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IOI PROPERTIES BERHAD
B.
Content of Case Study Analysis:
Executive Summary Letter This paper analyzes the IOI Properties Berhad. It consists of strategy formulating, implementing and evaluating. We identify the company’s strength, weaknesses, opportunities and threats. From the SWOT, the EFE Matrix and IFE Matrix have been constructed, and the result shows that, the IOI Properties Berhad’s EFE and IFE Matrix are above average with total weighted score of 3.12 and 3.20. From the financial ratio of the company, it shows that the revenue is continuously increasing. However, the growth of the company’s sales is decreasing from year 2005 to 2006. We have developed several matrixes to analyze the company and generate strategies. The SWOT Matrix has generated several strategies for the company by using their strength, weaknesses, opportunities and threats. For SPACE (Strategic Position and Action Evaluation) Matrix, the IOI Properties Berhad has fall under aggressive quadrant of the SPACE Matrix. Therefore, it is an excellent position to use its internal strengths to take advantage of external opportunities, overcome internal weaknesses and avoid external threats. Therefore, market penetration, market development, product development, backward integration, forward integration, horizontal integration, conglomerate diversification, concentric diversification, horizontal diversification, or a combination strategy all can be feasible, depending on the specific circumstances that face the company. For BCG Matrix, the IOI Properties Berhad is in quadrant I businesses (question marks) represent that the company has a low relative market share position, yet they compete in a high-growth industry. Market penetration, market development and product development are appropriate strategies for this company to consider. For Competitive Profile Matrix (CPM), and it shows that among the IOI Properties Berhad’s competitors (Boustead Holdings Berhad and E&O Prop), E&O Prop is the weakest competitor. The last matrix is Grand Strategic Matrix, which shows that the IOI Properties Berhad is located in quadrant I of the Grand Strategy Matrix which is in an excellent strategic position. For this company continued concentration on current market (market penetration and market development) and products (product development) is an appropriate strategy. When IOI Properties Berhad has excessive resources, then backward, forward, or horizontal integration may be effective strategies. When IOI Properties Berhad is too heavily committed to a single product, then related diversification may reduce the risk associated with a narrow 1
IOI PROPERTIES BERHAD
product line. IOI Properties Berhad can afford to take advantage of external opportunity in several areas. It can take risks aggressively when necessary. Beside all the matrixes, we have generated long term objectives and alternative strategies for IOI Properties Berhad. The long term objectives are to give better service to the customers and continuously improving their performance, to provide good locations, affordable prices, highly functional designs and the right amenities to the people and also to create a safe, green and pleasant environment. For the alternatives strategies, we have come out with strategy of market penetration. For the McKinsey 7S Implementation Framework, we maintain the old and add new in certain aspects in 7S. For the strategy, overall the existing strategy can cope with the challenging market environment. We have also developed the company’s new mission statement which includes the 9 criteria of a good mission statement. For the structure, IOI Properties Berhad needs to do research in order to maintain its competitive advantage. For shared value, IOI Properties Berhad is always concern on its customer satisfaction and will try to become a fully customer-driven organization. For staffing, it is good for the company to provide training for the employees but it should not burden the company with the high cost.
2
IOI PROPERTIES BERHAD
1.0
Case Summary/Background
Publicly-listed in the property sector of the Kuala Lumpur Stock Exchange with a market capitalisation of over RM1.5 billion, IOI Properties Berhad is now one of the 3 highest capitalised property counters in the sector. With a track record of over 30 years in the property industry, IOI Properties Berhad has established itself as one of the most reliable developer of quality properties in Malaysia. IOI Prop is one of the premier property developers in the Klang Valley and Johor. It has a strong presence in the Puchong area, anchored by its flagship Bandar Puteri and complemented by Bandar Puchong Jaya, which is approaching its tail- end. In Johor, the Group dominates the Senai-Kulai area through Bandar Putra Kulai that stretches over 5,000 acres. RAM has reaffirmed IOI Properties Berhad's respective long- and short-term senior debt ratings of AA3 and P1.IOI Properties Berhad balance sheet appears superior to those of most other property developers and is comparable to the other AA-rated companies in RAM's rating portfolio. Spearheaded by its Executive Chairman, Tan Sri Dato' Lee Shin Cheng, the Company is currently involved in the following developments which are located in strategic growth areas such as Bandar Puteri,Bandar Puchong Jaya which is in Puchong, Bandar Putra Senai,Bandar Putra Segamat which is in Johor, IOI Resort Putrajaya, Bandar Puteri Klang and Bandar Putera Klang. Apart from property development, IOI Properties Bhd also holds various investment properties which include Amoda Building (an office tower in the heart of the Golden Triangle in Kuala Lumpur), IOI Mall (a 1,000,000 square feet shopping mall in Bandar Puchong Jaya, Puchong), Mayang Plaza (a commercial complex in Petaling Jaya), IOI Business Park (a 360,000 square feet office block in Bandar Puchong Jaya) and IOI Plaza in Singapore.
3
IOI PROPERTIES BERHAD
1.1
Identify the Organization’s Existing Mission Our Mission is to be a leading property developer (7) by providing products and services (2) of superior value and by sustaining long-term growth in volume and profitability (5). We shall strive to achieve responsible commercial success by satisfying our customers’ needs (1), giving superior performance to our shareholders, providing rewarding careers to our people (9), cultivating mutually beneficial relationship with our business associates, caring for the society and the environment in which we operate, and contributing towards the progress of our nation (8).
1.2
Identify the Organization’s Existing Objectives 1.2.1
To enhance the environment in IOI Properties Berhad’s townships and helping to foster a better community care.
1.2.2
To design and build a township that creates a community where families can flourish in surroundings that are attractive, convenient and safe.
1.2.3
To contributes towards provision of educational facilities in the communities its business operates and providing direct support to the educational needs of needy children, especially in the estates.
1.3
Identify the Organization’s Existing Strategies 1.3.1
IOI Properties Berhad managed to cope with the challenging housing market environment of oversupply and lack-luster sentiments situation by fine-tuning product launches to offer more shop-offices for sale.
1.3.2
IOI Properties Berhad uses an online system for the ease of the purchasers to make maintenance and payments.
