The Financial Reporting Project

Progress Report 1

For this project, we have identified 2 construction company listed on the Bursa Saham board,

which is Mitrajaya Holding Berhad and Crest Builder Holding Berhad.

Mitrajaya holding berhad ( 268257 - T )

Establish on 1985, Mitrajaya Holding bhd (MHB) has been one of the main player in developing

Malaysia’s infrastructure. MHB has also ventured overseas with the 300hectare Blue Valley Golf

and Country Estate in South Africa which has been recognised as a premier and exclusive

residential development. Beside actively involved in construction, the group is actively in

diversing its business to other classes such as trading, manufacturing and healthcare. One of their

successful notable projects is construction of North South Expressway (Central Link) and the

KLIA Expressway.

Under the stock name of MITRA and Code 9571, the group was first listed on the Second Board

of the Kuala Lumpur Stock Exchange on 8 December 1994, and subsequently moved up to the

Main Board on 29 May 1998.

Audit committee consists of four people, all of whom are Independent Non-Executive Directors

and one Audit Committee Member is a member of the Malaysian Institute of Accountants

(“MIA”). Their duties include review the quarterly and annual financial statement, appointment

of external auditor, Baker Tilly Monteiro Heng(AF 0117), review internal audit programme and

to discuss problem and reservations arising from the audit. In their annual audit report, the group

clearly stated their job and role done. Audit Committee Member Meeting was held 5times for the

year 2010.

Recently, there was a change in the member of boardroom. Tan Sri Dato’ Ir Jamilus Bin Md

Hussin, aged 65 resign from his non-executive director post in 2/9/09. Prior to the event, the

company’s old registar, Epsilon Registration Services Sdn Bhd was replace with Tricor Investor

Services Sdn Bhd (formerly known as Tenaga Koperat Sdn Bhd) in 26/10/09. General (R) Dato’

Ismail bin Hassan aged 67 was hired as chairman of the company.

On 03/9/09, Mirtajaya Holding Berhad acquires 99year leasehold property from Danaharta Urus

Sdn Bhd. The property will be use for Industrial and commercial development. The acquisition

doesn’t require the approval of shareholder and the directors of MHB agreed that the acquisition

is in the best interest of the group.

There are two subcategory for construction which are property developer and

construction/facility. Demand of property is highly affected by area and population. Competition

between developers is highly intense in order to make winning bids for land. However, each

company see themselves as interdependent with each because local markets are viewed as having

finite capacity. Project Kiara 9 Residency, is MHB housing development launched late 2010,

located at a prestigious 3arce of land at Mont Kiara. The luxury condominium consists of 192

unit and 16 unit of private garden villas.

For construction, the government will allot a certain amount of money for development. In 9th

Malaysian plan (2006-2010), the government has allocated RM3.5billion for building an

upgrading roads, RM2 billion for rural infrastructure, RM1 billion for low-cost and medium-cost

housing. Among the government project that MHB has been successfully secured are RM53.5m

Subang Airport facility upgrading, RM13.99 building in Putrajaya and the development of

RM11.36j Pelancongan Warisan Pekan .

CREST BUILDER HOLDINGS BERHAD (573382-P)

Crest Builder Holding Berhad (CBHB) was founded in 1985, over the past 25 year, the

corporation has grown into a strong local construction company. It had successfully taken over a

listing status of MGR Corporation Berhad on 9th March 2002. CBHD was listed on the main

board of Bursa Malaysia on 12th June 2003 under the ticker symbol of CRESBLD (8591). Unlike

Mitra Jaya Berhad, CBHD only concentrated on property investment and development.

The audit committee consist of three person whom all of them are independent non-executive

director. Their responsibility involve in reviewing the audit plan, evaluation of system of internal

control and audit report with a guidance from external Auditors of GEP Associates. For the year

2010, the committee has attendant 6 meeting and has review the annual financial statement.

Unaudited quarterly financial result for the release to Bursa Malaysia, Recurrent related party

transaction, review of internal control, review, implementation and recommendation for financial

year of 2009 and 2010, recommendation to the board of director the appointment of external and

internal auditors.

On 17 March 2010, CBHD has acquire Damansara One Sdn. Bhd and on 13th febuary 2009 it has

acquisition of Unitapah Sdn Bhd. No change of board of director occur as all of them are related

to one another. The company claim, even though they are disclosed herein, there’s no family

relationship between the directors and/or major shareholders of the company or any personal

interest or conflict of interest in any business arrangement involving the group.

