Comparative Financial Analysis of Hartalega and Supermax Corporations

This report provides a comparative financial analysis of Hartalega Holdings Bhd and Supermax Corporation Bhd. It begins with an introduction discussing the stock performance of both companies and the factors influencing investor confidence. The report then delves into a detailed comparison of their financial performance, examining key ratios such as current ratio, equity ratio, gross profit margin, and efficiency ratio, using data from their annual reports. The analysis includes calculations and comparisons of these ratios over several years. Furthermore, the report discusses the dividend policies of both companies, highlighting their approaches to dividend payments. It also explores the corporate governance practices of Supermax and Hartalega. The report concludes with an analysis of put options, benefits and drawbacks, and calculations for profit scenarios based on stock price changes. The document is available on Desklib, which provides resources for students.

1

Table of Contents
PART A......................................................................................................................................4
1.1. Introduction.................................................................................................................4
1.2. Financial performance comparison of Hartalega Holdings Bhd and Supermax
corporation Bhd......................................................................................................................4
1.2.1. Hartalega Holdings Bhd.......................................................................................4
1.2.1.1. Current ratio..................................................................................................4
1.2.1.2. Equity ratio...................................................................................................5
1.2.1.3. Gross profit margin.......................................................................................5
1.2.1.4. Efficiency ratio.............................................................................................6
1.2.2. Supermax corporation Bhd..................................................................................6
1.2.2.1. Current ratio..................................................................................................6
1.2.2.2. Equity ratio...................................................................................................7
1.2.2.3. Gross profit margin.......................................................................................7
1.2.2.4. Efficiency ratio.............................................................................................7
1.3. Dividend policy...........................................................................................................8
1.3.1. Hartalega..............................................................................................................8
1.3.2. Supermax..............................................................................................................9
1.4. Corporate governance..................................................................................................9
1.4.1. Supermax..............................................................................................................9
1.4.2. Hartalega............................................................................................................10
Part B........................................................................................................................................10
i) Benefits and major drawback....................................................................................10
ii) What will be Ibrahim’s minimum profit if he buys two puts at the indicated price?
10
iii) What if the stock drops to AED 11 per share?......................................................11
b) Differing forms of market efficiency...........................................................................12
2

i) Weak form.................................................................................................................13
ii) Semi-strong form...................................................................................................13
iii) Strong form............................................................................................................13
References................................................................................................................................14
3

PART A
1.1. Introduction
According to Lee (2021) stated that the shares of top globe dropped by 17.7% this year while
two of its competitors Hartalega and supermax dropped between 18% and 30%. She added in
comparison with the FTSE Bursa Malaysia KLCI Index it fell by 0.9% during the same time,
the company however stated due to covid-19 its stocks had a significant jump last year due to
the increased demand for medical gloves. One of the factors withholding investor’s
confidence in stocks is the expected fall in the sale price of gloves due to lower demand as a
lot of individuals are being vaccinated. Lee (2021) also mentioned that the jump in the
average selling price of gloves isn’t sustainable as she added the forecast of a 30% to 35%
fall in prices in the year 2022 however the prices will likely remain above the pre-pandemic
levels for the next 2 to 3 years which is due to the demand for gloves expected to remain
elevated in the next coming years.
1.2. Financial performance comparison of Hartalega Holdings Bhd and
Supermax corporation Bhd
According to Hartalega annual report (2020) the revenues in the fiscal year 2020 was RM
2924.3 million from RM 2827.2 million in the fiscal year 2019 in comparison with Supermax
annual report (2020) was RM 2131.8 million in the fiscal year 2020 compared to RM 1538.2
million in the fiscal year 2019.
1.2.1. Hartalega Holdings Bhd
1.2.1.1. Current ratio
This ratio measures the firm’s ability to pay off its current liabilities within one year with its
total current assets (Purnomo, 2018).
Formula: Current ratio: current assets/ current liabilities
Workings:
2020: 1,088,521,433/ 407,039,182 = 2.67
2019: 897,441,784/ 411,888,771 = 2.18
2018: 866,359,157/ 413,552,543 = 2.09
2017: 691,713,291/ 363,016,270 = 1.91
4

