Malton Group of Companies

1. Introduction.

Malton Group comprises mainly the Khuan Group, Bukit Rimau and Domain Group.

Khuan Choo Group started its construction and property development businesses in 1980 and launched its

maiden property development project, Kuchai Business Centre, comprising 31 units of 5-storey shop office

in 1992 under Khuan Choo realty Sdn Berhad. Since then, it has successfully completed several projects

ranging from residential houses and condominiums to high-rise office buildings in the Klang Valley.

1.1 Company back ground

Bukit Rimau Development Sdn Bhd is the developer of the integrated self-contained Bukit Rimau Township

spanning over 358 acres of development land in Shah Alam neighboring the Kota Kemuning Township. The

development is strategically located in the vicinity of many major fast growing areas in the Klang Valley

such as Shah Alam, Subang Jaya, Bandar Sunway and Klang. With its innovative resort lifestyle concept, the

project has received consistent support and high take-up rate since its first launch.

Domain Group carries out construction and project management activities. Domain Resources Sdn Bhd, the

holding company, has been the project manager for various housing projects under Bank Negara Malaysia’s

“Tabung Pusingan Perumahan Terbengkalai” and “Tabung Pusingan Perumahan Kos Rendah” schemes since

1991.

Under the schemes, the group has successfully rehabilitated and completed more than 12,700 units of

properties in Klang Valley, Penang, Johor and Melaka. Apart from that, the group has also undertaken many

construction projects awarded by multinational corporations such as Carrefour Hypermarket, Pacific Dunlop

Group, Robert Bosch Pte Ltd, Tesco Hypermarket etc.

In 2002, Khuan Choo Group, Domain Group and Bukit Rimau Development were injected into Gadek

Capital Berhad, culminating in its re-listing on the Main Board of Bursa Malaysia. On 20 February 2002, it

assumed the present name, Malton Berhad.

1.2 Type of Business / Business Operation

Malton group of companies has two major divisions which has diversified business interests. One division

looks at property development while the other focuses on Construction and Project Management.

1.3) Property Development Division

Malton Berhad is a reputable property developer in Malaysia. The Group has established a solid presence in

the local property sector having completed more than RM2 billion worth of development projects in the

country.

Over the years, this Division has successfully launched and completed several residential development

projects mainly in the Klang Valley. Notable developments are 358-acre Bukit Rimau township comprising

bungalows, semi-dees, superlink homes, zero-lots, cluster homes and shop offices, luxurious apartments Vila

Mutiara in Bangsar, Li Villas II condominiums, Pearl Villas in Section 16 Petaling Jaya, Mutiara Puchong

and Mutiara Indah mixed residential developments in the well-established and matured Puchong township

and the novel and luxurious Amaya Saujana service apartments in Saujana Subang.

Apart from residential developments, the Property Development Division has also successfully undertaken

various commercial development projects in the Klang Valley including Kuchai Business Centre, Seri

Kembangan Commercial Centre and Menara Uni.Asia in the financial district along Jalan Sultan Ismail. The

23-storey Menara Uni.Asia is one of the prominent cityscapes in Kuala Lumpur which was conceptualised

and designed by the renowned Japanese architect, Kenzo Tange.

Riding on its proven track record, the Property Development Division has continued to achieve high take up

rate for its development projects. Their product offerings which are differentiated with innovative lifestyle

concepts and high consumer standard have been well received in the market. Current and upcoming

development projects include residential, commercial, retail and mixed use developments located mainly in

the high growth areas of Klang Valley, Penang and Johor.

1.4) Construction & Project Management Division

The Construction & Project Management Division offers integrated services ranging from design and

conceptualisation, feasibility studies, development management to construction works for both commercial

and residential projects.

The Group has completed several construction projects including high rise buildings, shopping malls,

highway interchange, aircraft engineering complex and residential townships. This Division also has a strong

track record in project management having successfully rehabilitated and completed various abandoned

housing and low cost development projects worth more than RM500 million contract value under Bank

Negara Malaysia's "Tabung Pusingan Perumahan Terbengkalai" and "Tabung Pusingan Perumahan Kos

Rendah" schemes in Klang Valley, Penang, Johor and Melaka. We have also carried out other large scale

private development management projects such as Pavilion Kuala Lumpur Project, an integrated mixed-use

urban commercial development which comprises Pavilion Kuala Lumpur Mall, one of Malaysia's premier

shopping centre, Pavilion Tower, a 20-storey office building and two blocks of luxury serviced apartments

known as Pavilion Residences.

