New Th Plantations Bhd Industry Analysis
INTRODUCTION Industry analysis is important thing as well as the economy analysis. When the economy is not in good condition, then it will be a difficult condition for the industry to perform well. The study of industry grouping that analyzes the competitive position of a particular industry in relation to others and indentifies companies that show particular promise within an industry in called as industry analysis.
Although it is impossible to exactly forecast which industrial groupings will valued the most, with the careful analysis can suggest which industries have a brighter expectations than the others and which industries are overwhelmed with problems that are possible to continue for a while.
The investors will be able to have an idea about the prospects of a particular industry since industry analysis examines the specific environment of an industry. Analysing an industry means by looking at the basic characteristics, the key economic and operating variable that drive the industry performance.
Besides that, the outlook for the industry conditions also can be known. Industry analysis involves reviewing the economic, political and market factors that influence the way that the industry develops. There are some factors of market factors such as the power wielded by suppliers and buters, the condition of competitors and the likelihood of new market entrants.
After making an industry analysis, the company can identify its weaknesess and strengths and develop a strategic strategy to improve the company’s condition. The company also can have an advantage over their competitors after making the analysis. 2. INDUSTRY ANALYSIS 2. 1General Development in the Country Malaysia has become an upper middle income country with a per capita yearly income measured at about US 5,300 dollars in 2007. In 2009, Malaysia had 4.
7 million hectares of oil palm plantations with 416 mills. The industry is denominated by large plantation companies (private and government linked companies) that hold 60 % of the total plantation land with growing levels of combination along the value chain. While in 2010, Malaysia is known as the world’s second largest Crude Palm Oil (CPO) producer with 17. 5 million tonnes of CPO and is expected to achieve 21. milllion tonnes. The contributor to biomass in Malaysia was known to be the waste from palm oil plantation.
Besides that, it is estimated that there were more than 90 million tonnes per year of large derived from empty fruit bunches (EFBs), trunks, fronds, shell and palm kernel cake. One of the Malaysia’s main agriculture products that it exports is palm oil. Malaysia exported over 15 million tonnes of palm oil which majority to China, the European Union, Pakistan, United States, India and Japan in 2008. Malaysia received RM 65 billion (US 17. 7 billion dollars) in palm oil export earnings in 2008.
Besides that, Malaysian palm oil industry has developed to supply 51% of the world’s palm oil production and 62 % of the world’s palm oil exports. In 2004, over 14 million tonnes of palm oil was produced on 3. 88 million hectares of land in Malaysia. The palm oil plantation industry has emerged in the last 50 years as a major agricultural activity in Malaysia. This industry has become one of the most highly organised sectors of any national agriculture system of the world.
It also able to compete with vegetable oil products produced from developed and developing countries.
Over the years, Malaysian palm oil industry has grown in size and participation and the plantation sector is one of the biggest employers in Malaysia. 2. 2Contribution to GDP in Malaysia | 2011| 2010| 2009| 2008| 2007| Agriculture| 8. 2| -4.
3| 0. 4| 4. 04| 1. 39| Construction| 3| 5. 2| 5.
69| 2. 12| 4. 73| Manufacturing| 5. 1| 6. 2| -9.
3| 1. 29| 3. 15| Mining ; Quarrying| -6. 1| -1. 3| -3. 82| -0.
77| 2. 02| Service| 7| 6. 2| 5. 2| 5. 5| 9.
7| All figures are in percentage Table 2. 1: Changes in Percentage of Sector Contribution to GDP Source: Department of Statistics, MIDA ; MITI
The third quarter of GDP 2011 in Malaysia increase at a higher rate by 5. 8 %. According to the Bank Negara Malaysia (BNM), the increase in performance was encouraged by strong domestic demand that has increased by 9 %. Besides that, according to BNM Governor, Tan Sri Dr Zeti Akhtar Aziz, the reducing impact from supply chain disturbance that occurred in Japan due to tsunami and earthquake disaster in March and the income growth that was supported by bonuses, higher commodity prices and public spending had enhanced the domestic demand. The Agriculture sector has increased by 8.
% in third quarter 2011 because of palm oil that has growth 12 % and Livestock sub-sectors which has expand to 11. 2 %. The Construction sector has rose by 3 % due to high performance in the residential and civil engineering sub-sectors throughout the quarter and also because of growth in residential sub-sector with the aim in high-end property. The Manufacturing sector has increased by 5. 1 % because of expansion in petroleum, chemical, rubber and plastic product while Non Metallic Mineral Product, Basic Metal and Fabricated Metal Products increase by 19.
%. The Transport Equipment ; Other Manufactures sub-sector has increase by 1. 6 %. The Mining sector has decline by 6. 1 % due to lower output of crude oil.
The Service sector has increased by 7 % in third quarter 2011. The growth was supported by strong domestic demand. The company that we analyzed which is TH Plantations Bhd is in agriculture industry sector. The growth of Plam Oil which has growth by 12 % has made the Agriculture sector to contribute 8. 2 % of the GDP in the third quarter 2011.
As stated in Economy Analysis, the GDP from 2007 until third quarter of 2011 can be described as in the table below: | 2011| 2010| 2009| 2008| 2007| GDP (Growth Rate)| 5. 8| 7. 2| -1. 7| 4. 7| 6. 5| All figures are in percentage Table 2.
