23 Mar 2015
Poh Kong Sdn. Bhd. was founded in 1976, by 3 Choon Brothers and their two brother-in-laws, which built in half of a normal retail store in Petaling Jaya. The company started to expand their business around the city in Petaling Jaya. On 1999, the company has reached 50 retail outlets around the Penisular Malaysia. Most of it located in Klang Valley, 3 branches in Johor Bahru, and one branch in each of these city: Melaka, Kuantan, Muar, Batu Pahat, Ipoh, and Sungai Petani.
Poh Kong was listed on the main board of Bursa Malaysia Securities Berhad on 9th March, 2004, with 60 outlets and approximate 600 employees around the world. Then, the company started to expand the franchise division, and the first franchise outlet is in Complex Karamunsing in Sabah, to be part of the retail expansion in East Malaysia. As to date, the company has reach market capitalization of RM197millions and has more than 1200 of employees, with the total of 101 retail store and still expanding.
The mission and vision of Poh Kong Group is to manufacturing and retailing the jewelries, while differentiates their products offered by achieving the four core business principles of value, quality, choice, and trustworthiness. Besides, they also try their best to serve their customers from the walks of life for many of their important moments. From setting the benchmark in retailing of jewelries in Malaysia, Poh Kong Holdings Berhad is known as a company with corporate successes in phenomenal growth over the years.
The company also has several in-house brands such as Tranz, Happy Love, Anggun, The Art of Auspicious, and Bunga Raya Gold Bar. While, Poh Kong is also the licensee for Disney Collection, sole distributor for Schoeffel luxury pearls from Germany, Luca Carati and Verdi Gioielli from Italy, Angel Diamonds from Belgium, Cocoro from Japan, which that the company has variety of unique jewelries from around the world. Besides, the company also differentiate themselves by separate the retail concept store. Other than Poh Kong and Diamond & Gold outlets, retail concept stores such as Diamond Boutique, Jade Gallery, Tranz Boutique and Oro Bianco are available. Besides, they also providing Gold Bar Buy-Back service to customer, its purpose is to letting the customer to trade back their Bunga Raya Gold Bar for jewelry or trade it for cash. While, they also helping customers to customize the design of the jewelries and also making of corporate awards and gifts, such as Gold emblem, gold plaque and etc.
The group mentioned that they will actively look for more business opportunities to expand, while grow its market share in the same time. Poh Kong is the market leader and will continue to stay on its market position as the largest jewelries retail store in Malaysia. Demand for gold is expected to be recovering over the long term due to its intrinsic values by Asian cultures of giving gold jewelries as customary gifts. Poh Kong also expects the retail sales will be boost due to the coming festive spending seasons and the purchase of gold jewelries and gold bars by customers as a hedge to against the global currency risks and inflation. On top of that, the group will utilize the loan proceeds raised from the ICP/IMTN Programme to grow its business by to finance group wide restructuring programme and the capital expenditure of the Poh Kong Group.
Poh Kong will continue to drive and raise its market share by enhancing and differentiating its product to its targeted market segments. In addition, they are trying to attract new customers via introduction of new products and designs, while providing as good customer service as they can. Poh Kong provided different choices of retail concepts to meet the various needs and required of customers. They are also fully commits on the design of jewelries, its craftsmanship, and quality of their products with setting reasonable competitive pricing on them. Other than that, their retail sales teams are supported with advertising, promotions, events marketing and public relations. Strong retail network have been made to reach the mass market, while the image differentiation of its product brands and retail concept stores is performed to meet the needs of different customers.
Recently, Poh Kong comes out with floral designs on the recent Hari Raya celebration and some new design and series such as the Anggun series and Melur collections. The well-crafted designs are combined with elements of tradition. Manja collection is designed for children to target new market others than targeting women only. They also teams up with the Italian jeweler, Moraglione 1922, which is one of the world's finest brands being inspired by the Europe's royal families. Customers who love fine jewelries can now have the opportunity to obtain one of the Europe's finest brands of gems. The collections available including Anastasia, Isabella, Grace and Sofia, which comprise of diamonds and colourful precious stones. The executive chairman and group managing director said, Malaysians can now enjoy to wearing one of the best jewelries in the world. With the Moraglione 1922 collections, Poh Kong's customers can expect the best in terms of glamour and elegance.
Poh Kong is now considering on the expansion outside of the Malaysia. The group is eyes on Asean marts by plans to open the overseas outlets in Asean before 2015. Research had been done and stated that Asean region especially Indonesia, Thailand and Vietnam are among the world's key success gold markets, and they are taking opportunities of the setting up of the Asean Economic Community (AEC) by 2015. Moreover, the gold jewelry consumption are now mostly at China and India, and the company is also considering to expand on it in the future. Sales revenue is expected to rise by growth of 25% compare to this year.
