1.

0 INTRODUCTION
1.1 Telecommunication Industry in Malaysia
The introduction of telephone services in Malaysia started in 1891 with the first
telephone exchange installed in Kuala Lumpur. There were only 21 telephones in Kuala
Lumpur supported by 400 miles of telephone and telegraph lines during the initial
development stage. The telecommunications system was regarded fairly advanced
particularly in Peninsular Malaysia by 1908. In 1985, Telekom Malaysia introduced mobile
services into Malaysia, since then, the government granted a number of license to private
sector telecommunication operations in an effort to develop the countrys telecommunication
industry and infrastructure. Malaysian Communication and Multimedia Commission
established as a regulatory body.
In the past 5 years ago, the telecommunication industry in Malaysia has been led by
only three most popular companies: Maxis, Digi and Celcom. The services that are offered
by the companies have significantly helped people to make their daily lives easier. The three
companies has been competing with each other to be at the top and leading the industry.
However, the number of telecommunication companies that are operating in fulfilling the
needs of people to communicate in Malaysia is increasing. The telecommunication market
has been dominated by major telecommunication companies such as Umobile and Tune
Talk. The telecommunication market structure in Malaysia is become oligopoly due to the
competition in the telecommunication market. In order to maintain their position in the
market, they would have to consider the possible reaction of rivals to its own pricing, output
and advertising decisions.

1.2 Company Background

1.2.1

Maxis Berhad

Maxis Berhad is a communications service provider in Malaysia. Maxis provides a variety of

mobile communication products and services. They offer prepaid data plans, call plans and SMS
plans, postpaid data plans, call plans and SMS plans, devices, wireless broadband, fibre
internet, international roaming, MMS, WAP (over both GSM and GPRS) and residential fixed line
services.
For business customers, Maxis offer cloud computing, data storage, machine-to-machine
services, fixed high speed internet, VSAT services (satellite based communications), call
conferencing and a variety of mobile plans. Maxis also provides online games and a music store
for its customers to download multimedia content. Maxis' most popular service is its prepaid brand
Hotlink, which currently serves over 9.5 million customers in Malaysia.

1.2.2

Celcom Axiata Berhad

Axiata Group Bhd. is an investment holding company, which engages in the provision of
mobile communication and network transmission related services. The firm operates through the
following segments: Malaysia, Indonesia, Bangladesh, Sri Lanka, and Others. It also offers
technical and management services on an international scale with investments in subsidiaries, joint
ventures, and associates.
Axiata has controlling interests in mobile operators in Malaysia, Indonesia, Sri Lanka,
Bangladesh and Cambodia with significant strategic stakes in India and Singapore. In addition, the
Malaysian-grown holding company has stakes in non-mobile telecommunications operations in
Pakistan. The Groups mobile subsidiaries and associates operate under the brand name Celcom
in Malaysia, XL in Indonesia, Dialog in Sri Lanka, Robi in Bangladesh, Smart in Cambodia,
Idea in India and M1 in Singapore. Added to this, the Group has established a communications
infrastructure solutions and services company called edotco. Axiata has blazed a path across the
region; from 40 million customers, pre-demerger, to over 250 million across 8 countries, in six
years, making Axiata one of the largest mobile players in Asia.

1.3 Objective of the Study

The main objective of this study is to perform financial statement analysis of Maxis
Berhad and Celcom Axiata Berhad. This study analysed 3 consecutive years of annual
reports of both companies from 2012 to 2014.The 2 companies was evaluated on its
financial conditions, profitability, liquidity and long term credit risk which is Celcom Axiata
Group Berhad and Maxis Group Berhad .The company was evaluated on its financial
conditions , profitability , liquidity and long-term credit risk .
Parameters that involved in the evaluation are as below :

Cash flow condition

Profit and loss of the company and trend

Abilities of controlling debt and liabilities

Financial statements are historical documents while financial ratios show relatonships
that have existed in the past . Analysts , investors and business decision makers are
primarily interested in the current condition and future condition rather than the past . Past
financial ratios are useful tool for them to use as a basis for making financial condition
predictions .

