Executive Summary

The report will show financial analysis of Pensonic Holdings Berhad which is an electronic and
electrical manufacturing company. The evaluation are based on financial ratios specifically
liquidity ratios, profitability ratios, gearing ratios, shareholders ratios and trend analysis. The
data are used and collected from the Pensonic annual reports Year 2012 till 2015. The company
showed an increasing and positive trend throughout the years. Pensonic showed increasing
efficiency and productivity in utilizing assets and decreasing costs. The analysis will give a
clearer view on the position of the company and help in the decision of investing in the company.
However, there are limitations from the financial analysis that may distort the conclusion and
analysis made. Khind Holdings Berhad which is in the same sector is chosen as comparable.

Company Background
Known previously as Keat Radio and Electrical Co. back in 1965, Pensonic Group was
founded in Balik Pulau, Penang. Pensonic Holdings Berhad is involved in manufacturing,
assembling and distribution of electronic products and electrical home appliances. At this day,
Pensonic Group has a large domestic distribution of 10 branches and more than 900 dealers
countrywide. The products are also exported to 30 different countries. From the last annual
report of year ending 31 May 2013, Pensonic has recorded an increase of revenue by 6.3% which
was mainly contributed by sales overseas particularly from Vietnam, Philippines and the MiddleEast countries (Pensonic, 2014). Also, the latest annual report of financial year ending 31 May
2015, the group recorded revenue of RM386 million, which was an increase of RM12 million
from the previous financial year, a total of 3.2% increase (Pensonic, 2015). Accordingly, the
revenue recorded was the best in more than five years, mainly factored by property disposal
(Mahpar, 2015). Also, increase of the export market by 29.6% boosted the groups revenue from
the improved overseas demand (Saieed, 2015). With the introduction of Pensonic latest product
which is a smart power bank device under the fonebud brand, Pensonic plans to adopt a new
business model. The company strategizes to offer ownership of the fonebud brand to distributors.
This makes Pensonic the product developer and supply chain manager through this business
model (Tan, 2015).

Industry Specific and General Market Factors

The electrical and electronics (E&E) industry is one leading sector in Malaysias manufacturing
sector and contributes 24.5% to the Gross Domestic Product (GDP) of Malaysia. Back in 2014,
the exports of E&E products from Malaysia was valued at RM231.23 billion which compromises
49.2% of manufactured goods export of the total exports from Malaysia (Fairoze, 2016) and also
contributes to the countrys employment by 23.7% (Mida, 2015).
The company placed in such diverse country is faced by economic challenges which can be
analyzed using PESTLE. For one, the economic factors such as the implementation of GST
(Goods and Services Tax) in Malaysia have affected the market of Pensonic domestically.
Consumers have reacted by being more cautious on spending (Tan, 2015) therefore resulting in a
sluggish market from the local businesses (Pensonic, 2015). Revenue increased from increased
overseas exporting is encouraged by the weakening of the ringgit currency (Nicolas, 2015).
However, the depreciating Malaysian ringgit resulted in higher inflation in 2014 due to reduced
subsidies such as increased electricity tariffs which will challenge Pensonic and have projected
slower growth (Pensonic, 2015).
Also, in our fast improving technology world, companies especially in the E&E industry are
struggling to keep up. Often companies allocate funds that are needed for R&D to improve and
keeping up with technological change (Best, 2003).