Poh Kong is selling different products in their outlets such as diamond and gem, Jade, Gold, and also Gold bar (Bungaraya gold bar). They also sell international products which consist of Schoeffel, Luca Carati, Angel Diamond, Cocoro, Disney and etc. Besides, wedding and Festive collection also available in the Poh Kong outlets, Chinese New Year and Hari Raya collection could be found on their outlets. Besides, they also providing Gold Bar Buy-Back service to customer, for customer to trade in Bunga Raya Gold Bar for jewelly or trade it for cash. Poh Kong Corporate Sales is also helping customers to customize in the design of jewelries andmaking of corporate awards and gifts, such as Gold emblem, gold plaque and etc.
Poh Kong Group, an integrated one-stop jeweller, from manufacturer to retailer of gold, jewelleries and precious stones, differentiates its products offering by meeting the four core business principles of quality, value, trustworthiness and choice.
Poh Kong has served customers from all walks of life for many of their important occasions. There's always something for everyone, from exquisite pieces to simple designs, from irresistible collections to dazzling custom-made orders are available to suit our patrons' taste and budget.
Setting the benchmark in the manufacturing and retailing of gold and fine jewellery in Malaysia, Poh Kong Holdings Berhad, as a public-listed company has earned a place in the country's annals of corporate successes with phenomenal growth over the years.
Poh Kong was established on March 26th, 1976, with its first outlet at Jalan 52/4, Petaling Jaya, more known as PJ Newtown or PJ State. It has been the Poh Kong Headquarters until today.
First branch in SS2, Petaling Jaya, of retail space 1,500 sqft and 20 employees, was opened.
Poh Kong opened another 13 branches.
Poh Kong upgraded all outlets with fully computerised point-of-sales and inventory systems.
Poh Kong was made the exclusive distributor of Disney characters in gold in Malaysia.
Poh Kong designer team won a gold medal for the "Golden Design Awards 1996" organized by the World Gold Council Europe in Italy.
Poh Kong invested RM12Mil to establish a 60,000 sqft modern manufacturing facility in Shah Alam. Poh Kong launched its first in-house brand, Tranz in collaboration with World Gold Council.
Poh Kong was listed on the main board of Bursa Malaysia Securities Berhad on March 9th, 2004.
Poh Kong opened its first Poh Kong Gallery-a stylish Italian Classic VIP lounge with 5,000 sqft, at the 1stfloor of its headquarters.
Poh Kong reached 60th outlet in Peninsular Malaysia.
Poh Kong set up a franchise division.
Poh Kong ventured into the diamond cutting and polishing, sales, import and export of precious stones in collaboration with Hong Kong companies.
Poh Kong opened its first franchise outlet in Complex Karamunsing, Kota Kinabalu in September as part of its retail expansion into East Malaysia.
Poh Kong was appointed as sole distributor for Schoeffel in Southeast Asia.
Poh Kong Group participated in the International Trade Malaysia (INTRADE MALAYSIA 2007) exhibition organized by Matrade and supported by the Ministry of International Trade and Industry.
Poh Kong and Luca Carati, one of Italy's oldest and most prestigious jewellers launched the brand in Malaysia. Poh Kong is commemorated as the sole distributor in Malaysia.
Poh Kong showcased in house brand products, Tranz and Anggun in Malaysian Pavillion at Shanghai World Expo 2010.
Poh Kong reached 100th outlet in Peninsula Malaysia.
As usual, government policies play an important role on the development of 1 industry. It can affect how well the industry can perform and influence the decision on consumer as well as the sellers. Based on the Malaysia Budget 2011, in order to promote Malaysia as a shopping haven in Asia, the import duty of approximately 300 goods is abolished and imitation jewellery is one of the listed goods. As effective from 1st January 2011, this imported as well as exported jewelry items will enjoy the tax free policy. The execution of this new tax policy has successfully transformed Malaysia to be a duty-free shopping paradise locally and internationally. The reduction on tax burden has encourages tourists and local buyers to spend more with lowest price and it is expected will bringing economic growth in the jewellery industry would expected to growth in both importing and exporting sector.
In this gold and jewellery industry, there is an association which will govern the rule and regulation of the industry, which namely Federation of Goldsmith and Jewellers Association of Malaysia. This association was established in 25 April 1978 by 12 different goldsmith associations and today there is more than 1500 goldsmiths and jewellers are in the member list. As at year 2011, the group managing director of TOMEI Group, Mr. Ng YihPyng is the president of this association and the deputy president is served by Mr. Siow Der Ming, the executive director of Poh Kong Holding Bhd.
The aim of establishing this association is to protect the interest of the member. They also dealt with lobbying with the government as well as standardize the retail charges of gold and other jewelry ornaments to prevent them from being distorted by competition among the goldsmiths and jewellers. In order to protect the member, the association will try to bargaining with the government on the taxation. E.g. In 1982 the Association bargained over the government for a free and open policy whereby gold bar imports would be exempted from tax, and eventually this had been executed in 1983. This execution had enhanced the performance of goldsmiths and jewellery industry. As mentioned, this association will standardize the retail charges of gold and other jewelry ornaments.
