Introduction of the selected companies.

Clear and detailed introduction of the companies that covers the companies’ names,
establishment year, company size and business activities. Relevant and adequate
financial highlights were given.

Introduction

Stock Name : Digi.Com Berhad (6947)

Digi.Com Berhad formerly known as Digi Swisscom Berhad is one of public traded company
in Bursa Saham Malaysia in telecommunication and media industry. Companies establish
around year 1995 and at that time formerly known as Mutiara Swisscom Bhd, after that
change to Digi Swisscom Bhd and holding company name Digi Communication Sdn Bhd. In
addition, in year of 2000 Digi Communication Sdn Bhd was changed to Digi.Com Berhad
effectively start on 31 May 2000 until now. Furthermore, Digi.Com Berhad is public traded
company in Bursa Saham that starts listed in year 1997 and use 6947 as stock code. Traded in
main market for telecommunication and media sector, currently as updated on 27 Jan 2019,
stock value is RM4.55 per share.

Main product and services provide by company are telecommunication services, mobile
services and cable television. Currently, Digi’s has provides services to individual and
corporate customer. In year of 2017, Digi’s manage to build new digital solutions namely
Vcash, function as E-wallet which is customer just need to scan and pay by using their
smartphone. Additionally, on 14 May 2004 they were be the first telecommunication
company that offer GPRS with 2.5G and later EDGE with 2.75G in Malaysia. Until year of
2017, company has two subsidiaries company which is Digi Telecommunication Sdn Bhd
and Pay By Mobile Sdn Bhd.

Throughout year 2017 with tagline of an inspiring 2017, Digi’s record service revenue
amounted RM 5.91 billion with RM1.48 billion profit after tax and RM1.46 billion dividend
payout. Moreover, more 2,000 employees hired by Digi.Com Berhad across Malaysia.

Stock Name : OCK Group Berhad

XOX Berhad choose commercial name as XOX Mobile to attract potential consumer to
choose their services. XOX MOBILE, is a Mobile Virtual Network Operator (MVNO)
officially offering its services to the public in the year 2005. Providing a variety of mobile
services ranging from affordable rates to different consumer needs and wants as well as
flexible payment and top-up options to cater to today’s versatile consumer. It also offers
competitive rates, with a whole lot of additional bundled benefits for its subscribers, such as
free SMS, free short calls and premiums.XOX MOBILE offers unified accounts, whether
postpaid, prepaid or hybrid Continuously looking towards what lies ahead, the company’s
vision is to become Malaysia’s best mobile network service provider. With an aim to acquire
a substantial market share in the telecommunications industry by providing solutions that
come second to none (XOX Mobile, 2019).

Stock Name : Axiata (6888)

Celcom Axiata Barhad use commercial name as Celcom already has built a strong
telecommunication brand before other telco services in Malaysia. Celcom is Malaysia’s
premier and most experienced mobile telecommunications company with the widest coverage
in the nation. It provides both prepaid and postpaid mobile services to close to 11 million
subscribers. Celcom is also growing its position in content and Value Added Services (VAS),
enterprise solutions, bulk wholesale services, digital services and machine-to-machine
(M2M) solutions, in line with evolving technologies and changing consumer behaviour in
Malaysia (Malaysia Celcom Axiata Berhad, 2019).

Calculation of relevant profitability ratios for the selected companies.

All the relevant profitability ratios were computed correctly for each company. Detailed
workings were provided.

What are Profitability Ratios

Profitability ratios are a class of financial metrics that are used to assess a business's ability to
generate earnings relative to its associated expenses. For most of these ratios, having a higher
value relative to a competitor's ratio or relative to the same ratio from a previous period
indicates that the company is doing well.

Profitability Ratios

Profitability ratios are financial measurement use by mostly analysts and investors to evaluate
the ability and potential of a company to generate income and profit relative to revenue,
balance sheet assets, operating costs, and shareholders’ equity during a specific period of
time. This financial matric will show how well a company utilizes its assets to produce profit
and value to shareholders.

https://corporatefinanceinstitute.com/resources/knowledge/finance/profitability-ratios/

Profitability ratios are important to measure and intemperate how effectively company in
generating profit from assets and owner investment. In addition, result from profitability
ratio can show how much companies generate profit from revenue earnings. The most
common profitability ratio are profit margin ration, return on asset and return on equity.

Company Digi.Com Berhad OCK Group Berhad Axiata

(RM000’) (RM000’) (RM000’)
Profit Margin 1,476,698/6,340,474 31,940/492,189 1,162,482/24,402,401
= 0.2329 = 0.0649 = 0.0476

Profit Margin

Profit margin represent the potential of company to convert revenue into profits at various
degrees of measurement. All three company generate revenue at different level of earnings.
Profit margin are main ratio for any company because the main objective of company are
profit and it will generate from revenue which is earn by selling product or provide any
services. Unfortunately, in produce product and services, expense will always be add on in
company financial analysis. The main objective of profit margin are to show how much
expense percentage that will affect revenue earning in generate net profit to company.