Financial Analysis
Year by year, Pensonic shows an upward and stable trend of sales and gross profit. In
2012, the company experienced a negative net profit due to a few one-off expenses such as
inventories written-off and receivables impairment. Also, there was an increase in the groups
administrative and general expenses from investing in human capital, research and development.
The company from then on recorded a positive and steady increase of profits. The group invested
into expansion specifically on constructions new buildings, R&D and purchase of new
machineries to increase production capacity in 2013. There was a substantial gain this year from
a disposal of non-current asset. Then in the next year, there was a slight decline because the
group has written off its bad debts, impaired receivables and also the implementation of a new
Stock Aging Policy that better manages the slow moving or aged stocks. There was an
extraordinary increase of net profit recorded in the FY2015 thus, increasing dramatically the
ROCE. This was mainly due to a substantial increase in other income by a gain from disposal of
assets particularly a property of about RM 8.4 million. Also, there was an improvement in
operation efficiency decreased expenses and focused productivity which includes better
management of inventory and credit control. In 2015 as well, there was a cut in non-performing
divisions to maintain a sustainable growth business model in the economic condition ahead.
The liquidity of the firm remains positive throughout the four years with current ratio
above 1 although with slight fluctuations. In year 2014, there was a higher amount of current
liabilities due to increase of term loans and non trading payables. The substantial increase in
other payables was due to a building contractor for constructions work performed. The year also
had the less working capital with significantly lower net cash from operating activities as
compared to the other years. However, conditions improved in 2015 where liquidity improved
with increased amount of cash and decreased inventories. There was also a reduced payables
although outgoing payment for construction of a new building. The inventories recorded in 2015
were significantly lower as there was higher efficiency of inventory turnover.
The company shows a reasonable and decreasing level of debt to asset ratio and debt to
equity ratio each year. However, the company recorded a higher long-term debt in 2015 due to
increase in term loans and finance lease liabilities.

The price-earnings ratio of the company shows an increase each year except for a decline
in 2015. This was caused by the extraordinary rise of profit recorded in the financial year which
increases the earnings per share for that financial year. The lower dividend payout ratio of 26%
in 2015 to the investors as compared to the previous year of 63% recommends that the company
is increasing the operating performance. Shareholders are paid with higher dividend the last two
years increasing from 1.75 cents per share to 2.00 per share. As the trend indicates, investors can
expect an increase of dividend in 2016.
Limitation of the Analysis
To compare how the company is performing in the industry, a similar company named Khind
Holdings Berhad is chosen as a comparator. Started in 1961, Khind is also a manufacturer of
electrical goods and publicly listed in Malaysia. Khind shows increasing revenue and gross profit
throughout the years however decreasing ROCE and net profits. The company also has good
liquidity with low and decreasing gearing year on year. Investors can also expect higher return
with increasing P/E ratios.
Although comparing performance using financial ratios between companies of the same industry,
there are some limitations that are to be taken into account.
Accounting standards which allow different accounting policies will affect financial accounting
information thus impairs comparability (Obaidullah, 2013). For example, companies may be
using different inventory costing methods (FIFO vs LIFO). Ratios such as the ROCE also will be
affected with different accounting standards such as the way a company calculates depreciation
of non-current assets (OHare, 2013). Also, some companies that leases equipments does not
appear as assets but rather as assets which distorts calculations. The economic condition of where
the business take place such as inflation can induce major distortion in the analysis as well
(Mihaela, 2014). According to Fridson and Alvarez (2002) noted that although two companies of
the same industry may record a similar income to cover a similar leverage may not necessary
represent a similar risk of defaulting on their debt in the future. The calculations could not
compare every companys value and risk.

Conclusion
Pensonic Holdings Berhad shows improving trend over the years and predicted to continue
showing improvement in the next few years. The company has set plans to increase productivity
and efficiency for the many years ahead as well as having new IT equipment and upgrading the
existing IT infrastructure to boost operational effectiveness. Income resulted from the newly
purchased property, plant and equipment can also be expected in the coming financial year.
Shareholders can also be expecting higher return following the positive increase of profit in
2015 as opposed to the competitors, Khind Holdings Berhad. However, there are limitations to
the analysis that could impair judgments on the company. For instance, there are economic
challenges to be faced in spite of improving ratios such as inflation and the weakening of the
MYR currency. Also, the implementation of GST in April 2015 poses economic uncertainties.
However, the company will remain steadfast in maximizing profitability both in local and
overseas market.

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