To-date, this Division has managed and completed projects with contract value worth more than RM2

billion. Leveraging on its strong and wide technical expertise and experience, the Construction and Project

Management Division will continue to bid for and secure new contracts to enhance its order book.

2) CORPORATE STRUCTURE

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3. FINANCIAL REVIEW from the Malton Annual report 2011

This statement of financial position is derived from the published Malton Annual Report 2011.

The Group achieved a record-high profit during the financial year under review. Pre-tax profit jumped

174.3% to RM98.2 million from RM35.8 million reported previously while profit after tax soared 229.0% to

RM72.7 million from RM22.1 million reported in 2010. The Group’s revenue registered an increase of

33.3% to RM462.4 million as compared to RM346.9 million reported previously with major contribution

from the property development division. This division achieved higher revenue from the advanced

construction progress of our on-going projects and higher sales achieved from new projects launched during

the year. Revenue

from construction and project management division also improved during the financial year due to the

commencement of construction works at Jaya Shopping Centre. The strong performance in the Group’s

earnings was mainly driven by higher sales value and better margin achieved by their development projects.

The value engineering exercise carried out across our development projects has also contributed to the

improved margin. In the current financial year, the Group also recognized its full year share of results in

Austin Heights Sdn Bhd, an associated company, amounting to RM4.1 million while the Group also shared

losses in an associated company acquired in July 2010, Inai Berkat Sdn Bhd, for the amount of RM3.6

million arising mainly from the recognition of notional interest charges in its financial statements in

compliance with Financial Reporting Standard 139.

DIVIDENDS

The Board of Directors has proposed a final dividend of 0.85% less income tax and a final tax exempt

dividend of 1.15% in respect of the financial year ended 30 June 2011.

3.1 Financial Statement for two years

Statement of Balance Sheet as of 30th June 2011 for Malton Group of Companies

Statement of Balance Sheet as of 30th June 2011 for Malton Group of Companies

2011 2010RM'000 RM'000

         ASSETS

Non-current assetsProperty, plant and equipment 10,554 18,822Investment properties 43,696 21,645Land held for property development 191,899 133,535Investment in subsidiary companies ₋ ₋Investment in a associated companies 22,712 22,175Other investments 1,589 1,456Deferred tax assets 5,131 4,439Other receivable 20,775 8,000         

Total Non-current Assets   296,356   210,072

Current Assets

Property development costs 196,779 214,726Inventories 39,343 61,558Trade receivables 94,124 68,459Other recevables and prepaid expenses 45,301 51,438Tax recoverable 5,007 570Accrued billings 56,862 61,341Amount due from contract customers 1,179 ₋Amount owing by subsidiary companies ₋ ₋Fixed deposits with licensed banks 17,260 3,961Cash and bank balances   207,155   61,069

Total Current Assets   663,010   523,122

Total Assets   959,366   733,194

Equity and Liabilities

Capital and ReserveIssued capital 348,353 348,353Reserves   160,776   91,356

Equity attributable to owners of the Company   509,129   439,709

Non-controlling interests   ₋   ₋

Total equity   509,129   439,709

Non current liabilities

Bank borrowings - non current portion 47,395 63,149Hire-purchase payables - non current portion 2,014 362Deferred tax liabilities   55   55

Total Non-current liabilities   49,464   63,566

Current Liabilities

Trade payables 62,322 35,528Other payable and accrued expenses 251,889 78,185Advance billings 5,018 31,103Amount due to contract customers ₋ 930Amount owing to susidiary companies ₋ ₋Bank borrowings - current portion 67794 73704Hire-purchase payables - current portion 805 859Tax liabilities   12945   9610

