HAI O Enterprice-Strategic Management Assignment

Table of Contents

1.0 HAI-O ENTERPTISE BERHAD……………………………………………………………………………….. ….2 1.1 COMPANY PROFILE…………………………………………………………………………………………… ……………2 1.1.1COMPANY BACKGROUND…………………………………………………………………………. ……2 1.1.2 VISION, MISSION & CORPORATE VALUES…………………………….. …………………..3 1.1.3 BOARD DIRECTORS………………………………………………………………………. ……….….5

OF

1.1.4 BOARD MEETING………………………………………………………………………………… …………13 1.1.5 CORPORATE STRUCTURE…………………………………………………………………………….1 4 1.1.6 BUSINESS ACTIVITIES……………………………………………………………………………… …..15 1.1.7 AUTHORIZED CAPITAL.....................................................................................17 1.1.8 PAID-UP CAPITAL……………….. ……………………………………………………….…..…………..17 1.2 GENERAL ENVIRONMENT ANALYSIS………………………………………………………………18 1.3 TASK ENVIRONMENT ANALYSIS…………………………………………………………………………….21 1.4 SWOT ANALYSIS………………………………………………………………………………………… …………………24 1

1.5 TOWS ANALYSIS………………………………………………………………………………………… …………………25 1.6 RATIO ANALYSIS………………………………………………………………………………………… ………………..26 1.7 STRATEGIC DIRECTION………………………………………………………………………………………. ………31 1.8 OTHER RELEVANCE INFORMATION…………………………………………………………………32 2.0 CONCLUSION………………………………………………………………………. ………………………..………….38 3.0 REFERENCES…………………………………………………………………………………. ……………….…………39 APPENDIX

1.0 HAI-O INTERPRISE BERHAD 1.1 COMPANY PROFILE 1.1.1 COMPANY BACKGROUND Hai-O Enterprise Berhad was the first traditional healthcare company listed on Bursa Malaysia Securities Berhad since 1996. Hai-O was established in 1975, and has become a famous and established household name in Malaysia ever since. Hai-O offering a wide range of complementary medicines, medicated tonic, wellness, beauty and healthcare products and

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clinical services. Providing the superior quality healthcare products at reasonable prices is always Hai-O business philosophy. From a humble beginning with a small start-up capital, Hai-O has over the years been resilient to ride through the many business challenges to emerge stronger now on an equity base of more than RM200 million. Its success had been honoured by various prestigious awards including the Forbes Awards (2007-2010). Hai-O Group has five principal business which involves wholesaling, retailing, multilevel marketing, pharmaceutical manufacturing and Chinese medicinal clinics. For over three decades, Hai-O had honed its expertise in building extensive and efficient distribution network and has successfully gained its market leadership in Malaysia. Peking Tongrentang (M) Sdn Bhd, a joint venture company between the worldrenowned Beijing Tongrentang and Hai-O has started its business in Kuala Lumpur since 2002 and achieved remarkable performance in offering Traditional Chinese Medicine (TCM) Consultation services and high quality herbal medicines to the public.

1.1.2 i.

VISION, MISSION & CORPORATE VALUES VISION Hai-O aim to become the premier healthcare company in Malaysia and thereby

bringing the greatest value and pride to their customers, business partners, employees and shareholders. This explained that Hai-O vision of being the leading healthcare company are much focused on delivering value to each key element that make up their business, internally and externally.

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ii.

MISSION Hai-O genuine interests in healthy culture boost their spirit to promote human’s well-

being with the mission statement that reads: ‘We are committed to promoting healthcare culture and improving human’s well-being’.

iii.

CORPORATE VALUES There are 7 core values in Hai-O: 1) Social Responsibility - Hai-O strives to repay society by helping those in needs through actions and monetary support. 2) Excellent Services - Hai-O strives beyond customers expectations to give excellent quality products and superior service.

3) Attitude - Hai-O strives to sustain a positive attitude in every dimensions of the business at any circumstances it faces. 4) Growing - Hai-O strives to capitalise on its competitive advantage and knowledge to ensure continuous improvement and growth. 5) Unity - Hai-O strives to unite its organization as one big family in Malaysian culture of different races to achieve its goals in the challenging business world. 6) Loyalty - Hai-O strives to be loyal to its business partners and its commitment to convey good results to the customers as well as the shareholders. 7) Learning - Hai-O strives to build a knowledge-based working environment by collecting its resources together to achieve goals to educate consumers on healthcare and 4

to contribute to the research and development in the biotechnology and pharmaceutical science.