2: GDP of Malaysia Source: World Bank The Services sector is also known as “Tertiary sector” are defined in conventional economic literature as intangible goods. The provision of services to business as well to final consumers can be described as the Services sector of the economy. Service sector consist of two broad categories which are intermediate services and final services.
Intremediate services include several sub-sectors such as transport, storage ; communication and finance, insurance, real estate and business services. While final services include sub-sectors, for example are electricity, gas and water, wholsale and retail, hotels, restaurant and others. Manufacturing sector can be defined as the production of goods or items by using machines, equipments and labor force.
It also the process of industrial production in which the raw materials are transformed into finished goods and are ready for sale.
Manufacturing is labor intensive and considered as a high yield investment opportunity. The Agriculture sector is also one of the important sector in Malaysia’s economic development. It was one of the highlighted issues during the former Prime Minister of Malaysia who is Tun Abdullah Ahmad Badawi’s. He strongly believed this industry can create wealth and reduce the property among the people from rural areas. Agriculture is divided into two categories which are industrial commodities and food sub-sector.
Besides that, Trade sector helps to boost the country’s economy.
Malaysia is associated with a number of trade organizations such as Association of Southeast Asian Nations (ASEAN), World Trade Organization (WTO) and Asia Pacific Economic Cooperation (APEC). China, Japan, Pakistan and New Zealand are the countries that Malaysia has signed a variety of memorandums and free trade agreements with. Malaysia primary commodities exports are rubber, palm oil and tin. Besides that, another products that contribute to economic growth are textiles, chemicals, electronic tools and wood.
Construction sector is a sector of economy that engaged in preparation of land and construction, alteration, repair of buildings, structures and other real property. Construction work done may include new work, alterations, additions or maintenance. The activities are generally managed at a fixed place of business but at mulitple project sites when they perform the construction activities. The Mining, Quarrying and Oil & Gas extraction sector comprises establishments that extract naturally occuring mineral solids such as coal and ores.
The word mining is used in the broad sense to include quarrying, well operations , beneficiating (crushing, screening, washing and flotation) and other preparation that normally performed at the mine site or as part of mining activity.
The Transportation and Warehousing sector includes industries providing transportation of passengers and cargo, warehousing and storage for goods, scenic & sightseeing transportation, and support activities which related to modes of transportation. The establishment in these industries use transportation equipment or transportation related facilities as a productive asset.
The type of equipment depends on the mode of transportation such as air, rail, water, road and pipeline. Private sector can be defined as the part of the company that is not state controlled and is run by companies or individuals for making profit. The private sector encompasses all for profit business that are not operated or owned by the government. While Public sector consists of national, local government, their agencies and their chartered bodies.
Public sector provide services that are not provided by the private sector.
Example of public sector includes services such as police, military, public road, public transit, primary education and healthcare for poor. 2. 3Performance of the Industry 2. 3.
1Agriculture Background Agriculture Sector in Malaysia is divided into two types. First is under the Ministry of Agriculture and Agro-Based Industry that cover the Food Subsector like Crop, Livestock and Fisheries. Second is under the Ministry of Primary Industry and Commodities that covers for Industrial Commodities like Palm Oil, Rubber, Cocoa, Pepper, Wood and Timber.
The total land area in Malaysia is 33 million hectare and for agricultural only it will take 6. 6 million hectare that means 20 per cent from the total land area to implement the agricultural activities.
Industrial crops like palm oil, rubber, cocoa, tobacco and pepper occupy about 77 per cent of total agricultural land while for other crops such as paddy, fruits, vegetables and coconut is cover by 16 per cent of total agricultural land. Agricultural sector in Malaysia is divided into two sectors that is Estate sub-sector and smallholders’ sub sector.
The characteristic for Estate sub-sector including of hold more than 100 acres land, highly commercialized and efficiently managed, owned by private companies, public-listed corporate entities or public land development agencies and it is also totally involved in the production of industrial crops such as oil palm, rubber, cocoa and pineapples. While for the smallholders’ sub-sector the average farm size is about 1. 45 hectares and owned by individual farmers, it is also be main contributors to food crop production as well as industrial crop production but this sub-sector is less commercialized and less efficiently managed. .
3. 2History of Government Efforts for Agriculture Sector Since 1984, Three National Agricultural Policy (NAP) was formulated to develop the agricultural sector. The first National Agricultural Policy is called NAP 1 it was be implemented to develop the export oriented sector and focus on expansionary policy on export crop example like oil palm and cocoa. In that time the government invested heavily on infrastructure, new land developments for oil palm and cocoa and also implemented of in-situ development to resolve uneconomic farm size and low productivity among small holders.
For NAP 2, the government has increasing productivity, efficiency and competitiveness while increasing land areas for palm oil (plantation crop) and also development in agro-based industry.
In year 1998 to 2010, the government has emphasis on the NAP 3. The specific objective of NAP 3 is to enhancing food security, increasing productivity and competitiveness of the sector, deepen linkages with other sectors, create new source of growth and adopting sustainable development, utilization and management of natural resources.
In other hand government also have set target in 2006 to 2010 in the 9th Malaysian Plan. Among the targets are to increased value added, increase self-sufficiency level and production. | 2011| 2010| 2009| 2008| 2007| Agriculture Contribution to GDP| -| 10.
5| -| 9. 7| 15| All figures are in percentage Table 2. 3: Agriculture Contribution to GDP of Malaysia Source: Index Mundi i. Event and Performance of 2007 In October 2007, Department of Agriculture of Rentak Timur Sdn Bhd (RTSB) organize a campaign named ‘Green Earth Campaign’. The venue for the campaign was in Taman Tasik Titiwangsa, Kuala Lumpur.