In lieu to the 9th Malaysian project, CBHD successfully won the tender of building Uitm Tapah,

Perak with the cost of RM284.88Million in May 5 th 2010. Construction of JAIS headquarter,

Government apartment, Highway Restaurant ELITE, Bistari School Putrajaya and DBKL

community Complex.

SP Setia Bhd has awarded Crest builder for the construction of “superstructure” works of two

40-storey serviced apartments along Jalan Tun Razak and Jalan Raja Muda Abdul Aziz in Kuala

Lumpur at a contract value of RM175.5m. RM145.3mil contract was awarded by Khor Joo Saik

Sdn Bhd for the construction of a 35-storey office tower.

MGR corporation berhad, (MGR) was one of the main listed company on Bursa Saham. Due to

some unforeseen circumstances it was struggle to maintain it’s economic value. They posts

change in audit committee notice which eventually led the company to bankruptcy. Seeing MGR

has a lot of future potential in it, CBHD successfully undertaken a Corporate and Debt

Restructuring Scheme which involved taking over the listing status of MGR.

The Financial Reporting ProjectProgress Report 2

Analysis on net income and gross profit margin:

Based on the annual reports of both companies, we had performed a trend analysis on net

income and growth rate for the preceding 5 years, from Year 2006 to Year 2010.

Mitrajaya Holdings Berhad 268257-T

2010 2009 2008 2007 2006RM'000 RM'000 RM'000 RM'000 RM'000

PBT 76,711 60,575 4,083 14,497 15,444Net profit 56,233 45,492 2,132 9,032 8,262

Growth (based on PBT) 16,136 56,492 -10,414 -947 -2,372Growth rate (based on PBT) 27% 1384% -72% -6% -13%

Growth (based on net profit) 10,741 43,359 -6,900 770 507Growth rate (based on net profit) 24% 2033% -76% 9% 7%

Revenue 331,868 326,347 195,287 311,421 269,804

COGS(219,426

) (236,659) (164,204) (266,022) (227,041)Gross profit 112,443 89,688 31,083 45,399 42,762Gross margin (%) 34% 27% 16% 15% 16%

Figure 1Overall summary:

From Figure 1 above, Mitrajaya Holdings Berhad suffered a declining trend in its

earnings from Year 2006 to Year 2008. Subsequently, it experienced a huge hike of profits in

Year 2009 and Year 2010.The trend applies to Mitrajaya’s growth rate (based on PBT) as well,

whereby the it suffers negative growth rate at -13%, -6% and -72% for three consecutive years,

in Year 2006, 2007 and 2008 respectively. Thereafter, Mitrajaya’s annual growth rate booms to

2033% and 24% in Year 2009 and Year 2010. Gross profit margin for Year 2006 to Year 2008 is

consistent at approximately 16% and sharp increase from Year 2009 (27%) to Year 2010 (34%).

Trend analysis by years:

In Year 2007, despite the increase in revenue of 15% from RM270Million to

RM311Million, Mitrajaya’s Profit Before Tax (PBT) has decreased by 6%. This was caused by

the increase in finance cost, resulted from acquisition of land in Banting for future development

(Mitrajaya Annual Report, 2007). Net profit experiences a positive growth rate in Year 2007 at

9% due to reversal of overprovision of taxation expense in prior years.

In Year 2008, Mitrajaya experienced a huge decrease in its PBT by 72% due to adverse

economic crisis which had deteriorate both local and international profit contribution from

construction division. Net profit in Year 2008 further decline by 76% due to recognition of

taxation which was under-provide in Year 2007.

Mitrajaya’s profit and growth rate starts to pick up and experienced a tremendous

increase in Year 2009. PBT and net income has increased more than 100% as compared to prior

years. GP margin had also increased from 16% to 27%. These positive movements were mainly

contributed by the rigorous construction and property development in Putrajaya Precint 14, Desa

Idaman (Puchong), Lavender Terraces (Puchong) and Kiara 9 (Mont Kiara). Mitrajaya had such

achievement in Year 2009 due to stabilization of construction materials and fuel prices in 2009,

taking into account of competent project management and excellent timing in deliverables.