2016: 539,060,270/ 190,654,102 = 2.83
Details 2020 2019 2018 2017 2016
Current ratio 2.67 2.18 2.09 1.91 2.83
1.2.1.2. Equity ratio
This type of ratio indicates how much a firm is funded through its equity opposed to its debt
(Purnomo, 2018).
Formula: Shareholder equity ratio: total shareholder equity/ total assets
Workings
2020: 2,543,123,220/ 3,313,923,868 = 0.77
2019: 2,259,230,061/ 2,992,095,353 = 0.76
2018: 1,997,391,254/ 2,631,979,152 = 0.76
2017: 1, 684,786,085/ 2,286,773, 755 = 0.74
2016: 1,504,025,332/ 1,961,099,547 = 0.76
1.2.1.3. Gross profit margin
This ratio shows how much a firm is earning whereby a high gross profit margin shows a
higher efficiency while a low profit margin shows a high cost of goods sold (Nariswari &
Nugraha, 2020).
Formula: Gross profit margin: (Net sales – COGS) / Net sales
Workings:
2020: 741,535,676/ 2,924,313,603 = 25. 36%
2019: 708,202,758/ 2,827,218,410 = 25.05%
2018: 614,761,864/ 2,405,638,106 = 25.56%
2017: 490,572,000/ 1,821,873,353 = 26.93%
2016: 401,692,061/ 1,498,336,638 = 26.81%
5

1.2.1.4. Efficiency ratio
This ratio shows how a firm has the ability to utilize its assets to generate income. utilized to
measure short-term financial performance (Jorge & Martins, 2017).
Formula: Efficiency ratio = Expenses/ Revenue
Workings:
2020: 187,348,882/ 2,924,313,603 = 6.41%
2019: 160,407,892/ 2,827,218,410 = 5.57%
2018: 143,372,481/ 2,405,638,106 = 5.96%
2017: 154,424,814/ 1,821,873,353 = 8.48%
2016: 117,355,160/ 1,498,336,638 = 7.33%
1.2.2. Supermax corporation Bhd
1.2.2.1. Current ratio
Formula: Current ratio: current assets/ current liabilities
Workings:
2020: 1,913,724,167/ 1,506,985,413 = 1.27
2019: 635,711,822/ 601,868,456 = 1.06
2018: 572,089,212/ 566,215,089 = 1.01
2017: 638,574,345/ 570,596,704 = 1.12
2016: 583,544,931/ 459,206,877 = 1.27
6

1.2.2.2. Equity ratio
Formula: Shareholder equity ratio: total shareholder equity/ total assets
Workings
2020: 1,550,541,363/ 3,204,390,447 = 0.48
2019: 1,134,225,967/ 1,842,707,680 = 0.62
2018: 1,012,689,561/ 1,699,666,510 = 0.60
2017: 1,067,205,572/ 1,789,949,187 = 0.60
2016: 1,017,541,374/ 1,644,565,731 = 0.62
1.2.2.3. Gross profit margin
Formula: Gross profit margin: (Net sales – COGS) / Net sales
Workings:
2020: 47,653,863/ 2,131,807,991 = 2.24%
2019: 52,991,974/ 1,538,156,739 = 3.45%
2018: 34,601,831/ 1,304,459,662 = 0.00%
2017: 41,735,599/ 1,126,879,394 = 3.70%
2016: 24,366,095/ 1,549,528,912 = 1.57%
1.2.2.4. Efficiency ratio
Formula: Efficiency ratio = Expenses/ Revenue
Workings:
2020: 478,265,376/ 2,131,807,991 = 22.43%
2019: 379,721,834/ 1,538,156,739 = 24.69%
2018: 271,514,920/ 1,304,459,662 = 20.81%
2017: 298,169,065/ 1,126,879,394 = 26.46%
2016: 417,211,522/ 1,549,528,912 = 26.93%
7

