Corporate Financial Analysis Cfa - Telekom Malaysia

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Company Background
Telekom Malaysia Berhad (TM) was known as Malayan Telecommunications Department in 1946. TM was transformed to a corporation in 1987. Subsequently, TM had initial public offering and listing on Bursa Securities in 1990.

Over the years, TM has evolved as the largest telecommunications corporation in Malaysia with a current Group staff strength in excess of 36,000 with operations and interests in 13 countries, with nine key markets within Asia: Indonesia, Singapore, Cambodia, Thailand, Bangladesh, Pakistan, India, Sri Lanka and Iran.

TM is focused on delivering exceptional value to its customers and achieving sustainable growth in both local and international markets offering a comprehensive range of communication services. In Malaysia, TM’s mobile arm, Celcom (Malaysia) Berhad (Celcom), is Malaysia’s premier mobile communications provider, Celcom has steadily made its presence felt in the market through its innovations as the first mobile operator in Malaysia to launch 3G services commercially.

Meanwhile, on 28 September 2007, TM proposed to undertake a demerger exercise to separate its mobile and fixed businesses currently managed as one, into two business entities. On 10 December 2007, TM unveiled the final terms of the demerger which would ensure the Group continued to derive greater shareholder value from both businesses, and ultimately benefit all its stakeholder communities.

PART A – Ratio Analysis (Refer Appendix I for the calculations) The aim of financial analysis is to evaluate the performance of a firm. The Du Pont Financial Analysis Model provides a distinctive aspect of the effectiveness of the firm’s policies or strategies in each area. In this model, four levers can be used to assess the firm’s financial structure and operating efficiency – operating management, investment management, financing strategy and dividend policies.

Ratio Summary20072006200520042003
Profit Margin0.14750.14040.06140.20200.1224
EBIT/ Sales0.22980.23650.15200.17340.1946
Total Asset Turnover(TATO)0.40350.39190.33850.35170.3273 Account Receivable Turnover4.05654.73403.94303.92673.0760 Account Payable Turnover2.21112.27962.12642.79182.2154
Financial Leverage2.13632.07202.09152.04934.2332
Long Term Debt / Equity0.47200.49560.54990.48630.6361
Long Term Debt / Asset0.22040.24570.26230.25480.3005
Current Ratio0.88581.02061.25562.01651.2435
Acid Test Ratio0.78340.99741.23101.98511.2104
Dividend Payout Ratio0.34600.38800.54100.54900.4760
Retention Ratio0.65400.61200.45900.45100.5240
Return On Asset0.05950.05500.02080.07100.0401
Return on Equity0.12710.11400.04340.14560.1696
Sustainable Growth Rate0.08310.06980.01990.06570.0889

The profitability ratio (Net Profit/Sales) had a significant increase in year 2006, from 0.06136 to 0.140391 as the Group registered 17.6% (RM2,456.8 million) growth in operating revenue to RM16,399.2 million as compared to RM13,942.4 million recorded in 2005, mainly driven by the Group’s cellular, data, Internet and multimedia services.

Also, the increase was due to the provision made in the previous year’s (financial year ended 31 December 2005). The provision for a claim by DeTeAsia Holdings GmbH. which included arbitration, legal and interest costs amounting to RM879.5 million contributed to the decrease in 2005’s profit to 855.5 million.

However, the increase in the profitability ratio is deflated as the profitability ratio had just increase from 0.140391 to 0.147487 in year 2007 consequent from improved performance of Celcom, one-off capital gain and higher contribution from jointly controlled entities, the Group recorded a 23.1% increase in profit after tax and minority interests from RM2,068.8 million in 2006 to RM2,547.7 million in 2007....
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