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Companies Analysis
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Table of Contents
1.0 Introduction ..................................................................................................................................... 3
1.1 DiGi Berhad................................................................................................................................. 3
1.2 Maxis Communication................................................................................................................ 3
2.0 Financial Ratios ............................................................................................................................... 3
3.0 Payout Policies and Payout Ratios ................................................................................................ 6
4.0 Valuation of Both Companies ........................................................................................................ 8
5.0 Conclusion ....................................................................................................................................... 8
6.0 References ........................................................................................................................................ 9
Appendices ................................................................................................................................................. 10
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1.0 Introduction
This report objective is to find the performance of two Malaysian telecommunication companies
that are listed on their stock exchange. The annual reports of the companies have been take for the
analysis purpose. The companies that have been selected are Maxis Communication and Digi
Communication. These companies are the biggest telecommunication companies of the Malaysia.
Different sections of the company have been analyzed properly in order to find the liquidity,
leverage, profitability, and investment and dividend ratios. The five years annual reports have been
downloaded to assess the performance of both companies.

1.1 DiGi Berhad

As per the details given on the official website of the company DiGi (2016a), The Company started
its operations in 1995. It is the first ever telecommunication company which introduces the cellular
network that was digital. It is a company that is listed on Bursa Malaysia, Stock Exchange of
Malaysia. DiGi mission statement is to provide internet services to all residents. It is continuously
contributing significantly in the growth of Malaysia by enabling an environment that can enable
socio-economic development, connectivity, and soon. With continuous innovation and
technology, it has remained the game changer in Malaysian telecommunication industry with
having a history of making innovative products while remaining a leader within the Malaysian
Market.

1.2 Maxis Communication

The details regarding the company have been taken from official website of Maxis (2016a), Maxis
communication is the biggest telecommunication company in Malaysia. It started its operations in
1993.The company was founded by Mr. Ananda Krishman. The company is connection almost 13
million families, businesses and individuals. Maxis was the first company that introduced the
service of 4G LTE. It is the only company that brought Samsung, Iphone, and blackberry phones
within the market.

2.0 Financial Ratios

To find the capital structure of both telecommunication companies, the different capital ratios have
been calculated (Denis, and McKeon, 2016). These ratios guide regarding the current capital
structure and also helps in predicting the future performance of the ratios. The ratios that have been
calculated to analyze the capital structure are as follows:
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Debt to Equity Ratio

Assets to Equity Ratio

These ratios show the leverage position of the company as it guides regarding the current debt and
equity position of the company. The DiGi has not published its 2016 annual report yet thats why
four years data has been taken from the annual report (Molnar, and Nyborg, 2013). The analysis
of both ratios for the five financial years are as follows:

Debt To Equity Ratio

Debt to equity ratio shows the amount of debt that has been raised compared to the amount of
equity. The total amount of debt comprises of both current and non-current liabilities. The amount
of total equity comprises to total number of shares that has been issued by the company (Jarrow,
2013). The debt to equity ratio of both telecommunication firms for the period of five years are as
follows:

Debt to Equity Ratio

14.00
7.98
12.00 7.98

10.00

8.00 5.27
4.68
6.00
3.50 3.16
-
4.00 2.82
1.52 1.88
2.00

0.00
2012 2013 2014 2015 2016
DiGi 4.68 5.27 7.98 7.98 -
Maxis Berhad 1.52 1.88 2.82 3.50 3.16

Figure 1 Debt to Equity Ratio

The debt to equity ratio of both years have been calculated and it shows that ratio has been
increasing over the years. The DiGi debt to equity ratio has been increasing at a significant rate
over the period of five years. The ratio of Maxis communication is lower than the ratio of DiGi
and it shows that the DiGi dependency is much on debt compare to equity. The DiGi has taken a
lot of debt as raising equity is not an easy method. The equity is considered as the least risky
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method to finance a project however, it is not easy to raise funds through equity. However, maxis
ratio also shows that its dependency is also on debt and it has kept on increasing. The both
companys ratio shows that the companies are relying less on equity as they are unable to finance
huge projects with equity therefore they have raised the money through debt. The capital theory
also suggests that company should take the financing method as per their business model as it can
help them to earn significant profits (DiGi, 2016 & Maxis, 2016).