1.1.3

BOARD OF DIRECTORS

1. Y. BHG. TAN SRI OSMAN S CASSIM

(Chairman, Senior Independent Non-Executive Director) Y. Bhg. Tan Sri Osman was graduated from University of Malaya in Singapore with a Bachelor of Arts (Honours). In 1970 and 1984, he attended the Advanced Management Programmes conducted respectively by the New Zealand Administrative Staff College, Wellington and the Harvard Business School in Boston. Tan Sri Osman has extensive experience in the public sector having served as a member of the Malaysian Administrative and Diplomatic Service for 30 years.

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Tan Sri Osman served as Director-General of the Public Services Department Malaysia from 1980 up to his retirement in 1985. In 1985, he was appointed National Executive for Malaysia and Brunei of the General Electric Technical Services Co. Inc. (USA) and subsequently in 1988 as National Advisor to the General Electric International (USA) until 1993. Tan Sri Osman had served as a board member and chairman of Southern Bank Berhad since October1990 up to his retirement on 18 February 2005. In 31 January 2005, Tan Sri Osman was appointed to the Board and as Chairman. 2. TAN KAI HEE

(Managing Director – Non- Independent) Mr. Tan Kai Hee is the father of Mr. Tan Keng Kang, who is the Executive Director and Group Chief Operating Officer of Hai-O. Mr. Tan Kai Hee, a well-known businessman has more than 39 years of commercial experience in the trading. Mr. Tan is also one of the founders, main policy and decision-makers of the company. Mr. Tan Kai Hee is the founder of the Malaysia-China Friendship Association (PPMC: Secretary-General), Malaysia-China Medicine & Health Product Association (MCMHPA: President), and Malaysia-China Chamber of Commerce (MCCC: Honorary President) and Malaysia-China Culture & Arts Association (PKKMC: President). Mr. Tan is also the President of the Federation of Chinese and Medicine 6

Dealers Association of Malaysia (FCPMDAM) and a Director of the Malaysia China Business Council. In 30 August 1975, Mr. Tan Kai Hee was appointed to the Board as Managing Director – Non-Independent. Mr. Tan is also a Director in Hai-O Raya Bhd and holds directorship in several private limited companies.

3. Y. BHG. DATIN SUNITA MEI-LIN RAJAKUMAR

(Independent & Non-Executive Director) Y. Bhg. Datin Sunita Mei-Lin Rajakumar was graduated from University Bristol in 1990 with a degree in Law (LLB Hons). Datin Sunita qualified as a Member of the Institute of Chartered Accountants of England and Wales in February 1994. Her working experience included 4 years in Ernst & Young, London and 6 years at RHB Investment Bank, Kuala Lumpur, before she established her own firm, Artisan Encipta Ltd, to manage a government-ownwd foreign technology venture fund from 2002 to 2008. In 5 January 2009, Datin Sunita was appointed to the Board of Hai-O. She also an Independent Non-Executive Director of Hibiscus Petroleum Berhad and chairs the Audit and Risk Management Committee.

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4. CHOW KEE KAN @ CHOW TUCK KWAN

(Independent Non-Executive Director) Mr. Chow Kee Kan is an approved auditor and chartered accountant. He has started his own practice in 1984. Mr. Chow has more than 35 years of practical experience in accounting, auditing, taxation and corporate management consultancy. He is presently a Trustee of the Malaysia Accountancy Research and Education Foundation (MAREF). In 1 April 2011, Mr. Chow was appointed to the Board and currently also an Independent NonExecutive Director of Cocoaland Holdings Berhad. He is also a member of the Audit Committee and Nominating Committee.