2.0 FINANCIAL STATEMENT ANALYSIS

2.1 Tools and Analysis
A financial statement is a formal record of any business, individual, or entitys financial
activities. All the important information of a business enterprise is presented in the financial
statements. The main aim of financial statements is providing info about the financial position,
performance, and variations in the financial position of a business enterprise. An understandable
financial statement helps business entitys stakeholders to get reasonable knowledge about the
business and its economic activities.

Ratio is a mathematical expression of the relationship of one item to another. It is important in

understanding financial statements because it compares information from one financial statement
with information from another financial statement. By using ratios/percentage, creditors or investors
able to judge and analyse company performance and financial position throughout the years.
2.2 Performance on Profitability
Summary Table
MAXIS BERHAD

CELCOM AXIATA BERHAD

Item

2014

2013

2012

2014

2013

2012

Percentage change in net

sales

(8.30)

1.3

1.9

1.8

3.9

6.8

Return on Assets

9.5

10.2

10.5

4.8

6.3

6.3

Return on Equity

36.4

29.5

26.4

10.4

12.8

13.1

Gross Profit Rate

67.7

66.0

66.5

16.7

19.2

21.3

2.2.1 Percentage change in revenue

Percentage changes in revenue = dollar amount change in revenue / financial statement
amount in the earlier year*100

MAXIS BERHAD
Item

CELCOM AXIATA BERHAD

2014

2013

2012

Revenue (RM'000)

8,388,502

9,084,452

8,966,828

Change in amount

( 695,950 )

117,624

166,907

340,936

719,224

1,203,680

( 8.30% )

1.29%

1.86%

1.82%

3.92%

6.82%

Percentage change in revenue

2014

2013

2012

18,711,777 18,370,841 17,651,617

A percentage change in net sales is the rate at which net sales is increasing or
decreasing. It is the growth rate of a company in sales. Percentage changes in net sales of
Maxis Berhad remain constant from 2012 to 2013, however, there is 8.3% decreased in net
sales in year 2014. This is because Maxis introduced worry-free propositions in the way they
charge for data and roaming. The impact of voice and SMS was a factor in their financial
performance.
Meanwhile , percentage chages in net sales of Celcom Axiata Berhad slightly increased
from 2012 until 2014 . Net sales has increased from 6.82% in 2012 to 3.92% in 2013 and it
is continue increased to 1.82% in 2014 . According to Celcom Axiata Berhad annual report ,
Celcom Axiata Group keep provide the service with the latest technology which is 4G LTE .
The service can be reachable even though the consumer is in the rural area .
2.2.2 Return on Assets
Return on assets = net profit / total assets*100
MAXIS BERHAD
Item

CELCOM AXIATA BERHAD

2014

2013

2012

2014

2013

2012

Net Profit (RM'000)

1,724,824

1,772,255

1,860,519

2,344,413

2,738,577

2,879,577

Total Assets (RM'000)

18,109,608 17,329,585 17,802,179 49,127,437 43,497,246 45,930,601

Return on Assets (%)

9.52%

10.23%

10.45%

4.77%

6.30%

6.27%

Return on assets measures efficiency of the business in using its assets to generate net profit.
Besides, this ratio could help both company management and investors to have a view on how well
the company could convert its investments in assets into profits. Maxis Berhad had decreasing
trend for ROA from year 2012 to year 2014. The negative percentage of ROA is unfavourable to
investors because it shows that the company is ineffectively managing its assets to produce
greater amounts of net income. This is because Maxis invested significantly in modernising their
network, and expansion plans to provide the best sales and service experience to customers.
The three year average for return on assets of Maxis Berhad was 10.07% while Celcom Axiata
Berhad was 5.78% . This higher percentage for Maxis Berhad reflects a more efficient use of its
assets and higher earnings from products and services sold per company asset . Both companies
have strong return on assets that goes to show the loyal base of customers each brand name of
the two companies has .
2.2.3 Return on Equity
Return on equity = net profit / total equity*100
MAXIS BERHAD
Item

CELCOM AXIATA BERHAD

2014

2013

2012

2014

2013

2012

Net Profit (RM'000)

1,724,824

1,772,255

1,860,519

2,344,413

2,738,577

2,879,577

Total Equity

4,737,767

6,016,816

7,057,305

22,557,787 21,379,071 22,007,222

36.41%

29.46%

26.36%

Return on Equity (%)

10.39%

12.81%

13.08%

Return on equity ratio (ROE) is a profitability ratio from the investor's point of view. In other
words, ROE is a profitability ratio that measures the ability of a company to generate profits from its
shareholders investments. Maxis Berhad had increasing trend for ROE from year 2012 to year
2014. This higher ratio indicated that the company is using its investors' funds effectively.
The return on equity for Maxis Berhad averaged 30.74% while Celcom Axiata Berhad
averaged 12.09% . An observation of this profitability measure shows that Maxis Berhad is possibly
much more attractive for potential investors for its ability to effectively manage and use funds
generated through shareholders equity .