The theory of capital structure refers to the unique method to finance the activities of business
through a mixture of liabilities and equities. The theories explore the interaction among equity
financing and debt financing and the current market value of the company.

Assets to Equity Ratio

The assets to equity ratio shows the total amount of assets that a company has in relation to the
total equity. This ratio shows the value of assets that a company has and also the expected growth
of the assets (Saberi, and Asadipour, 2016). The assets to equity ratio of both telecommunication
firms has been calculated and demonstrated in the figure mentioned below.

Assets to Equity Ratio

20.00 15.36
18.00
16.00
8.98
14.00
12.00 6.27
10.00 5.68
8.00
6.00 3.82 4.50 4.16
-
2.52 2.88
4.00
2.00
0.00
2012 2013 2014 2015 2016
DiGi 15.36 5.68 6.27 8.98 -
Maxis Berhad 2.52 2.88 3.82 4.50 4.16

Figure 2 Assets to Equity Ratio

The assets to equity ratio of both companies have been increased significantly. The ratio has shown
an inclining trend of more than 100%. The inclining trend of both companies shows that the firm
value is increasing and it is the reason it is buying more assets for use. The firm assets to equity
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ratio shows that firms are getting stronger and also their capital structure is also strong. The DiGi
2016 results have not been published yet so comparison till 2015 has been done. The ratio showed
a significant incline from 6.27 to 8.98. The 2016 was a tough year for all companies because of
tough market conditions however technological firms were able to manage their cash flows
properly.

The financial risk of both companies have shown an inclining trend because of increasing size of
the company. It shows that the risk is directly proportional to the profit. The company financial
leverage and financial risk are same as firms were having almost similar ratio. Furthermore, the
reports also suggest that the level of risk has been maintained.

In the daily routine of business activities, the company is exposed to several financial risk such as
foreign currency, credit, interest rate and liquidity risks. The company programs of risk
management seeks to decrease the effect of risk on actual performance of the company. Both
companies face many risks however their risk management team is ensuring that with increasing
risk the profit level of the company can also be increased.

3.0 Payout Policies and Payout Ratios

Both companies have a standardized format pertaining to dividend payout. The companies have
decided the dividend payout ratio after consulting with the board of directors. The DiGi and Maxis
has a standardized dividend policies and they have maintained that policy since many years. The
discussion of dividend policies of both companies are as follows:

The remuneration policies of DIGi continue to make sure that top management is agreed with
stakeholders, and completely focus on the value creation in long run. DiGi have always proved it
and have delivered significant financial results over the years. Considering the 2015 performance
of the company, the shareholders of DiGI were being rewarded a total dividend of 22 sen. The
total of 99% Dividend was being paid to shareholders that was more than the minimum limit of
the company that is 80% (DiGi, 2016). The company have always worked to satisfy the needs of
the customer.

The dividend policy of Maxis Berhad is stated in prospectus of IPO dated 28th October 2009. The
prospectus of Maxis is as follows:
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The declaration of dividends and the reference of complete dividend are subjected to the board
discretion and any other dividend is subject to the approval of the shareholders. It is the intention
of the company to pad proper dividend to the shareholders in future years. Moreover, such
payments will completely depend on many factors such as earnings of Maxis, capital requirements,
normal financial conditions, distributable reserves of the company and other related factors that
have been considered by the board (Welker, Ye, and Zhang, 2017).

The company intends to accept the policy of proper capital management. It suggests to give
dividends out of the money generated from companys operations after keeping the necessary
funding for future projects, improvements and expansions. As part of the dividend policy, the
company target is to give a proper payout ratio of 75%.

The dividend payout ratio of both companies have been shown in detail below.