1.3.3
IOI Properties Berhad adjusts its product mix by focusing on the commercial sector, namely shop-houses, to counter the slack in housing demand.
4
IOI PROPERTIES BERHAD
1.3.4
IOI Properties Berhad reviewing and updating the planning and design of its range of products in anticipation of changing demands and needs of the various targets and changing market environment.
1.4 No 1 2 3 4 5 6 7 8 9
Evaluation of Mission Statement on Nine Criteria
Nine Criteria of a Good Mission Statement Customers Products or services Markets Technology Concern for survival, growth and profitability Philosophy Self-concept Concern for public image Concern for employees 2.
Stated
Not Stated
Develop New Mission Statement for the Organization 2.1
New Mission Statement for the Organization Our Mission is to be a leading property developer (7) in Malaysia (3) by providing products and services (2) of superior value and by sustaining long-term growth in volume and profitability (5). We shall strive to achieve responsible commercial success by satisfying our customers’ needs (1), giving superior performance to our shareholders, providing rewarding careers to our people (9), and cultivating mutually beneficial relationship with our business associates, caring for the society and the environment in which we operate, and contributing towards the progress of our nation (8). We believe that our customers are always looking for a quality product at affordable price (6). We will continually provide online payment system (4) for the convenience of our purchasers to make maintenance and payments.
No Nine Criteria of a Good Mission Statement 1 Customers 2 Products or services 5
Stated
Not Stated
IOI PROPERTIES BERHAD
3 4 5 6 7 8 9
Markets Technology Concern for survival, growth and profitability Philosophy Self-concept Concern for public image Concern for employees 3.
Problem Identification No Problem Identification
Major
Problem/ Priorities Of The
1
High cost in training
Minor Problem Minor
2 3
employees Oversupply of houses Too much allocation of funds
Problem 2
Major Minor
1 3
to subsidiary. 4.
TOWS Framework 4.1
Identifying The Organization’s External Opportunities/Threats 4.1.1
Opportunities 4.1.1.1 Malaysia is one of the fastest growing economies in the region and last year the property market enjoyed capital growth figures of between 15% and 30%. 4.1.1.2 The government has introduced a number of tax and legal initiatives aimed at easing the process of foreign property investment into the country and attracting more investors. 4.1.1.3 The government’s “Ninth Plan” will have a positive impact on the
Malaysian
real
estate
market
through
further
improvements to the infrastructure and economic policies. 4.1.1.4 Low buying costs currently at between 3.4% to 6.75% of the property value. 4.1.1.5 Supply constraints and improving occupancy and rental rates helped to spur the demand for property. 4.1.1.6 The Government’s encouragement and successful listing of Real Estate Investment Trusts (REITs) further contributed
6
IOI PROPERTIES BERHAD
towards improved market sentiments in the commercial and retail sector. 4.1.1.7 Property prices per square meter in all major Malaysian towns and cities are at a fraction of the cost of similar investments in many other worldwide destinations. 4.1.1.8 60 percent of the population below the age of 30, Malaysia will experience a significant household transformation that will further expand the demand for properties. 4.1.1.9 Car import duties and some other taxes are waived for foreign residents and capital gains tax is not charged on property owned for more than 5 years. 4.1.1.10 Undeveloped nature of Sabah and Sarawak. 4.1.2
Threats 4.1.2.1 The external environment and global economic outlook is expected to register a slower growth rate amidst rising fuel prices and interest rates which cuts affordability and slows demand. 4.1.2.2 Property market activities had dropped by 5.3% in value and 5.7% in number of transactions respectively in Year 2006. 4.1.2.3 On the supply-side, there is oversupply. 4.1.2.4 Johor property market slowed significantly during the year 2006. 4.1.2.5 Consumer sentiments were subdued by increase in petrol prices and rising inflation. 4.1.2.6 E&O PROP has up market developments located in the heart of Kuala Lumpur’s Damansara Heights. 4.1.2.7 The joint venture between Selangor Properties Berhad and E&O PROP fully draws on the combined expertise and reputations of both companies in property development, particularly in Damansara Heights. 4.1.2.8 Boustead Holdings Berhad proposed acquisition of a 70% stake in BP Malaysia Sdn Bhd.
7
IOI PROPERTIES BERHAD
4.1.2.9 Boustead Holdings Berhad is the market leader in the property and development industry. 4.1.2.10 Changes in customer’s tastes and preferences will affect the design of house. 4.1.3 NO
EFE Matrix (External Factor Evaluation Matrix)
OPPORTUNITIES
WEIGHT
RATING
WEIGHTED
0.07
4
0.28
0.06
3
0.18
0.06
4
0.24
SCORE 1.
Malaysia is one of the fastest growing economies in the region and last year the property market enjoyed capital growth figures
2.
of between 15% and 30% The government has introduced a number of tax and legal initiatives aimed at easing the process of foreign property investment into the country
3.
and attracting more investors. The government’s “Ninth Plan” will have a positive impact on the Malaysian real estate market through further improvements to the
4.
infrastructure and economic policies. Low buying costs currently at between 3.4% to
0.07
3
0.21
5.
6.75% of the property value. Supply constraints and improving occupancy
0.04
3
0.12
0.06
3
0.18
0.05
2
0.10
0.06
4
0.24
and rental rates helped to spur the demand for 6.
property. The Government’s
encouragement
and
successful listing of Real Estate Investment Trusts (REITs) further contributed towards improved market sentiments in the commercial 7.
and retail sector. Property prices per square meter in all major Malaysian towns and cities are at a fraction of the cost of similar investments in many other
8.
worldwide destinations. 60 percent of the population below the age of 30, Malaysia will experience a significant household transformation that will further expand the demand for properties. 8
IOI PROPERTIES BERHAD
9.
Car import duties and some other taxes are
0.04
3
0.12
0.02
2
0.04
WEIGHT
RATING
WEIGHTED
waived for foreign residents and capital gains tax is not charged on property owned for more 10
than 5 years. Undeveloped nature of Sabah and Sarawak.
. NO
THREATS
SCORE 11.
