Introduction

 

Telecom Malaysia Berhad

Telecom Malaysia Berhad (TM) dates back in 1946 where it offered national communication services including radio and TV broadcast as well as fixed line services. Today, the company has added services to provide pay television, network broadband services. The company is the largest broadband service provider in Malaysia with around 2.23 million subscribers by 2014 located in Kuala Lumpur Malaysia.  TM is among the largest companies which are linked to the government with over 28,000 employees and a market capitalization exceeding RM25 billion. The company revenue in 2017 amounted to RM12, 085.1 Million while its profit before taxation and Zakat amounted to RM1, 048.0 Million. Profit after tax was Rm730.5 Million while the gain from equity holders amounted to RM929.70 million. Equity for the year 2017 was RM7, 843.5 million an increase from RM7, 692.3 million from 2016. Total assets were RM24, 761.8 million a decrease from RM25, 001.6 million in 2016 while Liabilities stood at RM8, 150.2 million a decrease from RM8, 363.3 million in 2016. Return on equity of the shareholders was at 12.0 percent while that of total assets was 3.0 percent and the debt-equity ratio was 1.0.

Digi telecommunication

 

Digi telecommunication also known as Digi.com Berhad came into operation in 1995 although it went public in 1997. The company is located in Sha Alam Selangor Malaysia. Digi was the first to introduce digital cellular network offer GPRS at 2.5G and EDGE at 2,75G in the country. The company provides communication services including voice, data, SMS international roaming and calling. Digi covers 95 percent of the Malaysian population with 2G 90 percent 3G and 89 percent with 4G. The company has 2500 employees with 11.659 million subscribers and 76.1 percent penetration of smartphones with 75.1 percent subscribing to their mobile internet. Channel News Asia, it was among the first three largest companies in the country. In 2017, the company revenue stood at RM6, 340 Million an increase from RM6, 597 million in 2016 with an EBITDA of RM2,886 Million and a profit of RM1,985 Million before tax. The total assets amounted to RM5, 834 Million, total liabilities RM3,033 and equity of shareholders RM519 million.

Time dotcom Berhad

Time dotcom Berhad Company was established in 1996 in Shah Alam, Malaysia to provide telecommunication and other associated services. The company is international covering Asia, Africa, and Europe with the aim of becoming global. It operates in three groups namely Malaysian Fixed Line, Global Bandwidth and Data Centre to provide different services. Services provided by Time dotcom include data, video, image and voice communications as well as management and marketing services. The company also adds value to network services, operates network applications for companies and wholesales telecommunication equipment. In 2017, the company collected revenue worth RM 860.70 Million while its earnings before interest, tax, depreciation, and amortization (EBITDA) totaled to RM 297.2 Million. Revenue and EBITDA increased by 12 and 2 percent respectively compared to the year 2016. However, operating profit decreased by 8 percent from 2016 to stand at RM 183.1 million in 2017. Equity shareholders for the company totaled to RM 2,266.0 Million, total liabilities RM 812.0 Million while the total assets amounted to RM 3, 078.0 million an increase from RM 2747.3 million in 2016.

 

 

Profitability Ratios

 

 

Time Dotcom

Gross profit margin

 

 

 

The company generates 51.66-cent gross profit for every ringgit obtained from sales after deducting the cost of goods. It means that over half of what the company gets from sales is profit, which it can use to cover other costs. The margin is high meaning that Time dotcom can manage its cost of sales including labor as well as purchases of items it sells. It can negotiate low prices for its input and high prices for its goods and services.

 

 

Net profit Margin

 

 

A net profit margin of 20.37 percent means that Time Dotcom makes a net profit of 20.37 cents for each ringgit after deducting the cost of goods sold, administrative costs, depreciation, interest expenses tax, and sales expenditure. The net profit margin is high compared to that of the industry standing at 17.35 percent meaning that the company is efficient in managing its purchases and all the other costs involved in the operations.

 

Operating profit margin

 

 

 

 

 

 

The company makes a profit of 22.44 cent for every unit of sales after deducting operation costs, which do not include interest and tax. Time Dotcom operating profit margin of 22.44 percent is low compared to that of the average industry standing at 24 percent. It shows that the company is not efficient in managing its operational costs, which includes labor. The efficiency is much below that of the whole industry.

