2.

HUP SENG INDUSTRIES BERHAD

1.0 COMPANY PROFILE
1.1 Background
Hup Seng was incorporated in Malaysia as a public limited company on 4th
October 1991 and received its certificate of commencement of business on 23rd April
1997.

The principal activity of the Company is investment holding. The principal

activities of the subsidiaries are manufacture and sales of biscuits and coffee mix, and
dealers in biscuits, confectionery and other foodstuff.
1.2 Board of Directors
Chairman
Dato Keh (Kerk) Chu Koh
Managing Director

Vice Chairman
Kerk Chiew Siong
Executive Director

Managing Director
Kuo Choo Song
Executive Chairman

Director
Kerk Chian Tung
Executive Director

Director
Teo Lee Teck
Non-Executive Director

Director
Kerk Kar Han
Non-Executive Director

Director
Woon Chin Chan
Independent Non-Executive Director

Director
Norita Binti Jaafar
Independent Non-Executive Director

Director
Mazrina Binti Arifin
Independent Non-Executive Director

Director
Raja Khairul Anuar Bin Raja Mokhtar
Independent Non-Executive Director
30

1.3 Management Team

Dato Keh (Kerk) Chu Koh

Non- Executive Chairman of
the Board
Siew Foong Leong
Company Secretary

Kerk Chiew Siong

Non- Executive Vice
Chairman of the Board

Kuo Choo Song

Managing Director, Executive
Director

Kerk Kar Han

Non-Executive Director

Kerk Chian Tung

Executive Director

Teo Lee Teck

Non-Executive Director

Raja Khairul Anuar Bin Raja

Mokhtar
Independent Non-Executive
Director
1.4 Core business
Hup Seng Industries Bhd through its subsidiaries is involved in the production and sales
of biscuits and coffee mix.
1.5 Mission
Producing quality fast moving consumer products.
1.6 Vision
To be market leaders in fast moving consumer products.
1.7 Authorized capital
RM 100,000,000
1.8 Paid up capital
RM 60,000,000

2.0 GENERAL ENVIRONMENT

2.1 Politics
31

a. Pioneer Status
A company with Pioneer Status is partial exempted for 5-year from the
contribution of income tax. 30% of its statutory income* is paid as tax with the
exemption period beginning from its Production Day (determined by the day its
production level obtains 30% of its capacity).
During pioneer period, the accumulated losses and unabsorbed capital allowances
acquired by companies whose pioneer status will expire on and after 1st October 2005 are
able to take forward and deducted against post pioneer income of a business with the
same promoted activity and promoted goods.
Applications from companies located in the promoted areas include Perlis, Sabah
and the structured Eastern Corridor of Peninsular Malaysia will get a 100% tax
exemption on their statutory income in the duration of 5-year exemption to enhance
investment. This great incentive is given to all project applications sent by 31st December
2010.
Since 2nd September 2006, Perlis is proclaimed as one of the promoted areas and
companies involving in promoted activities will be qualified for incentives currently
given to these area. The Pioneer Status is applicable in the Malaysian Industrial
Development Authority. (MIDA).
b. Investment Tax Allowance
A company may apply for Investment Tax Allowance (ITA) as a second option to
Pioneer Status. With ITA, company obtains incentive of 60% on its authorized capital
expense (such as factory, plant, machinery or other equipment used for the verified
project.) acquired in 5 years from the date of the first authorized capital expense is
acquired.
This incentive can balance against 70% of its statutory income for each examined
year. Any unutilized incentive can be pushed to subsequent years until fully utilized. The
extra 30% of its statutory profit will be taxed at the conventional company tax rate.
Since 13th September 2003, the applications from companies situated in promoted
areas such as Perlis, Sabah and Sawarak and the structured Eastern Corridor of
Peninsular Malaysia can get an incentive of 100% on the authorized capital expense

32

acquired in the duration of five years to enhance investment. Applications should be sent
to MIDA.
Note: *Statutory income is obtained after deducting revenue expense and capital
incentives from the gross income.
*The Eastern Corridor of Peninsular Malaysia includes Kelantan, Terengganu
and Pahang and the district of Mersing in Johor.
2.2 Economy
a. Inflation
Inflation indicates the economic fluctuations in Malaysia according to the changes
in the Consumer Price Index (CPI) of a country. CPI shows the divergence in prices of
consumer goods in the countrys shopping basket over a duration.