The external environment and global economic
0.07
4
0.28
0.05
3
0.15
outlook is expected to register a slower growth rate amidst rising fuel prices and interest rates which cuts affordability and slows demand. 12
Property market activities had dropped by 5.3%
.
in value and 5.7% in number of transactions
13
respectively in Year 2006. On the supply-side, there is oversupply.
0.06
4
0.24
. 14
Johor property market slowed significantly
0.02
2
0.04
. 15
during the year 2006. Consumer sentiments were subdued by increase
0.05
2
0.10
. 16
in petrol prices and rising inflation. E&O PROP has up market developments
0.04
2
0.08
.
located in the heart of Kuala Lumpur’s
17
Damansara Heights. The joint venture between Selengor Properties
0.04
2
0.08
.
Berhad and E&O PROP fully draws on the combined expertise and reputations of both companies in property development, particularly
18
in Damansara Heights. Boustead Holdings Berhad proposed acquisition
0.02
1
0.02
. 19
of a 70% stake in BP Malaysia Sdn Bhd. Boustead Holdings Berhad is the market leader
0.06
3
0.18
. 20
in the property and development industry. Changes in customer’s tastes and preferences
0.06
3
0.18
.
will affect the design of house. TOTAL
1.00
Interpretation: 9
3.12
IOI PROPERTIES BERHAD
The average total weighted score of 3.12 indicates that IOI Properties Berhad is responding to existing opportunity and threat in its industry. In other words, IOI Properties Berhad strategies can take advantage of existing opportunities and minimize the potential adverse effects of external threat. 4.2
Identifying The Organization’s Internal Strengths/Weaknesses 4.2.1
Strengths 4.2.1.1 Operating performance of IOI Properties Berhad is expected to be stable due to ability of the company to modify its product mix to meet changing demands and changing market environment. 4.2.1.2 IOI Properties Berhad is one of the premier property developers in the Klang Valley and Johor. 4.2.1.3 IOI Properties Berhad balance sheet appears superior to those of most other property developers and is comparable to the other AA-rated companies in RAM's rating portfolio. 4.2.1.4 Higher sales of commercial properties, namely shop offices in Bandar Puteri, Puchong and also higher contributions from property investment portfolio. 4.2.1.5 A united team of dedicated employees who are committed to the Company’s vision and to giving their best lead to consistency superior performances IOI Properties Berhad in the industries. 4.2.1.6 The gradual increase in occupancy and rental rate for most of IOI Properties Berhad’s investment properties. 4.2.1.7 IOI Resort is the one and only resort development within Putrajaya. 4.2.1.8 Availability of Smart Home options provided by IOI Properties Berhad at Bandar Puteri Puchong enables house owners to remotely manage and communicate with their homes appliances and alarm systems for added security. 4.2.1.9 IOI Properties Berhad emerged as the Edge Top Ten Property Developers for 4 years running.
10
IOI PROPERTIES BERHAD
4.2.1.10
IOI Properties Berhad has introduced an online system for the convenience of its condominium and apartment purchasers to make maintenance and other periodic payments.
4.2.2
Weaknesses 4.2.2.1 Greater focus on developing skilled and talented employees will lead to increase in cost. 4.2.2.2 The current ratio has been decreased dramatically in 2006. 4.2.2.3 The total liabilities has been increased drastically in 2006 because of amount due to subsidiaries has increased. 4.2.2.4 IOI Properties Berhad growth rate in sales is decreasing drastically from year to year. 4.2.2.5 Create multi-unit facilities that are provided by IOI Properties Berhad creates more maintenance responsibilities for the landlord or tenants. 4.2.2.6 Certain material that has been used for housing developing is lack of material such as floor material. 4.2.2.7 The IOI Properties Berhad unable to maintain its customer service which lead to customer’s dissatisfaction
4.2.3
IFE Matrix (Internal Factor Evaluation Matrix)
NO STRENGTH 1
WEIGHT
Operating performance of IOI Properties Berhad 0.05
RATING
WEIGHTED
4
SCORE 0.20
4
0.12
4
0.08
is expected to be stable due to ability of the company to modify its product mix to meet changing 2
demands
and
changing
market
environment. IOI Properties Berhad is one of the premier 0.03 property developers in the Klang Valley and
3
Johor. IOI Properties Berhad balance sheet appears 0.02 superior to those of most other property developers and is comparable to the other AA11
IOI PROPERTIES BERHAD
rated companies in RAM's rating portfolio. 4
Higher sales of commercial properties, namely 0.06
4
0.24
4
0.36
3
0.24
shop offices in Bandar Puteri, Puchong and also higher contributions from property investment portfolio. 5
A united team of dedicated employees who are 0.09 committed to the Company’s vision and to giving their best lead to consistency superior performances of IOI Properties Berhad in the
6
industries. The gradual increase in occupancy and rental 0.08 rate for most of IOI Properties Berhad’s
7
investment properties. IOI Resort is the one and only resort 0.05
3
0.15
8
development within Putrajaya. Availability of Smart Home options provided by 0.04
3
0.12
IOI Properties Berhad at Bandar Puteri Puchong enables house owners to remotely manage and communicate with their homes appliances and 9
alarm systems for added security. IOI Properties Berhad emerged as the Edge Top 0.03
2
0.06
10
Ten Property Developers for 4 years running. IOI Properties Berhad has introduced an online 0.06
4
0.24
RATING
WEIGHED
system for the convenience of its condominium and apartment purchasers to make maintenance and other periodic payments. NO WEAKNESSES
WEIGHT
12
Greater focus on developing skilled and talented 0.06
4
SCORE 0.24
13
employees will lead to increase in cost. The current ratio has been decreased 0.04
4
0.08
14
dramatically in 2006. The total liabilities
4
0.20
has
been
increased 0.05
drastically in 2006 because of amount due to 15
subsidiaries has increased. IOI Properties Berhad growth rate in sales is 0.05
4
0.20
16
decreasing drastically from year to year. Create multi-unit facilities are in poorly 0.09
3
0.27
12
IOI PROPERTIES BERHAD
maintained state overall. Changing a single unit dwelling to a multi-unit home creates more maintenance responsibilities for the landlord or 17
tenants. Certain material that has been used for housing 0.1
2
0.2
developing is lack of material such as floor 18
material. The IOI Properties Berhad unable to maintain its 0.1 customer service which I lead to customer’s II dissatisfaction. TOTAL
2
0.2 III
Grow 1.00
and Build
3.20
Interpretation: As total score
IV
V
VI
VII
VIII
IX
weighted of
Properties
IOI Berhad
above
2.5,
indicates
a
it strong
internal position.
