HUPSENG COMPLETED

2. HUP SENG INDUSTRIES BERHAD

1.0 COMPANY PROFILE

1.1 Background

Hup Seng was incorporated in Malaysia as a public limited company on 4th

October 1991 and received its certificate of commencement of business on 23rd April

1997. The principal activity of the Company is investment holding. The principal

activities of the subsidiaries are manufacture and sales of biscuits and coffee mix, and

dealers in biscuits, confectionery and other foodstuff.

1.2 Board of Directors

30

ChairmanDato’ Keh (Kerk) Chu Koh

Managing Director

Vice ChairmanKerk Chiew Siong

Executive Director

Managing DirectorKuo Choo Song

Executive Chairman

DirectorKerk Chian Tung

Executive Director

DirectorTeo Lee Teck

Non-Executive Director

DirectorKerk Kar Han

Non-Executive Director

DirectorWoon Chin Chan

Independent Non-Executive Director

DirectorNorita Binti Ja’afar

Independent Non-Executive Director

DirectorMazrina Binti Arifin

Independent Non-Executive Director

DirectorRaja Khairul Anuar Bin Raja MokhtarIndependent Non-Executive Director

1.3 Management Team

1.4 Core business

Hup Seng Industries Bhd through its subsidiaries is involved in the production and sales

of biscuits and coffee mix.

1.5 Mission

Producing quality fast moving consumer products.

1.6 Vision

To be market leaders in fast moving consumer products.

1.7 Authorized capital

RM 100,000,000

1.8 Paid up capital

RM 60,000,000

2.0 GENERAL ENVIRONMENT

2.1 Politics

31

Dato’ Keh (Kerk) Chu KohNon- Executive Chairman of

the Board

Siew Foong LeongCompany Secretary

Kuo Choo SongManaging Director, Executive

Director

Kerk Chian TungExecutive Director

Kerk Chiew SiongNon- Executive Vice

Chairman of the Board

Kerk Kar HanNon-Executive Director

Teo Lee TeckNon-Executive Director

Raja Khairul Anuar Bin Raja Mokhtar

Independent Non-Executive Director

a. Pioneer Status

A company with Pioneer Status is partial exempted for 5-year from the

contribution of income tax. 30% of its statutory income* is paid as tax with the

exemption period beginning from its Production Day (determined by the day its

production level obtains 30% of its capacity).

During pioneer period, the accumulated losses and unabsorbed capital allowances

acquired by companies whose pioneer status will expire on and after 1st October 2005 are

able to take forward and deducted against post pioneer income of a business with the

same promoted activity and promoted goods.

Applications from companies located in the promoted areas include Perlis, Sabah

and the structured “Eastern Corridor” of Peninsular Malaysia will get a 100% tax

exemption on their statutory income in the duration of 5-year exemption to enhance

investment. This great incentive is given to all project applications sent by 31st December

2010.

Since 2nd September 2006, Perlis is proclaimed as one of the promoted areas and

companies involving in promoted activities will be qualified for incentives currently

given to these area. The Pioneer Status is applicable in the Malaysian Industrial

Development Authority. (MIDA).

b. Investment Tax Allowance

A company may apply for Investment Tax Allowance (ITA) as a second option to

Pioneer Status. With ITA, company obtains incentive of 60% on its authorized capital

expense (such as factory, plant, machinery or other equipment used for the verified

project.) acquired in 5 years from the date of the first authorized capital expense is

acquired.

This incentive can balance against 70% of its statutory income for each examined

year. Any unutilized incentive can be pushed to subsequent years until fully utilized. The

extra 30% of its statutory profit will be taxed at the conventional company tax rate.

Since 13th September 2003, the applications from companies situated in promoted

areas such as Perlis, Sabah and Sawarak and the structured “Eastern Corridor of

Peninsular Malaysia can get an incentive of 100% on the authorized capital expense

32

acquired in the duration of five years to enhance investment. Applications should be sent

to MIDA.

Note: *Statutory income is obtained after deducting revenue expense and capital

incentives from the gross income.