2.2.4 Gross Profit Rate

Gross profit rate = gross profit / revenue*100
MAXIS BERHAD
Item

CELCOM AXIATA BERHAD

2014

2013

2012

2014

2013

2012

Revenue (RM'000)

8,388,502

9,084,452

8,966,828

18,711,777 18,370,841 17,651,617

Gross Profit (RM'000)

5,681,537

5,995,184

5,960,987

3,114,456

3,533,039

3,761,794

Gross Profit Rate (%)

67.73%

65.99%

66.48%

16.65%

19.23%

21.31%

Gross profit rate is a measure of the profitability of the company products. Gross profit
rate fall from 66.48% in year 2012 to 65.99% in year 2013, a decline of 0.49%. Gross profit
rate has increased for 1.74% from year 2013 to year 2014. The gross profit rate of Maxis
Berhad is fluctuated from year 2012 to year 2014, means the company is operating
inefficiency and frequent changing customer demand of companys products in the
perception of investors. Gross Profit increased in year 2014 due to Maxis first launching the
4G LTE network, now covers key market centres and state capitals, offering four times faster
downloads and a better video streaming experience.
However , gross profit rate for Celcom is slightly fall from 2012 until 2014 . Celcom
Axiata had a risky year in 2013 when the rate fell in 2.08% which is from 21.31% to 19.23% .
It continue for the next year which is drop again in 2.58% of 21.31% . The average of gorss
profit rate for Maxis Berhad is 66.73% and Celcom Axiata Group averaged 19.06% . The
decline in Celcom Axiata Group gross profit rate was mainly driven by its IT transformation
programme. The company also faced IT system issues, and this has affected its capability to
launch new products in a speedy manner . The currency performance in Malaysia and
Indonesia ( which is PT XL Axiata Tbk ) was so bad and contributed to the profit rate
performance .

2.3 Performance on Liquidity

Summary Table
MAXIS BERHAD
Item

CELCOM AXIATA BERHAD

2014

2013

2012

2014

2013

2012

3.7

4.2

5.7

0.8

1.2

1.3

11,348,231

11,816,983

Accounts Receivable
turnover rate

8.6

9.6

9.7

6.1

6.9

8.4

Cash Flow from

operations to current
liabilities

0.98

0.95

1.24

0.5

0.7

0.9

Current Ratio

Working Capital
(RM'000)

12,991,984 ( 2,242,624 ) 1,198,950

2,652,126

2.3.1 Current Ratio

Current ratio = Current Assets/Current Liabilities
MAXIS BERHAD
Item

2014

2013

CELCOM AXIATA BERHAD

2012

2014

2013

2012

Current Assets (RM'000)

15,531,479 15,477,427 15,760,137

8,316,369

9,239,861

10,390,539

Current Liabilities (RM'000)

4,183,248

3,660,444

2,768,153

10,558,993

8,040,911

7,738,413

3.71

4.23

5.69

0.79

1.15

1.34

Current Ratio

Current ratio is to measure a company ability to pay short term obligations. Although Maxis
Berhad had decreasing trend for current ratio from year 2012 to year 2014, but according to rule of
thumb for the ratio of current assets to current liabilities which shows a good financial position of a
company is 2:1, so Maxis not having trouble getting paid on their receivables or having long
inventory turnover.
Average current ratio for Maxis Berhad was 4.54 compared to Celcom Axiata Berhad was 1.09
. It tells that Maxis Berhad has more current assets to cover its short term liabilities and makes
Maxis Berhad a safer and more financially strong company compared to Celcom Axiata Berhad .

