1.0 Introduction Asia Poly Holdings Bhd (ASPY) is A-Cast® cast acrylic sheet manufacturer and is among the top choice for world’s leading brands. The company had applied a loan of RM 7,500,000 with loan tenure of 5 years from the Bank. ASPY intends to expand its production capacity by building a new facility which would include a new plant, fittings and machineries to cope with the increasing demand of A-Cast ® sheets. 2.0 Company Profile 2.1 Name of Company Asia Poly Holdings Berhad 2.2 Date of incorporation 1 st January 2003 2.3 Duration of existence Approximately 14 years 2.4 Objects of the company The principal activity of company is manufacturing cast acrylic sheet wide range colours, surfaces and finishes ranging from sanitary ware, fluorescent, silk, glass look to opals. 1
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1.0 Introduction
Asia Poly Holdings Bhd (ASPY) is A-Cast® cast acrylic sheet manufacturer and is among the top
choice for world’s leading brands. The company had applied a loan of RM 7,500,000 with loan tenure of
5 years from the Bank. ASPY intends to expand its production capacity by building a new facility which
would include a new plant, fittings and machineries to cope with the increasing demand of A-Cast ®
sheets.
2.0 Company Profile
2.1 Name of Company
Asia Poly Holdings Berhad
2.2 Date of incorporation
1st January 2003
2.3 Duration of existence
Approximately 14 years
2.4 Objects of the company
The principal activity of company is manufacturing cast acrylic sheet wide range
colours, surfaces and finishes ranging from sanitary ware, fluorescent, silk, glass
look to opals.
The subsidiary of the group involves in research and development to develop new
products and services to keep the company a step ahead within the competitive
market and make it cost effective for the company.
2.5 The business of the company
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Established on 1993, Asia Poly became the third Cast Acrylic Sheet manufacturer in
Malaysia producing wide range of cast acrylic sheet. Asia Poly’s brand of a-Cast Acrylic
Sheet is manufactured from 100% Virgin Methyl Methacrylate Monomer (MMA). The
cell-casting method used maximizes the chemical resistance and mechanical properties of
the acrylic sheets, making them suitable for indoor and outdoor applications. The
application includes building applications, food industry, domestic applications,
transport, medical applications and miscellaneous applications.
The company headquarters is in Malaysia at Klang, Selangor. After initiating its sales of
A-Cast® in Asia Pacific region, increased production and demand require Asia Poly to
broaden its product internationally. Continuous research and development leads to
The table shown the page before is the financial performance of Asia Poly Holdings Berhad for
the past 3 years to show the financial status of ASPLY is a standard operating procedure to evaluate the
companies for loan appraisal. The current ratio of the company is below the benchmark of 2 which is not
favourable and ratio of 0.9549 is shows that the company is having difficulty meeting current
obligations but this does not mean that it will go bankrupt. Compared to the past 2 years, the current
ratio of the company is improving over the time from 0.8731 (2011) to 0.8999(2012) and to 0.9549
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(2013). Improved current ratio over time means the company ability to make payment has also
improved.
Quick ratio measure the ability of company to settle its current liabilities on short notice. As for
Asia Poly, quick ratio of less than 1 for 3 years consecutive indicates that company cannot currently
fully pay back its current liabilities. Because Asia Poly is a manufacturing company for plastic product,
the industry standard for quick ratio is 0.6 and the ratios calculated for the 3 years is all lower than the
industry standard. Quick ratio which is lower than the industry average may suggest that the company is
taking too much risk by not maintaining an appropriate buffer of liquid resources. Alternatively, a
company may have a lower quick ratio due to better credit terms with suppliers than the competitors.
Asia Poly working capital shows a negative figure for the past 3 years explains that uncertainty of ability
to repay its current liability in short term. However, if a company is growing, this can be the most
advantageous working capital position because it literally “coins” money for the company. Due to some
circumstances, Asia Poly is in their recovery period and still growing after the fire incident happened
back in 2007 that burn the factory completely and later fully reinstate their production in 2009.
The inventory turnover ratio shows the efficiency of management of inventory. The inventory
turnover ratio improved yearly from 4.89 times in 2011 to 5.77 times in 2013. Compared to industry
average inventory turnover of 5.4 times, Asia Poly may seem to not able to reach the industry average
for in 2011 but in 2012 and 2013, Asia Poly inventory turnover ratio is higher than the industry. This
shows that demand of Asia Poly’s cast acrylic demand are slowly increasing. Aside from that, the
inventory turnover days is improving from 75 days in 2011 to 63 days in 2013. This means that it take
shorter time to sell the stock, which is good news to Asia Poly. Besides that, the average collection
period is also one of the important ratios to look at in order to determine the efficiency of the company
in collecting the receivables. The collection period had decreased 23 days from 91 days to 68 days but
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increased back to 88 days in 2013.Although the average collection period is not stable, but it is still
within the company standard credit period of 30 to 90 days.
As for the profitability ratio, the company gross profit-sales ratio as well as the net profit ratio
has increased tremendously especially from year 2011 to 2012. Asia Poly records a meagre 1.24% of
gross profit ratio and a negative ratio for net profit in year 2011, but improved a lot in 2012 and 2013.