Figure 1: Malaysian CPI and Inflation Rate : January 2011- January 2012

Based on Figure 1, the Malaysian inflation rate was recorded between 2.2 percent
and 3.5 percent for year 2011. This shows healthy level of inflation in Malaysia as most
economists believe that healthy inflation rate is between 1.0 percent and 3.0 percent. The
risk of financial markets is reduced with low inflation rates and this ensures flavourable
business environment.
b. Gross Domestic Product
The prime indicator of the wealth of Malaysian economy is measured using
Gross Domestic Product (GDP). A precise GDP figure is calculated by considering and
33

adjusting the Private and Public sector spending, the production of goods and services
and exports in the country for imports and inflation.

Figure 2: Malaysian GDP Value ($ Billions): 2003- 2012

Based on World Banks report, the Malaysian Gross Domestic Product (GDP)
had obtained 278.67 billion US dollars in December 2011. The Malaysian GDP is
estimated to be 0.45 percent of the world economy. From 1960 to 2011, the average of
Malaysian GDP was 59.93 Billion USD. In that duration, the highest GDP recorded was
278.67 Billion USD in December 2011 and the lowest was 2.42 Billion USD in
December 1961.

Figure 3: Malaysian GDP Growth Rate

34

The Gross Domestic Product (GDP) growth rate measures an aggregated

difference in value of the goods and services manufactured by an economy. In Asia,
Malaysia is a fast developing economy. Since the 1970s, as an average income country,
Malaysia has changed from a manufacturer of raw materials into a rising multi- sector
economy. To detach from the countrys reliance on exports, the Malaysian government
has worked on raising domestic demand. However, exports especially electronics
continue to drive the economy significantly.
From the beginning of April to the end of June 2012, the Malaysian Gross
Domestic Product (GDP) increased 3.00 percent compared to the previous quarter.
During 2000 until 2012, the average of the Malaysian GDP Growth Rate was 1.22
percent. In that duration, the highest rate was 5.90 percent in September 2009 and the
lowest rate was -7.60 percent in March 2009.

Malaysian GDP Composition by

Sectors in 2011
Agriculture
12%
Services
48%
Industry
40%

Figure 4: Malaysian GDP Composition by Sectors in 2011

Source:https://www.cia.gov/library/publications/the-worldfactbook/fields/2012.html, The Central Intelligence Agency.

Figure 4 shows the major movements in Malaysian economy are Industry and
Service sectors. In service sector, critical forces were finance, real estate and information

35

and telecommunications services. Besides that, rapid growth in wholesale and retail
service sector is seen in recent years.
a. Unemployment Rate
The unemployment rate represents the percentage of active job seekers that is
jobless, out of the total number of labour force. Roughly 4% -6% in the unemployment
rate is considered healthy. Lower rates are caused by inflation and upward pressure on
wages while higher rates reduce the consumer spending.

Figure 5: Malaysian Unemployment Rate : October 2010- September 2012

From October 2010 until September 2012, the unemployment rate in Malaysia is
too low around 2.8% to 3.4%. Hence, this inflationary situation has forced employers to
continually increase wages on retaining and attracting valuable employees. Since firms
have to widen resources on retaining and attracting employees, they would put less effort
in performing their duties. As a result, the unutilized of resources would result in less
innovation and slower productivity growth.
2.3 Socio- cultural
a. Demographic Elements

36

Population

Major cities- population

Ethnic groups

Languages

Yearly growth 1.542% (2011 est.)