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5. TAN KENG KANG

(Non-Independent Executive Director) Mr. Tan Keng Kang is the son of Mr. Tan Kai Hee who is the Managing Director of Hai-O. He was graduated from Beijing University, China, major in International economics in 1997. He joined Hai-O as an Operations Executive on 1 August 1998, mainly to support the operational activities of Hai-O's marketing arm. Between 1999 and 2013, he has been promoted as a Sales Manager and Director of Chop Aik Seng Sdn Bhd, and was appointed to the Board in 2012 and is a member of the Risk Management Committee. Recently, he also holds directorship in some private limited companies. In 1 May 2014, Mr. Tan was appointed as the Group Chief Operating Officer. He is involving in the strategic planning at Group level and asists the Group Managing Director to manage the operational activities and oversees the business development of Hai-O Group.

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6. CHIA KUO WUI

(Non-Independent Non-Executive Director) Mr. Chia Kuo Wui graduated from Curtin University Western Australia, with Bachelor of Commerce, Accounting in 2001. In 2006, Mr.Chia joined the Department of Planning and Investor Relations in Hai-O Corporate and held key positions in several Hai-O Group of companies. He also holds directorship in several private limited companies. In November 2008, Mr.Chia was appointed to the Board and currently holding the position of Non-Independent Non-Executive Director.

7. LIM CHIN LUEN

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(Non-Independent Non-Executive Director) Mr. Lim Chin Luen has involved in the dealing of Chinese traditional medicine and herbal products business for more than 15 years. He was appointed to the Board on 16 December 1997 and redesignated to Non-Independent Non-Executive Director on 1 July 2012.

8. TAN KIM SIONG

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(Independent Non-Executive Director) Mr Tan Kim Siong was graduated from University of New Brunswick of Canada with BBA and MBA. He was setting up his own logistic firm in 2006. Meanwhile, he also involved in housing development in Negeri Sembilan. After few years, he has acquired several companies to expand his business as a fully-integrated logistics provider. Mr.Tan was appointed to the Board as an Independent Non-Executive Director on 8 January 2014.

1.1.4 i.

BOARD MEETING The Board meets at least four times a year, or once in every quarter for a formal schedule of matters reserved for the Board. Additional meetings are held as and when required. 12

ii.

Senior management staff will be requested to attend Board meeting to brief and update the Board on the financial performance and affairs of the Company and its main business segments or any other important strategic issues, corporate proposals or key business plans.

iii.

Relevant and sufficient information and documents such as the Notice of Board Meeting, full agenda and the supporting Board papers shall be provided to the Board members prior to each Board meeting to enable Directors to make informed decisions and to properly discharge their duties.

1.1.5

CORPORATE STRUCTURE

Wholesale Division 

Hai-O Medicine Sdn.Bhd



Multi-level Marketing Division Sahajidah HaiO Marketing Sdn.Bhd

Retail Division



Hai-O Raya Bhd.

Manufacturing Division 

SG Global Biotech Sdn.Bhd

Others



Sea Gull Advertising Sdn.Bhd. 13



Kinds Resource Sdn.Bhd







Hai-O Credit & Leasing Sdn.Bhd

Grand Brands (M) Sdn.Bhd





Chop Aik Seng Sdn.Bhd



Sri Pangkor Credit & Leasing Sdn.Bhd. Hai-O Properties Sdn.Bhd.



Yan Ou Holdings (M) Sdn.Bhd

PT Hai-O Indonesia

o Peking  Tongrentang (M) Sdn. Bhd

QIS Research Laboratory Sdn.Bhd.

 Subsidiary company o Joint Venture company

There 5 divisions under cooperate structure of Hai-O company. Which are wholesale, multilevel marketing (MLM), retail, manufacturing, and others division. All of these companies are subsidiary companies, except Peking Tongrentang (M) Sdn.Bhd, which is under retail division, is a joint venture company of Hai-O Sdn.Bhd. This company provides Chinese consulting clinic service, meanwhile, it manufacturing the finest traditional Chinese pharmaceutical products by using raw materials which are well known for their effectiveness.