However, starting from around October 2012, the standardization of the price no longer apply, which mean all the goldsmiths and jewellers can charges whatever the price of their product they want to. The abolishment of standardize gold price could cause the jewellers who achieved the economics of scale can charge for lower price of their jewellery compared to whose had cost competitive disadvantage. This brings up the more competitive in the jewellery industry and for sure, the larger size company with lower production will win the battle and the small scale goldsmiths and jewellery business will have to move out from the industry.
Physical gold bullion is no longer a restricted item since 1987, which means general public can trade in gold like other merchandise. One can now buy and sell gold bullion at goldsmith shops which traditionally sells over-the-counter (OTC) gold jewellery and also at many gold trading companies which apply different trading model to attract business. This has been increased the confident of those investors which buy for the purpose for investment because the existing of physical gold is far better than a just a piece of paper prove that how much gold you have owned. This abolishment had further increased the growth of the industry.
In recent the announcement of Malaysia Budget 2013 will also enhanced the lifestyle of the citizen especially of the medium range income receiver. One of the policies listed in Budget 2013 is that the tax rate will be has a reduction of 1 per cent for those chargeable income which currently fall into the category below tax rate of 19 per cent. This will increase the disposal income of those middle income ranges of household, which is 60% of Malaysia household and hence probably will increase the consumption of jewellery industry.
Jewellery industry in Malaysia from a very humble beginning of family-owned business transformed into one of the major exporters of jewellery in the Asian region. According to the industry write-up released on Malaysia External Trade Development Corporation (MATRADE), the Malaysian jewellery industry consists of 2 segments:
Precious metals and gemstone jewellery
Costume or imitation jewellery
Jewellery sector was ranked the 13th largest contributor and accounted for 1.5% share of total exports of manufactured goods. Based on the trade performance from MATRADE (Appendix), the exports of jewellery in year 2011 grew by 1.7% compared to year 2010. Malaysia's exports of jewellery comprised three major product categories namely jewellery of gold, silver and platinum, which is the main export sector with 81.5% of total jewellery export and followed by is the articles of precious metals, which recorded 18.3 % share of exports and lastly is the imitation jewellery which has a share of 0.2%. According to the news reported in The Star on 13 July 2012, the growth rate of jewellery industry in Malaysia is expected to have a growth rate of more than 6% a year.
In current economic condition, the increase of price of fuel, electricity and transportation and other costs has left companies no choice but to increase the price of their goods. According to the consumers of the industry, the prices for gold and jewellery have been increasing rapidly over the years. This has caused a drop in the demand for jewellery. If costs of gold and other precious metals such as silver and platinum continue to escalate, demand for jewellery would decrease and thus affect jewelers and the industry. Malaysia jewellery industry will continue to face keen competition from low-cost producers such as India, Thailand, Indonesia and China. However, the industry has the potential to successfully compete against the luxury goods industry and preserve its traditional domination of the consumer's spending.
In today's jewellery market, consumer's preference seem has been changed. The traditional yellow gold jewellery can no longer attract younger customers which prefer their jewellery set in white gold and platinum. Most of the jewelers have changed their strategy to meet the demand of younger customers. One example can be found is the DeGemBerhad. In order to meet the preference of younger customer, one of the listed player in goldsmith and jewellery industry, DeGemBerhad, had purposely launched its division Diamond & Platinum, which is more focuses on more trendy and fashionable designs to capture the demands of younger customers who preferred their jewellery set in white gold as well as platinum.
Even though there are changes in customers' preference in term of design and material the cultural may also affect the consumption level of jewellery industry. In this multi-racial country, the effect from different races can be greater than single race countries. In Malaysia, each race has its own new year, own festive, therefore the gold and jewellery industry performance can be further boosted by these festive. For example part of Chinese traditional culture, gold and precious stone jewellery will be the popular gift to their friend when they are get married or give birth. Furthermore, the Valentine's Day, Christmas, and Mother's Day, and etc are also the main boost of the sales in the jewellery sales.
Not only have those stated, most of the designs of jewellery in this industry are based on the different season. Different season the jewellers and goldsmiths will comes out with unique designs which use the seasonal theme as the basis. Therefore the innovation and creativity of the craftsmanship are crucial in this area in order to differentiate the product from the competitors and attracting the buyers. For Poh Kong, it used the spider and leaf as the theme for their autumn series design.
Crimes affect the consumption of gold jewelry among the consumer. They afraid of being rob therefore they tend to not wearing the jewelry when going out. So the demand of gold will be affected as the crime of robbery increase simultaneously.
With today advanced technology, Internet had been effectively using and hence the increased the distribution channel for not only jewellery but also other product. Website has been a tool for the jewellers to list their precious jewellery and giving the information to the potential customers. Also with this technology, the imitation jewellery increased its position by offering the online buying the jewellery and shipping worldwide.
