Target Acquisition Firms and Financial Performance of BCB Berhad and IWCITY Berhad - Paper Example

As the Finance Director of Eco World Development Group Berhad and working closely with the Chief Executive Officer (CEO) and the Managing Director (MD), I have identified two target acquisition firms that are operating in the Real Estate industry in Bursa Malaysia. These are Iskander Waterfront Holdings Group Berhad and Building Communities & Beyond (BCB) Berhad. Eco World Development Group Berhad (IWCITY), being a public listed Malaysian company involved mainly in property development wishes to form a strong merger or acquisition of a company that will ensure the growth of the company. Therefore, the purpose of this report is to analyze the two companies, BCB and IWCITY, thereby determine which among the two will be most viable for the merger aand acquisition.

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Both of the companies operate within the real estate industry, specifically in property development, which makes them viable targets for of Eco World Development Group Berhad (EW Berhad). The vision is creating tomorrow and beyond and its mission is achieving the mission via a culture of teamwork and excellence through the creation of world-class eco-living in all its developments, to be caring and responsible organization that can actively contribute back to the society, build a reputation of providing unmatched quality regarding products and services (Eco World, 2017). Eco World Development Group Berhad (EW Berhad) pursues a strict sustainability and innovative stance while delivering consistent and exciting growth to the shareholders and stakeholders. EW Berhads business and operations are related to property development. The company is publicly listed in Malaysia and in term of property development, it has secured about 8,052.7 acres of land bank that has a gross development value of RM87.5 billion. It has its presence in Klang Valley, Penang, and Iskander Malaysia. In term of finances, EW Behad for the financial year ending on October 31, 2016, it successfully achieved the sales target of RM 4 billion even after the challenging market conditions. The total gross sales for FY2016 were RM3.82 billion, which was 26% higher than those achieved in FY2015 (Eco World, 2017). For this reason, strategizing on a merger and acquisition will guarantee the growth of the company in FY2017.

IWCITY Berhads vision is to become a leader is integrated property developer and builder that focuses on quality development and community living. Its mission is to build sustainable development area by promoting innovative and quality products and excellent services that can meet the needs of the customer, as well as ensuring that there is equitable returns for shareholders (IWCITY, 2017). It is an investment holding corporation, and through its various subsidiaries, it is involved in construction and property development. It shares a common vision with EW Berhad in that its vision is to become the leading integrated property builder and developer that focuses on community living, as well as quality development. In essence, both the company and EW Berhad share a common vision of quality and sustainability. The company has 1,000 acre land bank, which can be added to 8,052.7 acres owned by EW Berhad, to catapult it to growth. Besides, the land is located in the International Zone, exclusively located near Permas, Eastern Johor Bahru. In addition, the company has embarked on strategic acquisition of attractively priced tracts of land in the other parts of Johor Bahru, for example Tuman Sutera and Danga bay, where it has successfully purchased nearly 75 acres (IWCITY, 2017).

The company has also undertaken one major project in FY2016, the Botanika project in Taman Bayu Puteri, Johor Bahru, which entailed the construction of 12-acre site along the Tebrau River, which comprised of 3 towers of 264 condominium units, and two were already launched by the beginning of the year. In addition, the third tower, together with the landed component of the development that comprises of 40 villas re expected to be launched in the near future. In addition, near Taman Bayu Tebrau, the company is considering the launch of a project that comprises of 460 units of medium cost by 2018, which is part of CSR initiative at a cost of RM65 million. The ongoing projects that are being undertaken by the companys construction division include the eastern Dispersal Link Squatter Relocation Program, as well as the Pengerang Building & Infrastructural Works Housing, and both are heading for closure. However, the Group had experienced a decrease of in profits and revenues for the FY2016. For instance, the Group recorded revenues of RM76.60 million in the FY2016, a decrease of 57.83% or RM105.04 million from FY2015s RM181.64 million. Essentially, this owed to the compulsory land acquisition by the state government of 2 parcels of land that measured 92.83 acres for RM170 million in the FY2015. IWCITY also had a loss before tax of RM14.92 million in FY2016 attributed to slow of business activities. The company also had a sales revenue of RM27.5 million, which was attributed to sales from the Botanika project. It also had a joint venture, which was led by the Greenland Group for developing 128 acres of prime waterfront land that fronts to Singapore. It has made various land acquisitions, though, including the completed Sutera land Acquisition, Danga Land Acquisition, an additional 77 acres to IWCITYs development land bank (IWCITY, 2017).