*The “Eastern Corridor” of Peninsular Malaysia includes Kelantan, Terengganu

and Pahang and the district of Mersing in Johor.

2.2 Economy

a. Inflation

Inflation indicates the economic fluctuations in Malaysia according to the changes

in the Consumer Price Index (CPI) of a country. CPI shows the divergence in prices of

consumer goods in the country’s ‘shopping basket’ over a duration.

Figure 1: Malaysian CPI and Inflation Rate : January 2011- January 2012

Based on Figure 1, the Malaysian inflation rate was recorded between 2.2 percent

and 3.5 percent for year 2011. This shows healthy level of inflation in Malaysia as most

economists believe that healthy inflation rate is between 1.0 percent and 3.0 percent. The

risk of financial markets is reduced with low inflation rates and this ensures flavourable

business environment.

b. Gross Domestic Product

The prime indicator of the wealth of Malaysian economy is measured using

Gross Domestic Product (GDP). A precise GDP figure is calculated by considering and

33

adjusting the Private and Public sector spending, the production of goods and services

and exports in the country for imports and inflation.

Figure 2: Malaysian GDP Value ($ Billions): 2003- 2012

Based on World Bank’s report, the Malaysian Gross Domestic Product (GDP)

had obtained 278.67 billion US dollars in December 2011. The Malaysian GDP is

estimated to be 0.45 percent of the world economy. From 1960 to 2011, the average of

Malaysian GDP was 59.93 Billion USD. In that duration, the highest GDP recorded was

278.67 Billion USD in December 2011 and the lowest was 2.42 Billion USD in

December 1961.

34

Figure 3: Malaysian GDP Growth Rate

The Gross Domestic Product (GDP) growth rate measures an aggregated

difference in value of the goods and services manufactured by an economy. In Asia,

Malaysia is a fast developing economy. Since the 1970s, as an average income country,

Malaysia has changed from a manufacturer of raw materials into a rising multi- sector

economy. To detach from the country’s reliance on exports, the Malaysian government

has worked on raising domestic demand. However, exports especially electronics

continue to drive the economy significantly.

From the beginning of April to the end of June 2012, the Malaysian Gross

Domestic Product (GDP) increased 3.00 percent compared to the previous quarter.

During 2000 until 2012, the average of the Malaysian GDP Growth Rate was 1.22

percent. In that duration, the highest rate was 5.90 percent in September 2009 and the

lowest rate was -7.60 percent in March 2009.

Figure 4: Malaysian GDP Composition by Sectors in 2011

Source:https://www.cia.gov/library/publications/the-world-factbook/fields/

2012.html, The Central Intelligence Agency.

Figure 4 shows the major movements in Malaysian economy are Industry and

Service sectors. In service sector, critical forces were finance, real estate and information

and telecommunications services. Besides that, rapid growth in wholesale and retail

service sector is seen in recent years.

35

a. Unemployment Rate

The unemployment rate represents the percentage of active job seekers that is

jobless, out of the total number of labour force. Roughly 4% -6% in the unemployment

rate is considered healthy. Lower rates are caused by inflation and upward pressure on

wages while higher rates reduce the consumer spending.

Figure 5: Malaysian Unemployment Rate : October 2010- September 2012

From October 2010 until September 2012, the unemployment rate in Malaysia is

too low around 2.8% to 3.4%. Hence, this inflationary situation has forced employers to

continually increase wages on retaining and attracting valuable employees. Since firms

have to widen resources on retaining and attracting employees, they would put less effort

in performing their duties. As a result, the unutilized of resources would result in less

innovation and slower productivity growth.

2.3 Socio- cultural

a. Demographic Elements

Population

Yearly growth 1.542% (2011 est.)

Infant deaths in 1,000 births are 14.57

Persons below aged 15 is 29.6%

Urban population is 72% of the population (2010)

Urban population growth is 2.4% (2010)

36

Literacy rate is 88.7%

Major cities- population

Kuala Lumpur (capital) 1.493 million

Klang 1.071 million

Johor Bahru 958,000 (2009)

Ethnic groups

Malay 50.4%

Chinese 23.7%

Indigenous 11%

Indian 7.1%

Others 7.8% (2004 est.)