This industry needs very huge amount of capitals in order to operate the business, such as acquisition of shop lot, plant and machineries to manufacture jewelleries, high securities costs and so on. In consider that the inventory itself (gold material) is very expensive to afford compare to other industries (gold price as at 12 November 2012 2.34pm New York Time is USD1,234.87 per ounce, exclude the labour charges and other transaction costs). And of course, this industry will incurred a low exit cost, the disposal price of the inventory (gold jewelries) will be deducted 20% till 25% of the purchase cost and that is risky considered the fluctuation of the gold price. Whereas in terms of the government policy's barrier, this industry is controlled by Bank Negara Malaysia, that not everyone can simply operate a goldsmith and jewellery business as there is a needed to get approval from the Federation of Goldsmiths and Jewellers Association of Malaysia, this create the barriers of entry among the jewellery industries in terms of capital investment, the rules and regulations and low exit costs. The threats of new entrance for jewellery industries is low because the high barriers of entry. Here, Poh Kong has managed to lower down the average cost by selling more product compare to the small-sized company, in order to utilize the fixed cost. Also, it is very unlikely for those small-sized companies to achieve these economies scale, considered that we need high cost of plant and machinery, and of course a high rental cost to expand the business in order to compete with Poh Kong.
The more substitutes are available, the more elastic is the demand because customers have more alternative choices. When customers have more alternative choice to choose, the threat will become greater for a company. Jewellery actually is an item that is desired but unnecessary. Therefore only people with surplus income will buy precious metals jewellery. For those people who unwilling to afford a precious metals jewellery, they can choose to spend their money in buying imitation jewellery such as poly-plastic jewellery or non-precious metals jewellery such as stainless-steel jewellery and tungsten jewellery. And yes, there are many jewellers which are dealing with this kind of jewellery and target those low income consumers. All these jewellery will have very low relative price compare to precious metals jewellery such as gold and platinum jewellery. Not only the price, but consumers also can easily buy this type of jewellery through different channel, either from physical shop or buy it online. Since this imitation jewelleries are cheap and customers usually will not examine them as they already know it is imitation. Therefore, the sellers can operate an online shopping which easier to reach to potential customers and provide free shipping service to attract those customers which unable to afford the precious metals jewellery. The implementation of online shopping by those jewellers has increase the availability of the substitution for precious metals jewellery.
Other than that, jewellery market not only offers those precious and non-precious metals jewellery, there are also jewellery made of precious stone and gem which embed into the precious metal or ornament. For those people who do not like gold or any other precious metals but want something special or for collection, they also can opt for amber or crystal jewellery. Amber and crystal jewellery actually not cheap at all, some of the rare amber and crystal jewellery can cost more than a 4 carats diamond. If a person able to afford such expensive precious metal jewellery, it will be not a problem for that person to afford an amber or crystal jewellery. At the end of the point, it's just depending on what is preferred by the consumers. The more choices of jewellery available in the market, the more option can the consumer choose from and the higher the threat. Currently the non-precious metals jewellery can be very easy to obtain from many goldsmiths and jewellers.
Not all people will love jewellery. As mentioned above, jewellery is an item which desired but unnecessary, so it is considered as a luxury goods. Most of the people will first spending their money on daily necessities then only considers buying jewellery if there is a surplus. Those people who spend their money on luxury goods is try to enjoy better lifestyle. In today's world, those people who wearing or using a luxury product will giving a signal that the person is a rich man, should be more respect to them. So luxury goods in this world is not limited to jewellery only, there could have many other products, such as branded watches, designer clothes, branded hand bag and etc. These products can totally substitute the needs of jewellery for those people who wanting a better lifestyle. Furthermore, these products can also be very easy available, which has high distributional channels that easily distribute to potential customers, therefore the threat of substitute from these products is high.
As the result from those many substitutions from the above, Poh Kong is facing a high threat of substitute. The direct substitution, amber and crystal, which will serve the same purpose as the precious metals jewellery, are the highest threat of substitute. It is because Poh Kong's does not sell these kinds of jewellery in its products range even though it is operating jewellery business.
As an overall, the threat of buyers faced by Poh Kong will be considered as moderate to high.
When supply more than demand, the threat of buyer will become higher. Poh Kong has no major customer and relies on this type of customer, which will rapidly purchase substantial amount of jewellery from Poh Kong for every purchase. This indicated that Poh Kong does not face any threat of major customer of discontinue get its sources from Poh Kong. Moreover, the switching cost of buyer is low as after they purchased the jewellery from Poh Kong, there is no restriction of law which disallowed the customers from resells their jewellery to other jewellers.(True?)
In jewellery industry, products are differentiated mainly based on the design. When Poh Kong offered less variety of design can be chosen then its competitors, the higher the threat from the buyers as they can choose the preferred design from Poh Kong's competitors. This more alternative available to the customers has increase the threat of buyer for Poh Kong.