The Internal-External (IE) Matrix THE IFE TOTAL WEIGHTED SCORES Strong
Average
Weak
3.0 to 4.0
2.0 to 2.99
1.0 to 1.99
3.0 4.0 High THE
3.0 to 4.0
EFE TOTAL
3.0
WEIGHTED Medium SCORES 2.0 to 2.99 2.0 13
2.0
1.0
IOI PROPERTIES BERHAD
Low 1.0 to 1.99 1.0
Interpretation: The IE Matrix shows the IFE Total Weighted Scores which is 3.20 and the EFE Total Weighted Scores that is 3.12. This organization IE matrix fall into cell I which can be described as grow and build. The most appropriate strategies for this organization is intensive (market penetration, market development and product development) or integrative (backward integration, forward integration and horizontal integration).
4.2.4 RATIO Liquidity Ratios
Financial Ratios CALCULATION 2004 2005
MEANING 2006
= 465721 6964
= 422693 6245
= 693849 168373
The firm able to
= 66.88
= 67.69
= 4.12
obligation but the
Current Ratio Current asset____ Current liabilities
meet its short term ratio decrease dramatically in year 2006.
Leverage Ratios
14
IOI PROPERTIES BERHAD
Debt –to-Total-Assets-Ratio Total Debt Total assets
=
6964 747880
= 0.09
= 6245 19888
Total funds that are = 168373 941879 provided by
= 0.0087
= 0.179
creditors is increasing in year 2006
Debt –to-Equity-Ratio Total Debt______ Total stockholders’ equity
= 6964 740916
= 6245 713643
= 168373 Total funds 773506 provided by
= 0.09
= 0.0088
= 0.218
creditors versus by owners is increasing in year 2006
Times-Interest-Earned Ratio Profits before interest and taxes________ Total interest charged
= 132693 7916
= 165033 8187
= 293374 8234
= 16.763
= 20.16
= 35.63
This ratio is increase from year to year; it indicates that the firm is able to cover its interest payment from the annual operating earning.
Activity Ratios Fixed Asset Turnover Sales___ Fixed asset
= 136990 282159
= 170167 297195
= 221299 It indicates that the 248030 firm is able in
= 0.486
= 0.5726
= 0.892
managing its fixed asset in relation to sales.
Total Asset Turnover 15
IOI PROPERTIES BERHAD
Sales____ Total Assets
=
136990 747880
= 170167 719888
= 221299 The firm is able in 941879 utilizing the
=
0.183
= 0.2363
= 0.235
capacity of total asset in relation to sales.
Profitability Ratios Operating Profit Margin Earning before interest and Tax(EBIT)________ Sales
= 132693 136990
= 165033 170167
= 293374 221299
The firm is
= 0.969
= 0.97
= 1.326
its operating
effective in making decision besides financing decision
Net Profit Margin Net Income Sales
= 100551 136990
= 121519 170167
= 236036 221299
After tax profits increased per
= 0.734
= 0.714
= 1.067
= 100551 747880
= 121519 719888
= 236036 941879
The firm’s after-tax
= 0.134
= 0.169
= 0.251
of asset arising but
ringgit of sales.
Return on Total Assets(ROA) Net income Total assets
profits per ringgit it still show that the firm has a poor control of overall expenditure
Return on Shareholders’ Equity (ROE) Net income______ Total stockholders’ equity
= =
100551 740916
= 121519 713643
= 236036 773506
0.136
= 0.170
= 0.305
16
The firm has an arising
rate
of
return on common
IOI PROPERTIES BERHAD
stockholders investment Growth Ratios Sales Annual percentages growth in = 64.25%
= 24%
= 30%
total sales
The firm’s growth rate
in
sale
decreasing
is
from
year 2004 to 2006 Net income Annual percentages growth in = 56.42%
= 21%
profits
= 94.24%
The firm’s growth rate in profits is decreasing from year 2004 to 2005 but start to increasing dramatically in 2004.
17
IOI PROPERTIES BERHAD
No
Items
S
W D
1
Operating
performance
of
IOI
P
O E
C
T
D
P
T E
Properties
Berhad is expected to be stable due to ability of the company to modify its product mix to meet changing 2
demands
and
changing
market
environment. IOI Properties Berhad is one of the premier
√
property developers in the Klang Valley and 3
Johor. IOI Properties Berhad balance sheet appears
√
superior to those of most other property developers and is comparable to the other AA4
rated companies in RAM's rating portfolio. Higher sales of commercial properties, namely
√
shop offices in Bandar Puteri, Puchong and also 5
higher
contributions
from
property
investment portfolio. A united team of dedicated employees who are
√
committed to the Company’s vision and to giving their best lead to consistency superior performances of IOI Properties Berhad in the 6
industries. The gradual increase in occupancy and rental
√
rate for most of IOI Properties Berhad’s 7
investment properties. IOI Resort is the one
8
development within Putrajaya. Availability of Smart Home options provided by IOI
Properties
Berhad
√ and
at
only
Bandar
resort √
Puteri
Puchong enables house owners to remotely manage and communicate with their homes appliances and alarm systems for added 9
security. IOI Properties Berhad emerged as the Edge
√
Top Ten Property Developers for 4 years 10
running. IOI Properties Berhad has introduced an online
√
system for the convenience of its condominium and
apartment
purchasers
to
make
maintenance and other periodic payments.
