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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 Malaysias 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 companys 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 doesnt 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 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, theres 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 5th 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 its 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 Project Progress 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 PBT Net profit Growth (based on PBT) Growth rate (based on PBT) Growth (based on net profit) Growth rate (based on net profit) Revenue COGS Gross profit Gross margin (%) 2010 RM'000 76,711 56,233 16,136 27% 10,741 24% 331,868 (219,426) 112,443 34% 2009 RM'000 60,575 45,492 56,492 1384% 43,359 2033% 326,347 (236,659) 89,688 27% Figure 1 Overall summary: 2008 RM'000 4,083 2,132 -10,414 -72% -6,900 -76% 195,287 (164,204) 31,083 16% 2007 RM'000 14,497 9,032 -947 -6% 770 9% 311,421 (266,022) 45,399 15% 2006 RM'000 15,444 8,262 -2,372 -13% 507 7% 269,804 (227,041) 42,762 16%

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 Mitrajayas 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, Mitrajayas 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, Mitrajayas 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. Mitrajayas 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 PBT Net profit Growth (based on PBT) Growth rate (based on PBT) Growth (based on net profit) Growth rate (based on net profit) Revenue COGS Gross profit Gross margin (%)

2010 RM'000 20,121 13,914 2,556 15% 2,924 27% 460,079 (418,009) 42,069 9%

2009 RM'000 17,565 10,990 (1,043) -6% (1,354) -11% 329,564 (288,685) 40,878 12% Figure 2

2008 RM'000 18,608 12,343 (34,203) -65% (27,850) -69% 270,275 (229,092) 41,183 15%

2007 RM'000 52,810 40,193 21,350 68% 20,159 101% 365,766 (296,942) 68,824 19%

2006 RM'000 31,460 20,034 11,266 56% 8,296 71% 318,266 (270,140) 48,126 15%

Overall 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 Crests 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, Crests 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, Crests 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:

Non-Current Assets Current Assets Total Assets

Mitrajaya 2010 % RM000 186,860 37% 321,521 63% 508,381 100% Figure 3

Crest 2010 RM000 215,613 367,415 583,028

% 37% 63% 100%

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. Companys reputation may be a form of brand reco gnition 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: Buildings Fixtures, fittings and office equipment Renovations Plant and machinery Motor vehicles

Depreciation rate: 2% 10% - 33.33% 10% - 20% 10% - 33.33% 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:

Cost of sales Inventory Turnover ratio

2010 RM000 219,426 30,248 7.25

Mitrajaya 2009 RM000 236,659 35,396 6.69

2008 RM000 164,204 55,871 2.94 Figure 4

2010 RM000 418,009 2,015 207.45

Crest 2009 RM000 288,685 2,015 143.27

2008 RM000 229,092 5,434 42.16

For Mitrajayas 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:

Non-Current Liabilities Current Liabilities Total Liabilities

Mitrajaya 2010 % RM000 46,896 25% 142,166 75% 189,062 100% Figure 5

Crest 2010 % RM000 117,255 34% 224,498 66% 341,753 100%

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:

Share capital Treasury shares Reserves Shareholders' fund Minority interests Total Equity

Mitrajaya 2010 2009 RM'000 RM'000 127,989 127,989 (4,147) (2,804) 172,425 135,747 296,268 260,933 23,052 18,350 319,320 279,283 Figure 6

Crest 2010 RM'000 124,089 (181) 116,915 240,823 452 241,275 2009 RM'000 124,089 106,692 230,781 230,781

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 companys 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 auditors 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 managements expectation in their revenue growth and how it will impact their profit margins. In addition, the report will include companys 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 companys 5 year performances, inclusive of the managements 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 companys 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 Project Progress Report 3

Ratio analysis: Profitability: Based on the profitability assessment between Mitrajaya and Crest, Mitrajaya is better off in its performance in Year 2010. Mitrajayas 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 Mitrajayas 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. Mitrajayas 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, Mitrajayas 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 companys 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, Mitrajayas 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 companys debt to equity ratio could be high. Debt to equity ratio measures how a companys 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, Crests 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 Mitrajayas 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, Crests 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 onethird 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. Mitrajayas audit committee consists of 4 INEDs whereas the nomination and

remuneration committee consist of 3 INEDs. Crests 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 committees 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 Mitrajayas growth from Year 2009 to Year 2010. Similar to Mitrajaya, Crests 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).



Providing loans: Based on the financial analysis, chairmans 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 Mitrajayas 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 Mitrajayas 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 companys 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 Crests liquidity position is just marginally above 1 (general benchmark). Besides, Crests 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.


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 Mitrajayas business, indicating strong management team. Based on Year 2010 financial analysis, Mitrajayas profit ratio is high and its debt to equity ratio is low indicating the company is financially stable. Mitrajayas share is worth holding for long term capital appreciation. However, as an informed investor, we should be kept abreast of the companys 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 Crests Year 2010 financial analysis, we should not hold too much shares as it would be high risk as the companys 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 Return on Equity (%) Return on Assets (%) Earnings per Share Profit margin before tax (%) Profit margin after tax (%) Current Ratio Quick Ratio Receivable Turnover Inventory Turnover Times interest earned Debt to Equity ratio PE ratio Mitrajaya 18.58% 10.83% 41.43 23.11% 16.59% 2.26 2.05 4.99 7.25 41.26 0.64 0.03 Crest Builders 5.78% 2.39% 11.25 4.37% 3.02% 1.64 1.63 3.78 207.45 2.94 1.42 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 12) Trouble Company Reporter Asia Pacific, Thursday, January 23, 2003, Vol. 6, No. 16 13) Jill Solomon and Aris Solomon (2004) Corporate Governance and Accountability 14) Keasey, K. and Wright, M. (1993) Issues in corporate accountability and governance, Accounting and Business Research 15) Adams, C.A. (2002) Accounting, Auditing & Accountability 16) Peter D. Easton and Mark E. Zmijewski, Journal of Accounting Research Vol.31, No.1 (Spring, 1993)