This event promotes Malaysian Citizens to produce their own food such as vegetables and fruits for personal consumption. In 2007, the agriculture sector has contributed 15 % to the overall GDP of 2007. The food commodities, higher palm oil, rubber production and Northern Corridor Economic Region-led projects have contributed to the agriculture sector. ii. Event and Performance of 2008 Malaysia set to host the region’s largest exhibition showcasing the latest Technologies and Innovations in the Agriculture, Agro-Based, Horticulture and Agrotourism Industry.
Ministry of Agriculture and Agro-Based Industry the host for the program and organised by Federal Agricultural Marketing Authority (FAMA), MAHA 2008.
Being awarded by The Malaysian Book of Records as the Largest Exhibition in Malaysia, MAHA 2008 is undoubtedly the largest industry gathering in the South East Asia region. In 2008, the agriculture sector has contributed 9. 7 % to the overall GDP of 2008. Higher palm oil yield, increases in rubber production, expansion in aquaculture have contributed to the agriculture sector. iii.
Event and Performance of 2009 World Agri Trade 2009 is the largest event in Agricultural industry in Malaysia. This conference aim to bring together scientists, professionals, technologists, strategists, financial consultants, industry leaders and government agencies in the field of Agriculture to discuss and finding the solutions for the most burning issues in the present Global economic crisis. It will offer an opportunity to explore advanced technology, industry knowledge, innovations and discoveries and valuable solutions in the agricultural world.
World Agri Trade Exhibition 2009 brings a wide range of products and services in Agriculture on the demonstration. The World Agri Trade 2009 Conference will cover the following topics which are Global Scenario on Agrotrade, Trade Protectionism: Emerging Technical and Non-tariff Barriers to Agrotrade, Developing local resources for Animal Feed Industry, Application of ICT enabled technologies: Food Traceability System, Agroforestry Revisit: Prospect and Viability, etc.
iv. Event and Performance of 2010
Once again Malaysia gets to host the ASEAN largest exhibition showcasing the latest technologies and innovations in the Agriculture, Agro-Based, Horticulture and Agrotourism Industry. Hosted by the Ministry of Agriculture (MOA) and Agro-Based Industry and organised by Federal Agricultural Marketing Authority (FAMA). The sixth edition of MAHA, which held from 26 November to 5 December 2010 attract 1. 5 million visitors.
The 10-day event had attracted participants from over 20 countries. While in 2010, the agriculture sector contributed 10. 5 % to the overall GDP of 2010.
It was driven mainly by higher production of industrial crops. v. Event and Performance of 2011 Economic Planning Unit of the Prime Minister’s Department of Malaysia (EPU) and University of Nottingham Malaysia Campus (UNMC) organized an event named High-Value Agriculture Symposium on Regional Food Security and Crop Diversification.
The aim for this program is to bring out strategies for public/private initiatives as well as national and sub regional partnerships on various fields and issues related to food security, crop diversification and high-value agriculture (HVA). 2. 4Nature of the Industry
The nature of our selected sector is plantation sector and it is specific to the crude palm oil industry. The Malaysian oil palm industry has developed over four decades and it has significantly contributed to the nation’s economy. Consistent with the national plan to empowering the agricultural-based sector, the palm oil industry will continue to play a vital role as a prime mover of the plantation commodity.
Wide research and development has been made in all aspects in Malaysia to increase the quality of the palm oil, Malaysia is pioneering technological advances in the palm oil industry.
Malaysia will continue to move ahead with new innovations covering the oil palm industry. To enhance the industries of palm oil performance new emerging sectors of oleochemical and biodiesel has been made. The oil palm industry also be the economic backbone of Malaysia and continues to face new challenges in the face of globalization. Rapid responses are needed to meet the increasing challenges of the industry.
Several technologies have made by the respective organization like MPOB towards the transition of crude palm oil from the laboratory to the market place.
Malaysia also is one of the world’s largest palm oil exporters. Malaysia currently records for 39 % of world palm oil production and 44% of world exports. If taken into account of other oils ; fats produced in the country, Malaysia accounts for 12% and 27% of the world’s total production and exports of oils and fats. As one of the biggest producers and exporters of palm oil Malaysia has a main role to perform in achieving the growing global need for palm oils. The refining of crude palm oil started in the early 70s in response to Government’s request for improved the industrialization sector in Malaysia.
In the 80s, another main innovatory was implemented where oleochemicals industry begins to develop due to plenty supply of palm and palm kernel oil. This also leads Malaysia to become a world leader in the oleochemicals sector in this period. 2. 5Production of the Industry Malaysia is second largest in the world in producing goods in the plantation sector. This sector contributes many portions to the Malaysian GDP.
The largest in the world is Indonesia. This is because they have many resources which are wide space of land. Examples of production in this sector are palm oil, rubber, cocoa, paddy, etc.
In this study, we are focusing on the production of the palm oil since TH Plantations Bhd is conducting this business. Table below shows the Palm Oil Process. The Palm Oil Process Figure 2.
1: Process of Palm Oil i. Bunch Reception Fresh fruit arrives from the field as bunches. The fresh fruit is normally emptied into wooden boxes suitable for weighing on a scale so that quantities of fruit arriving at the processing site may be checked. The quality standard achieved is initially dependent on the quality of bunches arriving at the mill.