1.3. Dividend policy
The strategy used by a corporation for structuring its dividend payments to shareholders is a
dividend policy. Some researchers believe that the policy on dividends is meaningless, as
investors may sell some of their shares or portfolios when funds are needed. It is the principle
of dividend irrelevance that leverages influence a stock's price to a small extent. Often,
they're part of the plan of an organization. But they are not obliged to refund dividend
payments to shareholders. The three forms of dividend policy are stable, consistent and
residual. Though investors know that businesses are not obliged to pay dividends, many
regards it as a bellwether of the financial health of that particular business (Michaely & Qian,
2017).
1.3.1. Hartalega
In order to increase value for their shareholders, Hartalega is committed to offering consistent
dividends. This is shown by its dividend strategy, which we continue to support, of
distributing at least 60 percent of our net profit. They have paid a dividend of a total of 5,65
sun per share as of today, and at the next 14th annual general meeting the Board will submit a
final dividend of 2,1 sun per share individual level for shareholders' approval. The cumulative
dividend per share for the year will therefore be 7.75 sen. This will equal RM 262.2 million,
which represents 60.5 percent of the payment ratio.
1. Third one-tier exempt Dividend of RM63,577,286 of 1.9 Sen, declared on 7 May 2019
and paid on 27 June 2019, for each financial year ended 31 March 2019
2. final single tier exempt dividend of 1.9 sen per share amounting to RM63,840,077 in
respect of financial year ended 31 March 2019, approved by shareholders at the last
Annual General Meeting on 10 September 2019 and paid on 10 October 2019
3. First interim single tier exempts 1,8 sen per share for the current financial year, declared
on 5 November 2019 and charged on 27 December 2019, for RM60,698,875 per share.
4. Second one-line exempt dividend, announced on 11 February 2020 and paid on 27 March
2020, of 1.8 sen per share amounting to RM60,870,869 for the year under review
5. Third single-tier exonerative dividend, declared on 18 May 2020 and paid on 26 June
2020 for each share amounting to RM69,454,126 for the current fiscal year.
The present financial year's financial statements do not show the interim third dividend paid
and the final dividend proposed. Such dividends are recorded in equities in the course of a
financial year ending 31 March 2021 as an appropriation for retained profits.
8

1.3.2. Supermax
The Group strongly supports the value of shareholders. Over the current financial year, it
allocated its shareholders with a final dividend of 20.1 million shares, with a ratio of one
treasury share, for every 65 common equity shares owned on the financial year ended 30 June
2019. It proposed again a distribution of the share dividend from the treasury shares owned
by the Company in the financial year ended 30 June 2020. For every 45 common shares kept
subject to shareholder consent at the next 23rd Annual General Meeting the Board of
Directors proposed this year to have a ratio of 1 treasury share.
They are also aware of the importance of increasing shareholder equity with a strengthened
balance sheet and increased operating capacity. At the next Annual General Assembly for the
financial year ended 30 June 2020, the Board of Directors proposed an equity dividend
payout for shareholders' consent and is further seeking rewarding shareholders for ongoing
support with a special starting dividend for the next financial year ended 30 June 2021.
1.4. Corporate governance
Corporate governance is a code of rules, procedures and practices that determine how the
board of directors of a corporation handles and monitors a company's operations. Corporate
governance covers transparency, accountability and security values. At the very least, poor
corporate governance leads to an unfulfilled business and, at worst, can lead to a company's
dissolution and substantial financial losses for its shareholders. Maybe the recognition of
shareholders is one of the most relevant corporate governance concepts (Lisboa et al., 2020).
1.4.1. Supermax
Supermax also recognizes the importance in the highest standards of corporate governance
across the Group as an essential part of its work in defending and enhancing the value of
stakeholders, and has taken all appropriate measures to guarantee that best practices are
applied and embraced wherever possible. In that context, steps and efforts have been made to
ensure that principles and best practices as provided for in the Malaysian Corporate
Governance Code ('the Code') and Bursa Securities Berhad's ('Boursa Securities') Main
Market Listing Requirement ('MMLR') are adopted and applied in a feasible manner.
9