The gross profit ratio jumped above 20% (20.07% in 2012 and 24.44% in 2013), while the net profit
ratio recorded both positive figure in year 2012 and 2013. Although the gross profits improved by more
than 20 percent, the net profit figure is relatively small compared to the improvements made in 2012 and
2013. This can be explained by the price increases obtainable from domestic and export customers
lagged behind the absorption of cost increases imposed by the company especially on ingredient
suppliers. Aside from that, Asia Poly was facing managing the absorption of minimum wage increase
mandated by the Government of Malaysia. Compared to industry benchmark of 32%, Asia Poly gross
profit is still lower than the benchmark. Reason being is the company is recovery period, and this can be
seen by observing the gross profit ratios are improving as the years goes.
Leverage ratio helps to assess the risk arising from the use of debt capital. The debt to equity ratio
shows how much the company is financed by debt compared to the proprietor’s own investment in
business. The ratio had increased from 0.0750 in 2011 to 0.0896 in 2013. This shows the ratio is
increasing slowly due to the fact that Asia Poly are conducting more R&D and purchased machineries to
develop the polymerization process to study the thermoforming performance of acrylic sheet. Aside
from that sophisticated laboratory equipment was installed to control the finished products to meet
customer’s general and unique requirement and to comply with the international standards. Machineries
purchased were under hire-purchase agreement. Interest coverage ratio explains the ability of company
to generate revenue to cover its interest expenses. The interest coverage ratio for 2011 and 2012 was not
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satisfactory while in 2013, Asia Poly records 1.7 which is above the ideal figure of 1.5. As mentioned
before, Asia Poly is still growing and recovering from the fire incident.
4.0The Proposed Project
4.1 State the proposed project
The main purpose of this project is that ASPL intends to expand its production capacity to meet the increasing
demand of cast acrylic sheets in the market. Asia Poly is famous for not compromising their quality by using
only 100% virgin material sourced exclusively by reputable suppliers, explains the reason for being top
choice material to world leading brand such as Adidas and McDonalds. Asia Poly needs to increase its
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production capacity with the intention of coping to be able to meet the high demand of cast acrylic in the
market. In addition, Asia Poly always conduct research and development (R&D) to achieve the higher quality
of the cast acrylic at the lowest overall cost at better efficiency rate. The proposed project of building new
facility would include R&D center in the new factory.
4.2 Particulars of the land
Title no. : GM 2277
Lot no : 758
Mukim : Kapar
Land area : 10,144 square feet
Ownership : Owned by Asia Poly Industrial Sdn Bhd
Land condition : Freehold ( Industrial Estate Zone)
Encumbrances : None
4.3 Description of proposed project site
The project site is strategically located in Klang area. Klang area, famous for their factories area as it has
convenient access to Port Klang, the main gate of import and export shipping industry in Malaysia. With
10,144 square feet, the project site is a very strategic area and spacious enough to build the new facility with
R&D center in the factory. The project site is situated in industrial estate zone that fulfills the requirement for
building the new facility of the proposed project, hence saved significant time in the process to convert the
land to industrial zone.
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5.0 Capital & Financials
5.1 Total cost of project
The total cost of the project is broken down as following:
5.2 Financing of proposed project
Borrowings from Bank : RM 7,500,000
Company's Equity : RM 2,000,000
Total Cost of Project : RM 9,500,000
The remaining cost of project of RM 2 million would be bear by Asia Poly through its cash and bank balances as of year 2013. The remaining cost of RM 2 million is bear by the company to show that the company has the same commitment into the proposed project.
5.3 Returns from proposed project
In order to decide whether to accept or reject the proposed project, the key to the project is the generated returns from the project. To calculate the rate of return from proposed project, two formulas will be involved. They are Net Present Value (NPV) and Internal Rate of Return (IRR) of the project.
The discount rate of NPV of this project is 6.9% and the cost of capital equals to 8%.
The proposed project will take one year to complete and commission. Therefore, for the first year there is only outflow amounting RM 11,000,000 which is the total cost of the project. The company will only start to generate cash inflow or revenue when the factory commence in year 1 onwards. The projected total net cash flow at end of year 5 will be RM 10,182,731.
5.3.1 Net Present Value (NPV)
To calculate the NPV, the discount rates needs to be determined. The discount rate is the sum of interest rate of Treasury Bond and current inflation rate of Malaysia. According to Bank Negara Malaysia, the interest rate of Malaysia Government Security (MGS) is 3.5% and the inflation rate would be 3.4%. Therefore, the discount rate would sum up to the rate of 6.9%
= RM 6,200,0753.97
Decision Rule :NPV > 0, therefore proposed project can be approve.
5.3.2 Internal Rate of Return (IRR)
The IRR of the project need to be higher than the cost of capital of 8.0% in order for the Bank to approve the loan for the proposed project.
The IRR is calculated using the financial calculator and the IRR for this project is 25.21%.
The IRR of the project of 25.21% is higher than the cost of capital of 8.0%.According to IRR rule, the return of rate that is higher than the cost rate means that the returns generated from the proposed project outweigh the cost of capital of the project. Thus, the project should be accepted.
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NPV¿−RM 9,500,000+ RM 2,00,000
(1+6.9 % )1+RM 3,465,658
(1+6.9 % )2+ RM 3,794,766
(1+6.9 % )3+RM 4,552,155
(1+6.9 % )4+RM 5,870,152
(1+6.9 % )5
6.0 Capacity6.1 Repayment of loan
6.1.1 Altman’s Z-Score model
Altman’s Z-Score Formula :
Z = 1.2X₁ + 1.4X₂ + 3.3X₃ + 0.6X₄ + 1.0X₅
VariablesRM RM RM2013 2012 2011
X ₁ = Working Capital -1,520,748 -3,586,563 (4,397,567)Total Assets 58,166,757 59,065,063 57,270,188