The mill cannot improve upon this quality but can prevent or minimize further deterioration. The field factors that affect the composition and final quality of palm oil are genetic, age of the tree, agronomic, environmental, harvesting technique, handling and transport.
Many of these factors are beyond the control of a small-scale processor. Perhaps some control may be exercised over harvesting technique as well as post-harvest transport and handling. ii. Bunch Threshing This process being done by removing the fruit from bunches.
Manual threshing is achieved by cutting the fruit-laden spikelets from the bunch stem with an axe or machete and then separating the fruit from the spikelets by hand.
iii. Fruit Digestion Digestion is the process of releasing the palm oil in the fruit through the rupture or breaking down of the oil-bearing cells. The digester commonly used consists of a steam-heated cylindrical vessel fitted with a central rotating shaft carrying a number of beater (stirring) arms. Through the action of the rotating beater arms the fruit is pounded.
Pounding, or digesting the fruit at high temperature, helps to reduce the viscosity of the oil, destroys the fruits’ outer covering (exocarp), and completes the disruption of the oil cells already begun in the sterilization phase. Unfortunately, for reasons related to cost and maintenance, most small-scale digesters do not have the heat insulation and steam injections that help to maintain their contents at elevated temperatures during this operation.
iv. Pulp Pressing This is the process where extraction of palm oil taken place. There are two distinct methods of extracting oil from the digested material.
One system uses mechanical presses and is called the ‘dry’ method. The other called the ‘wet’ method uses hot water to leach out the oil.
In the ‘dry’ method the objective of the extraction stage is to squeeze the oil out of a mixture of oil, moisture, fibre and nuts by applying mechanical pressure on the digested mash. There are a large number of different types of presses but the principle of operation is similar for each. The presses may be designed for batch (small amounts of material operated upon for a time period) or continuous operations. v. Oil Clarification
The main point of clarification is to separate the oil from its entrained impurities.
The fluid coming out of the press is a mixture of palm oil, water, cell debris, fibrous material and ‘non-oily solids’. Because of the non-oily solids the mixture is very thick (viscous). Hot water is therefore added to the press output mixture to thin it. The dilution (addition of water) provides a barrier causing the heavy solids to fall to the bottom of the container while the lighter oil droplets flow through the watery mixture to the top when heat is applied to break the emulsion vi. Oil Drying and Packing
In large-scale mills the purified and dried oil is transferred to a tank for storage prior to dispatch from the mill. Since the rate of oxidation of the oil increases with the temperature of storage the oil is normally maintained around 50°C, using hot water or low-pressure steam-heating coils, to prevent solidification and fractionation.
Iron contamination from the storage tank may occur if the tank is not lined with a suitable protective coating. 2. 6Demand ; Supply | 2011| 2010| 2009| 2008| 2007| Export | 13,746,823| 15,412,512| 15,880,744| 15,372,862| 16,391,876| All figures are in tonnes Table 2. : Malaysia Export of Palm Oil Source: Malaysia Palm Oil Board To measure the demand and supply for the plantation sector, we have decided to take Malaysia export figure for palm oil since the company that we analyze which is TH Plantations Bhd conducting palm oil business. There are many countries in the world import palm oil from Malaysia. Just imagine when measure using tonnes, Malaysia exported 8 digits every year since 2007 until 2011.
This proves that Malaysia having huge demand for palm oil in the global market. i. 2007 In 2007, the total export for the year was 13,746,823 tonnes of palm oil.
In that particular year 3,840,389 tonnes exported to China. There are more than 100 countries imported palm oil from Malaysia.
This proves that Malaysia is trusted in the global market to supply palm oil. China was the largest importer of palm oil from Malaysia. Netherlands becomes the second largest importer of palm oil in that year with 1,460,554 tonnes of palm oil. Pakistan recorded third highest by importing 1,070,067 tonnes of palm oil. This 13 million tonnes of export actually is below target for that particular year.
It reaches this figure because there’s flood in Malaysia in that year.
There are floods in Johor state that ruin the normal cycle of palm oil production. ii. 2008 In 2008, the total export for the year was 15,412,512 tonnes. The total export for 2008 increase by 12. 12 % as compared the year 2007.
This shows that the increment for that year was strong. Malaysia experience growth for the export of palm oil. After flood hits Malaysia and affect the production for Malaysia in 2007, Malaysia managed to overcome this problem in 2008 by managed to increase export by 12. 12 %. The ranking for import of palm oil remains the same with the year 2007.
China biggest importer, Netherlands in second place and Pakistan is in the third place with 3,794,494, 1,297,888, 1,257,396 tonnes respectively. However this time, the gap between Netherlands and Pakistan is closer compared to 2007. iii. 2009 In 2009, the total export of palm oil for Malaysia was 15,880,744 tonnes. With this amount of supply to the global market, we can conclude that the world demand for palm oil from Malaysia is huge.
The palm oil business contribute big portion in the Malaysian GDP. The total export increment margin is low. The increment margin as compared to year 2008 is 3. 4 %. Actually this total export is below expectations.
This is due to the delay of using fertilizer. As for the ranking, there are changes happen as compared to the year 2008. China remains the main importer for three consecutive years, Pakistan in number two and India surprisingly become the third main importer of palm oil from Malaysia with 4,027,229, 1,769,321, 1,354,429 tonnes respectively. Netherland import less in 2009 with 989,834 tonnes. The declining palm oil imports into the Netherlands were mainly due to less palm oil usage in power generation.