Infant deaths in 1,000 births are 14.57

Persons below aged 15 is 29.6%

Urban population is 72% of the population (2010)

Urban population growth is 2.4% (2010)

Literacy rate is 88.7%

Kuala Lumpur (capital) 1.493 million

Klang 1.071 million

Johor Bahru 958,000 (2009)

Malay 50.4%

Chinese 23.7%

Indigenous 11%

Indian 7.1%

Others 7.8% (2004 est.)

Bahasa Malaysia, English, Chinese dialects, Tamil,

Telugu, Malayalam, Panjabi, Thai

Religions

Note: indigenous languages in East Malaysia

Muslim 60.4%

Buddhist 19.2%

Christian 9.1%

Hindu 6.3%

Confucians and Taoist 2.6%

Others 1.5%

None 0.8% (2000 census)

Table 1: Malaysias Demographic Elements

Source:http://www.indexmundi.com/malaysia/demographics_profile.html,CIA
World Factbook)

37

As 60.4% of the population is Muslim in Malaysia, the political, judicial and

religious systems are closely associated and religious leaders take eminent positions in
the country.
b. Structure of Household Expenditure
Household Consumption by Purpose
2000
Food and non-alcoholic beverages

2009

2000-09

% of total household consumption

23.0
24.1
21.8

Alcoholic, beverages and tobacco

2.2

2.3

2.1

Clothing and footwear

3.5

2.4

2.7

Housing, water, electricity, gas and

21.7

16.7

18.9

5.9

5.2

5.4

Health

2.1

2.1

2.0

Transport

12.6

13.1

13.4

Communication

4.9

7.4

6.3

Recreation and culture

4.3

4.9

4.5

Education

1.5

1.6

1.5

Restaurants and hotels

5.8

9.7

7.5

Miscellaneous goods and services

11.6

12.7

12.8

fuels
Furnishings, household equipment and
maintenance

Table 1: Malaysian Household Consumption by Purpose: 2000- 2009

Source:http://www.bnm.gov.my/files/publication/ar/en/2010/cp01_001_w
hitebox.pdf, Department of Statistic, Malaysia)
Table 1 shows that food and non- alcoholic beverages are the largest composition
in the total expenditure, making up of 23% of the total expenditure.
2.4 Environmental Elements
Business environment should be conserved by any company as consumers might
not purchase harmful product or product that uses harmful processes.
a. Background of Malaysian Environment
38

Malaysia makes up of 328,550 square kilometers of land and has 20

million population ( July 1997 est.). Most of the citizens occupy the western coast.
59% of the total land is tropical forest. Even after industrialization, a large area of
the country is still forested. Malaysia has the highest industrial carbon dioxide
emissions among 50 nations in the world. The negligence would cause major
environmental problems.
b. Causes and Adverse Effects of Bad Environment
Industrialization and progress of natural resource basis have created
environmental problems. The adverse effects are deforestation, depletion of
fisheries, air and water pollution and contamination by industrial wastes.
c. Environment Laws
The main structure of environment legislation in Malaysia was the 1974
Environmental Quality Act (EQA). Since then, the regulations are constituted.
Based on EQA 1996, it has been amended many times. Other legislations are
the Fisheries Act 1985, the Pesticides Act 1974 and the Plant Quarantine Act
1976.
d. Types of Legislation
The procedure of legislation in Malaysia is as follows:
1. The Federal Constitution (Perlembagaan Persekutuan).
2. Parliament constituted the Acts.
3. The executive (Ministerial Regulations) enacted rules and other
subordinate legislation.
4. State laws and rules.
e. Results of the Acts
In 1978, industrial and automobile emissions are restricted by clean-air
legislation. In Malaysian seas, vessels are not allowed to emit oil.
2.5 Technological Analysis
Technological advancement helps to improve performance of the companies in
competing for differentiation and providing superior product to its customers.
The Ministry of Science, Technology and Innovation (MOSTI) is responsible for
the research, telecommunication and information technology of Malaysia. The objective
39

of the ministry is to induce competitiveness in science and technology using the creation
of knowledge and sustainable development.
Table 2: MOSTIs agencies
Agencies
Malaysian Centre
For Remote
Sensing (MACRES).
National Science
Centre.
National
Oceanography
Directorate.
National Space
Agency.
Department of
Chemistry Malaysia
Malaysian Nuclear
Agency.
Malaysian
Meteorological
Services.
Department of
Standards Malaysia
Atomic Energy
Licencing Board.