Languages Bahasa Malaysia, English, Chinese dialects, Tamil,

Telugu, Malayalam, Panjabi, Thai

Note: indigenous languages in East Malaysia

Religions

Muslim 60.4%

Buddhist 19.2%

Christian 9.1%

Hindu 6.3%

Confucians and Taoist 2.6%

Others 1.5%

None 0.8% (2000 census)

Table 1: Malaysia’s Demographic Elements

Source:http://www.indexmundi.com/malaysia/demographics_profile.html,CIA

World Factbook)

As 60.4% of the population is Muslim in Malaysia, the political, judicial and

religious systems are closely associated and religious leaders take eminent positions in

the country.

b. Structure of Household Expenditure

Household Consumption by Purpose

37

2000 2009 2000-09

% of total household consumptionFood and non-alcoholic beverages 24.1 21.8 23.0

Alcoholic, beverages and tobacco 2.2 2.3 2.1

Clothing and footwear 3.5 2.4 2.7

Housing, water, electricity, gas and

fuels

21.7 16.7 18.9

Furnishings, household equipment and

maintenance

5.9 5.2 5.4

Health 2.1 2.1 2.0

Transport 12.6 13.1 13.4

Communication 4.9 7.4 6.3

Recreation and culture 4.3 4.9 4.5

Education 1.5 1.6 1.5

Restaurants and hotels 5.8 9.7 7.5

Miscellaneous goods and services 11.6 12.7 12.8

Table 1: Malaysian Household Consumption by Purpose: 2000- 2009

Source:http://www.bnm.gov.my/files/publication/ar/en/2010/cp01_001_whitebox.pdf, Department of Statistic, Malaysia)

Table 1 shows that food and non- alcoholic beverages are the largest composition

in the total expenditure, making up of 23% of the total expenditure.

2.4 Environmental Elements

Business environment should be conserved by any company as consumers might

not purchase harmful product or product that uses harmful processes.

a. Background of Malaysian Environment

Malaysia makes up of 328,550 square kilometers of land and has 20

million population ( July 1997 est.). Most of the citizens occupy the western coast.

59% of the total land is tropical forest. Even after industrialization, a large area of

the country is still forested. Malaysia has the highest industrial carbon dioxide

emissions among 50 nations in the world. The negligence would cause major

environmental problems.

38

b. Causes and Adverse Effects of Bad Environment

Industrialization and progress of natural resource basis have created

environmental problems. The adverse effects are deforestation, depletion of

fisheries, air and water pollution and contamination by industrial wastes.

c. Environment Laws

The main structure of environment legislation in Malaysia was the 1974

Environmental Quality Act (EQA). Since then, the regulations are constituted.

Based on EQA 1996, it has been amended many times. Other legislations are

the Fisheries Act 1985, the Pesticides Act 1974 and the Plant Quarantine Act

1976.

d. Types of Legislation

The procedure of legislation in Malaysia is as follows:

1. The Federal Constitution (Perlembagaan Persekutuan).

2. Parliament constituted the Acts.

3. The executive (Ministerial Regulations) enacted rules and other

subordinate legislation.

4. State laws and rules.

e. Results of the Acts

In 1978, industrial and automobile emissions are restricted by clean-air

legislation. In Malaysian seas, vessels are not allowed to emit oil.

2.5 Technological Analysis

Technological advancement helps to improve performance of the companies in

competing for differentiation and providing superior product to its customers.

The Ministry of Science, Technology and Innovation (MOSTI) is responsible for

the research, telecommunication and information technology of Malaysia. The objective

of the ministry is to induce competitiveness in science and technology using the creation

of knowledge and sustainable development.

Table 2: MOSTI’s agencies

Agencies RoleMalaysian Centre For Remote Sensing

Remote sensing, telemetry, geographic information system (GIS) and research.