 

Return on assets

 

 

 

A return on assets of 5.70 percent means that the company makes a profit of 5.70 cents for each ringgit spent on assets. The yield is small meaning that Time Dotcom is underutilizing its assets or mismanaging it leading to low sales and consequential low profit.

 

Return on Equity

 

 

 

The return on asset for, the company stands at 7.74 percent, which is very low. Each shareholder is making a profit of 7.74 percent of the total shares contributed. The low return means that Time Dotcom is not efficient in utilizing the debt in terms of shares to generate income. Further, the company is not managing its assets well to make more profit, which would pay the shareholders.

 

Earnings per share

 

 

 

 

 

Telecom Malaysia is paying RM0.39 for every unit of share contributed. The return is small meaning that the company is not efficiently using the shares to generate enough income. Further, Telecom Malaysia is not efficient in managing its debts and assets to make more profit.

 

 

 

 

Digi (Values in RM’000000 unless stated otherwise)

 

Gross profit margin

 

 

 

 

 

Digi is left with 76.18 cents in every ringgit is sells minus the cost of sales. The figure represents its profit before other costs not related to the cost of goods sold. A profit of 76.18 cents is very high meaning that the company manages its prices well both the buying and selling of goods and services. The figure further indicates that the company is in a position to pay for its other costs like interest and be able to get good profit.

 

 

Net profit Margin

 

 

 

 

The company makes 23.30 cent in each unit of sales after deducting the cost of goods and all other operation and administration costs. The profit margin is high compared to that of the whole telecom industry, 17.35 meaning the Digi is able and efficient it managing its operation and management costs as well as purchasing.

 

Operating profit margin

 

 

 

 

 

 

Digi makes a profit of 31.31 cents in each ringgit of sales after deducting the cost of goods sold and operating costs before deducting tax and interests. The margin is high meaning that the company manages its costs of operations with revenue collected. The costs of operations including payment for salaries are low compared to the sales. The efficiency is even high compared to that of the whole industry, which is making an average profit of 24 percent.

Return on assets

 

 

 

Digi is making a return of 25.30 cents for every ringgit spent on assets. The yield is high compared to that telecom industry which is 11.58 percent. The company utilizes its assets efficiently to make a profit compared to other many companies in the industry.

 

Return on Equity

 

 

 

A return on equity of 284.94 percent means that the company generates profit for each share by the same percentage. The yield is very high showing that the company is efficiently managing its assets to generate enough profit to cater for its costs as well as pay for shares. Digi makes use of the debts well to generate enough profit.

 

Earnings per share

 

 

 

 

 

For every unit share contributed, the shareholders are getting a profit of RM 19. The return is high meaning that the company is efficient in using the shares to generate more profit. The figures further show that Digi is managing its assets, cost of sales as well as other operations well to generate enough profit, which is making the shares to attract good returns.

 

Telecom Malaysia Values in RM’Million

Gross profit margin

 

 

A gross profit margin of 79.44 percent means that in every single unit of sales minus the costs of sales, Telecom Malaysia gets 79.44 cent profit. The profit is very high showing that the company is very efficient in managing its cost of sales and purchasing to make good returns from its investment. Further, the company can cater to its other costs related to sales and company operations and still make a good net profit.

 

 

Net profit Margin

 

For every unit of sales after deducting the cost of goods and other operating expenses such as interest and tax, the company makes a net profit of 7.68 cents. The gain is small meaning that the management of operation and management costs is inefficient because, for the control of the cost of goods, the company is doing well.

 

Operating profit margin

 

 

 

 

 

 

Telecom Malaysia makes a profit of 9.11 cents for each unit of sales after deducting costs of goods and operation costs and before deducting interest and tax. The margin is meager even compared to the industry average of 24 percent. The company is not efficient in maintaining low operating costs.

Return on assets

 

 

For every single unit spent on assets, Telecom Malaysia makes a profit of 3.75 cents. The margin is far much below that of the telecom industry standing at 11.58 percent. It means that the company is not utilizing its assets well to generate more income.

 

 

Return on Equity

 

 

A return on equity of 11.96 percent means the shares of each shareholder are earning a profit of 11.96 percent. The return is high that for other companies in the industry like Telecom Malaysia. The figures show that the company is efficient in generating profit on shares. Further, the high return on equity shows that the company utilizes its assets better to generate profit for shares.