Role
Remote sensing, telemetry, geographic information
system (GIS) and research.
Promoting awareness, appreciation, interest
understanding of science and technology.
Marine science and oceanography development.

and

Research and development of space science.

Chemical analysis, investigation/ forensic
consultancy services/
Nuclear technology research and development.

and

National meteorological monitoring services and

natural disaster warning.
National standards and Accreditation body.
Control and supervision of radioactive material usage
in industries. The board also examines and enforces
safety rules.

MOSTI also gives research grants. Through specialized schemes, the funds are available
such as ScienceFund, Techno Fund (Pre- commercialization and IP acquisition fund), InnoFund
(Enterprise innovation and community innovation fund), eHCD (Human capital development
fund), eIRPA and the Brain Gain fund.

3.0 TASK ENVIRONMENT ANALSIS

According to Michael Porter, there are five forces which determine the competition in the
industry as listed in table 1. They are competitive rivalry, threat of substitute, threat of
entry, buyer power and supplier power. The explanation below will describe that how a
dairy industry as being influenced by five forces.

40

High

Medium

Competitive Rivalry

Threat of New Entrants

Threat of Substitutes

Supplier Power
Buyer Power

Low

3.1 Competitive Rivalry

When the number of competitors increases, the rivalry increases because of more firms
must compete for the same customers and resources. If the competitors have similar market share,
the rivalry will become intensified.
Hup Seng is not just a pure biscuit player, after its listing, it acquire 100% stake in inComix so they are selling instant hot drinks as well. In fact, they themselves have a good
products mixes of varieties of biscuits such as deluxe sandwich, cookies and all other kinds of
biscuit. The closest listed competitors are Hwa Tai.

The graph above shows the gross profit margin between Hup Seng and Hwa Tai and
clearly we can see, Hup Seng consistently performed better than Hwa Tai which signifies Hup
Seng competitive advantage over its competitor. On liquidity wise, Hup Seng has seen to be
much prudent versus its counterpart who stays below 1 over the past 5 years. And as of today,
Hup Seng has no long term debt and has a cash of more than RM47million which translate to
41

nearly RM0.39 per share. That is almost 22% yield if they were to give all of them back as
dividend.
Hup Sheng believed that they can keep maintain in a strong position even grow market
share via it growth strategies.

3.2 Threat of New Entrants

According to Porter, the new firms will choose to enter the industry if the profit level of
that industry looks attractive, and then it will increase the supply in the market. Hence, the threat
of entry places an upper limit on an industrys profitability. We cannot deny that fact that Hup
Seng is the best biscuit manufacturing company in Malaysia market. It has a stable position in
the biscuit manufacturing industry and thus the threat of entry by newcomers is low. The
newcomers like Gloria Biscuit faces with high entry barriers because Hup Seng which is their
existing competitor has strong brand identification. Consumers are loyal to Hup Seng products
and its product differentiation has created a high barrier to entry to Gloria Biscuit. Gloria Biscuit
has to spend a lot to defeat the existing customer loyalty on the products of Hup Seng. Therefore,
it is not easy for the newcomers to entry the biscuit manufacturing industry and affects the
position of Hup Seng.

3.3 Threat of substitute

Due to the technological advancement nowadays, there are a lot of substitute products
with different appearance but have the same function to satisfy the same need as another product
in the market. For the Hup Seng, the threat of substitute products is high because there are a lot
of products which able to satisfy the need of consumers. For example Julies biscuits can be a
substitute product for the biscuits by Hup Seng. Consumers can enjoy the different types of
biscuits instead of Hup Seng' s biscuits. Consumers can also eat instant noodles MAGGI instead
of eating cakes by Hup Seng, and even the Gardenia bread can replace the biscuits and cakes by
Hup Seng for meal. The prices of the substitute products bring effect to the products of Hup Seng
and finally influence the return and profit of Hup Seng.