In Year 2010, Mitrajaya further improves its growth rate by 27% in PBT and 24% in net

profits. GP margin had increase from 27% to 34%. This is contributed from the completion of

12-storey Dental Facility of University Malaya and Kiara 9 construction project (Mitrajaya

Annual Report, 2010). Apart from that, Mitrajaya has obtained ISO 14001:2004 Environmental

Management System and OHSAS 18001:2007 Occupational Health and Safety Management

System. These 2 certification marks a milestone of Mitrajaya achievements and thus, enhancing

its reputation in the construction industry.

Crest Builder Holdings Berhad 573382-P

2010 2009 2008 2007 2006RM'000 RM'000 RM'000 RM'000 RM'000

PBT 20,121 17,565 18,608 52,810 31,460Net profit 13,914 10,990 12,343 40,193 20,034

Growth (based on PBT) 2,556 (1,043) (34,203) 21,350 11,266Growth rate (based on PBT) 15% -6% -65% 68% 56%

Growth (based on net profit) 2,924 (1,354) (27,850) 20,159 8,296Growth rate (based on net profit) 27% -11% -69% 101% 71%

Revenue 460,079 329,564 270,275 365,766 318,266COGS (418,009) (288,685) (229,092) (296,942) (270,140)Gross profit 42,069 40,878 41,183 68,824 48,126Gross margin (%) 9% 12% 15% 19% 15%

Figure 2Overall summary:

From Figure 2 above, Crest Builder Holdings Berhad (“Crest”) experienced an increase

in profits and growth rate from Year 2006 (56%) to Year 2007 (68%), and subsequently suffered

a declining trend in its earnings from Year 2008 (-65%) to Year 2009 (-6%). In Year 2010,

growth rate had improved to 15% and 27% in PBT and net profits respectively. GP margin is

15% in Year 2006 and increased to 19% in Year 2007. There was a downward trend in Crest’s

GP margin from 2008 to 2010 being 15%, 12% and 9% respectively.

Trend analysis by years:

In Year 2007, the increase in profits was mainly contributed by the completion of 3 Two

Square project, located at Section 14, Petaling Jaya (Crest Builders Annual Report, 2007). In

addition, Crest had also recognized a fair value gain in its investment properties of RM38.5

million pursuant to FRS 140 Investment Properties.

In Year 2008, Crest experienced a huge decline in its profits and GP margin due to global

economic crisis which result a stale in the construction industry. Similar to Mitrajaya, Crest had

negative growth rate of 65% (PBT) and 69% (net profit). During recession, buyers are more

selective in purchasing properties, evident by a decline in revenue.

Year 2009, Crest’s earnings and growth rate further declines with negative 6% in PBT

and -11% in net profits despite the improvement shown in revenue. This was attributed by

impairment losses of unquoted bonds of RM4.5million during the year.

In Year 2010, Crest’s growth rate had improved to 15% in PBT and 27% in net profits.

This is mainly contributed by the launch of Alam Idaman project which achieved a take up rate

of approximately 90% (Crest Builder Annual Report, 2010). However, GP margin has dropped

to 9% due to start up cost of new construction of Avenue Crest, consisting boutique office suites

and retail podiums, in which sales has yet to be launched rigorously.

Comparing both companies:

Comparing both companies, Mitrajaya is better off in its performance despite the global

economic crisis in Year 2008 and recovers in a fast pace. Crest on the other hand, shows a lower

recovery rate, suggesting a weakness in risk management.

Analysis on resources employed, intangible assets:

Mitrajaya Crest2010 % 2010 %

RM’000 RM’000Non-Current Assets 186,860 37% 215,613 37%Current Assets 321,521 63% 367,415 63%Total Assets 508,381 100% 583,028 100%

Figure 3

Both companies have similar approach in terms of their resources employed. Mitrajaya

and Crest invested 37% of their total assets in non-current assets and 63% in current assets. For

non-current asset is majorly dominated by property, plant and equipment, land held for property

development, investment properties and goodwill on consolidation. As for current assets items,

they are dominated by amount due from customers (contract billings), property development

costs, inventories, trade and other receivables and bank balances. These are the items are

generally required and practiced by construction companies, in compliance with the Malaysian

Financial Reporting Standards. Hence, there are minimal differences in type of assets that both

companies report.