39

(MACRES).National Science Centre.

Promoting awareness, appreciation, interest and understanding of science and technology.

NationalOceanographyDirectorate.

Marine science and oceanography development.

National SpaceAgency.

Research and development of space science.

Department of Chemistry Malaysia

Chemical analysis, investigation/ forensic and consultancy services/

Malaysian Nuclear Agency.

Nuclear technology research and development.

MalaysianMeteorologicalServices.

National meteorological monitoring services and natural disaster warning.

Department of Standards Malaysia

National standards and Accreditation body.

Atomic EnergyLicencing Board.

Control and supervision of radioactive material usage in industries. The board also examines and enforces safety rules.

MOSTI also gives research grants. Through specialized schemes, the funds are available

such as ScienceFund, Techno Fund (Pre- commercialization and IP acquisition fund), InnoFund

(Enterprise innovation and community innovation fund), eHCD (Human capital development

fund), eIRPA and the Brain Gain fund.

3.0 TASK ENVIRONMENT ANALSIS

According to Michael Porter, there are five forces which determine the competition in the

industry as listed in table 1. They are competitive rivalry, threat of substitute, threat of

entry, buyer power and supplier power. The explanation below will describe that how a

dairy industry as being influenced by five forces.

High Medium Low

Competitive Rivalry •Threat of New Entrants •Threat of Substitutes •

40

Supplier Power •Buyer Power •

3.1 Competitive Rivalry

When the number of competitors increases, the rivalry increases because of more firms

must compete for the same customers and resources. If the competitors have similar market

share, the rivalry will become intensified.

Hup Seng is not just a pure biscuit player, after its listing, it acquire 100% stake in in-

Comix so they are selling instant hot drinks as well. In fact, they themselves have a good

products mixes of varieties of biscuits such as deluxe sandwich, cookies and all other kinds of

biscuit. The closest listed competitors are Hwa Tai.

The graph above shows the gross profit margin between Hup Seng and Hwa Tai and

clearly we can see, Hup Seng consistently performed better than Hwa Tai which signifies Hup

Seng competitive advantage over its competitor. On liquidity wise, Hup Seng has seen to be

much prudent versus its counterpart who stays below 1 over the past 5 years. And as of today,

Hup Seng has no long term debt and has a cash of more than RM47million which translate to

nearly RM0.39 per share. That is almost 22% yield if they were to give all of them back as

dividend.

Hup Sheng believed that they can keep maintain in a strong position even grow market

share via it growth strategies.

41

3.2 Threat of New Entrants

According to Porter, the new firms will choose to enter the industry if the profit level of

that industry looks attractive, and then it will increase the supply in the market. Hence, the threat

of entry places an upper limit on an industry’s profitability. We cannot deny that fact that Hup

Seng is the best biscuit manufacturing company in Malaysia market. It has a stable position in

the biscuit manufacturing industry and thus the threat of entry by newcomers is low. The

newcomers like Gloria Biscuit faces with high entry barriers because Hup Seng which is their

existing competitor has strong brand identification. Consumers are loyal to Hup Seng products

and its product differentiation has created a high barrier to entry to Gloria Biscuit. Gloria Biscuit

has to spend a lot to defeat the existing customer loyalty on the products of Hup Seng. Therefore,

it is not easy for the newcomers to entry the biscuit manufacturing industry and affects the

position of Hup Seng.

3.3 Threat of substitute

Due to the technological advancement nowadays, there are a lot of substitute products

with different appearance but have the same function to satisfy the same need as another product

in the market. For the Hup Seng, the threat of substitute products is high because there are a lot

of products which able to satisfy the need of consumers. For example Julie’s biscuits can be a

substitute product for the biscuits by Hup Seng. Consumers can enjoy the different types of

biscuits instead of Hup Seng' s biscuits. Consumers can also eat instant noodles MAGGI instead

of eating cakes by Hup Seng, and even the Gardenia bread can replace the biscuits and cakes by

Hup Seng for meal. The prices of the substitute products bring effect to the products of Hup Seng

and finally influence the return and profit of Hup Seng.