42

3.4 Buyer power

Buyers can affect an industry through their ability to force down prices, bargain for
higher-quality or more services, and to play competitors off against each other. The bargaining
power of buyers of Hup Seng is high. There are many other biscuit manufacturing companies in
the market and the products from the industry have standard or undifferentiated. Buyers can
easily get the alternative suppliers from the market such as Munchy, Hwa Tai, Julie's, and so on.
Since it is an ease to get standard products and have alternative suppliers, buyers emphasize the
prices of the products more than which biscuits taste better. The products of Hup Seng is not
very expensive compared with others biscuits of other brands and many buyers choose the
products of Hup Seng now. This finally creates high bargaining power of buyers of Hup Seng.
3.5 Supplier power
Hup Seng has the low bargaining power of supplier. This is because the ingredients of
manufacturing biscuits and cakes such as eggs, flour, sugars and others can be found everywhere
from any suppliers. Thus, Hup Seng can have ingredients anytime without worrying lack of
inputs. The bargaining power of supplier is low because the switching cost to other suppliers is
low. Suppliers' products are very crucial to Hup Seng to have effective production to fulfill the
demand of buyers. Besides that, they also produce the high quality of products to the public.

43

4.0 SWOT
Strength(S)
1. Currently in a good financial
position.
2. Skilled workforce.
3. Company name recognized on a
National/ Regional/ Local level.
4. Own premises.
5. Wide range of products flavour.

Opportunities(O)
1. Skilled workforce means that they
can be moved and trained into other
areas of the business.
2. Competitor going bankrupt.
3. Moving a product into a new
market sector.
4. Increasing number of shopping
outlet in whole Malaysia.
5. Could expand to overseas.

Weaknesses(W)
1.
2.
3.
4.

Fewer customers.
Too much waste.
Low customer retention.
Low production quality compared
to other brands.
5. Low integrity of annual report.

Threats (S)
1.
2.
3.
4.

Large and increasing competition.

Increase in price of raw materials.
Rising cost of wages.
Possible relocation cost due to poor
location currently held.
5. New distribution channel.

1) Strengths
Hup Seng maintains a good financial position in food and beverages industry because the
company is using equity rather than using debt to generate their company. Hup Seng also has
skilled workforce hence little training is required for the employee. Their brand is well-know
within food and beverages industry market. By the way, Hup Seng has their own premises to
run their business so there is no additional cost for renting. Hup Seng has a wide range of
products flavor of the biscuit for customer to choose in market. For example, marie biscuit,
coconut cookies, butter cookies, cream cracker and so on.
2) Weaknesses

44

Hup Seng faced the problem of fewer customers and low customer retention because
there is high competition in this industry. Hence, the customer is production quality of
Hup Seng is low compared to other competitive such as Kraft and Nestle. By the way,
Hup Seng has the problem of too much waste in production. While for the annual report,
there is low integrity since that there is incomplete information for outsider.
3) Opportunities
Skilled workforce in Hup Seng means that their employee can be moved and trained into
other areas business. Besides that, if competitor in the market going bankrupt, they have
the opportunity to gain more customer support. The company can distribute their product
easily since there are increasing shopping outlets in whole Malaysia such as Tesco, Jucso,
Giant and so on. Besides the domestic market, Hup Seng also can export their product to
overseas.
4) Threats
Nowadays, there is large and increasing competition in food and beverages industry. For
example, Hwa Tai, Cocoaland, Julies, and so on. Other than that, minimum wages for the
employee have set by the government so the wages has increases in today operation cost.
Due to unstable weather, unstable economic, the cost of raw materials such as flour,
sugar, and egg will be fluctuated. There also have to prepare cost for possible relocation
due to poor location currently held that cause by lack of transportation and utilities. In
addition, new distribution channel has cause Hup Seng to redesign their channel so they
able to compete in the market.

