price on 7th July 2015 is 1.6000 while FTSE Bursa Malaysia KLCI’s index is 1712.30. On 24th July 2015, the share price of LBS Bina Group Berhad is decreased to 1.4700 and the index for FTSE Bursa Malaysia KLCI is increased to 1720.76. The share price is decreased (1.4700 – 1.6000) / 1.6000 = -0.08% and the index is increased (1720.76 – 1712.30) / 1712.30 = 0.005%. As such, the performance of LBS Bina Group Berhad is worse than FTSE Bursa Malaysia KLCI this time.

The fourth point that we compare between LBS Bina Group Berhad and

FTSE Bursa Malaysia KLCI is on 6th August 2015 and 1st September 2015. The

share price for LBS Bina Group Berhad on 6th August 2015 is 1.4800 whereas

the index for FTSE Bursa Malaysia KLCI is 1694.64. The share price of LBS

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Bina Group Berhad is decreased to 1.2800 on 1st September 2015 and the index

for FTSE Bursa Malaysia KLCI is decreased to 1609.21. The decrease of share

price is (1.2800 – 1.4800) / 1.4800 = -0.14% and the decrease of the index is

(1609.21 – 1694.64) / 1694.64 = -0.05%. As a result, the performance of LBS

Bina Group Berhad during this period is worse than FTSE Bursa Malaysia

KLCI.

The last point we chose to compare between LBS Bina Group Berhad and

FTSE Bursa Malaysia KLCI is on 23rd September 2015 and 7th October 2015.

On 23rd September 2015, the share price of LBS Bina Group Berhad is 1.5100

while the index for FTSE Bursa Malaysia KLCI is 1613.17. The share price of

LBS Bina Group Berhad is decreased to 1.4100 on 7 th October 2015 and the

index for FTSE Bursa Malaysia KLCI is increased to 1689.25. The decrease of

share price is (1.4100 – 1.5100) / 1.5100 = -0.07% while the increase in index is

(1689.25 – 1613.17) / 1613.17 = 0.05%. Hence, the performance of LBS Bina

Group Berhad is worse than FTSE Bursa Malaysia KLCI.

By comparing the LBS Bina Group Berhad with the FTSE Bursa

Malaysia KLCI, LBS Bina Group Berhad is continuous dropping, while FTSE

Bursa Malaysia KLCI is increasing although it also has sometime is dropped,

but not as bad as LBS Bina Group Berhad. Moreover, the 5 points that we

compared have been calculated, shown that LBS Bina Group Berhad is not

recommended for investing in because the business’ performance is not stable.

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Investment Recommendation

According to LBS Bina Group Berhad’s profitability ratio, the return on equity (ROE), net profit margin (NPM) and gross profit margin (GPM) has improved and showed positive signs for the business. Even though the general expenses ratio (GER) is increased from year 2012 to year 2013, but the financial expenses ratio (FER) is decreased, so the overall profit has indicated that the business is doing sufficiently. Next, the ability of LBS Bina Group Berhad to pay off its current liabilities had decreased from 1.8 : 1 to 1.5 : 1. This show that the business will experience difficulty in repaying its current liabilities. Besides that, LBS Bina Group Berhad’s total debt ratio (TDR) showed that its total debt has decreased by 6.7%, making it 56.6% in 2013. This means that the assets funded by liabilities is decreased compare to 2012. Although the business has improved in its TDR, but it still higher than 50%. TDR below 50% can ensure that the business will not have a higher risk of bankruptcy. Thus, the inventory turnover ratio (ITR) is increased from 15.8 days to 18.1 days. This means that the business has taken a longer period of time to sell its goods, so they are taking a longer time to generate limited cash. This is making the business is more difficult to pay off its liabilities. Moreover, LBS Bina Group Berhad’s interest coverage ratio (ICR) has also shown an improvement in the business’ ability to pay its interest expense.

LBS Bina Group Berhad earned more profit in 2013 compared to 2012. Subsequently, the company has indicated a decent profitability and financial stability and its shares are applicable at a lower price to warrant an investment. An investor will only need to wait for a short period of time that is 0.01 years (0.12 months) as of 2013 to recoup his investment. Furthermore, LBS Bina Group Berhad has shown good promise in terms of their growth in revenue as the company has proven to be a stable company. So, the share is more worthy to invest.

However in the year 2015, the graph from LBS Bina Group Berhad and FTSE Bursa Malaysia KLCI shows that the business, LBS Bina Group Berhad is not making profit and continuous dropping. On the other hand, the market, KLCI is generating profit during the year. As a result, LBS Bina Group Berhad is not recommended to invest in now based on the graph from 2015.

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Appendices

2012

Profit and Loss Statement

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Balance Sheet

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2013

Profit and Loss Statement

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Balance Sheet

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References

1. Property developer LBS Bina eyes RM1bil sales – Business News, The Star Online. (n.d.). Retrieved January 27, 2016, from http://www.thestar.com.my/business/business-news/2015/04/04/property-developer-lbs-bina-eyes-rm1bil-sales/\

2. LBS Bina to launch RM6b projects over next 3 years, says managing director, theSundaily. (n.d.). Retrieved January 27, 2016, from http://www.thesundaily.my/news/1375620

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