3.4 Buyer power

Buyers can affect an industry through their ability to force down prices, bargain for

higher-quality or more services, and to play competitors off against each other. The bargaining

power of buyers of Hup Seng is high. There are many other biscuit manufacturing companies in

the market and the products from the industry have standard or undifferentiated. Buyers can

42

easily get the alternative suppliers from the market such as Munchy, Hwa Tai, Julie's, and so on.

Since it is an ease to get standard products and have alternative suppliers, buyers emphasize the

prices of the products more than which biscuits taste better. The products of Hup Seng is not

very expensive compared with others biscuits of other brands and many buyers choose the

products of Hup Seng now. This finally creates high bargaining power of buyers of Hup Seng.

3.5 Supplier power

Hup Seng has the low bargaining power of supplier. This is because the ingredients of

manufacturing biscuits and cakes such as eggs, flour, sugars and others can be found everywhere

from any suppliers. Thus, Hup Seng can have ingredients anytime without worrying lack of

inputs. The bargaining power of supplier is low because the switching cost to other suppliers is

low. Suppliers' products are very crucial to Hup Seng to have effective production to fulfill the

demand of buyers. Besides that, they also produce the high quality of products to the public.

4.0 SWOT

43

Strength(S)

1. Currently in a good financial position.

2. Skilled workforce.3. Company name recognized on a

National/ Regional/ Local level.4. Own premises.5. Wide range of products flavour.

Weaknesses(W)

1. Fewer customers.2. Too much waste.3. Low customer retention.4. Low production quality compared

to other brands.5. Low integrity of annual report.

Opportunities(O)

1. Skilled workforce means that they can be moved and trained into other areas of the business.

2. Competitor going bankrupt.3. Moving a product into a new

market sector.4. Increasing number of shopping

outlet in whole Malaysia.5. Could expand to overseas.

Threats (S)

1. Large and increasing competition.2. Increase in price of raw materials.3. Rising cost of wages.4. Possible relocation cost due to poor

location currently held.5. New distribution channel.

1) Strengths

Hup Seng maintains a good financial position in food and beverages industry because the

company is using equity rather than using debt to generate their company. Hup Seng also has

skilled workforce hence little training is required for the employee. Their brand is well-know

within food and beverages industry market. By the way, Hup Seng has their own premises to

run their business so there is no additional cost for renting. Hup Seng has a wide range of

products flavor of the biscuit for customer to choose in market. For example, marie biscuit,

coconut cookies, butter cookies, cream cracker and so on.

2) Weaknesses

Hup Seng faced the problem of fewer customers and low customer retention because

there is high competition in this industry. Hence, the customer is production quality of

Hup Seng is low compared to other competitive such as Kraft and Nestle. By the way,

44

Hup Seng has the problem of too much waste in production. While for the annual report,

there is low integrity since that there is incomplete information for outsider.

3) Opportunities

Skilled workforce in Hup Seng means that their employee can be moved and trained into

other areas business. Besides that, if competitor in the market going bankrupt, they have

the opportunity to gain more customer support. The company can distribute their product

easily since there are increasing shopping outlets in whole Malaysia such as Tesco, Jucso,

Giant and so on. Besides the domestic market, Hup Seng also can export their product to

overseas.

4) ThreatsNowadays, there is large and increasing competition in food and beverages industry. For

example, Hwa Tai, Cocoaland, Julies, and so on. Other than that, minimum wages for the

employee have set by the government so the wages has increases in today operation cost.

Due to unstable weather, unstable economic, the cost of raw materials such as flour,

sugar, and egg will be fluctuated. There also have to prepare cost for possible relocation

due to poor location currently held that cause by lack of transportation and utilities. In

addition, new distribution channel has cause Hup Seng to redesign their channel so they

able to compete in the market.

5.0 TOWS

45

Strengths (S)1. Currently in a good

financial position. 2. Skilled workforce.3. Company name

recognized on a National/ Regional/ Local level.