The previous palm oil purchase of around 1.
3 million tonnes reduces because Dutch government’s implementation of the renewable energy programme. iv. 2010 1n 2010, the total export of palm oil for Malaysia was 15,372,862 tonnes. This figure drops as compared to 2009 with small margin. The margin for the drop is (3.
2 %). This drop due to an acute shortage of labor and the annual monsoon slow harvesting and reduce output. Heavy rain in the middle of the ongoing annual monsoon in top palm oil producing state of Sabah slowed down the progress on oil palm fruit collection.
This hugely affects the Malaysian export since Sabah contributes approximately 31 % of total palm oil output in Malaysia. In this year, the biggest importer palm oil from Malaysia was China.
Second is Pakistan and third is India with 3,288,156, 1,945,130, 1,074,296 metric tons respectively. Malaysian providing 15 percent tariff reduction on import of palm oil to Pakistan under Free Trade Agreement (FTA) that’s why Pakistan preferred to import palm oil in bulk quantity from Malaysia. v. 2011 In 2011, the total export of palm oil for Malaysia in January until November is 16,391,876 metric tons.
Even the year 2011 still not ended, there’s an increment margin of total export with 6.
63 % as compared to year 2010. Malaysia earns huge growth from exporting the palm oil in 2011. Malaysia earns all time high income from palm oil. This is due to the increment of price in of palm oil to RM3,000 per metric ton. Besides that, the total volume also reached at highest point for the year 2011. This is the reason why Malaysia managed to earn highest income for exporting palm oil in 2011 as compared to previous years.
For five straight years, China holds the record for importing the most palm oil from Malaysia.
China total import is 3,666,428 metric tons. In second place is Pakistan with 1,653,854 metric tons. India remains the number three main importer of palm oil from Malaysia with total import of 1,530,881 metric tons. China Premier Wen Jiabao promised Prime Minister Datuk Seri Najib Razak that they will continue to buy big quantities of Malaysian palm oil.
He gave that statement during his visit to Malaysia in April 2011. 2. 7Industry Life Cycle Figure 2. 2: Industry Life Cycle Generally, the Industry Life Cycle having four stages which are the introductory, growth, maturity and decline stage.
Every company will face this stages, the difference between all of the companies are the time taken for the particular company to complete this cycle.
For a very strong company, it took centuries to complete this cycle. As for certain companies, they will complete this cycle in short period of time. Characteristics of Industry Life Cycle i. Introductory Stage Companies that can be categorize in the introductory stage having several characteristics. Firstly, the cost for conducting business is massive since they have to conduct mass promotion to attract customers.
Besides that, they have to spend cost for administration, office equipments and many more. To earn all of that, huge budget have to be invested in the company. Secondly, the sales for the company are slow since the consumers are not familiar with the product that exists in the market. Thus, mass marketing is required in order for the product to be more recognizable in the market. Thirdly, usually there’s no surplus in budget for the early stage of the business since they have to spend more than they got to earn.
The management team has to be very patient and keep on giving big effort for the company to step forward in the future. i. Growth Stage In this stage, the company will experience increase at increasing rate for their sales since market get to familiarize the product that the company offered. More and more people tend to consume the product. Year by year the sales increasing at increasing rate which means the sales margin increase year by year and the company experience growth. There are several characteristics in growth stage.
Firstly, profitability begins to rise. The profit for the particular company increases year by year. Company’s profit earn higher year by year.
This is because the products are well known and already being establish to consumers. Secondly, competition increases widely.
More competitors enter into the market. This is because the competitors are motivated with the income that other company made in this industry. They try to compete with the same product in the market. Thus, pressure with the competition makes the company to reduce the price of their goods. Thirdly, the overall cost reduces since the company’s equipments, machines, etc all have been spent in the introductory stage. All they have to do is pay the cost for maintenance.
ii. Maturity Stage In this stage, the business is at their maturity; their business is recognizable by majority people in the local and global market. The sales experience increase at decreasing rate. This means that the sales figure still increase year by year but with lower margin. Usually, company will remain at this stage for a long period of time before they reach the declining stage. There are several characteristics for a company that can be categorized in this stage.
Firstly, sales volume reached at peak point. The company reaches favorable sales and reached maximum volume of sales.
The sales will sometimes increase or decreased a little bit since the sales volume can be affected by the economic conditions. Generally, companies in this stage will earn profit every year. Secondly, profit reaches the maximum point.
Profits are directly related to sales. This means that when sales increases, profits will increase too. Commonly, the company will earn profit every year. Thirdly, there are numbers of competitors entering into the market. Many new incorporated companies join the industry by promoting the same product. In this case the palm oil.
They enter in the market and make certain innovation to the product. Fourthly, increase in product line and product width happens in this stage. The company will diversify their product in this stage. The company take this precautionary action to evade from reduce in profit of earn loss. TH Plantations Bhd at Maturity Stage | 2006| 2007| 2008| 2009| 2010| Sales| 109,937| 165,509| 210,000| 141,730| 105,449| Profit| 37,471| 64,240| 70,170| 27,763| 65,948| All figures are in MYR Table 2.