There were no intangible assets reported in both Mitrajaya and Crest other than goodwill

on consolidation. Intangible assets such as patent, trademark etc are not commonly practiced in

construction industry. Company’s reputation may be a form of brand recognition in the

construction industry; however it is not reported in the annual report as it does not meet the

definition criteria of an intangible asset under MFRS138 Intangible Assets. The standard states

that an intangible asset is recognized when it is separable (capable of being separated and sold,

transferred, licensed, etc) and can be cost of the asset can be reliably measured.

Analysis on depreciation and inventories:

Freehold land which has unlimited useful life are not depreciated. Depreciation of

property, plant and equipment for both companies is provided on a straight-line basis to write off

the cost of each asset to its residual value over the estimated useful life. Depreciation rate used

for both companies are similar in which they are tabulated in the table below:

Assets: Depreciation rate:Buildings 2%Fixtures, fittings and office equipment 10% - 33.33%Renovations 10% - 20%Plant and machinery 10% - 33.33%Motor vehicles 20% - 25%

As for inventories, Mitrajaya and Crest states their inventories at the lower of cost and net

realisable value based first in first out method. Net realisable value is the estimated selling price

in ordinary course of business less the estimated costs to completion and estimated cost incurred

for the sale. Inventories turnover ratios for the past 3 years are:

Mitrajaya Crest

2010 2009 2008 2010 2009 2008RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost of sales 219,426 236,659 164,204 418,009 288,685 229,092Inventory 30,248 35,396 55,871 2,015 2,015 5,434Turnover ratio 7.25 6.69 2.94 207.45 143.27 42.16

Figure 4

For Mitrajaya’s inventory turnover ratio shows an increasing trend from 2.94 in Year

2008 to 6.69 and 7.25 in Year 2009 and 2010 respectively. Low inventory turnover in Year 2008

is mainly due to the global economic crisis which stale the construction industry. Sales are low

and inventory balances is high. In Year 2009 and 2010, inventory turnover pick up to a healthy

stage between a ration of 6 to 8. However, for Crest the inventory ratio is high at 42.16 in Year

2008 and increase tremendously in Year 2009 from 143.27 to 207.45 indicates shortage of

inventories (completed units of houses/apartments). This is due to high volume of sales for

projects which construction is still on-going (i.e uncompleted units of houses/apartments).

Analysis on liabilities:

Mitrajaya Crest2010 % 2010 %

RM’000 RM’000

Non-Current Liabilities 46,896 25% 117,255 34%Current Liabilities 142,166 75% 224,498 66%Total Liabilities 189,062 100% 341,753 100%

Figure 5

Mitrajaya has 75% of their total liabilities in non-current liabilities (mainly on bank

borrowings) and 25% in current liabilities which consist of trade and other payables, short term

borrowings and amount due to customers for contract works. For Crest, current liabilities are

66% and non-current liabilities high at 34%. Crest consists of higher percentage of non-current

liabilities mainly due to loans and hire purchase payables to finance their working capital.

Current liabilities of Crest is similar to Mitrajaya, consisting trade and other payables, short term

borrowings, bank overdrafts and amount due to customers for contract works. From the above,

we know that Mitrajaya is better at managing their liabilities as compared to Crest.

Major components of stockholders’ equity:

Mitrajaya Crest2010 2009 2010 2009

RM'000 RM'000 RM'000 RM'000Share capital 127,989 127,989 124,089 124,089Treasury shares (4,147) (2,804) (181) -Reserves 172,425 135,747 116,915 106,692Shareholders' fund 296,268 260,933 240,823 230,781Minority interests 23,052 18,350 452 -Total Equity 319,320 279,283 241,275 230,781

Figure 6

There were no changes in Mitrajaya share capital from Year 2009 to Year 2010 except

for treasury shares had increased by RM1.3million. This is mainly due to reacquired shares by

Mitrajaya from the public. Movement in reserves balances are mainly caused by profit and loss

fluctuation during the year. For Crest, they acquired a new subsidiary, 51% shareholding

Unitapah Sdn Bhd during Year 2010. With the said acquisition, Crest has new minority interest

of 49% disclosure in Year 2010 annual report. Other than the abovementioned, there were

minimal changes in the stockholders’ equity of both companies in Year 2010.