By refer to table, Digi.Com Berhad profit margin is 0.2329 which means RM0.23 is generate
from every RM1.00 in sales. In other words, a cost of RM0.77 is incurred by the company for
every RM1.00 it takes in form sales. OCK Group Berhad profit margin is 0.0649 which is
lower than Digi.Com Berhad, for every RM1.00 generated by the company only RM0.06
from every sales earn profit. In addition, OCK Group Berhad spend about RM0.94 for their
expense in every RM1.00 revenue. Profit margin for Axiata shown the lowest which is
0.0476 means Axiata only able to generate profit RM0.05 for every RM1.00 in sale. This is
show that Axiata record higher expense for 2017, about RM0.95 for every RM1.00 sales are
used for cost of goods.
Note: the higher the net profit margin, the more stable a company is considered. Moreover, a
higher net profit margin indicates a company is more profitable, after all expenses and taxes
have been paid. On the other hand, the lower a company's net profit margin, the less money it
will have to pay for taxes and expenses, and therefore the less stable the company appears.
The next profitability ratio is called Return on Total Assets.
 Company Digi.Com Berhad OCK Group Berhad Axiata
(RM000’) (RM000’) (RM000’)
Return on Assets 1,476,698/5,833,613 31,940/1,101,398 1,162,482/(
= 0.2531 = 0.0290 58,109,262+11,801,73
4)
= 0.0166

Return on Asset

Return on asset is example of method to measure the profitability of company that relate to
their total asset. Functions of return on asset ratio are to analysis how well performance of
company to generates capital from net income to invest in assets. The hypothesis shows that,
the higher return, the more productive and efficient management is in utilizing economic
resources (CFI, 2015).

Return on asset ratio for Digi.Com Berhad is 25.31%, for every RM1.00 of debt and equity
company, it can return RM0.25 in net profit per year. In addition, for OCK group Berhad
shown lower return on asset ratio compare to Digi.Com Berhad which is only 2.9%. In other
words, every RM1.00 that OCK invested in asset throughout year of 2017 produced only
RM0.03 of net income. Lastly, Axiata show the lowest return on asset ratio compare to other
which is 1.66%, for every RM1.00 total asset in year of 2017 only RM0.02 generate for net
income.

Just like other variations of rate of return, the higher the return on assets the better. A high return on
assets means than the business was able to utilize its resources well in generating income. It is also
noteworthy to mention that this ratio removes the effect of company size. As illustrated in the
example above, even if Company A generated 8.3 million and Company B generated 5.7 million only,
Company B was more efficient since it made more income for each dollar of its assets. Also, the
return on assets becomes more useful when it is compared to the industry average or other
benchmarks such as historical performance or a target return

Return on assets measures profit against the assets a company used to

generate revenue. It is an important indicator of the asset intensity of
a company. A lower ratio means a company is more asset-intensive, and
vice versa. Additionally, a more asset-intensive company needs more
money to continue generating revenue. Return on asset ratio is useful for
investors to assess a company’s financial strength and efficiency to use
resources. It is also very important for management to measure its
performance against its planned business goals, or market competitors.
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Return on Equity

Company Digi.Com Berhad OCK Group Berhad Axiata

(RM000’) (RM000’) (RM000’)
Return on Equity 1,476,698/518,718 31,940/466,392 1,162,482/30,504,583
= 2.8458 = 0.0685 = 0.0381

Return on equity ratio is one of example to measure company financial performance by

calculated net income dividing by total shareholders’ equity. Company net income need to
calculate before dividends paid to common shareholders and after dividends to preferred
shareholders and interest to lenders (Investopedia, 2019).

By refer to table above, return on equity ratio for Digi is 2.8458 which means every RM1.00
of common stockholders’ equity able to generate RM2.84 of net income. OCK show result
0.0685 for return on equity ratio, this means that every RM1.00 of common shareholders
equity able to earn about RM0.07 for year of 2017. Return of equity for OCK shown lower
than Digi but slightly higher that Axiata. As the result, return on equity ratio for Axiata is
0.0381, Axiata has been generated RM0.04 of net income for every RM1.00 of shareholders
equity for throughout year of 2017.

This means that Company XYZ generated $0.50 of profit for every $1 of shareholders' equity
last year, giving the stock an ROE of 50%.

So a return on 1 means that every dollar of common stockholders’ equity

generates 1 dollar of net income. This is an important measurement for
potential investors because they want to see how efficiently a company will
use their money to generate net income.
ROE is also and indicator of how effective management is at using equity
financing to fund operations and grow the company.

As you can see, after preferred dividends are removed from net income
Tammy’s ROE is 1.8. This means that every dollar of common
shareholder’s equity earned about $1.80 this year. In other words,
shareholders saw a 180 percent return on their investment. Tammy’s ratio
is most likely considered high for her industry. This could indicate that
Tammy’s is a growing company.