45

5.0 TOWS
Strengths (S)
INTERNAL
FACTORS (IFAS)

EXTERNAL
FACTORS (EFAS)

1. Currently in a good
financial position.
2. Skilled workforce.
3. Company name
recognized on a National/
Regional/ Local level.
4. Own premises.
5. Wide range of products.

Weaknesses (W)
1. Fewer customers.
2. Too much waste.
3. Low customer retention.
4. Low production quality
compared to other brands.
5. Low integrity of annual
report.

Opportunities (O)
1. Skilled workforce means

2.
3.
4.
5.

that they can be moved

and trained into other
areas of businesses.
Competitor going
bankrupt.
Moving a product into a
new market sector.
Increasing number of
shopping outlet in whole
Malaysia.
Could expand to overseas.

Threats (T)
1. Large and increasing
2.
3.
4.
5.

competition.
Increase in price of raw
materials.
Rising cost of wages.
Possible relocation costs
due to poor location
currently held.
New distribution channel.

SO Strategies

WO Strategies

1. Building on brand equity.

(S3O5)
2. Job rotation. (S2O1)
3. Take over the bankruptcy
competitor market. (S1O2)

1. Launching products of
Hup Seng through
overseas. (W1O5)
2. Create brochure for the
customer. (W3O4)
3. Skill and knowledge
training. (W2O1)

ST Strategies

WT Strategies

1.

1.

Developed R&D
department. (S5T1)
2. Recruit most suitable
worker for particular
department. (S2T3)
3. Develop e-commerce.
(S3T5)

Developed effective
advertisement. (W3T1).
2. Technology development.
(W2T2).
3. Product research about
Hup Seng products.
(W4T1).

5.1 Strengths and Opportunities

Hup Seng would expand their products overseas easily since this brand is well known on
national, regional, and local level. Hup Seng emphasized on building brand equity. This is
necessary for company to negotiate with distributors for the general distribution of its products to

46

overseas. Effective promotional plan is to gain the interest of overseas market and develop a
good impression of their products and brand. Besides that, job rotation can provide their
employees a skilled workforce. Through job rotation, employees can be moved and trained into
areas of businesses. Hup Seng also can take over the opportunity from the competitor who faced
bankruptcy. For instances, the skilled workers, potential resources, distribution channel and so on.
5.2 Weaknesses and Opportunities
Hup Seng can expand their market through overseas to gain more customers attraction. Doing a
launching of the store would be far more effective in promoting the store if compared to other
methods. This is because launching is a centralized event which can save costs and increase in
public awareness. However there are many shopping outlet in whole Malaysia, Hup Seng still
cannot get the retention from the customers. Hence, Hup Seng can create brochure and distribute
to the customers. Hup Seng can implemented a skill and knowledge program that can up-grade
labor standards so that can use high technology in production method.
5.3 Strengths and Threats
Hup Seng faces high competition in food and beverage industries. Hup Seng needs to develop
and improve the Research and Development Department so that they can produce more and
unique products that are differed with competitors products by using high technology. Next, the
human resources department needs to recruit the most suitable worker for particular areas. This
can reduce the number of unskilled workers and can minimize the cost of wages. Nowadays, a
new distribution channel can make the shipping works become complex. Hup Seng can choose
E-commerce as the way to distribute the products along the supply chain.
5.4 Weaknesses and Threats
In a high competition industries, Hup Seng should implemented aggressive advertising to inform
the consumers that its products is exists. Advertising is the key activity to drive up sales and
customer awareness. In order to improve the productivity and efficiency of Hup Seng, the
industry should modem their technologies. By this way, Hup Seng can eliminate the waste and
can utilize the local resources well. Besides that, Hup Seng needs improve their products quality
against competitors. If not, the consumers will shift their preference to other brands with same
prices. Hup Seng should develop a product research within the markets. Marketing department
47

should modify and improve their quality of the products as well as change their production
methods based on the research.