Totasl current liabilities   400,773   229,919

Total Liabilities   450,237   293,485

Total Equity and Liabilities   959,366   733,194

3.2 Income Statement

Income Statement as of 30th June 2011 for Malton Group of Companies

Currency in Millions of Malaysia Ringgit As of Jun-30 Jun-302010 2011

Revenues 346.9 462.4TOTAL REVENUES 346.9 462.4Cost of Goods Sold 257.3 300.3GROSS PROFIT 89.6 162.1Selling General & Admin Expenses. Total 12.7 13.9Other operating expenses 41.6 52.1OTHER OPERATING EXPENSES. TOTAL 54.2 66.1OPERATING INCOME 35.4 96.0Interest expenses -6.3 -9.0

NET INTEREST EXPENSE -6.3 -9.0Income(Loss ) on Equity Investments 1.6 0.5Other Non-operating Income(Expenses) 5.1 10.6EBT,EXCLUDING UNUSUAL ITEMS 35.8 98.2EBT,INCLUDING UNUSUAL ITEMS 35.8 98.2Income Tax expense 13.8 25.5

Minority Interest in Earnings ₋ ₋Earnings from Continuing Operations 22.1 72.7NET INCOME 22.1 72.7NET INCOME TO COMMONINCLUDING EXTRA ITEMS 22.1 72.7NET INCOME TO COMMONEXCLUDING EXTRA ITEMS 22.1 72.7

4. Cash flow from the two years financial statement

STATEMENTS O F CASH FLOWSfor the year ended 30 JUNE 2011

2011 2010RM'000 RM'000

CASH FLOWS FROM/(USED IN)OPERATING ACTIVITIES

Profit for the year 72,694 22,067 Adjustments for:Income tax expense recognised in the income statements 25,458 13,753 Finance costs 9,026 6,288

Depreciation of property, plant and equipment 2,435 2,176 Impairment loss on other investments ₋ 1,993 Impairment loss on investment in subsidiary companies ₋ ₋Allowance for foreseeable loss 3,754 946 Inventories written down 4,682 873 Write-offs of:Development expenditure 2,158 587 Property, plant and equipment 180 56 Allowance for doubtful debts ₋ 201 Share in results of associated companies (537) (1,575)Excess of net assets over cost of acquisition ofthe remaining interest in subsidiary company ₋ (1,463)

Interest income (2,367) (826)Gain on disposal of other investments ₋ (796)Gain on disposal of property, plant and equipment (323) (100)Unrealised gain on foreign exchange (78) ₋Gain on fair value changes of investment properties (5,290) ₋Dividend income ₋ ₋         

Operating Profit/(Loss) Before Working Capital Changes 111,792 44,180

(Increase)/Decrease in:Property development costs, net of interest expense ofRM4,134,000 (2010: RM3,686,000) 54,898 73,603 Inventories 12,847 11,614 Trade receivables (25,665) 70,018 Other receivables and prepaid expenses 6,137 4,806

Accrued billings 4,479 (40,095)Amount due from contract customers (1,179) 13,974

         Increase/(Decrease) in:Trade payables 27,534 (53,380)Other payables and accrued expenses ( 1,826 (175) 52,693 3,658)Advance billings (26,085) 19,443 Amount due to contract customers   (930)   (938)

Cash Generated From/(Used In) Operations 106,725 139,567 Income tax paid (28,056) (8,424)Income tax refunded 804 29          

Net Cash Generated From/(Used In) Operating Activities 79,473 131,172

CASH FLOWS FROM/(USED IN)INVESTING ACTIVITIES(Increase)/Decrease in:Land held for property development, net of interestexpense of RM867,000 (2010: RM1,796,000) (8,474) (11,573)Amount owing by subsidiary companies ₋ ₋

Fixed deposits pledged to licensed banks 1,748 (3,499)

Investment in associated companies ₋ (8,300)

Acquisition of remaining interest in subsidiary company ₋ (5,675)Purchase of other investments (55) (3,734)Additions to property, plant and equipment (6,801) (1,117)

Proceeds from disposal of other investments - 2,811 Proceeds from disposal of property, plant and equipment 333 112 2Investment in subsidiary companies - - Interest received 1,348 826 Dividend received        

Net Cash (Used In)/From Investing Activities   (11,901)   (30,149)