Even though the jewelleries are served for the same purpose, however the designs of jewellery determine the preference of the customer. Therefore the uniqueness of the design is crucial to capture the customer demand. Human being is a weird creature, when there is a limited range of product can be choose from, they will only choose the best fit their preference from the limited range. Furthermore, Poh Kong actively comes out with different design based on different season, different festive as well as jointly design with foreign reputable company (who). Therefore no any crucial threat will face by Poh Kong in term of differentiation.
In addition, most of the jewellers operate its outlets near to their competitors. Therefore, buyer can easily get the price and compare the price between them. If Poh Kong's jewellery prices higher than its competitors, buyer will try to negotiate with them. If they fail in negotiation, they can simply switch to Poh Kong's competitors. In this point of view, the bargaining power of buyer can be consider as high.
The raw material of jewellery of Poh Kong is mainly supply from gold bullion bank such as UOB Gold Bullion Bank, Al Rajhi Bank or Maybank. The price is set according to the market gold price and hence the supplier did not have any negotiate power for the gold price. The banks may earn the profit by charging the transaction costs and service charges against each transaction deal, therefore, the jewellery industries may negotiate with bank or choose the bank who offer the lowest charges. Therefore, the banks will very concern about these jewellery industries since they order in bulk quantity and they will try to retain the customer royalty and gain the market share.
Another source of raw material also comes from the Pawnshop or Pawn Broker which the customer of pawnshop who fails to redeem their gold product such as jewellery, gold coin. This threat of supplier in this group also low because there have a lot of variety of pawnshop in Malaysia and they try to offer the lowest price to sell the failure redemption product.
The minor supplies of gold are from individual through trade in or buy back schemes. The gold price is fixed and the price of trade-in is lower than outside by offering the spread. Therefore, the individual may negotiate with Poh Kong to reduce the spread and labour charges but the price cannot run away as the price set in market.
Besides that, the gold bullion or gold is a homogeneous products and hence the only way to differentiation the gold bullion bank and pawn shop of industries can do is by good servicing and lower charges. Therefore, the threat of supplies basically is low because jewellery manufacturer may have variety of choices of firms which offer the best price and best services to them.
In summary, the bargaining power of suppliers are low since gold is a homogenous product and the price is set in commodity market and also by BNM.
More than 1500 of goldsmiths and jewellers customer can choose from.
The threat of new entrance is low, the bargaining power of buyers and substitutes are high while the bargaining power of suppliers are low
There are only 3 listed companies in jewelry industry including Poh Kong, Tomei and DeGem. Poh Kong is not the only player in the jewelry market. Buyer can choose from many other goldsmith jewelrer. For eg: Tomei, DeGem, Habib, Wah Chan. Therefore buyer can choose from different jewelers can hence bargaining power of the buyer will be high because many alternatives can be chosen by the buyers.
High industry growth rate - The jewellery industry currently is expected growing by 6% per year hence, Poh Kong is able to continue expanding the jewellery market and generate the profit from there. Therefore, although there have an excited competition among the competitors such as Tomei, DeGem and etc, Poh Kong still can gain the profit from therecause the market is expanding.
High fixed or storage costs - There have a high fixed cost incurred in manufacturing process such as craftsmanship, rental, depreciation of plant and machinery, and there have need to incurred the high security costs to store the jewellery such as a special storage room, CCTV and security guards. This will encourage the rivalry among the competitors because the jewellery manufacturer and dealer will get the market share as much as possible to cover up those fixed costs.
Low differentiation or switching cost - There have low switching cost among the buyers because the buyers can change their suppliers anytime without incurred any compensation or legal fees (actually their switching costs is just learning costs, research costs). Therefore, these will cause the increases of bargaining power of buyers and threats of substitute. Degem, Tomei, Chow Tai Fook and other jewellery firm will try to lock-in the buyers through their innovation and marketing strategics hence increase the competitions among existing firm.
High exit barriers - There have low exit barriers for the jewellery industries, its actually just need to expose the risk of fluctuation of gold price when they dispose off their remaining stocks, hence these factor will weaken the rivalry among the competitions because the firms will not need to put the hard afford to stay in the market due to the high exit barriers.
Based on the information gather for each portfolio for Poh Kong, and the BCG's Matrix as at Appendix, trading division is star while manufacturing is question mark division for Poh Kong.
For trading division, Poh Kong is a market leader among other competitor because it generates the highest external revenue among other competitors, which higher than the benchmark company is Tomei Consolidated Berhad, the 2nd largest market share. Besides that, the jewellery market is expected to growth 6% is year 2012 (refer to It's all about the bling Diamonds may be a girl's best friend, but the Malaysian market is warming up to fine jewellery too 3th July 2012 Starbiz). This division is required extra capital to grow the trading division and maintain the market share to maximize the market capitalisation before it turn to cash cow (which is the most cash generate status, the higher of market capitalisation, the higher of cash generated in cash cow) to ensure the profitability and maximisation of shareholders wealth in future.