No
√
Items
S
18
W
O
T
C
T
IOI PROPERTIES BERHAD
D 11
Greater
focus
on
developing
talented employees will lead to increase in cost. The current ratio has been decreased
√
12
dramatically in 2006. The total liabilities
√
13
has
skilled
been
P
E
C
T
D
P
E
C
T
C
T
D
T P
E
C
T
and
increased
drastically in 2006 because of amount due to subsidiaries has increased. IOI Properties Berhad growth rate in sales is
√
14
decreasing drastically from year to year. Multi-unit facilities that are provided by IOI
√
15
Properties Berhad creates more maintenance 16
responsibilities for the landlord or tenants. Certain material that has been used for housing
√
developing is lack of material such as floor 17
material. The IOI Properties Berhad unable to maintain
√
its customer service which lead to customer’s dissatisfaction. 18
Malaysia
is
√ one
of
the
fastest
growing
economies in the region and last year the property market enjoyed capital growth figures of between 15% and 30%. 19
√
The government has introduced a number of tax and legal initiatives aimed at easing the process of foreign property investment into the country and attracting more investors
20
√
The government’s “Ninth Plan” will have a positive impact on the Malaysian real estate market through further improvements to the
21
infrastructure and economic policies. Low buying costs currently at between 3.4% to
22
6.75% of the property value. Supply constraints and improving occupancy
√ √
and rental rates helped to spur the demand for property. No
√
Items
S
W D
25
P
60 percent of the population below the age of 30, Malaysia will experience a significant household
transformation
that
will
further
expand the demand for properties. 26
√
Car import duties and some other taxes are waived for foreign residents and capital gains
19
√
O E
IOI PROPERTIES BERHAD
tax is not charged on property owned for more than 5 years. 27 28
Undeveloped nature of Sabah and Sarawak. The external environment and global economic
√
outlook is expected to register a slower growth rate amidst rising fuel prices and interest rates 29
which cuts affordability and slows demand. Property market activities had dropped by 5.3%
√
in value and 5.7% in number of transactions 30 31
respectively in Year 2006. On the supply-side, there is oversupply. Johor property market slowed significantly
32
during the year 2006. Consumer sentiments
33
increase in petrol prices and rising inflation. EOPROP has up market developments located
√ √ √
were
subdued
by √
in the heart of Kuala Lumpur’s Damansara 34
Heights. The joint venture between Selangor Properties
√
Berhad and E&OPROP fully draws on the combined expertise and reputations of both companies in property development, particularly 35
in Damansara Heights. Boustead Holdings
√ Berhad
proposed
acquisition of a 70% stake in BP Malaysia Sdn 36
No
Bhd. Boustead Holdings Berhad is the market leader
√
in the property and development industry.
√
Items
S
W D
37
P
O E
C
T
D
P
T E
C
T
0
√ 4
0
2
4
0
Changes in customer’s tastes and preferences will affect the design of house.
TOTAL
10
7
5
3
2
0
Interpretation: From the above table, it shows that IOI Properties Berhad has ten strengths. It indicates that IOI Properties Berhad can successfully compete with competitors and sustained in this industry. With seven weaknesses, the IOI Properties Berhad should improve their strategies as 20
5.0
IOI PROPERTIES BERHAD
to eliminate their weaknesses. The IOI Properties Berhad has ten opportunities meaning that IOI Properties Berhad should take advantage of it. This table also shows that, IOI Properties Berhad has ten threats. It indicates that IOI Properties Berhad should minimize the potential adverse effects of external threats so that their organization will not be affected. Matrixes 5.1
TOWS Matrix STRENGTH – S
WEAKNESESS – W
1. Operating performance
1. Greater focus on
of IOI Properties
developing skilled and
Berhad is expected to be
talented employees will
stable due to ability of
lead to increase in cost.
the company to modify
2. The current ratio has been
its product mix to meet
decreased dramatically in
changing demands and
2006.
changing market environment. 2. IOI Properties Berhad is
3. The total liabilities has been increased drastically in 2006 because of amount
one of the premier
due to subsidiaries has
property developers in
increased.
the Klang Valley and Johor.
4. IOI Property’s growth rate in sales is decreasing
3. IOI Properties Berhad's balance sheet appears
drastically from year to year.
superior to those of most
5. Multi-unit facilities that
other property developers
are provided by IOI
and is comparable to the
Properties Berhad create
other AA-rated
more maintenance
companies in RAM's
responsibilities for the
rating portfolio.
landlord or tenants.
4. Higher sales of commercial properties, 21
6. Certain material that has been used for housing
IOI PROPERTIES BERHAD
namely shop offices in
developing is lack of
Bandar Puteri, Puchong
quality such as floor
and also higher
material.
contributions from
7. The IOI Properties Berhad
property investment
unable to maintain its
portfolio.
customer service which
5. A united team of dedicated employees who are committed to the Company’s vision and to giving their best lead to consistency superior performances of IOI Properties Berhad in the industries. 6. The gradual increase in occupancy and rental rate for most of IOI Properties Berhad’s investment properties. 7. IOI Resort is the one and only resort development within Putrajaya. 8. Availability of Smart Home options provided by IOI Properties at Bandar Puteri Puchong enables house owners to remotely manage and communicate with their homes appliances and alarm systems for added security. 9. IOI Properties Berhad emerged as the Edge Top 22
lead to customer’s dissatisfaction.
IOI PROPERTIES BERHAD
Ten Property Developers for 4 years running. 10. IOI Properties Berhad has introduced an online system for the convenience of its condominium and apartment purchasers to make maintenance and other periodic payments.
OPPORTUNITIES – O 1. Malaysia is one of the
SO STRATEGIES 1.
Develop a new green
WO STRATEGIES 1. Selling one to two
fastest growing economies
and smart township at the
subsidiaries to reduce the
in the region and last year
undeveloped area with
total liabilities and
the property market
‘Modern Forest’ concept.
concentrate more on
enjoyed capital growth
(S4, O10) – (Market
foreign property
figures of between 15%
Development)
investment to cover the
and 30%. 2. The government has
liabilities. (W3, O2) – 2.