CASH FLOWS FROM/ (USED IN)FINANCING ACTIVITIESProceeds from long-term loans 34,500 12,500 Repayment of long-term loans ) (34,067) (36,893)Payment of hire-purchase payables (654) (987)Increase/(Decrease) in amount owingto subsidiary companies ₋ ₋Dividend paid (3,919) ₋Interest paid ) (9,597) (8,709)   (10,202)   (11,770

Net Cash Used In Financing Activities   (14,342)   (37,150)

NET INCREASE/(DECREASE)

IN CASH AND CASH EQUIVALENTS 53,230 63,873

CASH AND CASH EQUIVALENTS AT

BEGINNING OF YEAR   38,857   (25,016)

CASH AND CASH EQUIVALENTS AT

END OF YEAR   92,087   38,857

5. Cash budget

Malton group of companies with its diversified business strategy in both Property Development as well as

Construction & Project Management Division is the leading property developing company in Malaysia. It

has just released its Annual Report ending 30th June 2011.

5.1 Cash budget further 3 months ending 30th Sept 2011

Cash budget further 3 months ending 30th Sept 2011

RM 000 RM 000 RM 000Details Jul Aug SeptBalance at beginning 207,155 507,155 507,155 ReceiptsSales of Property 700,000 750,000 900,000 Bank Loan − − 50,000 Shares Issued 100,000 − −

Total received 800,000 750,000 950,000

DisbursementCash Purchases of material 200,000 300,000 350,000 Interest expenses 100,000 150,000 200,000 Salary & Admin expenses 100,000 200,000 220,000 Operating expenses 100,000 100,000 100,000

Total Disbursement 500,000 750,000 870,000

Surplus / deficit 300,000 0 80,000

Balance at end 507,155 507,155 587,155

6. Capital Investment Decision

Malton Group of companies primarily involved in Property Development as well as Construction & Project

Management Division is venturing into a huge construction project due to start in Jan next year. This will

allow the company to further strengthen its share in the local property development market.

Malton group of companies conducted a detailed market research to investigate the potential differences of

the two projects. In order to achieve its market share Malton Group of companies as ventured into two luxury

property development projects.

6.1 Project A: Damansara 3 storey exclusive bungalows named D’sara Residences.

a) D’sara Residences is an exclusive residential bungalow which sits on 30 acres of prime land in the

prime area of Damansara.

b) This freehold project is scheduled to be launched in January 2013 and is expected to be completed

in 4 years time in December of 2016.

c) The D’sara Residences features a mix of luxury bungalows with built-up area of 3600 square feet

and 4200 square feet. There will be a total of 600 units of 3600 square feet bungalows and 400

units

4200 square feet of bungalows.

d) The asking price for the 3600 square feet bungalow is RM2, 300,000.00 while the 4200 square

feet of bungalow is going for RM3, 300,000.00.

e) The details of expected cash flow for the D’sara Residences for per year are given below:

i.) Initial capital which was needed in 2013 to start this huge under taking is

RM60,000,000.00 for the land, RM 17,000,000.00 to develop the land in order for the

construction work to begin, RM7,500,000.00 for labour cost, RM 73,000,000.00 for

materials and RM1,500,000.00 for other expenses which includes advertisement in all

medias.

ii.) The estimated labour cost, material cost and other expenses for the years 2014, 2015 and

2016 will be RM9, 000,000.00, RM 4,200,000.00 and RM2, 300,000.00 respectively.

f) The total units of exclusive bungalows which was expected to sell according to the respective

years is shown in the table below.

YEAR 3600 square feet bungalows 4200 square feet bungalows

2013 320 190

2014 120 130

2015 90 100

2016 70 80

6.2 Project B: 3 storey exclusive LOHAS (live style of health and sustainability) bungalows with individual

swimming pool named Bukit Pristine Cyberjaya Bungalows.

a) Bukit Pristine Cyberjaya Bungalows is gated and guarded LOHAS (live style of health and

sustainability) community style living which will be located atop a hill overlooking Klang

Valley in the pristine Bukit Puchong area. Bukit Pristine Puchong Bungalows with be built on

35 acres of land by far will be the most prestigious residences in Cyberjaya.

b) This highly prestigious freehold project is expected to be launched in 2013 and is scheduled

to be completed in the year 2017 spanning a total of 5 years of under taking.

c) Bukit Pristine Cyberjaya Bungalows has a built up ranging from 11,000square feet and

16,000 square feet bungalows tailored to meet the LOHAS (live style of health and

sustainability) requirement and has designs to meet the individual preferences and life style.