For manufacturing division, Poh Kong generate less revenue and the market share actually is lesser than other competitors, which is the benchmark is DeGemBerhad, the 3rd largest market share. Also the manufacturing sector of Malaysia will also be expected to growth 4.9% in year 2012 (Refer to Economic Report 2012/2013 page 56). This portfolio is in question mark status because manufacturing division of Poh Kong did not generated much cash flow compared to other competitor while the market is still growing, hence, this division will required to allocate extra resources to grow the market and revenue.
Based on the analysis above, this found that there have no cash cow division in the company which generate the maximum cash flow to the company, hence the company required the larger cash expenditure to maintain all the segments and do not have source of cash flow from any portfolio which is cash cow. On top of that, the profit margin for both segments is just around 5%, 5.12% for manufacturing while 5.56% for trading division, this indicate the company generate the lower profit from these 2 segments.
The information below is based on the calculation of financial analysis on Poh Kong. (Refer to appendix 4.1, 4.2, and 4.3)
External Sales Growth (Refer to appendix 4.14)
Poh Kong has two segment which is trading and manufacturing. Inside the both segment has enter into 2 parts which is external sales and internal sales (intra trading). The graph showing Poh Kong Holding Berhad external sales is most depending on trading rather than manufacturing. It is because external customer is the main source of income. The external sales growth is keeping increase because the market gold prices keep on increasing from USD $500 in 2006 to USD $1800 in 2012 based on USD/oz. (Refer to appendix 4.4, 4.5). The gold price is control by Federation of Goldsmith and Jewelers Association of Malaysia in 2011 however 2012 not again. The gold price keep fluctuate because people believe that will be one day the gold will be annihilation. Therefore, the insufficient of gold supply will be ended which will push up the gold price. In other view, people will buy the precious gold as a hedge against the inflation and global currency risk which will affect the demand inelastic. However, the gold bars not the only product of Poh Kong. Poh Kong has selling its own design of gold jewelry, diamond, gem, jade which have bring more income to Poh Kong. Another that, the customer willing to buy more gold because the increasing of GDP in Malaysia drive up the purchasing power. (Refer to appendix 4.6) For example, people willing to spend more money on purchasing gold jewelry when wedding. The external sales for manufacturing is decreasing from RM 1.9 million to RM 0.09 million. However, the manufacturing ratio between external sales and inter-segment sales which is 0% to 4% showing the external sales of manufacturing is not significant to Poh Kong. In year 2012, the sales growth has been drop from 23% to 19% but we consider it is still a positive figure which mean able to generate profit to us. (Refer to appendix 4.1) However, the drop of 4% will affect the confident of stakeholder in short term. As an overall view, Poh Kong generates a high sales in 2011 to 2012 due to the gold price fluctuation and the opened new outlet.
As a conclusion, the external sales of Poh Kong showing a quite good increasing of sales with a good average sales growth in percentage which is 1.31% for 6 year calculation. That will proved Poh Kong has a stable status and future potential to growth the business. It will be a confident to stakeholder and potential investor for the long term.
Profit Growth (Refer to appendix 4.15)
The profit growth of Poh Kong had shown a significant drop from 2008 to 2009. It is due to bankrupt of Lehman Brothers Holdings Inc. This economic crisis make the gold price drop and many people bankrupt which affect the gold value and number of customer decrease. (Refer to appendix 4.7) However, the profit growth had recovered back from 2009 to 2012. It is because people who originally invest in westward had changed the investment target to eastward.
ROCE (Refer to appendix 4.16)
Based on the profit margin above, the Lehman Brothers had affected the return on capital employed decreasing on 2008. The decreasing on 2009 to 2010 of manufacturing is due to overtrading by purchasing too many assets (liabilities remain) and the low increase of return cannot offset the net asset. (Refer to appendix 4.2) Afterward, the return rise back to 20% due to the return increase. In the year 2009 to 2012, the trading segment had shown a stable recovery. In the year 2012, the ROCE has decrease to 15% due to raise debts of RM 69 million and tiny growth of profit which mentioned by the quarter report. As an overall, the compound annual growth rate of ROCE is 0.86% for trading and 2.36% for manufacturing. The amount is ideal because 0.86% annual growth rate of ROCE is quite good but the investor may despair when the ROCE drop from 20% to 15 %. (Year 2008 to 2012 only for the trading segment)
Cash Conversion Cycle (Refer to appendix 4.18)
Poh Kong has a very short debt collection period (1 to 2 days) because Poh Kong is doing cash sales business. However, the inventory turnover is too high which is 369 days (average) due to high inventory in stock. If the problem keep go on, Poh Kong will facing a gold price fluctuate risk. Another that, Poh Kong has high sales in 2011 which draw out the inventory. Therefore, the cash conversion cycle has shown an average decreasing trend. In year 2012, Poh Kong purchased RM 66 million of inventories which resulting the cash conversion cycle increases. In this case, the chairman of Poh Kong says that he is expected the future gold price will be increase that is why Poh Kong has a high purchase of inventories (Refer to annual report 2011).