5: Sales and Profit of TH Plantations Bhd Source: Company’s Annual Report Chart 1. : Sales and Profit of TH Plantations Bhd Based on our observation, TH Plantations Bhd is in the maturity stage in the Industry Life Cycle. The table above is the evidence for us to categories this company in the maturity stage. The sales figure for year 2006 until 2008 is increasing at decreasing rate. The margin for sales in the year 2007 compared with 2006 are RM55.
572 million. While the sales in the year 2008 as compared to 2007 the sales margin drops to RM44. 491 million. Thus, although the sales figure increase, but the increment’s momentum slow down year by year.
For the year 2009 and 2010, the sales figure dropped.
This is due to the economic downturn in the year 2009. As for the year 2010, although there’s a drop in sales figure, the profit is more compared to the previous year. This is due to the action that the company implements which is reducing the factors of production. By reducing this, the volume being sold to the market become smaller, however the profit is more since the company paying much lesser for the reduced factors of production. According to the graph, the profit also increases but with slower rate year by year.
This is the key element to prove that this company is in the maturity stage.
The profit only drops in the year 2009 due to bad economic condition. Next, in the year 2010, the profit come back to increase. Thus, TH Plantations Bhd in maturity stage in the Industry Life Cycle since the trend for their increment in sales and profit are increasing at decreasing rate. iv. Decline Stage This is the final stage of the industry life cycle.
When a company reaches this stage means the particular company is reaching the end of their life.
Just like human being and any other things in this world, for every start, there’s the end of the lifespan. There are several characteristics of a company when they reach the decline stage in the Industry Life Cycle. Firstly, the sales volume decline at declining rate. This means that the sales decline at higher rate year to year. For instance, in the year n as compared to year n-1, the sales decline at RM 1.
3 million, as for the year n+1 as compared to n, the decline rate of sales increases at RM 1. 5 million. Secondly, the prices and the profitability diminished. The price of the product reduces with very obvious change.
Many consumer stop buying the product that the company produces and thus, this pressure the company to set their product at a lower price. Slowly the profit becomes smaller for the company.
2. 8Market Share 2. 8. 1General Market Share Company| Sales (RM)| Market Sharea| Rank| IOI Corporation Bhd | 11,830,006,000| 28. 19| 1| Kuala Lumpur Kepong Berhad| 7,743,594,000| 18.
45| 2| TH Plantations Bhd | 303,737,000| 0. 72| 18| Others | 22,093,318,718| 52. 64| -| TOTAL | 41,970,655,718| 100| -| a Figures are in percentage Table 2. 6: General Market Share of Plantation Industry Source: Company’s Annual Report Chart 1. : General Market Share of Plantation Industry Market share is the percentage of an industry or market’s total sales that is earned by a particular company over a specified time period.
Table and chart above show the general market share of all the companies listed in Bursa Malaysia in plantation industry. After collected all sales data and analyzed the market share for all the companies listed in Bursa Malaysia in plantation industry, it shows that IOI Corporation Bhd leads the general market share with the percentage of 28. 19 % and which had the 1st rank of the general market share with the sales figure of RM 11,830,006,000.
IOI Corporation Bhd is the second largest oil palm producer in Malaysia. IOI Corporation Bhd had become major player in the plantation industry sector for last 30 years period of establishment. At present, IOI Group is internationally known as leading global integrated palm oil player.
With operations stretching the entire palm value chain, IOI Groups serve global markets more than 65 countries such as China and India. IOI Corporation Bhd’s impressive growth in the expansion of planted area, revenue generation and improvement in productivity are the success factors for the IOI Corporation Bhd.
Next, the 2nd rank in the general market share was Kuala Lumpur Kepong Berhad. Kuala Lumpur Kepong Berhad had contributes 18. 45 % in the market share of the plantation industry with the sales figure of RM 7,743,594,000. After FELDA and IOI Corporation Berhad, Kuala Lumpur Kepong Berhad is the third largest of oil palm producer in Malaysia.
Kuala Lumpur Kepong Berhad focused on the use of high quality planting materials and leverage on expert agronomic advice from its highly regarded research and development associate, Applied Agricultural Resources Sdn Bhd.
It is the implementation of best practices through its Group Agricultural Policy. By this, Kuala Lumpur Kepong’s mission to increase productivity is made successful. Lately, Kuala Lumpur Kepong Berhad is plan to invest million cost of total four projects over the next two years to expand the downstream activities of the palm oil industry. As for the company that we analyzed which is TH Plantations Bhd, TH Plantations Bhd is at the rank of 18th. With the sales figure of RM 303,737,000, TH Plantations Bhd only contributes 0.
72 % to the market share.
THP Group is committed to sustain traceability in the palm oil process value chain in achieving best quality products. It also strives to embrace expectations of stakeholders, harness the potential of human capital and entrench its commitment towards socio-economic and environmental demands. Lastly, the other companies dominated the general market share with percentage of 52. 64 % which represent sales figure of RM 22,093,318,718 with different business activities in same sector.
2. 8. 2Specific Market Share Company| Sales (RM)| Market Sharea| Rank| Sarawak Oil Palms Bhd | 852,724,000| 2. 5| 10| Kim Loong Resources Bhd| 591,003,000| 1. 42| 11| TH Plantations Bhd| 303,737,000| 0.
73| 18| Others | 39,911,312,372| 95. 80| -| TOTAL | 41,658,776,372| 100| -| a Figures are in percentage Table 2. 7: Specific Market Share of Plantation Industry Source: Company’s Annual Report Chart 1. 3: Specific Market Share of Plantation Industry Based on the table and chart above, it shows the specific market share of same core business of the listed companies in plantation industry. Specific market share is focus on the core business of palm oil activities.