Promoting greater
(Divestiture)
introduced a number of
sales via internet which
2. Increase advertising via
tax and legal initiatives
enable buyers to make
electronic channel to
aimed at easing the
deposit payment through
attract more buyers. (W4,
process of foreign
online system. (S10, O4,
O5) – (Market
property investment into
O5) – (Market
Penetration)
the country and attracting
Penetration)
more investors 3. The government’s “Ninth
3. Promote longer 3.
Develop medium- and
maintenance period to the
Plan” will have a positive
high-cost housing to meet
potential buyers. (W5, O8)
impact on the Malaysian
the increasing of property
– (Market Penetration)
real estate market through
demand. (S1, O4, O8) – 23
IOI PROPERTIES BERHAD
further improvements to
(Related Diversification)
the infrastructure and economic policies. 4. Low buying costs
4.
Improve
infrastructure and facilities
currently at between 3.4 to
at the existing developed
6.75% of the property
housing area such as at
value.
Bandar Puteri Klang and
5. Supply constraints and
Bandar Putra Senai. (S2,
improving occupancy and
O3) – (Product
rental rates helped to spur
Developmet)
the demand for property. 6. The Government’s encouragement and successful listing of Real Estate Investment Trusts (REITs) further contributed towards improved market sentiments in the commercial and retail sector. 7. Property prices per square metre in all major Malaysian towns and cities are at a fraction of the cost of similar investments in many other worldwide destinations. 8. 60 percent of the population below the age of 30, Malaysia will experience a significant household transformation that will further expand the demand for properties. 24
IOI PROPERTIES BERHAD
9. Car import duties and some other taxes are waived for foreign residents and capital gains tax is not charged on property owned for more than 5 years. 10.Undeveloped nature of Sabah and Sarawak. THREATS – T
ST STRATEGIES
1. The external environment 1. Give more focus on
WT STRATEGIES 1. Use materials which will
and global economic
advertising in
meet the quality standard
outlook is expected to
commercial sector,
that can satisfy the
register a slower growth
namely shop-houses, to
customer’s tastes and
rate amidst rising fuel
counter the slack in
preferences. (W6, T10) –
prices and interest rates
housing demand. (S1,
(Product Development)
which cuts affordability
T1) – (Market
and slows demand.
Penetration)
2. Property market activities had dropped by 5.3% in
2. Give discounts to housing buyers and include free
2. Co-ordination in planning
maintenance service
value and 5.7% in
for infrastructure
package up to five years or
number of transactions
provision with the
longer. (W5, W7, T1) –
respectively in Year
competitors in developed
(Market Penetration)
2006.
housing area. (S2, T7,
3. On the supply-side, there is oversupply.
T9) – (Horizontal Integration)
4. Johor property market slowed significantly during the year 2006. 5. Consumer sentiments
3. Reduce number of unskilled workers by offering them early
3. Adding new features and architectural to the housing design which
were subdued by increase
suite customer’s tastes
in petrol prices and rising
and preferences. (S5,
inflation.
T10) – (Product 25
retirement scheme. (W1, T2, T3) – (Retrenchment)
IOI PROPERTIES BERHAD
6. EOPROP has up market
Development)
developments located in the heart of Kuala Lumpur’s Damansara Heights. 7. The joint venture between Selangor Properties Berhad and E&OPROP fully draws on the combined expertise and reputations of both companies in property development, particularly in Damansara Heights. 8. Boustead Holdings Berhad proposed acquisition of a 70% stake in BP Malaysia Sdn Bhd. 9. Boustead Holdings Berhad is the market leader in the property and development industry. 10. Changes in customer’s tastes and preferences will affect the design of house.
Interpretation: From the SWOT matrix, the internal factors of IOI Properties Berhad which are strengths and weaknesses can cope with the external factors which are opportunities and threats. Overall the 26
IOI PROPERTIES BERHAD
IOI Properties Berhad should pursue market penetration strategy. This is because the IOI Properties Berhad should seek to increase revenue in present market through greater marketing efforts. 5.2
SPACE (Strategic Position and Action Evaluation) Matrix Ratings
Financial Strength •
IOI Properties Berhad’s sales increase in year 2006 by RM 51132.
+4
•
The percentage growth in profit of IOI Properties Berhad increase
+6
by 73.24%. •
The leverage ratio is below than 1
+3
•
IOI Properties Berhad has an arising rate of return on common
+5
stockholders investment in 2006 by 13.5%
+18
Total Industry Strength •
________
Real estate in Malaysia is high quality and very low cost compared
+5
to other locations, •
The foreign investment into the property sector in Malaysia is
+4
firmly growing at unprecedented levels. •
The Malaysia’s ‘Ninth Plan’ will have a positive impact on the
+5
Malaysian real estate market. •
Malaysia has introduced a number of tax and legal initiatives aimed
+3
at easing the process of foreign property investment into the country ________
and attracting more investors
+17
Total Environmental Stability •
Malaysia is one of the fastest growing economies in the region.
-2
•
Property prices per square meter in all major Malaysian towns and
-3
cities are at a fraction of the cost of similar investments in many other worldwide destinations. •
Supply constraints and improving occupancy and rental rates helped
-3
to spur the demand for property. •
Low buying costs currently at between 3.4% to 6.75% of the property value. 27
-3
IOI PROPERTIES BERHAD
•
Oversupply of housing because of fluctuation in interest rate of
________
borrowing.
-13
Total Competitive Advantage •
-2
IOI Properties Berhad has introduced an online system for the
-1
convenience of its customer. •
IOI Properties Berhad has been 30 years in property industry.
-3
•
IOI Properties Berhad is one of the most reliable developers of
-2
quality properties in Malaysia. •
-2
IOI Properties Berhad holds various investment properties.
________ -8
Total Conclusion ES Average is -13/5 = -2.6
IS Average is +17/4 = +4.25
CA Average is -8/4 = -2
FS Average is +18/4 = +4.5
Directional Vector Coordinates: x-axis: -2+(+4.25) = +2.25 y-axis: -2.6+(+4.5)= +1.9 Therefore, IOI Properties Berhad should pursue Aggressive Strategies.