Cash and bank balances (Refer to appendix 4.17)
The cash and bank balance is based on cash and cash equivalents. The average cash and bank equivalents RM3.7 million of Poh Kong had shown they are not many cash in hand. In the year 2008, the cash and cash equivalents has a significant drop because Poh Kong purchases high quantity of inventories which costing RM 66m (Refer to appendix 4.8). This action may because Poh Kong takes chance to buy the cheap gold when the gold price dropping between the year 2008 and 2009. In the year 2009, Poh Kong sell inventories of RM 32m to increase the cash. In the year 2010, the cash and cash equivalents has drop again because Poh Kong purchases inventory of 27m. The other reason why Poh Kong has low cash and cash equivalent is because it keeps clearing bank overdraft in every year to make the gearing drop (Refer to appendix 4.9). In the year 2011, the cash is increasing because Poh Kong raise its debt with RM 17 million which already setoff with the purchasing of inventory. In the year 2012, the cash amount has a significant increase because Poh Kong raises its debt with RM 69 million. That is the reason why Poh Kong after purchasing inventories and PPE still have a cash surplus with 14 million. The reason to purchase RM 10 million of PPE is because Poh Kong has operated new outlet and plan to implement a new system. However, the operation activities occur a negative figure with RM 27 million because the profit generate can't solve with the high quantities purchase of inventory and operation expenses. In other word, Poh Kong having a poor inventory management resulting the overtrading risk.
Gearing (Refer to appendix 4.19)
For the recently year, Poh Kong keep clear its debt from 2008 to 2011 which proved Poh Kong has a good management to manage its debt policy and limit. However, Poh Kong raises its debt with RM 69 million at year 2012 which make the gearing increase. The gearing increase affected the financial risk increase, the creditor will charge higher interest rate as a safeguard thus it make our interest expenses increase from 9 million to 12 million (Refer to quarterly report 2012).
Here is the comparison of external information between Poh Kong and nearest competitors:
Company
Poh Kong
Tomei
Degen
Products
Diamond and gem, Jade, Gold, and also Gold bar, emblem and plaque.
Diamond, diamond pen, Gold, Gold bar, White gold, silver premium gift and souvenir
Diamond & Platinum, gold, gold bullion
Market
Malaysia Only
China, Indonesia, Singapore, Thailand and Europe
Supplies to retailer at Europe asiaPacific,MidEast,South East Asia, also establish the market at Hong Kong, Jakarta and Burnei
Outlet & Showroom
Malaysia Only
China, Malaysia, Vietnam
Malaysia, Jakarta, Burnei (Showroom and outlet), Hong Kong (Design and distribution)
To have a fair comparison, we using the same year of annual report between Poh Kong and Tomei to do the benchmarking which is year 2011.
The table in appendix 4.20 has shown that Poh Kong's compound annual growth rate of the revenue from year 2007 to 2011 is 10.82%. However, Tomei's compound annual growth rate of the revenue from year 2007 to 2011 is 17.69%.
From here we know that Tomei have a better growth rate on revenue which due to Tomei promote its product afford compare to Poh Kong. Tomei has been allocated 15.05% for its marketing and distribution expenses compare to Poh Kong is just 10.39% in year ended 2011, this means Tomei put a lot of afford to promote their products.
Besides that, the profit margin of Poh Kong is lower than Tomei by comparing the 5 years profit margin from 2007 to 2011, although Poh Kong's marketing and distribution costs allocated less than Tomei. This proves that the internal operation of Poh Kong is not as good as Tomei and cause the high expenditure or possible high wastage in operation. Therefore, it is advise that Poh Kong should import its operation to lower down the production cost and hence increase the profitability of business.
This can further look at their segment report, there have unallocated expenses in Poh Kong annual report 2011 while Tomei capable to fully allocate their cost to different segment, this also show that their strong operation of Tomei.
The other reason why Poh Kong has a lower compound annual growth rate than Tomei because Tomei is multinational company which have many outlets oversea and also Tomei always has creative idea to expand its product into multiple choice and continuous. Recently, Tomei promote its new series of product "tale of love symphony" which affected the revenue growth. Another that, Tomei plan to invest RM 25 million for 10 new outlets which is four in Malaysia, two in Vietnam, and last four in China.
Besides that, the advantage for Poh Kong compare to Tomei is Poh Kong has the lower ebt ratio compare to Tomei, this means Poh Kong has the financial flexibility and lower interest rate risk and liquidity risk resulted from fail to repayment of loan. The liquidity risk which Poh Kong lower than Tomei can also be proved by comparing current ratio and between Poh Kong and Tomei, which Poh Kong has higher liquidity to repay the loan compare to Tomei.
Poh Kong has the large cash reserves but Tomei do not has and there also has negative cash and cash equivalent for the year 2011 (negative RM1,891 thousand), therefore, Poh Kong has an advantage for long term investments because of the large cash reserve to allow it to do so but Tomei need to raise the funds from shareholders or debt holders when it need to invest in other portfolio.