In total there are four distinctive architectural designs that will live up to any individual

looking for unique look and feel. These bungalows are named Aquarius, Taurus, Scorpio and

Leo. There will be a total of 80 units of 11,000 square feet bungalows and 50 units’ 16,000

square feet bungalows.

d) The asking price for the11,000 square feet bungalows stands at RM5,300,000.00 and

RM7,500,000.00for the 16,000 square feet bungalows

e) The details of expected cash flow for the Bukit Pristine Cyberjaya Bungalows per year of this

project are given below.

i.) Initial capital needed in 2013 to kick start this project is RM110,000,000.00 for land

acquisition, RM35,000,000.00 to develop the land in order for construction to start,

RM11,000,000.00 for labour cost, RM85,000,000.00 for materials and RM3,500,000.00 for

other expenses which includes advertisement in all medias.

ii.) The estimated labour cost, material cost and other expenses for the years 2014, 2015, 2016

and 2017 will be RM35, 000,000.00, RM18,000,000.00, RM6,000,000.00 and

RM1,500,000.00 respectively.

iii.) The total unit of exclusive bungalows which was expected to sell according to the

respective years is shown in the table below.

YEAR 11,000 square feet bungalow 16,000 square feet bungalow

2013 40 20

2014 20 10

2015 8 8

2016 7 7

2017 5 5

All the costs and revenue from these projects are expected will take place at the end of each year.

The cost of capital is 12%.

6.3 NPV calculation for Project A: D’sara Residences.

NPV for Project A: D’sara Residences.

1 2 3 4Year 2013 2014 2015 2016

(RM) (RM) (RM) (RM)DetailsCash inflowa) 3,600 sq ft (@ RM 2,300,000.00) 736,000,000.00 276,000,000.00 207,000,000.00 161,000,000.00

b) 12,000 sq ft (@ RM 3,300,000.00) 627,000,000.00 429,000,000.00 330,000,000.00 264,000,000.00TOTAL A 1,363,000,000.00 705,000,000.00 537,000,000.00 425,000,000.00

Cash outflowa) Land purchase 60,000,000.00b) Land development 17,000,000.00c) Labour cost 7,500,000.00 9,000,000.00 9,000,000.00 9,000,000.00d) Material 73,000,000.00 4,200,000.00 4,200,000.00 4,200,000.00e) Others 1,500,000.00 2,300,000.00 2,300,000.00 2,300,000.00TOTAL B 159,000,000.00 15,500,000.00 15,500,000.00 15,500,000.00

       Nett Cash flow ( A - B ) 1,204,000,000.00 689,500,000.00 521,500,000.00 409,500,000.00

Discount after 12% 1 0.893 0.797 0.712Present value 1,204,000,000.00 615,723,500.00 415,635,500.00 291,564,000.00

 Nett presen value for Project A (RM) 2,526,923,000.00

6.4 NPV calculation for Project B: Bukit Pristine Cyberjaya Bungalows.

NPV for Project B: Puchong Gardens - Haven of Luxury

1 2 3 4 5Year 2013 2014 2015 2016 2017

(RM) (RM) (RM) (RM) (RM)Cash inflow

a)11000 sq ft (@ RM 5.3 Mil)212,000,000.0

0106,000,000.0

0 42,400,000.0037,100,000.0

026,500,000.0

0

b) 16,000 sq ft (@ RM 7.5 Mil)150,000,000.0

0 75,000,000.00 60,000,000.0052,500,000.0

037,500,000.0

0

TOTAL A362,000,000.0

0181,000,000.0

0102,400,000.0

089,600,000.0

064,000,000.0

0

Cash outflowa) Land purchase 110,000,000.0

0

b) Land development 35,000,000.00 35,000,000.00 35,000,000.0035,000,000.0

035,000,000.0

0

c) Labour cost 11,000,000.00 18,000,000.00 18,000,000.0018,000,000.0

018,000,000.0

0d) Material 8,500,000.00 6,000,000.00 6,000,000.00 6,000,000.00 6,000,000.00e) Others 3,500,000.00 1,500,000.00 1,500,000.00 1,500,000.00 1,500,000.00