1.1.6

BUSINESS ACTIVITIES

There are 6 main business activities in Hai-O Sdn.Bhd, such as 1. 2. 3. 4. 5.

wholesale Multi-level marketing (MLM) Retailing Pharmaceutical manufacturing Chinese consulting clinics 14

6. Laboratory First of all, the wholesale division of Hai-O Sdn. Bhd has agency rights to import and distribute more than two hundred of branded products from China in Malaysia. These products include many types of Traditional Chinese Medicines, teas, wines and consumer products. This division has developed multi-distribution channels so that can be able to access to Chinese medical halls, hypermarkets, supermarkets, convenience stores, and food & beverage outlets. The efficiency of delivering products in logistic services has build a good reputation and trust from our valued customers. Secondly, Multi-level Marketing was established in 1992, Sahajidah Hai-O Marketing (formerly known as Hai-O Marketing Sdn Bhd) has strength on a strong partnership with its distributors. Today, the company is one of the leading local multi-level direct selling companies in Malaysia. The company strongly believes in and is committed to providing a comprehensive support and reward program. Thus, an increasing number of new distributors and the rapid growth can be seen in the productivity by the distributors. Thirdly, in the aspect of retailing, Hai-O has strong retail chain with over 70 Hai-O Stores in major cities and towns across the country. To maintain the quality of service, these stores are staffed by professional herb masters to provide advice on herbs and instructions to customers. Not only these, some of these stores are also providing integrated medical services by making available in-house consultations by qualified TCM physicians. Forth, for pharmaceutical manufacturing, the SG Global Biotech Sdn Bhd had complied with Good Manufacturing Practice (GMP) standard in Malaysia in 1994. Beside this, we also set up an analysis laboratory arm QIS Research Laboratary Sdn Bhd certified with Good Laboratory Practice Standard (GLP) to perform various testing services to meet

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the stringent quality controls. Yet we have successfully acquired both HACCP & ISO 22000:2005 certifications for our Manufacturing Division of Food Products in 2012. The company is also actively involved in R&D activities to ensure high quality and innovation in its products. Fifth, for Chinese consulting clinics, Peking Tongrentang (M) Sdn Bhd is a joint venture company between Hai-O and Beijing Tongrentang Co Ltd in 2002. There are 3 outlets of Chinese consulting clinics, Kuala Lumpur, Petaling Jaya and Penang. All of these outlets provide medical consultations by qualified traditional physicians. Tongrentang is also famous for manufacturing the finest traditional Chinese pharmaceutical products by using raw materials which are well known for their effectiveness. Last but not least, the QIS Research Laboratory Sdn. Bhd is a full service analytical laboratory, it offers testing services in the areas of the microbiology and chemical analysis in traditional medicine and food products. The laboratory is run by a team of qualified chemists, micro-biologists and well experienced supporting staff to meet client requirements.

1.1.7

AUTHORIZED CAPITAL

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The Authorized share capitals for Hai-O Group was 500,000,000 ordinary shares where each of shares was RM 0.50.

1.1.8

PAID-UP CAPITAL

Hai-O Group issued and paid up capital was 202,190,282 ordinary shares where each of shares was RM 0.50.

1.2 GENERAL ENVIRONMENT ANALYSIS

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General environment is the external environment which can affect an organization’s business activities and performance but cannot control by them. There are 5 major factors have significantly contributed to Hai-O’s business operations and strategies, such as political & leagal, economic, social, technological, environmental forces. 1. POLITICAL AND LEGAL FORCES Political forces will affect a company by political pressures and will determine by the orientations of its ideology of a country. These political and legal forces will influence the shape the profile of a business environment. Political forces concern the influence of political parties, leaders and pressure groups such as civil society organization and trade unions. These forces negotiate or dictate policies that may change the course of business in an industry. In Malaysia, the Ministry of Health requires all medicines marketed in the country to be registered by the Drug Control Authority. Thus, all manufacturers, importers and wholesalers are required to the license. So it will create higher entry barriers to enter medicine industry. It helps Hai-O to lower the intensity of competition. As Hai-O had complied with the licenses, it has strong advantage to grow and continue to be the market dominant in the traditional medicine industry.

2. ECONOMIC FORCES

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Economic factors such as the level of employment, rate of inflation, rate of interest, demographic changes, and fiscal and monetary policies will affect the business strategy and the performance of the company. For the Malaysian economy, the external environment has affected the overall growth performance of the economy going forward. Malaysia is currently facing with the weaker regional currencies, escalating operating costs and tight labour conditions, which has added challenges to the business environment. However, although the external environments are weak, the Malaysian economy continued to expand in 2013, driven by the continued strong growth in domestic demand, so the Hai-O Group continued to deliver good financial results in 2014 as Hai-O’s employees have done many initiatives to achieve effectiveness and efficiency of the operation and management.