2.3.2 Working Capital

Working capital = currents asset - current liabilities
MAXIS BERHAD
Item

CELCOM AXIATA BERHAD

2014

2013

2012

2014

2013

2012

Current Assets (RM'000)

15,531,479

15,477,427

15,760,137

8,316,369

9,239,861

10,390,539

Current Liabilities (RM'000)

4,183,248

3,660,444

2,768,153

10,558,993

8,040,911

7,738,413

Working Capital (RM'000)

11,348,231

11,816,983

12,991,984 ( 2,242,624 )

1,198,950

2,652,126

Working capital is to measure of company efficiency and it short term financial health. A
companys current assets must exceed it current liabilities. From the table above, it shown
that Maxis Berhad consistently having positive amount of working capital, which it able to
pay back creditor in the short term . Meanwhile , Celcom Axiata Berhad is began to suffering
losses .

2.3.3 Account Receivable Turnover Rate and Day to Collect Average Accounts Receivable
Accounts receivable turnover rate = revenue / accounts receivable
Day to Collect Average Accounts Receivable = Days / Accounts Receivable turnover rate
MAXIS BERHAD
Item

CELCOM AXIATA BERHAD

2014

2013

2012

8,388,502

9,084,452

8,966,828

Account Receivables (RM'000)

970,453

946,720

922,284

3,062,390

2,679,905

2,112,098

Accounts Receivable turnover

rate

8.64

9.60

9.72

6.11

6.86

8.36

Days

365

365

365

365

365

365

42.25

38.02

37.55

59.74

53.21

43.66

Revenue (RM'000)

Days to collect average account

receivable ( days )

2014

2013

2012

18,711,777 18,370,841 17,651,617

Accounts receivable turnover rate indicates how quickly receivables are collected. Generally a
high value of accounts receivable turnover rate is favourable and lower figure may indicate
inefficiency in collecting outstanding sales. Maxis Berhad had decreasing trend for accounts
receivable turnover rate from year 2012 to year 2014. In the accounting policy of Maxis, when the
debt becomes uncollectible, it is written off against the allowance account. Subsequent recoveries
of amount previously written off are recognised in the statement of profit or loss . Hence , a very
high value of account receivables turnover rate may bot be favourbale if it was achieved by
extremely strict credit terms since such policies may repel potential buyers .
Even though Celcom Axiata Berhad showing a good value of account receivables turnover rate
, a normal level of receivables turnover is different for different industries . Maxis Berhad able to
collect customers payments on account receivable is stronger than Celcom Axiata Berhad , with
Maxis Berhad taking 39.27 days on average compared to Celcom Axiata Berhad's 52.2 days .
While both companies collection period was longer than the normal business benchmark of 30
days , Maxis Berhad was much more successful and efficient in collection from its customers and
thus reduced the liability for risky accounts receivable .
2.3.4 Operating Cash Flow to current Liabilities
Operating Cash Flow to current Liabilities = Cash Flow from Operation / Current Liabilities
MAXIS BERHAD
Item

CELCOM AXIATA BERHAD

2014

2013

2012

2014

2013

2012

Cash flow from/used in operating

activities

4,106,372

3,476,918

3,420,632

5,583,914

5,648,243

6,836,981

Current Liabilities (RM'000)

4,183,248

3,660,444

2,768,153

10,558,993

8,040,911

7,738,413

0.98

0.95

1.24

0.53

0.7

0.88

Cash Flow from operations to

current liabilities

The Operating Cash Flow ratio is used to analysis the cash flow of the Group. It shows how
the cash flow in and out from the company. In flow of cash enable the Group to pay their bills and
liabilities. It measures the Group liquidity in short run as it related to reimburse their short term
obligations. From the table, the ratio is constant from year 2013 to 2014. Maxis Berhad is still able
to turn sales into cash.
Meanwhile , Celcom Axiata Berhad shows a decreasing movement for the cash flow from
operating activities from year 2012 until 2014 . The poor ratio indicates that the group is facing an
uphill task to increase their operation cash flow ratio to meet short-term liabilities and to raise its
liquidity for the uses of funding the business's other operations . Less flexibility is given when the
cash flow is low to finance the strategies in use for adapting the market changes .