1.4.2. Hartalega
The Board is well aware of the importance of defining clearly defined roles and obligations
for the execution of its duties of trust and governance, including those for the approval of the
Board. By defining the functions, tasks and duties, the Board's corporate governance
standards and practices to be followed and key issues reserved for the Board's approval, the
Board has defined its board of directors’ charter & schedule of matters. Sustainable
development requires good governance at all levels. The Board is committed to the highest
standards of the Group's corporate governance and ethical standards. A whistleblowing
policy and procedure has been developed to provide a forum for the reporting of alleged
misconducted activities that may adversely affect the Group by managers, employees,
shareholders, suppliers or any party with a business relationship with the company. The
Company handles all complaints confidentially and protects anyone who reports those issues
in good faith at the same time.
Part B
i) Benefits and major drawback
Ibrahim has 200*(AED18-AED12) =AED 1200 unrealized capital benefit A person who
wants to preserve his earnings can either sell the stock and profit while losing the stock's
upward potential or he can purchase the stock to lock up his profit. The biggest drawback
with the second choice is that the put costs are 2*AED1.5*100=AED300 plus a brokerage
fee.
ii) What will be Ibrahim’s minimum profit if he buys two puts at the indicated
price?
if Ibrahim buys the two part, the minimum before tax profit he can grasp can be calculated as
follows:
Present market value of the inventory = AED 18*200=AED3,600
Less purchases price of the inventory. =AED 12*200=AED2,400
Capital increase =AED 1,200
Less cost of two put option
Lowest profit = AED 900
10

Ibrahim's profit prior to taxes would be AED18-AED12) = AED1,200 if the stock were to be
sold immediately without a hedging. Notice that this year is to be subject to latter taxes
(AED1,200), with the next year being due to latter taxes (AED900).
*200=FD11,200 18 FD12) Notice that the latter tax (AED1,200) is due this year, and the
former tax (AED900) is due the next year.
iii) What if the stock drops to AED 11 per share?
If Ibrahim buys two options and AED25 shifts in stock price, the investment's market value at
the expiry of the option is as follows:
Cost of inventory =200* AED25 = AED5,000
Less: buying cost of inventory =200* AED12= AED2,400
Capital gains =AED2,600
Less cost of puts =2* AED150= AED300
Net profit = AED 2,300
Memo: the put will upon expiration, denoting that Ibrahim will lose the puts.
Ibrahim's stock will incur losses on the stock, but will benefit on the pit when it falls to AED
11 (from its current AED18 price). The following can be computed. Stock:
Value of stock =200* AED11= AED2,200
Less: purchase price =200* AED12=AED2,400
Profit on stock =-AED200 (loss)
Puts
Value of puts = (AED18- AED11) *200= AED1,800
Cost of the puts =2*AED150. =300
Less purchase price =200 * AED12=AED2400
Profit on stock =-AED200(loss)
Puts
Value of put =(AED18-AED11) *200= AED1,800
11