Aggressive FS 3 (2.25,1.9) 2 1 CA
1
2
28
3
IS
IOI PROPERTIES BERHAD
ES Interpretation: IOI Properties Berhad’s directional vector is located in the aggressive quadrant of the SPACE Matrix. The IOI Properties Berhad is in an excellent position to use its internal strength to take advantage of external opportunities, overcome internal weaknesses and avoid external threat. Therefore, market penetration, market development, product development, backward integration, forward integration, horizontal integration, conglomerate, diversification, concentric diversification, horizontal diversification, or a combination strategy all can be feasible, depending on the specific circumstances that face the organization
5.3 BCG Matrix RELATIVE MARKET SHARE POSITION (RMSP)
High
High
Medium
Low
1.0
0.5
0.0
+20
INDUSTRY SALES GROWTH RATE
Medium
0
29
IOI PROPERTIES BERHAD
Low
No 1 2 3
-20
Company IOI PROPERTIES BERHAD E&O PROPERTY BOUSTEAD PROPERTY
Industry Growth Rate Relative Market Share Position
Industry Growth Rate 24.22% 25.06% 25.86% 25.05% 27.78%
Interpretation: IOI Properties Berhad is in quadrant I businesses (Question Marks) represent the company’s needs higher cash and their cash generation is low. IOI Properties Berhad is fall in Question Marks quadrant indicates that they must decide whether to strengthen by pursuing and intensive strategy or to sell them. Market penetration; market development; or product development are appropriate strategies for this company to consider.
5.4 Grand Strategic Matrix RAPID MARKET GROWTH Quadrant I 1. Market Development 2. Market Penetration 3. Product Development 4. Forward Integration 5. Backward Integration 6. Horizontal integration 7. Related Diversification WEAK STRONG COMPETITIVE
COMPETITIVE 30
IOI PROPERTIES BERHAD
POSITION
POSITION
SLOW MARKET GROWTH Interpretation IOI Properties Berhad is located in quadrant I of the Grand Strategy Matrix which is in an excellent strategic position. For this company continued concentration on current market (market penetration and market development) and products (product development) is an appropriate strategy. When IOI Properties Berhad has excessive resources, then backward, forward, or horizontal integration may be effective strategies. When IOI Properties Berhad is too heavily committed to a single product, then related diversification may reduce the risk associated with a narrow product line. IOI Properties Berhad can afford to take advantage of external opportunity in several areas. It can take risks aggressively when necessary.
5.5 Competitive Profile Matrix IOI
BOUSTEAD
PROPERTIES
E&O PROPERTY
HOLDING BERHAD
BHD
N
Critical Success Factors
W
Financial Position Advertising Dividend Global Expansion Sales of property Corporate Governance Management TOTAL
0.2 0.07 0.1 0.13 0.2 0.2 0.1 1.00
R
WS
R
WS
R
WS
o
1 2 3 4 5 6 7
4 3 1 4 2 4 4
0.8 0.21 0.1 0.52 0.4 0.8 0.4 3.23
Interpretation
31
4 3 1 3 3 3 3
0.8 0.21 0.1 0.39 0.6 0.6 0.3 3.00
4 3 3 4 2 3 3
0.8 0.21 0.3 0.52 0.4 0.6 0.3 3.13
IOI PROPERTIES BERHAD
The rating values are as follows: 1= major weakness, 2= minor weakness, 3= minor strength, 4= major strength. As indicated by the total weighted score of 3.00, E&O Property is the weakest organization.
6.0
Matrix Analysis and TOWS Summary
No Alternative Strategies
IE
TOWS
SPACE
Grand
Total
Matrix
Matrix
Matrix
Strategy
√ √ √ √
√ √ √ √ √ √
Matrix 1 2 3 4 5 6 7 8
Forward Integration Backward Integration Horizontal Integration Market Penetration Market Development Product Development Concentric Development Conglomerate
9 10 11 12 13
Diversification Horizontal Diversification Joint Venture Retrenchment Divestiture Liquidation
√ √ √ √ √ √
√ √ √ √ √ √
3 3 4 4 4 4 0 1
√
3 0 1 1
√ √
√
√ √
7.0 Quantitative Strategic Planning (QSPM) STRATEGIC ALTERNATIVES
Weight
Market
Product
Penetration AS TAS
Development AS TAS
OPPORTUNITIES 1. Malaysia is one of the fastest growing
0.07
-
-
-
0.06
-
-
-
-
economies in the region and last year the property market enjoyed capital growth figures of between 15% and 30%. 2. The government has introduced a number of tax and legal initiatives aimed at easing the process of foreign property 32
-
IOI PROPERTIES BERHAD
investment into the country and attracting more investors
0.24
3. The government’s “Ninth Plan” will
0.06
-
-
4
have a positive impact on the Malaysian real
estate
market
through
further
improvements to the infrastructure and economic policies.
-
4. Low buying costs currently at between
0.07
4
0.28
-
3.4 to 6.75% of the property value.
-
5. Supply constraints and improving
0.04
3
0.12
-
occupancy and rental rates helped to spur the demand for property. 6. The
Government’s
encouragement
0.06
-
-
-
and successful listing of Real Estate Investment
Trusts
(REITs)
further
contributed towards improved market sentiments in the commercial and retail sector.
-
7. Property prices per square metre in all
0.05
-
-
-
major Malaysian towns and cities are at a fraction of the cost of similar investments in many other worldwide destinations.
-
8. 60 percent of the population below the
0.06
4
0.24
-
age of 30, Malaysia will experience a significant household transformation that will further expand the demand for properties.
-
9. Car import duties and some other
0.04
-
-
-
taxes are waived for foreign residents and capital gains tax is not charged on property owned for more than 5 years.
-
10. Undeveloped nature of Sabah and Sarawak.
33
0.02
-
-
-
IOI PROPERTIES BERHAD
THREATS 1.
The external environment and
0.07
3
0.21
-
global economic outlook is expected to register a slower growth rate amidst rising fuel prices and interest rates which cuts affordability and slows demand. 2.
-
Property market activities had
0.05
-
-
-
dropped by 5.3% in value and 5.7% in number of transactions respectively in Year 2006. 3.
On
the
supply-side,
there
is
0.06
-
-
-
0.02
-
-
-
oversupply. 4.
-
Johor property market slowed
0.05
-
-
-
significantly during the year 2006. 5.
Consumer sentiments were
-
subdued by increase in petrol prices and
0.04
-
-
-
rising inflation. 6.