Nature of information contained in 10K and Proxy Statements:

10-K report is mandatorily required by US Securities and Exchange Commission

(Adams, 2002). It is similar to annual reports that companies submit to our local statutory. The

10-K report contains the growth of a company’s business and revenue, risk factors, unresolved

staff comments, properties, litigations, directors’ information, stock market information,

consolidated financial results, management discussion and analysis, internal control reports,

corporate governance report, executive compensation and independent auditor’s report on

companies’ financial statements.

For example, the 10-K for a construction company will report the growth of the

construction business, highlighting the fluctuation of material prices, sales and global economy

climate which may cause fluctuation on their results. It also highlights the management plans for

business expansion such as investing in new facilities, infrastructures, increase in hiring or

acquisition of a new subsidiary. This will also include management’s expectation in their

revenue growth and how it will impact their profit margins. In addition, the report will include

company’s risk factors such as credit risk, foreign currency risk, interest rate risk and liquidity

risk. If companies are involved in legal proceedings, company will have to include information

about the pending lawsuit and other litigation events. Furthermore, companies are required to

disclose their equity securities, including market information, number of shareholders, dividends,

treasury shares etc. In the report, chairman of the company will also highlight the company’s 5

year performances, inclusive of the management’s decision and analysis of financial data.

Proxy statement is a form required by companies when soliciting shareholders votes

(Adams, 2002). It is a form containing company’s information (usually significant events) that is

sent out to shareholders before the annual meeting. The aim is to provide information to

shareholders for them to make informed decision (by voting rights) during the annual general

meeting. It can covers appointment of directors, directors’ salaries, acquisition of assets,

appointment of auditors etc.

The Financial Reporting ProjectProgress Report 3

Ratio analysis:

Profitability:

Based on the profitability assessment between Mitrajaya and Crest, Mitrajaya is better off

in its performance in Year 2010. Mitrajaya’s gross profit margin, pretax profit margin and net

profit margin is higher than Crest. As explained in Report 2 above, Mitrajaya has strong

management team and demonstrated good resource allocation in terms of their assets and

liabilities.

While comparing Mitrajaya’s cash flow from operating activities its net income for Year

2010, we notice the difference is mainly due to adjustments on non-cash expenses such as

depreciation, provision for doubtful debts, gain on disposals fixed asset write off, interest income

and interest expense (to be separately assessed under cash generated/used from investing and

financing activities). Besides, cash flow from operating activities does take into account of

movement in working capitals such as increase/decrease in inventories, debtors and creditors.

Liquidity and capital structure:

From the liquidity ratio analysis, Mitrajaya will be able to meet its obligation when they

become due. Mitrajaya’s current ratio and quick ratio are 2.26 and 2.05 respectively. This ratio is

above 1 and it represents that Mitrajaya is in good liquidity position to recover its obligation.

Whereas for Crest, its liquidity position is rather weak 1.64 (current ratio) and 1.63 (quick ratio).

On capital structure analysis, Mitrajaya’s total assets are 2.69 times (269%) higher than

its total liabilities and 1.72 times (172%) higher than its shareholder equity. Examples of two

stakeholders who are concern about the company’s capital structure are Bankers and investors

(shareholders). Capital structure is divided into two categories, namely equity capital and debt

capital.

Equity capital refers to monies that shareholders invest in exchange of shares and

ownerships. Shareholders expect the Return of Equity (ROE) to be high to sustain their

investment. For example, Mitrajaya’s ROE is high at 18.58% shows good attraction to invest

new investors into their company. Debt capital on the other hand refers to monies borrowed

(usually from bankers/lenders) to finance business operation. Bankers are usually interested to

know if a company is heavily financed through its borrowings; as it may pose high risk to further

extend loans as the company’s debt to equity ratio could be high. Debt to equity ratio measures

how a company’s ability to borrow monies for long period of time. As for Mitrajaya, debt to

equity ratio is low at 0.64.

Comparing Mitrajaya and Crest capital structure, Crest’s performance is weaker as its

ROE (5.78%) and Debt to Equity ratio (1.42) is lower than Mitrajaya. This signifies weakness in

Crest management in managing its business and Crest may face higher difficulty in paying its

borrowing interest and principal.