Cost of the put =2*AED150=AED300
Profit on put =AED1,500
Total profit =AED1,300
If Ibrahim believes that the market will soon crash, he should buy the puts to protect his
investment's profit but if the future increases the demand. The great benefit of a hedge is that
it enables investment to take advantage of the rising profit potential while at the same time
maintaining the long transaction gains already generated. In the worst case, the hedge will
only lead to the expense of the hedge.
b) Differing forms of market efficiency
Market efficiency relates to the degree to which all relevant knowledge is accessible at
market rates. If all information is successful on markets, it is not possible to "slap" the market
by the fact that undervalued or overvalued securities are not available at this point. The term
is used by economist Eugene Fama in 1970, but Fama recognizes it as a little misleading,
since none of them can fully determine or reliably calculate this so-called market efficiency.
Despite these restrictions, the term refers to what is considered best as the efficient
hypothesis of the market (EMH) (Jarrow & Larsson, 2012).
Market efficiency is at the heart of markets' ability to integrate knowledge that offers
securities sellers and buyers maximum opportunities for conducting transactions without
increasing transaction costs. It's a highly controversial issue among scientists and
professionals, whether or not markets such as the US stock market are successful (Jarrow &
Larsson, 2012).
The theory of the market is generally efficient, but the effective market hypothesis is
generally provided in three versions: faint, half-solid, and strong. The simple market-efficient
hypothesis suggests that the market cannot be overcome as all the relevant determinative
knowledge is incorporated into current share prices. Accordingly, stocks sell at equal value
does not underestimate or over valuate them. The theory determines that it is by solely
specific investments that pose a significant risk that investors will achieve higher returns
upon their investments (Jarrow & Larsson, 2012).
12

i) Weak form
The three iterations of the efficient market assumption differ from one fundamental principle
to another. The poor shape means that stock prices today represent all past price data and that
it is impossible to make successful use of any kind of technical analysis to help investors
make business decisions. The advocates of the theory of poor form efficiency claim it is
possible to evaluate undervalued and overvalued stocks and investors should look at financial
statements of companies in order to maximize their chances of making higher-than-market
average income (Jarrow & Larsson, 2012).
ii) Semi-strong form
Similar to the seminar-strong principle of efficiency form, investors cannot use either
technological or basic research to obtain higher market returns because all knowledge that is
public is used in the estimation of a stock's current price. Those who adhere to this version of
the theory assume that only knowledge which is not open to the public will assist investors to
increase their returns over the general level of results (Jarrow & Larsson, 2012).
iii) Strong form
The strong version of the efficient market hypothesis states that all information, whether
publicly accessible or not, has been fully accounted for at current stock prices, and there is no
kind of information which can offer an investor a market advantage. Supporters of this degree
of theory claim that, irrespective of information gathered or research undertaken, investors
cannot return on investments which surpass normal market returns (Jarrow & Larsson, 2012).
13

References
Jarrow, R., & Larsson, M. (2012). THE MEANING OF MARKET
EFFICIENCY. Mathematical Finance, 22(1), 1-30. https://doi.org/10.1111/j.1467-
9965.2011.00497.x
Jorge, C., & Martins, L. (2017). DTER and DTTER as High-Frequency Trading Efficiency
Ratios. The Journal Of Trading. https://doi.org/10.3905/jot.2017.2017.1.058
Lisboa, I., Guilherme, M., & Teixeira, N. (2020). Corporate governance practices in
Portugal. Corporate Law And Governance Review, 2(1), 42-54.
https://doi.org/10.22495/clgrv2i1p4
Michaely, R., & Qian, M. (2017). Stock Liquidity and Dividend Policy: Dividend Policy
Changes Following an Exogenous Liquidity Shock. SSRN Electronic Journal.
https://doi.org/10.2139/ssrn.2894164
Nariswari, T., & Nugraha, N. (2020). Profit Growth : Impact of Net Profit Margin, Gross
Profit Margin and Total Assests Turnover. International Journal Of Finance & Banking
Studies (2147-4486), 9(4), 87-96. https://doi.org/10.20525/ijfbs.v9i4.937
Purnomo, A. (2018). Influence of The Ratio of Profit Margin, Financial Leverage Ratio,
Current Ratio, Quick Ratio Against The Conditions and Financial Distress. Indonesian
Journal Of Business, Accounting And Management, 1(1).
https://doi.org/10.36406/ijbam.v1i1.218
14

15