6.0 FINANCIAL RATIO

HUP SENG INDUSTRIES BERHAD
Ratio
PROFITABILITY RATIO
Net profit margin
Gross Profit Margin
Return on investment
Return on equity
Earning per shares
LIQUIDITY
Current ratio
Quick ratio
Inventory to net working
ACTIVITY RATIO
Inventory turnover
Days' sales in inventory
Total assets turnover
Fixed assets turnover
Average collection period
LEVERAGE RATIOS
Debt to equity ratio
Long term debt to capital structure

2011

FY 31 Dec
2010 Variances

7.75
32.54
9.14
31.05
0.16

10.65
34.61
12.02
38.90
0.19

Decrease
Decrease
Decrease
Decrease
Decrease

2.78
2.32
0.26

2.93
2.28
0.34

Decrease
Increase
Decrease

6.78 5.87
26.77 32.89
1.18 1.13
3.48 2.76
54.97 55.59

Increase
Decrease
Increase
Increase
Decrease

0.95
0.14

Increase
Unchange

0.79
0.14

The table above is the ratio analysis of Dutch Lady Milk IndustriesBerhad in two years
performance from year 2010 to 2011.
6.1 PROFITABILITY RATIO
It relates the profit to sales and investments. Profitability ratio is to indicate the firms overall
effectiveness of operations and give us an idea on how well the firm utilized its resources in
order to generate profit and increase the shareholder value.
a. Net Profit Margin
This ratio is to indicate how much of revenues a company can generate for every RM 1 in
sales. In HupSeng, the net profit margin has significant decrease from 10.65% in year 2010 to
48

7.75% in year 2011. The decreasing percentage of 2.90% shows that HupSeng has not well
performed in year 2011 compare with the performance in year 2010 where the Padini has less
generates RM 0.0290 of every RM 1 in sales.
b. Gross Profit Margin
Gross profit margin is to show how much the gross profitof every RM 1 in cost of goods
sold. In HupSeng, the gross profit margin has decrease from 34.61% in year 2010 to 32.54% in
year 2011. The decreasing percentage of 2.07% shows that the management of Dutch Lady has
not well control system in its expenses in order to generate more profit to its company.
c. Return on Investments (ROI)
This ratio shows how well the firm management puts the company assets to work in order
to generate income. Lower ratio shows lower company performance. ROI ratio in HupSeng
shows decline of 2.88% which decrease from 12.02% to 9.14% in this two years. It shows that
the HupSeng has not improves in using assets to generate the firm sales.
d. Return on Equity (ROE)
This ratio is to measure how the stockholders fared during the year. It is a true bottomline measure of performance. ROE ratio has decrease 7.85%, from 38.9% in 2010 to 31.05% in
2011. That is HupSengs superior return on equity maybe due to its inefficient use of asset to
generate sales and the fact that HupSengunbenefitted from its use of more debt financing or
financial leverage.
e. Earnings per Share (EPS)
Earnings per share represent the portion of a company's earnings, net of taxes and
preferred stock dividends, which are allocated to each share of common stock. EPS ratio has
slightly decrease RM0.03, from RM0.19 in 2010 to RM0.16 in 2011. This means that it is not a
good signal for the company financial position because the lower the earnings per share, the
lower each share worth.

6.2 LIQUIDITY
a. Current Ratio
It is a measure of general liquidity and is most widely used to make the analysis for short
term financial position or liquidity of a firm. This ratio decrease 0.15 times, from 2.93 times in