Corporate governance and executive compensation:

In the most recent Mitrajaya’s shareholder meeting (held on 7 June 2011), items

discussed were to receive and approve on the audited financial statements for the year ended 31

December 2010 and the reports of the directors and auditors. Besides that, the agenda is also to

obtain shareholders’ approval to declare a first and single tier cash dividend of 12% and a share

dividend on the basis of one (1) treasury share for every twenty (20) existing ordinary shares of

RM1.00 each held in the Company. In addition, shareholders are to approve on the payment of

Directors’ Fees of RM80,000 for the financial year ended 31 December 2010 and to re-elect

retiring directors pursuant to Article 84 of the Articles of Association of the Company.

Shareholders are to approve on the re-appointment auditors and to authorize the Board of

Directors to fix their remuneration.

There was a special business resolution seeking shareholders approval which is to grant

Directors the power to issue shares in the Mitrajaya from time to time, provided that the

aggregate number of shares issued does not exceed 10% of the issued share capital of the

company. This resolution also empowers the Directors to obtain approval for the listing and

quotation of additional shares issued on the Bursa Malaysia Securities Berhad. This authority is

in forced until the next Annual General Meeting is conducted. The last special business

resolution highlighted in shareholders meeting was to approve on the proposed renewal of

authority for the Company to purchase its own shares of up to 10% of the issued and paid-up

share capital.

For Crest, their shareholders’ meeting was held on 22 June 2011. Shareholders’ approvals

are required for the tabulation of reports of directors, auditors and the financial statements for the

year ended 31 December 2010. Furthermore, shareholders are to approve for Crest to declare a

final dividend of 4% less 25% tax for financial year ended 31 December 2010, re-election of

retiring directors and to re-appoint and fix remuneration of auditors for financial year 2011.

Apart from that, Crest’s annual general meeting also includes special business resolution such as

to approve for Directors’ remuneration for year ended 31 December 2010 of RM250,000, to

empower Directors to issue shares in compliance with the Listing Requirements of Bursa

Securities, shareholders to approve the recurrent related party transactions of a revenue or trading

nature which are necessary for daily operation up to the next AGM and finally to approve the

mandate for share buy-back.

Mitrajaya has a relatively small board of directors, consisting 6 personnel. They are 1

independent non-executive chairman, 1 managing director, 1 executive director and 3

independent non-executive directors (INED). Crest has 9 personnel in its board of directors,

consisting 1 non-executive chairman, 1 managing director, 4 executive directors and 3

independent non-executive directors. Malaysian Code of Corporate Governance (MCCG) states

that to be effective, independent non-executive directors (INED) should make up at least one-

third of the board membership. In this case, both Mitrajaya and Crest has fulfilled its compliance

to MCCG, containing at least 60% and 40% respectively of their board members INED.

Mitrajaya board of directors consists of audit committee, nomination and remuneration

committee. Mitrajaya’s audit committee consists of 4 INEDs whereas the nomination and

remuneration committee consist of 3 INEDs. Crest’s board committees are slightly different

from Mitrajaya as they consist of audit committee, remuneration committee, nomination

committee and option committee. Each board committee consists of majority of INEDs members

for independent decision making.

Audit committee plays an important role in oversight of financial reporting and its

disclosure (Solomon, 2004). The rights and responsibilities of audit committee are to advise the

board on strategic processes and systems of risk, control and governance, authorized by the

board to investigate any activity within its Term of Reference and to seek any information it

requires from external auditors, whereby all employees are to co-operate with audit committee.

Audit committee will have the resources which are required to perform its duties, and have full

and unrestricted access to any information pertaining to the company. Besides that, audit

committee will direct communication with external auditors and internal audit team of the

company, obtaining professional advice they required necessary.

An audit committee’s duties are to consider the appointment of external auditors and

audit fees, including the activity of audit plans and evaluation of internal control systems

(Solomon, 2004). In addition, audit committee is to review the financial statements of the

company and to review the internal audit program, process and results of the internal audit. This

will involve investigation and action plan taken to improve business operations. Audit committee

will also recommend the nomination of external auditors.

Obligation of audit committee members are to practice fiduciary duties to the company

and its shareholders, consisting duty of care, duty of loyalty and make informed judgments.

Thus, audit committee must be able to obtain sufficient reliable information before making

decision. Audit committee is also subject to actions by securities exchange if conducts are

fraudulent such as materially manipulating and mislead financial statements.