4. Own premises.5. Wide range of products.

Weaknesses (W)1. Fewer customers.2. Too much waste.3. Low customer retention.4. Low production quality

compared to other brands.5. Low integrity of annual

report.

Opportunities (O)1. Skilled workforce means

that they can be moved and trained into other areas of businesses.

2. Competitor going bankrupt.

3. Moving a product into a new market sector.

4. Increasing number of shopping outlet in whole Malaysia.

5. Could expand to overseas.

SO Strategies1. Building on brand equity.

(S3O5)2. Job rotation. (S2O1)3. Take over the bankruptcy

competitor market. (S1O2)

WO Strategies1. Launching products of

Hup Seng through overseas. (W1O5)

2. Create brochure for the customer. (W3O4)

3. Skill and knowledge training. (W2O1)

Threats (T)1. Large and increasing

competition.2. Increase in price of raw

materials.3. Rising cost of wages.4. Possible relocation costs

due to poor location currently held.

5. New distribution channel.

ST Strategies1. Developed R&D

department. (S5T1)2. Recruit most suitable

worker for particular department. (S2T3)

3. Develop e-commerce. (S3T5)

WT Strategies1. Developed effective

advertisement. (W3T1).2. Technology development.

(W2T2).3. Product research about

Hup Seng products. (W4T1).

5.1 Strengths and Opportunities

Hup Seng would expand their products overseas easily since this brand is well known on

national, regional, and local level. Hup Seng emphasized on building brand equity. This is

necessary for company to negotiate with distributors for the general distribution of its products to

overseas. Effective promotional plan is to gain the interest of overseas market and develop a

good impression of their products and brand. Besides that, job rotation can provide their

46

EXTERNAL FACTORS (EFAS)

INTERNAL FACTORS (IFAS)

employees a skilled workforce. Through job rotation, employees can be moved and trained into

areas of businesses. Hup Seng also can take over the opportunity from the competitor who faced

bankruptcy. For instances, the skilled workers, potential resources, distribution channel and so

on.

5.2 Weaknesses and Opportunities

Hup Seng can expand their market through overseas to gain more customers attraction. Doing a

launching of the store would be far more effective in promoting the store if compared to other

methods. This is because launching is a centralized event which can save costs and increase in

public awareness. However there are many shopping outlet in whole Malaysia, Hup Seng still

cannot get the retention from the customers. Hence, Hup Seng can create brochure and distribute

to the customers. Hup Seng can implemented a skill and knowledge program that can up-grade

labor standards so that can use high technology in production method.

5.3 Strengths and Threats

Hup Seng faces high competition in food and beverage industries. Hup Seng needs to develop

and improve the Research and Development Department so that they can produce more and

unique products that are differed with competitors’ products by using high technology. Next, the

human resources department needs to recruit the most suitable worker for particular areas. This

can reduce the number of unskilled workers and can minimize the cost of wages. Nowadays, a

new distribution channel can make the shipping works become complex. Hup Seng can choose

E-commerce as the way to distribute the products along the supply chain.

5.4 Weaknesses and Threats

In a high competition industries, Hup Seng should implemented aggressive advertising to inform

the consumers that its products is exists. Advertising is the key activity to drive up sales and

customer awareness. In order to improve the productivity and efficiency of Hup Seng, the

industry should modem their technologies. By this way, Hup Seng can eliminate the waste and

can utilize the local resources well. Besides that, Hup Seng needs improve their products quality

against competitors. If not, the consumers will shift their preference to other brands with same

prices. Hup Seng should develop a product research within the markets. Marketing department

47

should modify and improve their quality of the products as well as change their production

methods based on the research.