3. SOCIAL FORCES The social environment of a business can be integral to its success or failure. Most companies analyze the population growth and age structure to analyze which factors affecting customer needs and size of the market. The social factors such as lifestyles, education level, buying habits, health consciousness, social classes and etc can affect consumers’ attitudes, opinions and interests. In recent years, Malaysian lifestyle has shift towards wellness and self-administered healthcare. Many consumers have knowledge in consuming foods and beverages to control healthy eating habits. Which mean it has open up opportunities for Hai-O to modify its strategies and product offerings to suit the demand of the market.

4. TECHNOLOGICAL FORCES 19

Technological forces is the most important factor affecting businesses all over the world in the same industry. The rapid change of development of technology requires quick reaction by businesses in order to survive in an emerging competitive environment and keep up with new trends and innovative services which other competitors might be offering. These technologies can improve the efficiency and productivity of a company. It also can improve the quality and quantity of the products to fulfill the needs of customers. In this aspect, Hai-O strives to improve the quality and its product line and taking traditional medicine up to the level of the mainstream medicine today. The quality of the products will increase the trust from the customers.

5. ECOLOGY FORCES Environmental force can also be ecological and environmental aspects such as weather, climate, and climate change, which may affect industries in some way. While Hai-O strives to grow profitably, Hai-O still committed to be a socially responsible company to help to create a great workplace, to support eco-friendliness and to be responsive to customers´ expectations in healthcare and wellness. Hai-O is adopting eco-friendly lifestyle such as 3Rs practice such as reduce, reuse, & recycle. Hai-O also started to support eco-friendly programme by using energy-saving lighting and use short message service (SMS) to remind MLM distributors of membership renewal so as to reduce our carbon footprint. Nevertheless, Hai-O also selling environmentally friendly products such as Bio-Cleanz Multi Purpose Household Product Series and JTX Airtracker which are no harm to the environment.

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1.3 TASK ENVIRONMENT ANALYSIS Task environment analysis is the analysis of the external environment which directly affects the organization from attaining business goals. Task environment analysis can be done on Hai-O Enterprise Berhad by using Porter’s Five Forces Model. Porter’s Five Forces Model is the model that uses five forces to determine the profitability of an industry and shape a firm’s competitive strategy. The elements in Porter’s Five Forces are threat of new entrants, competitive rivalry within the industry, threat of substitute products, bargaining power of consumers and bargaining power of suppliers. 1. Threat of New Entrants Traditional Chinese Medicine (TCM) originated in ancient China and has evolved over thousands of years. TCM plays a good role in the fight against viral diseases, chronic inflammation, functional disorders, endocrine disorders and other diseases. TCM has been found to be reasonably effective in treating life-threatening diseases and also effective in cancer treatment. Consequently, this may infuse a lot of business opportunities that will invite a lot of emerging business in the industry, making the threat of new entrance high for Hai-O Company. The promising global market for TCM especially when China has become an open market has led to more TCM providers will compete in the future, exploiting the opportunity of lower bargaining power of its suppliers. Wide acceptance of TCM on a global level will allow achieving economies of scale and higher return on investments. Such attraction will lure more businesses into the industry. Moreover, opening the TCM clinics also relatively easy where the clinics do not require expensive high end diagnostic machines and equipments and are able to operate at smaller buildings and smaller land base. This low capital investment will definitely put a low barrier to new entries to the TCM business. 21

2. Competitive Rivalry within the Industry Traditional chinese medicine industry was a broad industry with a highly competitive and aggressive market. Within the dynamic of the industry, the ownership of patents and specific rights sometimes can neutralizes competition in the market place, but there still a possibility for higher level of competition. In the industry, Hai-O has yet to face an equally strong rival in the local market scene. There are not many TCM providers apart from the local neighbourhood practitioners with small practises and family businesses that sell unbranded TCM product. Although the demand of TCM increasing, the rivalry within the industry in Malaysia currently is relatively low. 3. Threat of Substitute Products TCM competitive products are includes modern medicine and other type of traditional medicines. Therefore, threat of substitute products is relatively high. Tremendous research and development were performed in the modern medicine industry that has resulted in more effective and safer treatment. Besides, in most cases, modern medicine works faster in term of diagnosis and treatment than any other type of medicine. Therefore, people only tend to resort to TCM and other traditional medicine as an alternative rather than primary form of treatment. Oppose to other traditional medicine, there is no doubt that TCM has the superiority due to the fact that its research has been well organized, documented and updated for the last several centuries. TCM non-medicinal therapies and acupunctures are proven effective and are better received than other traditional medicinal therapies. This is the platform that the Hai-O Group grew on in building its name into becoming a corporate identity. In addition, the government huge support on the local healthcare industry is also a cause of threat. As