TOTAL B168,000,000.0

0 60,500,000.00 60,500,000.0060,500,000.0

060,500,000.0

0         

Nett Cash flow ( A - B )194,000,000.0

0120,500,000.0

0 41,900,000.0029,100,000.0

0 3,500,000.00

Discount after 12% 1.0000 0.8930 0.7970 0.7120 0.6360

Present value194,000,000.0

0107,606,500.0

0 33,394,300.0020,719,200.0

0 2,226,000.00 

Nett present value for Project A (RM)

357,946,000.00

6.5 Net present Value Summary

Based on the Net present Value of Project A, D’sara Residences and B, Bukit Pristine Cyberjaya Bungalows

we can clearly deduce that project A is a better project to invest. Within a short period of 4 years Project A

has Net Present Value of RM 2,526,923,000.00 as oppose to project B which stands at RM 357,946,000.00.

7. Capital Structure (Cost of Capital)

Malton Group of companies is investigating on which form financing it requires based on the data provided

below.

a) The floatation cost of using bond is 15% par value. The current price of the Bond is 10%

coupon; 10 years bond issued is RM1100. The firm’s tax bracket is 30%.

b) The preferred share is RM220 with ongoing dividend of 10% based on the market price. The

floatation cost is 5% of the par value.

c) Its common stock is currently selling at RM80 per share. The last dividend paid was RM3.00

and the dividend is expected to grow at constant rate of 5% and floatation cost is RM5.

d)

a) Cost of Bond Before Tax

I +P-(mp-fc)

nkd = P+ (mp-fc)

2

(100 x 10%) + 1000 - (1100-150) 10

kd = 1000 + (1100-150)2

kd = 100 + 5 975

kd = 0.1076 or 10.76%

After tax

kd* = kd( 1 - TC )

kd* = 0.1076(1- 0.3)

kd* = 0.1076(0.7)

kd* = 0.0754 or

kd* = 7.54%

b) Cost of proffered shares

kps= Dpmp-fc

kps= RM220 x

10%220 - (5% x 100 )

kps= RM22 220 - 5

kps= RM22 21 5

kps= 0.1023 or

kps= 10.23%

c) Cost of common shares

D1 = Do(1+g)

D1 = 3.00(1+0.05)

D1 = 3.15

Kcs = (D1) ₊ g(mp-fc)

Kcs = 3.15 ₊ 0.0580-5

Kcs = 0.092 or

Kcs = 9.20%

Based on the calculations on the above comparing the Cost of Bond, Cost of Preferred shares and Cost of

Common Shares we can see that the preferred Cost of Bond is the logical choice as it is the lowest standing

at 7.54%. This has low cost of capital as such the return profit will be higher.

The cost of Bond will be used as financial resources to get the RM159, 000,000.00 to finance the D’sara

Residences project.

8. Cost-volume-Profit Analysis

The Malton Group of Company’s two types of project of the D’sara Residences of the 3,200 square feet and

4,200 square feet present revenue, cost and sales data for two products follows:

D’sara Residences.

  3,200 sq feet 4,200 sq feetSelling Price 2,300,000.00 3,300,000.00Variable expenses 2,000,000.00 2,000,000.00Fixed cost 40,000,000.00 60,000,000.00     

a) Breakeven point for 3200 square feet

Breakeven point (3200 sq feet) = fcSp - Vc per unit

Breakeven point (3200 sq feet) = 40,000,000.00  2,300,000.00 -2,000,000.00

Breakeven point (3200 sq feet) = 133 units

b) Breakeven point for 4200 square feet

Breakeven point (4200 sq feet) = fcSp - Vc per unit

Breakeven point (4200 sq feet) = 60,000,000.00  3,300,000.00 -2,000,000.00

Breakeven point (4200 sq feet) = 46 units