49

2010 to 2.78 times in 201. It shows that the company is not generally considered to have good
short term financial strength.
b. Quick Ratio
Quick ratio is a measure of how well a company can meet its short term financial
liabilities. The ratio increase 0.04 times, from 2.93 times in 2010 to 2.78 times in 2011. The
higher the ratio the more financially secure a company is in the short term. The company with a
quick ratio of greater than 1.0 is sufficiently able to meet their short term liabilities.
6.3 ACTIVITY RATIO
a. Inventory Turnover
Inventory turnover ratio indicates the number of time the stock has been turned over
during the period and evaluates the efficiency with which a firm is able to manage its
inventory.The ration increase 0.91 times, from 5.87 times in 2010 to 6.78 times in 2011. This
shows that the demand of the HupSengs product is increase. It is also mean thats the products
are in the warehouse sold very fast.
b. Total Assets Turnover
The total asset turnover ratio measures the ability of a company to use its assets to
efficiently generate sales. The ratio increase 0.05 times, from 1.13 times in 2010 to 1.18 times in
year 2011. The ratio is merely increased shows that there are huge sluggish in the firms sales.
c. Fixed Assets Turnover
The fixed asset turnover ratio measures the company's effectiveness in generating sales
from its investments in plant, property, and equipment. The ratio has been increase 0.72 times,
from 2.76 times in 2010 to 3.48 times in 2011. An increasing fixed assets turnover means that the
company has been more effective using companys investments in net property, plant, and
equipment.
d. Average Collection Period
The average collection period is the number of days, on average, that it takes a company
to collect its credit accounts or its accounts receivables. The ratios significantly decrease 0.62
days, from 55.59 days in 2010 to 54.97 days in 2011. By comparing with last year, a decreasing
of average collection period means Dutch Ladys customers are not only paying their credit
accounts on time but faster than they have in the past.
6.4 LEVERAGE RATIOS
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a. Debt Equity Ratio

Debt equity ratio is a measurement of how much suppliers, lenders, creditors and obligors
have committed to the company versus what the shareholders have committed. The ratio increase
0.16 times, from 0.79 times in 2010 to 0.95 times in 2011. The increasing in this ratio might
show that the company is being financed by creditors rather than from its own financial sources
which may be a dangerous trend. The company with high debt-to-equity ratio may not be able to
attract additional lending capital.
b. Long Term Debt to Capital Structure
It is used in determine what portion of the total capitalization, or full debt and equity of
the company, is made for the long term debt to finance operation. The ratio for long term debt
capital structure shows a same percentage of 0.14 in these two years. Unchanged of this ratio
signifies that the company is not facing mature financial difficulty.

7.0 STRATEGY DIRECTION

There are many aspects that needed to be growing so that Hup Seng Biscuit can become
more competitive in the market. Growth in the aspects of sales, assets, profits, or some
combinations are crucial to Hup Seng Biscuit. Ansoff (1965) devised a matrix to analyze the
different strategic directions organizations can pursue.
Market penetration is the effort of increasing the market share in the existing market with
the existing products. Hup Seng Biscuit has been exporting its products to foreign markets and
domestic market. Hup Seng Biscuit has a lot of consumers who eat its biscuits, cakes and snacks
worldwide. However, Hup Seng Biscuit should keep on its effort to increase its market share in
the existing market by attracting more new consumers to buy its existing products. Hup Seng
Biscuit should also make sure that the existing consumers to eat more its products. With the
capabilities and resources of Hup Seng Biscuit, this strategy is not risky because Hup Seng
Biscuit do not need to do anything unless increase its products' quality to meet the consumers'
needs and wants. Improving its quality is not a problem to Hup Seng Biscuit as it has
professionals for R&D.
Hup Seng's products have captured the hearts of consumers, young and old in many
corners of the world such as Asia, Africa, Oceania, Europe and North America,. Henceforth, Hup
Seng shall continue to upgrade, improve and reach new peaks of excellence.

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Diversification occurs when an organization seeks to broaden its scope of activities by

moving into new products and new markets. Diversification is actually a suitable strategy for
Hup Seng Biscuit because it helps to spread risk by reducing reliance on any one market or
product. For instance, Hup Seng Biscuit should have diversification by producing new products
like organic food to new market especially health-conscious market. Hup Seng Biscuit will face
lesser competition if having new market. If one of the existing products is not in high sales, Hup
Seng Biscuit is still safe because consumers from other market may buy its other products. The
risk of low revenue will be spread among different products. Hup Seng Biscuit will be afforded
to implement diversification because it will earn a lot after implementing the low cost strategy.
Hup Seng Biscuit itself does not need to find more capital from other resources to sustain the
diversification of products. As the result of benchmarking, having diversification is crucial in
order to own sustainable competitive advantage forever.

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