BCB Berhad, on the other hand is an investment holding company engaged in hotel operations business and property management. The company has various segments, including property management and development, where it engages in developing and managing commercial properties (BCB, 2017). The construction and related activities segment deals with securing and caring out construction contracts while the hotel operations segment deals with the provision of hotel services, as well as beverages and food services (BCB, 2017). In addition, the company experienced a strong sales for its products and is currently involved in development projects in Johor-Taman Bukit Perdana, batu Pahat, Bandar Putera Indah, and Evergreen Heights, which continue to generate interest from clients. The company launched its maiden project located in Medini Iskander Mlaysia, which is a high-end high-rise development named Elysia Park Residence. Besides, the group has a high-end condominium in the Klang Valley called Concerto North Kiara that continues to generate interest and sales, with it having a total cumulative sales of RM440 million to date (BCB, 2017). It also has high-end landed project named Home Tree in Kota Kemuning, and its first phase saw 101 units and 3 storey bungalows worth RM280 million in terms of GDV, sold in a week upon launch last year. The company has 850 acres of land bank in Klang, batu pahat, Klang valley, as well as Johor Bahru. Which can serve the group over the next ten years, and is still planning to acquire more land. Financially, the group turnover of RM301.03 million in FY2-16 compared to RM398.74 in FY2015. Profits before taxes also decreased from RM48.13 million in FY2015 to RM37.92 achieved in FY2016.

As such, both companies are viable targets for a merger and acquisition because they primarily belong to the property management and development sector hat EW Berhad has excelled in. in essence, the land banks that both companies have can be of significance for the growth of EW Berhad. Besides, the management of the company, as well as the resources for the two firms can contribute to economies of scope if the merger and acquisition goes through, which will ensure that there is increased effectiveness and efficiency in the construction of the property, its management, and development. Combining operational effectiveness and financial muscle will guarantee a growth for EW Berhad. Besides, EW will benefit from the value network that each of these companies have developed over the years, including additional clients, which will promote the increased profitability of the EW Berhad. In addition, the companies have established a rapport with local construction companies, and thus, that can be used in advancing EW Berhads strategy of growth. Besides, the companies have been profitable with land banks that can subsequently contribute to Eco Groups growth. However, the companies have experienced various challenges, such as the slowing Malaysian economys growth regarding the Gross Domestic Product (GDP). For instance, the GDP slowed to 4.2% in the FY2016 compared to 4.7% in FY2015 (BCB, 2017). Essentially, this is caused by various factors that have contributed to global uncertainties, for example lower crude oil prices, Brexit, as well as the weakening of the Ringit compared to other currencies. Additionally, the economic slowdown has been exacerbated by Chinas economic slowdown, as well as the introduction of goods and services tax (GST) in April of 2015 that were mooted by the Bank Negara Malaysia (BNM). For this reason, it is recommended that these companies need to diversify, as well as use effective strategies, such as mergers and acquisitions to offset the challenges. One aspect that is worth considering is getting into a merger with EW Berhad.

Part 2: Financial Performance

This section compares the financial performance of BCB Berhad and IWCITY Berhad in terms of financial performance to ascertain the best company for the merger and acquisition. It is important to note that the financial performance for the two companies were viable in FY2013, FY2014, and FY2015, but the financial performance of both slumped in the FY2016. To come up with the company that is best performing in the four years, it is paramount to consider the profit and loss, balance sheets, cash flows, and financial ratios for both companies in the four years.

Profit and Loss

IWCITY Profit and loss Mean Year Round (MYR)

Figure 1: IWCITY Profit and Loss Statement. Source: (ShareInvestor, 2017).

BCB Berhad Mean Year Round (MYR) 000

Figure 2: BCB Berhad Profit and Loss Statement. Source: (ShareInvestor, 2017).

Comparing the two firms, revenues fell in the FY2016, bur BCB Berhad is performing better compared to IWCITY Berhad. For instance, BCB had revenues of RM301.208 million compared to IWCITYs RM76.576 million. In addition, BCB has experienced tremendous growth in revenues compared to IWCITY. In addition, BCB enjoys greater profitability compared to IWCITY, which is shown in the graph below:

From the above graphs, it is clear that BCB is performing better in terms of revenue, profit before tax, profit attributable to shareholders, and net profit. Therefore, it can be derived that BCB has a greater financial muscle compared to IWCITY. In addition, the net profit for IWCITY is a loss of RM15.028 million, compared to BCBs profit of RM21.254 million. It is not only for FY2016 only, but also for the preceding three years.

However, IWCITY performed better financially in FY2013. Its net profits or earnings were RM26.061 million compared to BCBs RM16.532 million. However, BCB generated better profits for the FY2014, FY2015, and FY2016. In essence, that of IWCITY was RM3.363 million, RM7.249 million, and a loss of RM15.028 million respectively. On the other hand, that of BCB was RM31.732 million, RM32.420, and RM27.223 million. Essentially, BCBs net earnings increased by 91.94% between FR2013 and FY2014, and also increased by 2.17% between FY2014 and FY2015. However, IWCITYs net earnings decreased by 87.39% between FY...