 

Earnings per share

 

 

 

 

Earnings per share of RM21.5 mean that each share for the shareholders is earning a net profit of 21.5 ringgit. The gain is very high meaning that the company manages well the shares contributed to generating profit. The figures further show that the company efficiently manages its assets and control costs to make more profit and therefore, its status is good for the shareholders.

 

 

Similarities and differences between the companies

The three companies are similar in how they manage their interests and taxes. None of them controls tax and interests well since they are taking too much of their profit. Time Dotcom with a gross profit margin of 51.66 percent is paying interests and tax of 31.29 percent of the sales while Digi with a gross profit margin of 76.18 pays 44.83 percent. Telecom Malaysia with a gross profit margin of 79.44 pays the highest interest and tax standing at 70.33 percent.  The three companies are also similar in how they pay for shares. They all use the gross profit to determine earnings per share. The more the gross profit margin, the higher the earning per share.

All three companies are different in how they manage their cost of operations. Telecom Malaysia is earning the highest gross profit with a margin of 79.44 percent but using most of it to pay for its cost of operation to make a net profit margin of 7.68 percent. Time Dotcom efficiently manages its cost of services because it is making a gross profit margin of 51.66 percent and remains with 20.37 percent after deducting its cost of operations. Digi is moderate on how it is managing its costs of operations. There is also a difference in how the companies handle their assets to make returns. Digi utilizes its assets better to make a profit of 25.30 percent from a total asset base of RM 5834 billion. Telecom Malaysia is weak in the management of assets making a gain of 3.75 percent from an asset base of RM 2475 billion.

 

Company with a better performance

The Digi company is better in its performance than the other two. First, the company manages its operational costs better compared to Telecom Malaysia. From a gross profit margin of 76.18 percent, Digi makes a net profit margin of 23.30 percent while Telecom Malaysia drops from 79.44 to 7.68 percent. Digi is also able to make good returns on equity and assets of 284.94 and 25.30 percent respectively compared to the other two companies. The figures show that the management of assets is efficient to generate income. Also, the company makes better earning on shares of RM19 per share compared to Time Dotcom making RM0.39 per share. Digi is also doing well in managing its interest and taxes to maintain them low. The company also has a high gross profit margin of 76.18 compared to Time Dotcom with 51.66 percent. The figures show that Digi manages its assets, cost of goods, cost of operations, taxes, and interests better than the other two companies.

 

Ways to improve the performance of the companies

Net profit for all the three companies is low compared to gross profit. The companies are therefore spending more on operational costs. To increase performance, they should lower their operational costs like reducing the cost of labor by laying off unwanted employees. The companies can try to lower utilities like power consumptions, water, cooling machines to make them optimal for business production. Return on assets is also low on the three companies. They can raise profits by reducing the cost of assets. One way of lowering is through renting or leasing equipment, which the company uses for a short time throughout the year to avoid keeping them idle. The companies can also increase their earning per shares by increasing their sales. Sales can increase through advertisement and marketing to attract more customers. The companies should also utilize all assets and liabilities to generate profit, which will pay the shareholders.

 

Summary

The study analyzes the 2017 financial performance of three telecommunication companies in Malaysia namely, Time Dotcom, Digi, and Telecom Malaysia, which appears on the Malaysia stock exchange market. Telecom Malaysia is the oldest with establishment dating back in 1946 while Digi and Time Dotcom came into operation in 1997 and 1996 respectively. The three companies offer almost similar services like data, voice, and SMS communication. Telecom Malaysia is the largest among the three with the most extensive broadband provision, 2.23 million subscribers of its services and a market capitalization of 2.5 billion.

In 2017, Telecom Malaysia collected the highest revenue of RM12, 085.1 million followed by Digi with RM6,340 million and Time Dotcom with RM860.70 million. All three companies are performing better with a gross profit margin of over 50 percent. However, Telecom Malaysia is not efficient in managing its cost of operations, interests, and taxes because, from a gross profit margin of 79.44 percent, it makes a net profit margin of 7.68 percent. Both Time Dotcom and Telecom Malaysia are not able to utilize their assets to make good returns with margins of 5.70 and 3.75 percent with Digi recording 25.30 percent. Digi, therefore, is performing better than the other two with proper management of its cost of sales, operation costs, taxes, and interest to generate more profit and make good returns on assets and equity. The companies can improve their performances by lowering their cost on assets and other operating costs as well as increasing sales through advertisement and marketing.

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