Dividend Payout Ratio

3.00
1.95
2.50
1.10
2.00
0.99
0.77 1.34
-
1.50

1.00 0.75
0.62 0.59 0.57
0.50

0.00
2012 2013 2014 2015 2016
DiGi 1.95 0.77 0.99 1.10 -
Maxis Berhad 0.62 0.59 0.57 0.75 1.34

The dividend payout ratio of DiGi is high than the dividend payout ratio of Maxis. As mentioned
above, the DiGi policy is to pay dividend of more than 80% whereas Maxis theory is to pay
dividend of almost 75%. The dividend payout ratio of DiGi has shown declining trend from 2012
to 2014 and after that the share was increased because of DiGI launched some new applications.
The Maxis share has increased significantly in 2016 compare to other years because it was able to
perform well in the tough market conditions. Concluding this, both companies are performing
significantly well and are declaring proper dividends over the years.
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4.0 Valuation of Both Companies

To estimate the fair value of both companies, dividend discount model has been used to analyze
the current market value of both companys stocks. The DDM dividend discount model is a way
to value to price of a companys stock by using the future dividend and then discounting that back
to current value. If the value that is obtained from the model of DDM is greater than the actual
value, it means the share price is undervalued and if the value obtained from DDM is lower than
the actual value, it means the share price is overvalued (Midf, 2016).

As per the report taken from MIDF research, the expected share price of DiGi stock will be greater
than 6. The assumptions that have been considered for this research are as follow:

Expected Market Return 10%

Cost of Equity 10.50%
Risk Free Rate 4.10%
Beta 1.02
Terminal Growth 5%

The expected stock price of Maxis communication is 6.77 to 7.19 as the dividend growth is
expected at the same rate and it will be beneficial for the shareholder in long run. Both companies
stock shows the inclining trend and a significant dividend is expected from both stocks (Digi, 2016
& Maxis, 2016).

5.0 Conclusion
Both companies are performing well and it is expected that the share price will increase and it will
be beneficial for the shareholders in long run. Both companies are the leading telecommunication
companies and they should ensure productivity within the organization in order to attract the
shareholders interest.
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6.0 References
Denis, D. J., & McKeon, S. B. (2016). Proactive Leverage Increases and The Value of Financial
Flexibility. Journal of Applied Corporate Finance,28(4), 17-28.

Digi, (2016). DiGi. [Online]. Available at <https://new.digi.com.my/home>. [Last Accessed on

29th March 2017].

Maxis, (2016). Maxis Communication. [Online]. Available at

<http://www.maxis.com.my/en/personal/whats-new.html>. [Last Accessed on 29th March
2017].

Midf, (2016). MIDF Research. [Online]. Available at <

http://www.midf.com.my/images/Downloads/Research/Equity/Digi/DIGI_2QFY14_Resu
lts-Review_180714.pdf>. [Last Accessed on 29th March 2017].

Molnr, P., & Nyborg, K. G. (2013). Taxadjusted Discount Rates: a General Formula under
Constant Leverage Ratios. European Financial Management,19(3), 419-428.
Jarrow, R. (2013). A leverage ratio rule for capital adequacy. Journal of Banking &
Finance, 37(3), 973-976.

Saberi, S., & Asadipour, E. (2016). Investigating the Relationship between Financial Growth and
Strength with Leverage Ratios of Companies Listed inTehran Stock
Exchange. International Journal of Humanities and Cultural Studies (IJHCS) ISSN 2356-
5926, 1(1), 1994-2006.

Welker, M., Ye, K., & Zhang, N. (2017). (Un) intended Consequences of a Mandatory Dividend
Payout Regulation for Earnings Management: Evidence From a Natural
Experiment. Journal of Accounting, Auditing & Finance, 0148558X16689654.
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Appendices
Maxis
2012 2013 2014 2015 2016
Assets to Equity 2.52 2.88 3.82 4.50 4.16
Debt to Equity 1.52 1.88 2.82 3.50 3.16
Dividend Payout Ratio 0.62 0.59 0.57 0.75 1.34
Earnings Per Share 24.75 23.53 22.88 23.16 26.81

2012 2013 2014 2015 2016

Dividend (Maxis) 40 40 40 20 20

Digi
2012 2013 2014 2015 2016
Debt to Equity 4.68 5.27 7.98 7.98 -
Assets To Equity 15.36 5.68 6.27 8.98 -
Earnings Per Share 15.50 21.90 26.10 22.20 -
Dividend Payout Ratio 1.95 0.77 0.99 1.10 -

2011 2012 2013 2014 2015

Dividend (DiGi) 17.5 26.3 21.3 26 22