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Malaysia is rich with its own rainforest herbal treasures that are identified to have medicinal value, the threat of substitute products for TCM are definitely on the high level. 4. Bargaining Power of Consumers As the TCM are widely accepted globally, the demands for Chinese herbal products are increases. As demand rise, it reflects the increasing power of consumers. In the local market, there still exists a lower switching cost for consumers even though there are only a few competitors that compete with Hai-O. This happen because the increased market demands for the product has resulted in large imports. As a result, a lot of TCM products exist in the market with lacking brand differentiation and most of them appear similar in nature and appeal. Therefore, the low brand differentiation creates opportunity for consumers to switch from one brand to another. Moreover, the trend of today people to adopt an active lifestyle, coupled with higher education and access to information has led to increasing individual knowledge about healthcare products. Normally, these health-conscious people can be very selective and evaluative in buying TCM products. Consequently, they create high bargaining power. 5. Bargaining Power of Suppliers Hai-O products, especially the raw material are mostly supplied by suppliers from China. There are more than 3,000 enterprises are engaging in traditional Chinese medicine processing in China. Thus, there exists possibility for Hai-O to switch supplier at a low cost, therefore makes the bargaining power of supplier low. However, the bargaining power of supplier in the service sector of TCM is relatively high, resulting from the regulations where TCM practitioners are required to have a license to practise. Hai-O does offer such services in its TCM clinics and has to acquire the physicians from China, due to the fact that there are

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not many professionally trained local TCM physicians. Thus, it makes the bargaining power of TCM service suppliers are relatively high.

1.4 SWOT ANALYSIS

SWOT ANALYSIS TABLE: HAI-O ENTERPRISE BERHAD INTERNAL: STRENGTHS S1

S2

Strong MLM marketing structure that suited the Bumiputra market

INTERNAL: WEAKNESSES W1

Lack of new exciting products

W2

Small market capitalization

W3

Increasing number of competitors

Strong foothold in China

S3

Attractive reward scheme and excellent company support

S4

Own pharmaceutical manufacturing capacity

EXTERNAL: OPPORTUNITIES

EXTERNAL: THREATS

O1

Globalization

T1

Globalization

O2

Population growth

T2

Natural disaster

O3

New innovative products to enhance group earnings

T3

New market entrance

T4

Intense price competition

T5

Government Policy

O4

World trade agreement (WTA)

O5 Technological advancement O6

Weak competitive rivalry within the TCM industry

1.5 TOWS ANALYSIS 24

TOWS ANALYSIS TABLE: HAI-O ENTERPRISE BERHAD STRENGTHS INTERNAL FACTORS S1 Strong MLM marketing W1 (IFAS) structure that suited the Bumiputra market W2 S2 Strong foothold in China

EXTERNAL FACTORS (EFAS) OPPORTUNITIES O1

Globalization

O2

Population growth

O3

New innovative products to enhance group earnings

S3

Attractive reward scheme and excellent company support

S4

Own pharmaceutical manufacturing capacity

W3

WEAKNESSES Lack of new exciting products Small market capitalization Increasing number of competitors

SO STRATEGIES

WO STRATEGIES

S1O2

W1O5

S4O1O3

W2O1O3

O4 World trade agreement (WTA) O5 Technological advancement O6 Weak competitive rivalry within the TCM industry

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THREATS T1

Globalization

T2

Natural disaster

ST STRATEGIES

WT STRATEGIES

S1S2T3

W1, T1, T3

S4T4

W3, T1, T3 W3, T4

T3

New market entrance

T4

Intense price competition

T5

Government Policy

1.6 RATIO ANALYSIS Ratios Earnings per share^^(sen)

2013 @ (RM’000) 23.86

2014 @ (RM’000) 20.46

Return on Sale (ROS)