After interpret all data, it shows that the first competitor which is Sarawak Oil Palms Bhd leads the specific market share with 2. 05 %. This shows that the first competitor was at the rank of 10th which had pull through second competitor, Kim Loong Resources Bhd and also the main company that we analyzed which is TH Plantations Bhd. Sarawak Oil Palms Bhd which previously listed in FTSE Bursa Malaysia Small Cap Index, are included in the FTSE Bursa Malaysia Mid 70. This because of it has one of the most favourable tree age profiles within their plantation universe.
The second competitor which is Kim Loong Resources Bhd contributes 1.
42 % to the specific market share. Kim Loong Resources Bhd with the sales figure of RM 591,003,000 is at the 11th rank and indicates the sales of the company is lower than Sarawak Oil Palms Bhd but higher than TH Plantations Bhd. Kim Loong Resources Bhd stated that the increases in revenue and profit before tax were mainly due to the higher CPO and palm kernel oil prices which were about 38 % and 91 % higher than the corresponding period last year.
Besides, the increase in production was mainly from its estates in Keningau region which had recovered from low crop season in 2010. Next, the main company that we analyzed which is TH Plantations Bhd contributes only 0. 73 % to the specific market.
Sales figure of TH Plantations Bhd which is RM 303,737,000 is at the 18th rank. The specific market share of the TH Plantations Bhd is lower than the main competitors which are Sarawak Oil Palms Bhd and Kim Loong Resources Bhd. Better revenue figure of TH Plantations Bhd due to favorable product prices despite lower output.
By the favorable product prices, it’s contributed to higher margin and net profit to the company. For further explanation, due to higher CPO and palm kernel selling price, this leads to increase in revenue despite lower sales volume. Though not the largest company, TH Plantations Bhd does strive for world-class standards and efficiency.
Lastly, the other companies dominated 95. 80 % to the specific market share with the sum of sales RM 39,911,312,372. All the companies counted in specific market share have the same business and core activities which is palm oil business activities. . 9Specific Market Size Company| Paid Up Capital | Market Sizeb| Rank| Sarawak Oil Palms Bhd | 433,163,959| 4. 18| 7| Kim Loong Resources Bhd| 304,481,212| 2.
94| 10| TH Plantations Bhd| 250,140,800| 2. 42| 12| Others | 9,364,978,654| 90. 46| -| TOTAL | 10,352,764,625| 100| -| b Figures are in percentage Table 2. 8: Specific Market Size of Plantation Industry Source: Company’s Annual Report Chart 1. 4: Specific Market Size of Plantation Industry Table and chart above shows the specific market size of the plantation industry.
The information obtained shows that the first competitor which is Sarawak Oil Palms Bhd contributes 4.
18 % to the specific market size. With the paid up capital of RM 433,163,959, Sarawak Oil Palms Bhd is at the rank of 7th, which is higher than Kim Loong Resources Bhd and TH Plantations Bhd. Sarawak Oil Palms Bhd has a strong balance sheet and cash position due to its strong operating cash flow generation despite the funding for new planting expenditure. Followed by the 10th rank, Kim Loong Resources Bhd contributes 2. 94 % to the specific market size.
The paid up capital of Kim Loong Resources Bhd is RM 304,481,212. Kim Loong Resources Bhd’s paid up capital is higher than TH Plantations Bhd, however, is lower than Sarawak Oil Palms Bhd with the difference of RM 128,682,747. In order to expand the business and become more profitability, Kim Loong Resources Bhd is looking for more land in the domestic country as part of its long-term plan to increase its oil palm plantation acreage. The company prefers to have the land that located nearby the existing palm oil mills to achieve better economies of scale.
Kim Loong Resources Bhd main focus now was to speed up the development of its plantations in Sarawak and maintain good relationships with native owners operating on native customary rights (NCR) land projects. Next, TH Plantations Bhd is at the 12th rank, with the paid up capital of RM 250,140,800.
At the specific market size, TH Plantations Bhd contributes only 2. 42 % to the specific market share. By comparing with Sarawak Oil Palms Bhd and Kim Loong Resources Bhd, TH Plantations Bhd had the lowest paid up capital and indicates TH Plantations Bhd had lower market size compared to both competitors.
TH Plantations Bhd is a small to medium-sized company. In intention to raise the fund for expansion of the business in future, TH Plantations Bhd had standby credit line of approximately RM 150 million through issuance of Bai Murabahah Medium Term Notes to its parent Lembaga Tabung Haji (LTH), as the sole subscriber.
The stand-by facility is a back-up plan for TH Plantations Bhd’s expansion and development initiatives. Last but not least, the majority who dominated the percentage of specific market size are the other companies which contributes total of 90. 46 % to the market size with the total figure of paid up capital RM 9,364,978,654. . 10Competitors There are two companies that considered as TH Plantations Bhd’s competitors.
These two major companies give competitive rivalry in the market place that share similar industry, nature of activity and likely in their sell and paid up capital. These two competitors are: i. Sarawak Oil Palms Bhd ii. Kim Loong Resources Bhd Both of these competitors were listed in Malaysia public company listed on the Bursa Malaysia. Sarawak Oil Palms Bhd and Kim Loong Resources Bhd are involved primarily in the cultivation of oil palms and the operations of palm oil mills.