6.0 FINANCIAL RATIO

HUP SENG INDUSTRIES BERHAD

Ratio FY 31 Dec 2011 2010 Variances

PROFITABILITY RATIONet profit margin 7.75 10.6

5Decrease

Gross Profit Margin 32.54

34.61

Decrease

Return on investment 9.14 12.02

Decrease

Return on equity 31.05

38.90

Decrease

Earning per shares 0.16 0.19 DecreaseLIQUIDITY

Current ratio 2.78 2.93 DecreaseQuick ratio 2.32 2.28 IncreaseInventory to net working 0.26 0.34 Decrease

ACTIVITY RATIOInventory turnover 6.78 5.87 IncreaseDays' sales in inventory 26.7

732.8

9Decrease

Total assets turnover 1.18 1.13 IncreaseFixed assets turnover 3.48 2.76 IncreaseAverage collection period 54.9

755.5

9Decrease

LEVERAGE RATIOSDebt to equity ratio 0.95 0.79 IncreaseLong term debt to capital structure 0.14 0.14 Unchange

The table above is the ratio analysis of Dutch Lady Milk IndustriesBerhad in two years

performance from year 2010 to 2011.

6.1 PROFITABILITY RATIO

It relates the profit to sales and investments. Profitability ratio is to indicate the firm’s overall

effectiveness of operations and give us an idea on how well the firm utilized its resources in

order to generate profit and increase the shareholder value.

48

a. Net Profit Margin

This ratio is to indicate how much of revenues a company can generate for every RM 1 in

sales. In HupSeng, the net profit margin has significant decrease from 10.65% in year 2010 to

7.75% in year 2011. The decreasing percentage of 2.90% shows that HupSeng has not well

performed in year 2011 compare with the performance in year 2010 where the Padini has less

generates RM 0.0290 of every RM 1 in sales.

b. Gross Profit Margin

Gross profit margin is to show how much the gross profitof every RM 1 in cost of goods

sold. In HupSeng, the gross profit margin has decrease from 34.61% in year 2010 to 32.54% in

year 2011. The decreasing percentage of 2.07% shows that the management of Dutch Lady has

not well control system in its expenses in order to generate more profit to its company.

c. Return on Investments (ROI)

This ratio shows how well the firm management puts the company assets to work in order

to generate income. Lower ratio shows lower company performance. ROI ratio in HupSeng

shows decline of 2.88% which decrease from 12.02% to 9.14% in this two years. It shows that

the HupSeng has not improves in using assets to generate the firm sales.

d. Return on Equity (ROE)

This ratio is to measure how the stockholders fared during the year. It is a true bottom-

line measure of performance. ROE ratio has decrease 7.85%, from 38.9% in 2010 to 31.05% in

2011. That is HupSeng’s superior return on equity maybe due to its inefficient use of asset to

generate sales and the fact that HupSengunbenefitted from its use of more debt financing or

financial leverage.

e. Earnings per Share (EPS)

Earnings per share represent the portion of a company's earnings, net of taxes and

preferred stock dividends, which are allocated to each share of common stock. EPS ratio has

slightly decrease RM0.03, from RM0.19 in 2010 to RM0.16 in 2011. This means that it is not a

good signal for the company financial position because the lower the earnings per share, the

lower each share worth.

6.2 LIQUIDITY

a. Current Ratio

49

It is a measure of general liquidity and is most widely used to make the analysis for short

term financial position or liquidity of a firm. This ratio decrease 0.15 times, from 2.93 times in

2010 to 2.78 times in 201. It shows that the company is not generally considered to have good

short term financial strength.

b. Quick Ratio

Quick ratio is a measure of how well a company can meet its short term financial

liabilities. The ratio increase 0.04 times, from 2.93 times in 2010 to 2.78 times in 2011. The

higher the ratio the more financially secure a company is in the short term. The company with a

quick ratio of greater than 1.0 is sufficiently able to meet their short term liabilities.