0.2399

0.2097

Return on Investment (ROI)

0.1574

0.1324

Return on Asset (ROA)

0.4189

0.3439

Return on Shareholders’ Equity (%)

19.7 %

15.9%

4.0

4.8

Gross margin (%)

39.1%

36.9%

Net margin (%) #

16.0%

16.1%

Current Ratio

# Excluded the one-off gain from disposal of investment properties for computation of Net Margin (%) for FY2013. ^ Dividends are based on par value of RM0.50 per share. ^^ Calculated based on weighted average number of shares in issue, net of treasury shares.

Ratio analysis is an analysis used to evaluate several aspects of a company’s operating and financial performance in terms of its efficiency, liquidity, profitability and solvency. These

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ratios over time are believed that can provide an early warning of a potential improving or facing losses.

1) EARNINGS PER SHARE (EPS) Net Income Average Outstanding Share Year 2013 (RM)

2014 (RM)

Earning per share (EPS) can be calculated by company's profit attributable to ordinary shareholders and divided by weighted average number of ordinary shares outstanding. It also serves as an indicator of a company's profitability. Hence, the higher the earning per share (EPS) of the company indicates the good performance by the company on it profit generation. In year 2013, the earning per share of the company is 23.86 cent per share. It shown decrease in value on year 2014 with a value of 20.46 cent per share. So, we can summarized that the company was less performed on year 2014 compare to year 2013.

2. RETURN ON SALE (ROS) 27

Earning Before Interest and Tax (EBIT) Revenue Year 2013

2014

63, 929,754

53,148,617

266,529,238

253,422,385

= 0.2399

= 0.2097

Return on sales shows that how much profit is being produced per ringgit of sales. The higher value of return on sales ratio indicates the company was efficient on its’ sales generating. This ratio provides an alternative to compare on the company’s return on sales over time period to analyze on the trends and it is also can compare with other companies in the same industry. In year 2013, the return of sale (ROS) of the company is 0.2399. It shown decrease in value on year 2014 which is 0.2097. So, as the higher the value, the more efficient on it’s sales generating, we can summarized that the company was less performed on year 2014 compare to year 2013.

3. RETURN ON INVESTMENT (ROI)

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Net Profit After Interest and Tax Total Assets Year 2013

2014

48,011,349

40,870,428

304,966,985

308,792,192

= 0.1574

= 0.1324

Return on investment (ROI) can be measured by dividing net profit after interest and tax with total assets of the year. It is used to measure on the net profit that a company’s management able to earn through the use of the company total assets. It is basically to measure on how efficient the company was used its’ total assets to generate the net profit. Hence, the higher the value calculate on the return on investment ratio illustrate that the company was efficient in applied of its’ total assets to generate the net income. In year 2013, the return of investment (ROI) of the company is 0.1574. It shown decrease in value on year 2014 which is 0.1324. So, as the higher the value, the more efficient in applied of its’ total assets to generate the net income, we can concluded that the company was less performed on year 2014 compare to year 2013.

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4. RETURN ON ASSETS (ROA) Earnings before Interest and Tax (EBIT) Average Total assets (sales of the year +previous year and divided by half) Year 2013

2014

63,929,754

53,148,617

(304,966,985+289,357) / 2

(308,792,192+304,967) / 2

= 63,929,754

= 53,148,617

152,628,171 = 0.4189

154,548,580 = 0.3439

Return on assets (ROA) is an indicator that shows how profitability the company is in relative to its’ total assets. It indicates how efficient the business operation in using the company’s assets to generate earning. It should be noted that the return on assets for public companies can vary substantially and it is highly dependent on the industry. The higher return on assets figure is more favorable due to more efficient of a company in managing its’ assets to generate the earnings. In year 2013, the return of investment (ROA) of the company is 0.4189. It shown decrease in value on year 2014 which is 0.3439. So, as the higher the ROI, the more efficient in managing its assets to generate earnings, we can concluded that the company was less performed on year 2014 compare to year 2013.