These two companies listed as the competitors because of the participation activities in the same sector and some of other factors such as doing sales in palm oils, competition in the market, property owned, financial, marketing strategies and many more. Sarawak Oil Palms Bhd considered as main competitors for TH Plantations Bhd followed by Kim Loong Resources as second competitors. These companies usually reveals to sized up their target markets and use approach that meet their customer’s needs, values and expectations though important consideration like location, product, services and product features also play major factors.
Below are the details regarding the companies: 2. 10.
1Competitor I – Sarawak Oil Palms Bhd Sarawak Oil Palms Bhd operates in the cash grains sector. Sarawak Oil Palms Bhd is a Malaysia-based company engaged in the cultivation of oil palms and the operations of palm oil mills in Malaysia. During 2010, the Company produced 238,204 tons of crude palm oil and 49,182 tons of palm kernels. Sarawak Oil Palms Bhd has expanded its land bank to over 65,000 hectares with 35,000 hectares planted with oil palm located in Sarawak.
Plantation of oil palm continues to remain as the sole core business of the company.
The Group has crude palm oil and palm kernel as its sole fruits products. On the 9th May 2011, SOPB had issued and paid-up of 433,163,959 ordinary shares of RM 1. 00 each. Its shareholders’ fund or market capitalization exceeds RM 2. 344 billion.
2. 10. 2Competitor II – Kim Loong Resources Bhd Kim Loong Resources Bhd operates in the Vegetable oil mills sector. Kim Loong Resources Bhd is a Malaysia based company engaged in the cultivation of oil palm and cocoa and investment holding.
The Company operates into two business segments and that is plantation segment, which is engaged in the cultivation of oil palm and cocoa and milling segment which is engaged in processing and marketing of oil palm products. The Company’s products include oil palm fresh fruit bunches, oils, palm kernel, palm kernel expeller and biomass.
In year 2011, the company plan to look for more land in the country as part of its long term plan to increase its oil palm plantation estate. The group has oil palm estates in Johor, Sabah and Sarawak. For the financial year ended January 31st, Kim Loong registered net profit of RM 71. 1mil on revenue of RM563. 40mil compared with RM 59. 52mil and RM 451.
53mil respectively in financial year 2010. 2. 11Backing Factor This section stated the reason or any backing factors that contribute the development of the company, TH Plantations Bhd. Whether it’s direct or indirect factors that contribute or helps to the future achievement to country’s agriculture sector. There are many bodies that help to contribute to these factors such as government and private bodies’ example bank and financial institution that would backup in term of giving loans in favor to complete the projects.
These backing factors are the reason why the company holds an excellent future in the agriculture industry by affecting TH Plantations Bhd holding’s performance, growth, profits and many more aspects. Some of the factors are like below: i. Pioneer Status As in agriculture sector, companies producing promoted products or engaged in promoted activities are eligible for Pioneer Status. A Pioneer status company enjoys a partial exemption from income tax. The company pays 30 % of its income for 5 years, starting from its production game.
i. Investment Tax Allowance As an alternative to Pioneer Status, companies producing promoted products or engaged in promoted activities can apply for Investment Tax Allowance. A company granted Investment Tax Allowance is eligible for an allowance of 60 % on its qualifying capital expenditure incurred within five years from the date on which the first qualifying capital expenditure is incurred. Companies can make up for this allowance against 70 % of their statutory income in the year of assessment.
Any unutilized allowance can be carried forward to following years until fully utilized. The remaining 30 % of the statutory income is taxed at the prevailing company tax rate.
iii. Incentive for reinvestment in Resource-Based Industries This incentive is offered to companies that are at least 51 % Malaysian-owned and are in the rubber, oil palm and wood-based industries products, which have export potential. Companies in these industries reinvesting for expansion purposed are eligible for another round of Pioneer Status or Investment Tax
Allowance. Activities located in the promoted areas such as the States of Perlis, Sabah, Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia are eligible for higher levels of exemption/allowance under Pioneer Status or ITA in accordance with that given for promoted areas. iv. Agricultural Allowance For agricultural allowance, a company that carrying on an agricultural activity can claim capital allowances and special industrial building allowances under the income Tax Act 1967 for certain capital expenditure.
Capital expenditure which qualifies includes expenditure incurred on clearing and preparation of land, planting of crops and others such as crop cultivation and other agricultural. v. Third Industrial Master Plan The objective of third Industrial Master Plan is to achieve long term global competitiveness through transformation and innovation of the manufacturing and services sectors. It covers manufacturing sector, agro based industries and non government services sector. 12 industries in the manufacturing sector have been targeted for further development and promotion.
Among them, six are non resource based on the rest are resource based industries. Non resources based industries are electrical and electronics, medical devices, textiles and apparel, machinery and equipment and, metals and transport equipment. The resources based industries are petrochemicals, pharmaceuticals, wood-based, rubber-based, oil palm-based and food processing. CONCLUSION In a conclusion, industry analysis is very an important aspect since it assesses the outlook of a particular industry. The investor can make a comparison after he had analyzed the outlook for the entire different industry sector and its main activities.
Besides that, industry analysis analyzed the understanding of the nature of the business and the operating characteristics of an industry, which it can be used to form judgments or predictions about the prospect for that particular industry condition or its growth. In industry analysis, we look on the general development in the country, contribution of GDP in Malaysia, the performance, nature and the production of the selected industry . We also look into the demand and supply on the selected sector, the industry life cycle, its market share and its specific market size.
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