EOPROP has up market
-
developments located in the heart of
0.04
-
-
-
Kuala Lumpur’s Damansara Heights. 7.
The joint venture between
Selangor Properties Berhad and E&OPROP fully draws on the combined expertise and reputations of both
-
companies in property development,
0.02
-
-
-
particularly in Damansara Heights. 8.
Boustead Holdings Berhad
-
proposed acquisition of a 70% stake in BP
0.06
-
-
-
Malaysia Sdn Bhd. 9.
Boustead Holdings Berhad is the
0.18
market leader in the property and
0.06
development industry. 10.
Changes in customer’s tastes and
_____
preferences will affect the design of
1.00 34
-
-
3
IOI PROPERTIES BERHAD
house. STRENGTH 1. Operating
0.05 performance
of
4
0.2
-
IOI
Properties Berhad is expected to be stable due to ability of the company to modify its product mix to meet changing demands
0.09 0.03
-
-
3
and changing market environment. 2. IOI Prop is one of the premier property developers in the Klang Valley
0.02
-
-
-
and Johor. 3. IOI Prop's balance sheet appears superior to those of most other property
0.06
-
-
-
developers and is comparable to the other AA-rated companies in RAM's rating portfolio.
0.18
4. Higher sales of commercial properties,
0.09
-
-
2
namely shop offices in Bandar Puteri, Puchong and also higher contributions from property investment portfolio. 5. A united team of dedicated employees who are committed to the Company’s
0.08
-
-
-
vision and to giving their best lead to consistency superior performances of IOI Properties Berhad in the industries.
0.05
-
-
-
6. The gradual increase in occupancy and rental rate for most of IOI Properties
0.04
-
-
-
Berhad’s investment properties. 7. IOI Resort is the one and only resort development within Putrajaya. 8. Availability of Smart Home options provided by IOI Properties at Bandar Puteri Puchong enables house owners to remotely manage and communicate with 35
0.03
-
-
-
IOI PROPERTIES BERHAD
their homes appliances and alarm systems for added security.
0.06
4
0.24
-
9. IOI Properties Berhad emerged as the Edge Top Ten Property Developers for 4 years running. 10. IOI Properties Berhad has introduced an online system for the convenience of its
condominium
and
apartment
purchasers to make maintenance and other periodic payments.
0.06
-
-
-
WEAKNESSES
0.04
-
-
-
1. Greater focus on developing skilled and talented employees will lead to
0.05
-
-
-
increase in cost. 2. The current ratio has been decreased dramatically in 2006.
0.05
2
0.1
-
3. The total liabilities has been increased drastically in 2006 because of amount due
0.09
2
0.18
-
to subsidiaries has increased. 4. IOI Property’s growth rate in sales is decreasing drastically from year to year.
0.3
5. Multi-unit facilities that are provided
0.1
-
-
3
by IOI Properties Berhad create more maintenance
responsibilities
for
the
landlord or tenants.
0.1
6. Certain material that has been used for housing developing is lack of material such as floor material.
_____ 1.00
7. The IOI Properties Berhad unable to maintain its customer service which lead to customer’s dissatisfaction.
36
3
0.3
-
IOI PROPERTIES BERHAD
Sum Total Attractiveness Score
1.87
0.99
Interpretation: The sum total attractiveness score of 1.87 indicates that market penetration is a more attractive strategy when compared to the product development strategy. 8.0
Long Term Objectives and Alternatives Strategy 8.1
Long Term Objectives Market Penetration 8.1.1 To give better service to the customers and continuously improving their performance.
8.1.2
To provide good locations, affordable prices, highly functional designs and the right amenities to the people.
8.1.3
To create a safe, green and pleasant environment, and also build thriving, vibrant communities.
8.2 Alternative Strategies Market Penetration 8.2.1
Strategy 1 Give more focus on advertising in commercial sector, namely shop-houses, to counter the slack in housing demand. 8.2.1.1 Advantages The company’s sales and revenue will maintain at the reasonable rate due to the product diversification. 8.2.1.2Disadvantages If the demand for shop-houses decrease, it will affect the company’s sales and revenues. .
8.2.2
Strategy 2 Give discounts to housing buyers and include free maintenance service package up to five years or longer.
37
IOI PROPERTIES BERHAD
8.2.2.2 Advantages Can increase customer’s satisfaction and attract more buyers. 8.2.2.3 Disadvantages Incurred higher cost because the company needs to hire professional personnel in providing the maintenance service.
9.0
Strategy Implementation (Policies & Allocate Resources) 9.1 McKinsey 7S Implementation Framework
9.1.1
Strategy IOI Properties Berhad provides quality products by focusing on the housing and commercial sector. Overall the existing strategy can cope with the challenging market environment. Moreover, IOI Properties Berhad had introduced online system for the ease of the purchaser to make payments.
9.1.2
Structure The organization chart of IOI Properties Berhad is acceptable but it needs to make some changes by adding one more department that is Research and Development. It is because IOI Properties Berhad needs to do research in order to overcome their problem. Moreover, this is to maintain its competitive advantage.
9.1.3
System The existing system that been applied by the IOI Properties Berhad is good compared to the competitor. It is because IOI
38
IOI PROPERTIES BERHAD
Properties Berhad had introduced online system for the ease of the purchaser to make payments. 9.1.4
Style IOI Properties Berhad is strongly focused in boosting its sales. The management of IOI Properties Berhad is updating the planning and design of its range of products in anticipation of changing demands and needs of the various targets and changing market environment.
9.1.5
Shared Value IOI Properties Berhad is always concern on its customer satisfaction and will try to become a fully customer-driven organization.
9.1.6
Staffing/Skills IOI Properties Berhad is always improving its employee’s performance by providing training as to improve their skills in marketing, management and customer service. This existing strategy should be maintained for the benefit in the future.
10.0
Conclusion In a nutshell, IOI Properties Berhad is continuously improving their performance but they need to take some corrective action. Hopefully the new strategies that have been formulated that is market penetration. By using strategy 1 that is give more focus on advertising in commercial sector as to counter the slack in housing demand. This can also help IOI Properties Berhad to give better services to their customers and finally, they can be successful in the future.
39
IOI PROPERTIES BERHAD
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