The annual report of Mitrajaya did not specifically state the compensation earned by the

CEO. However, the Corporate Governance Statement discloses the total compensation earned by

2 executive directors of Mitrajaya in Year 2010 is RM1.8million. There was a slight increase in

the compensation earned as compared to Year 2009 of RM1.6million. This is in-line with the

improvement in Mitrajaya’s growth from Year 2009 to Year 2010. Similar to Mitrajaya, Crest’s

annual report for Year 2010 does not specify the remuneration package of CEO. However, total

compensation of 5 executive directors is RM1.6million (Year 2009: RM1.4million).

Recommendation:

i) Providing loans:

Based on the financial analysis, chairman’s statement and corporate governance

statement, I will be prefer to provide both short term and long term loan to Mitrajaya. The

company is highly profitable with high percentage of ROE (18.58%) and ROA (10.83%). To

provide loan to Mitrajaya to funds it working capital/ capital expenditure will be low risk as

Mitrajaya’s liquidity ratio is strong at 2.26 (current ratio) and 2.05 (quick ratio). However, this

has to be monitored on a rigorous basis to ensure Mitrajaya is able to maintain its financial

performance and be able to repay the loan when it comes due. Besides financial performance, we

should also take into consideration other factors that may influence Mitrajaya’s business such as

corporate social responsibility issues. For example, construction industry may face risk of protest

from environmental activist due to new developments that destroys forest or natural habitats.

This will jeopardize the company’s reputation and may affect the business in long term. As a

loan provider, we would be concern on these issues as it may affect our loan recoverability in

case Mitrajaya face litigation issues.

Providing loans to Crest will be a risky transaction as Crest’s liquidity position is just

marginally above 1 (general benchmark). Besides, Crest’s profitability performance is weak as

compared to Mitrajaya. As a short term loan is advisable provided Crest is able to maintain or to

further improve on its liquidity position.

ii) Decision to buy, sell or hold shares:

As an investor, Mitrajaya is a company with good prospect to invest as their development

projects are located at prime area, Puchong. Besides, the 5 year performance discussed in Report

2 shows a growth in Mitrajaya’s business, indicating strong management team. Based on Year

2010 financial analysis, Mitrajaya’s profit ratio is high and its debt to equity ratio is low

indicating the company is financially stable. Mitrajaya’s share is worth holding for long term

capital appreciation. However, as an informed investor, we should be kept abreast of the

company’s progress and developments. This will enable us to make good investment decisions.

If we are planning to invest in Crest, it would be wise to evaluate on their financial

prospects further to ensure the company is financially sound and have good development

prospects. Based on Crest’s Year 2010 financial analysis, we should not hold too much shares as

it would be high risk as the company’s profitability is weak. Short term investment may be

suitable for Crest shares, until the company is likely to improve on its profitability and liquidity

position, we may switch into hold Crest stock as long term investment.

Appendix 1

Ratio Analysis Year 2010 Mitrajaya Crest Builders

Return on Equity (%) 18.58% 5.78%

Return on Assets (%) 10.83% 2.39%

Earnings per Share 41.43 11.25

Profit margin before tax (%) 23.11% 4.37%

Profit margin after tax (%) 16.59% 3.02%

Current Ratio 2.26 1.64

Quick Ratio 2.05 1.63

Receivable Turnover 4.99 3.78

Inventory Turnover 7.25 207.45

Times interest earned 41.26 2.94

Debt to Equity ratio 0.64 1.42

PE ratio 0.03 0.07

References:

1) Mitrajaya Holdings Berhad, Annual Report 2006 – 2010

2) Mitrajaya gets job RM13.99 million contract to construct a building in Putrajaya, News

Strait Time, Dec 17, 2010

3) Mitrajaya unit wins RM53.5m contract, News Strait Time, Dec 30, 2010

4) Kontrak RM11.36j bangunkan Pelancongan Warisan Pekan di Pekan, Pahang, Berita

Harian, Oct 6, 2010

5) Appetite for luxe kitchen appliances, News Strait Time, Nov 19, 2010

6) Crest to build new UiTM campus Uitm Tapah perak RM284.88 million, News Strait

Time, May 5, 2010

7) Crest Builder secures RM65m projects, News Strait Time, Mar 24, 2005

8) Crest Builder gets RM145m contract to build office tower in KL, The Edge, 10

November 2009

9) Crest Builder unit wins RM145m job, The Star, November 11, 2009

10) Crest Builder wins RM175.5mil job, The Star December 29 , 2009

11) Crest Builders Holding Berhad, Annual Report 2006 – 2010

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