6.3 ACTIVITY RATIO

a. Inventory Turnover

Inventory turnover ratio indicates the number of time the stock has been turned over

during the period and evaluates the efficiency with which a firm is able to manage its

inventory.The ration increase 0.91 times, from 5.87 times in 2010 to 6.78 times in 2011. This

shows that the demand of the HupSeng’s product is increase. It is also mean that’s the products

are in the warehouse sold very fast.

b. Total Assets Turnover

The total asset turnover ratio measures the ability of a company to use its assets to

efficiently generate sales. The ratio increase 0.05 times, from 1.13 times in 2010 to 1.18 times in

year 2011. The ratio is merely increased shows that there are huge sluggish in the firm’s sales.

c. Fixed Assets Turnover

The fixed asset turnover ratio measures the company's effectiveness in generating sales

from its investments in plant, property, and equipment. The ratio has been increase 0.72 times,

from 2.76 times in 2010 to 3.48 times in 2011. An increasing fixed assets turnover means that the

company has been more effective using company’s investments in net property, plant, and

equipment.

d. Average Collection Period

The average collection period is the number of days, on average, that it takes a company

to collect its credit accounts or its accounts receivables. The ratios significantly decrease 0.62

days, from 55.59 days in 2010 to 54.97 days in 2011. By comparing with last year, a decreasing

50

of average collection period means Dutch Lady’s customers are not only paying their credit

accounts on time but faster than they have in the past.

6.4 LEVERAGE RATIOS

a. Debt Equity Ratio

Debt equity ratio is a measurement of how much suppliers, lenders, creditors and obligors

have committed to the company versus what the shareholders have committed. The ratio increase

0.16 times, from 0.79 times in 2010 to 0.95 times in 2011. The increasing in this ratio might

show that the company is being financed by creditors rather than from its own financial sources

which may be a dangerous trend. The company with high debt-to-equity ratio may not be able to

attract additional lending capital.

b. Long Term Debt to Capital Structure

It is used in determine what portion of the total capitalization, or full debt and equity of

the company, is made for the long term debt to finance operation. The ratio for long term debt

capital structure shows a same percentage of 0.14 in these two years. Unchanged of this ratio

signifies that the company is not facing mature financial difficulty.

7.0 STRATEGY DIRECTION

There are many aspects that needed to be growing so that Hup Seng Biscuit can become

more competitive in the market. Growth in the aspects of sales, assets, profits, or some

combinations are crucial to Hup Seng Biscuit. Ansoff (1965) devised a matrix to analyze the

different strategic directions organizations can pursue.

Market penetration is the effort of increasing the market share in the existing market with

the existing products. Hup Seng Biscuit has been exporting its products to foreign markets and

domestic market. Hup Seng Biscuit has a lot of consumers who eat its biscuits, cakes and snacks

worldwide. However, Hup Seng Biscuit should keep on its effort to increase its market share in

the existing market by attracting more new consumers to buy its existing products. Hup Seng

Biscuit should also make sure that the existing consumers to eat more its products. With the

capabilities and resources of Hup Seng Biscuit, this strategy is not risky because Hup Seng

Biscuit do not need to do anything unless increase its products' quality to meet the consumers'

needs and wants. Improving its quality is not a problem to Hup Seng Biscuit as it has

professionals for R&D.

51

Hup Seng's products have captured the hearts of consumers, young and old in many

corners of the world such as Asia, Africa, Oceania, Europe and North America,. Henceforth, Hup

Seng shall continue to upgrade, improve and reach new peaks of excellence.

Diversification occurs when an organization seeks to broaden its scope of activities by

moving into new products and new markets. Diversification is actually a suitable strategy for

Hup Seng Biscuit because it helps to spread risk by reducing reliance on any one market or

product. For instance, Hup Seng Biscuit should have diversification by producing new products

like organic food to new market especially health-conscious market. Hup Seng Biscuit will face

lesser competition if having new market. If one of the existing products is not in high sales, Hup

Seng Biscuit is still safe because consumers from other market may buy its other products. The

risk of low revenue will be spread among different products. Hup Seng Biscuit will be afforded

to implement diversification because it will earn a lot after implementing the low cost strategy.

Hup Seng Biscuit itself does not need to find more capital from other resources to sustain the

diversification of products. As the result of benchmarking, having diversification is crucial in

order to own sustainable competitive advantage forever.

52