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1.7 STRATEGIC DIRECTION According to the TOWS analysis table, there are four strategies which are SO, WO, ST and WT. Among these four strategies, SO strategies were the most suitable strategies for Hai-O Company. SO strategies are the combination of the strengths and opportunities from the analysis of Hai-O Company. SO strategies consist of two strategies that suitable to enhance the position of Hai-O in TCM industry. These two strategies are targeting the bumiputra segment and venturing abroad. In the first strategies, as a big player in the Malaysian market which comprise of Bumiputra domination, Hai-O has a very strong MLM structure that suited the Bumiputra market. Since the setting of its MLM division, Malay consumers have constituted a large segment of its market as well as its sales forces, which has result in a remarkable transformation for Hai-O as a group. The concept of MLM suited the Bumiputra market well and the growing population in Malaysia especially Bumiputra was the good reason for Hai-O to continuously implement the strategy. Achieving reputation among Malay consumers may change the Group image from previously a mainly Malaysian Chinese trade. Thus, the brand will be more accessible and well received by other citizen in Malaysia. For the second strategies, being one of the leading manufacturing companies in traditional medicine, Hai-O certainty has an opportunity to take advantage upon this growth. Aside from dominating the local market, the Group also has the opportunity to expand into new overseas market. Besides, Hai-O also has its own pharmaceutical manufacturing capacity which creates the opportunity to position its products at a very competitive price range and at the new market level. The venturing abroad strategies would be the best strategies to expose Hai-O brand even further as well as promote TCM to a higher level. Together with the opportunity in new innovative products to enhance group earnings, the

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joint ventures with international companies are seen to widen Hai-O’s reach to end users while creating greater brand and TCM recognition.

1.8 OTHER RELEVANT INFORMATIONS 1. Products Brands Hai-O wide range of products consists of in-house brands as well as exclusive principals’ brands which are well known and recognized internationally.

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2. Awards & Recognition 33

Sin Chew Business Excellence Award 2013- CSR Excellence Award

CIO 100 Honouree Award 201

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KPMG Shareholder Value Award 2011

SAP Awards for Customer Excellence 2011Top 3 Nominees for Best SAP Business One Project

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Best Return To Shareholder Category First Runner UpMalaysian Business – CIMA Enterprise Governance Awards 2009

“ Best Small – Capitalisation Company” Award(Malaysia Corporate Governance Index 2009) by MSWG

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Forbes Asia’s “Best Under A Billion” Award

Top Malaysian Small Cap Companies100

wels 2007

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2.1 CONCLUSION As a conclusion, Hai-O Group was less performed on year 2014 as compared to year 2013. The main reason is due to the strong USD dollars against MYR Ringgit. With the strong USD, Hai-O might face difficulty in sustaining the profitability in this division. The Earning Per Share (EPS) for Hai-O group is RM 0.2046 per share in 2014, showing the decreases from RM0.2386 in 2013. However, since Hai-O is a dominant company among the competitors and has tendency to expand the company’s share market, and based on the high performances on the previous years, we believe that Hai-O has the ability to overcome the challenges ahead. Thus, we suggest the company to invest in Hai-O Group.

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3.0 REFERENCES Hai-O Enterprise Berhad. (2014). Annual report.

HAI-O Enterprise Berhad. (2015). Awards & recognition. Retrieved March 16, from http://www.hai-o.com.my/awards.php HAI-O Enterprise Berhad. (2015). Board of directors. Retrieved March 16, from http://www.hai-o.com.my/bod.php HAI-O Enterprise Berhad. (2015). Company background. Retrieved March 16, from http://www.hai-o.com.my/background.php HAI-O Enterprise Berhad. (2015). Corporate responsibility. Retrieved March 15, from http://www.hai-o.com.my/corporatesocial.php HAI-O Enterprise Berhad. (2015). Financial information: 5 years results. Retrieved March 15, from http://www.hai-o.com.my/5-years-results.php HAI-O Enterprise Berhad. (2015). Products Brands. Retrieved March 22, from http://www.hai-o.com.my/products.php HAI-O Enterprise Berhad. (2015). Vision, mission & corporate values. Retrieved March 16, from http://www.hai-o.com.my/vision.php

Jurevicius, O. (2013). Porter’s five forces. Strategic Management Insight. Retrieved March 19, from http://www.strategicmanagementinsight.com/tools/porters-fiveforces.html

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