2.4 Performance on Long Term Credit Risk

Summary Table

MAXIS BERHAD
Item
Long Term Debt Ratio

CELCOM AXIATA BERHAD

2014

2013

2012

2014

2013

2012

74%

65%

60%

54%

51%

46%

2.4.1 Long Term Debt Ratio

Debt ratio = total liabilities / total assets*100
MAXIS BERHAD
Item

2014

2013

CELCOM AXIATA BERHAD

2012

2014

2013

2012

Total Assets (RM'000)

18,109,608 17,329,585 17,802,179 49,127,437 43,497,246 45,930,601

Total Liabilities (RM'000)

13,371,841 11,312,769 10,744,874 26,569,650 22,118,175 20,923,379

Long Term Debt Ratio

74%

65%

60%

54%

51%

46%

Debt ratio indicates relative size of the equity position and shows percentage of assets
financed by creditors. Debt ratio gives general idea of the amount of leverage being used by
a company. A low percentage means that the company is less dependent on leverage. The
lower the percentage, the less leverage a company is using and the stronger its equity
position. However, the higher the ratio, the more risk that the company is considered to have
taken on. Maxis had increasing trend for the long term debt ratio from year 2012 to 2014.
This is because major liabilities of Maxis, example, payables and borrowings had increased,
due to weakening RM against USD and SGD, thus higher interest rates on the borrowings.
Maxis Berhad's three years average of long term debt ratio was 66.33% , compared to
Celcom Axiata Berhad lower average ratio of 50.33% . While many feel that debt from
creditors is more harmful because of the interest paid on the principle borrowed , the
advantage here is that once the creditor is paid back , they are gone and off the payroll .
Maxis Berhad approach to being more heavily financed through debt than equity may be in
an attempt to keep earnings per share at an increased level .

3.0 SUGGESTIONS FOR IMPROVEMENT AND CONCLUSION

3.1 Suggestions for improvement
Both Maxis Berhad and Celcom Axiata Berhad have the financial statistics showing why they
are strong competitors in the telecommunication industry . In an industry that attracts potential
customers by offering the latest service at cheapest price , Maxis Berhad needs an increase their
amount of research and development to develop a new scheme . Maxis Berhad has to combined
competitors strenght into new scheme . It would be wise for Maxis Berhad to focus on precise
areas where they have a strong competency and to be unique among the telco consumers . Maxis
Berhad can extend their service to rural area especially to police and military quarters which got
more potential consumers because usually the quarters is near to the rural areas and a quarters
contains at least 80 families and it can reach 200 300 families depends on location . These
location basically use Celcom coverage . Maxis Berhad also can use new university or new
university hostel as their new location for internet coverage . All these locations is under federal
government land and the rental fees is expensive . Also , the federal government does not want to
bear any fees if anything happen to the telco coverage material . But Maxis can give a try just like
Celcom Axiata Berhad does because they have to come out with their new business strategy . At
the moment , the amount of increased funds used on marketing , general and administrative has
not equally translated into higher sales revenue .
Maxis Berhad's profitability and liquidity performance are quite strong , but need to improve
their operating performance . If they are able to increase their profit margins within their operating
performance , it will give a higher net income and possibly increase asset utilization . Maxis also
can reduce the debt if they are consistence in improving their operating performance .
Celcom Axiata Berhad's area of improvement is with its collection period . Currently , the
collection period is too long and is causing Celcom Axiata Berhad to use its working capital funds
to clear the account payable . Celcom Axiata Berhad also can reduce the liability which is growth in
big amaount within a year . Celcom Axiata Berhad also making losses in 2014 and if the company
continues in making losses for five times in a row , there is high possibility that the company would
be classified as PN17 issuer in the future . The company has to looking into formulating a plan to
regularise its financial condition .

3.2 Conclusion and recommendation for investment

One of the better ways to determine a company's direction financially is to look at the
last few years of their performance and see where they physically placed their priorities .
Both companies' are strong and healthy investments for potential investors . Selling , general
and administrative will have a minor increase explained through the increased volume of
sales . Research and development will increase as Maxis Berhad works to increase their
ability to compete with other major competitors such as Celcom , DiGi and Umobile to bring
ahead of the curve innovation to the market for consumers . Net income will increase with
projected sales volume up , largely credited to an improving economy and consumers
spending again .
After reviewing their company strategies and recent year's financial statements and
ratios , it is believed that Maxis Berhad would be a better investment with its larger coverage
2G , 3G and 4G LTE service , brand name , lower operating expenses , larger net incomes ,
higher sales volumes and better growth potential in the long run .