In summary, Poh Kong has large cash reserve and low gearing, which has more financial flexibility compare to Tomei for long term investment, however Poh Kong's revenue growth and internal operation is loss the advantage because the internal operation and marketing strategic is weaken then Tomei furthermore Poh Kong do not expand the market in oversea but Tomei do so and Poh Kong offer the less variety of product compare to Tomei.
Poh Kong should improve its internal operation such as inventories management, and operations management and costing system to improve their profit margin hence increase the financial performance. Poh Kong may use appropriate controlling tools such as activity based costing, lean manufacturing and 'six sigma' to assists Poh Kong in terms of cost controlling, operation management and make sure every cost is precisely attributed and well-controlled.
Financial covenant and budgeting control should be made to avoid Poh Kong over-debt financing and over-investing; this phenomenon can be examined in year 2012 cash flow (company acquired huge amount of loan to buy gold - inventories) (Appendix).
The corporate appraisal and the strategic available for Poh Kong is attached in appendix to evaluate Poh Kong's position and currently Poh Kong is plan to expose the oversea market by open the overseas outlets in ASEAN before 2015, where Indonesia and Vietnam will be the first market to expose. This plan was planned to take the advantage from the setting up of Asean Economic Community (AEC) by 2015. AEC is a community which aims to accelerate the economic growth, social progress, cultural development among its members, opportunities for member countries to discuss differences, and protection of regional peace and stability. When the AEC is in place, the companies in each respective region will be benefited from the free movement of goods, services, investment, labour and capital. Therefore Poh Kong can expose to this opportunity and it is a good timing for Poh Kong to expand its business in overseas market. By expose to the overseas market, the portfolio of the company can be improved by not only focus in Malaysia market. If one day there is a recession in Malaysia's market, Poh Kong can still able to focus on its overseas market to cover some losses in local market and diversify the risk of the company.
Strong reputation and largest jewellery retail chain store is the strengths of Poh Kong. Recently Poh Kong had established a partnership with Moraglione, an Italian well known jewellery brand. The partnership has increase the variety of product and types of jewellery of Poh Kong. This will help in gaining further market share as well as to grab the opportunity of increases in disposable income on Malaysia citizen which resulted from reduction of tax rate. Poh Kong should further design the series which is suitable for young generation, because most of the middle-range trap mostly is young generation. By adopting the same strategy which Moraglione adopted, Poh Kong can use its strong reputation and branded jewellery to joint venture with foreign company with strong distribution channel in their countries in order to establish a new market for Poh Kong products.
Exporting is one of the ways to expand a business. Poh Kong current operation is just too conservative without exporting its products. From what is posted on MATRADE, China is now glittering appeal of jewellery market. Furthermore, China government has imposed an import permit for those importers who wishing to import jewelry items into China. This permitted jewellery has included jewelry and parts thereof of gold, plated with diamond, jewelry and parts thereof gold, other articles of precious metal. It is a good opportunity for Poh Kong to invest in China. Not limited to this, currently Malaysia is enjoying a zero duty for exports of jewelry items under China-ASEAN Free Trade Agreement (CAFTA), this provides good advantage for this export items from Malaysia. Poh Kong should utilise this benefits given by the China government as well as Malaysia government by export it products into China market.
Currently, Poh Kong is the market leader in Malaysia and have 104 outlets in Malaysia, therefore, its reputation in Malaysia is a strength to compete with other competitors in other country or other companies in Malaysia who export the products in oversea. However, due to global economic slowdown, Poh Kong is encourage to establish the country which did not adversely affect by global economic slowdown, such as Indonesia, Vietnam rather than India and China.
Increase the variety of product and types of jewellery to gain further market share to grab the opportunity of increases of living cost among Malaysia resulted from decreases of tax rate. Poh Kong should further design the series which is suitable for young generation, because most of the middle-range trap mostly is young generation.
With today development of IT, e-commerce has playing business operation. For jewellery industry, e-commerce has its role in further promoting the sector and making it easy for people to buy the items online. This has brought a significant influence among the traditional jewellery retailers. For example, both Chow Tai Fook and Chow Sang Sang announced a high-profile entry into Taobao Mall (a popular online trading site in China) last year. It was reported that Chow Sang Sang has made great efforts in online businesses, although the online sales only accounts for about 2 to 3 percent of the outlet overall sales. Nevertheless, a good start has been triggered by both branded retailers. Poh Kong currently only showing the different product in its website, but still haven't release any online trading with its potential customers. In order to increase its distribution channel, Poh Kong establishes its own trading website by listing its own product onto the web. Or in the other way, Poh Kong can follow what has been practiced by Chow Tai Fook and Chow Sang Sang, open an online store in Malaysia famous e-cormmece arena, www.lelong.com.my or even in www.ebay.com.my.
Acquire a new technology to reduce the machine cost and labour cost also minimize the error rate (decrease the wastage). The new design and molding technology may reduce the craftsmanship and also the error rate hence reduce the wastage also the production cost in order to increase the net profit margin, this will increases the shareholders EPS and the share price will increase also.
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