Business IA For International Baccalaureate - 22/25 (Grade A)

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Business IA for International Baccalaureate - 22/25 (Grade A)
Conference Paper · February 2014
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Syanaz Bazil Ahmad Kamal

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Should Malaysia Airports Holdings Berhad (MAHB) invest in building a Ahmad Kamal,
factory outlet center to increase its commercial revenue? Syanaz Bazil
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Acknowledgement
I would like to thank Mr. Randhill Singh (General Manager) and his manager Michelle Lee
Fei Fang from Malaysia Airport’s Corporate Planning Division, for spending some time letting me
interview them about how would the building of the Factory Outlet Centre contribute significantly
towards achieving their long-term objective, “Runway to Success”, of increasing their non-
aeronautical revenue, to contribute to the growth of the government linked company (GLC). Not
to forget, special thanks to Mr Azhar Abdul Karim (Manager, Land Development) for providing
me information about the estimation of the investment appraisal in order to assess the feasibility
of the project.
I would also like to thank, Mrs. Sharidho Pardi, and Mrs. Azlina Hezlin for giving me
assistance and guidance on how to carefully plan from scratch until the research project is
completed successfully. Lastly, I would also like to thank my parents for giving me endless
support, which made the research project a successful one.
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Executive Summary
Malaysia Airports Holdings Berhad (MAHB) has stated that there has been too much
dependency on its aeronautical revenue,1 henceforth its growth strategy to include building a
factory outlet centre in the ‘Aeropolis’ to increase its commercial revenue. Thus, this research is
focused on the research question “Should Malaysia Airports Holdings Berhad invest in
building a factory outlet centre to increase its commercial revenue?”
A research proposal is prepared beforehand and analysis is done by utilizing the business
tools such as SWOT Analysis, Location and Market Analysis, and Financial Analysis, based on
the data gained from primary and secondary sources. Primary data include interviewing the
managers involved in the project whilst secondary data are taken from Annual Reports and other
reliable documentations.
Results from the analysis have shown that the strength and opportunities outweigh the
weaknesses and threats, its strategic location enhances the market for the factory outlet centre to
do well in the long term apart from contributing to the economic growth, whilst financial analysis
shows a positive indicator that the factory outlet centre should be built. I recommend MAHB to
further research on the marketing side in order to ensure that this project would be a success.
(198 words)
1
Revenue that directly comes from airport infrastructure service charges (passenger, security,
landing, aerobridge)
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Research Proposal
Research question
Should Malaysia Airports Holding Berhad (MAHB) invest in a factory outlet centre to increase
its commercial revenue?
Rationale
Revenue generated by MAHB consists of commercial and aeronautical revenue in the ratio of
30:70. Airports at some other countries have been focusing on commercial revenue, compared to
aeronautical revenue2 because revenue gained from the latter tend to be stagnant. MAHB owns
by concession an amount of land surrounding KLIA that is unused and it could utilize to increase
in their commercial revenue.
Theoretical Framework
Analysis will be made by using financial and non-financial business tools. Financial techniques
such as Investment Appraisal and Ratio Analysis are used together with qualitative techniques
which are SWOT Analysis and Location / Market Analysis in order to balance out the analysis.
Key Area of Syllabus
1.5 External Environment
3.2 Investment Appraisal
2
aircraft landing, take off fees, parking charges, and passenger services fees
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3.6 Ratio Analysis
4.2 Marketing Planning
5.5 Location
Methodology
Primary Research
Interview with Mr Randhill Singh3, Miss Michelle4, and Mr Azhar5 to find out the condition of
the market of factory outlets in Malaysia to conduct market analysis, the cost of the project,
forecasted cashflow and benefits and drawbacks of implementing the project for the non-
financial part of analysis.
Secondary Research
-Annual Reports from 2007-2012 to analyse the financial performance of MAHB by doing ratio
analysis
-Secondary sources such as websites, business books and magazines to find out more about the
factory outlet centre market for the location analysis
-Sources from DTZ Consulting Research and Department of Statistics Malaysia
3
General Manager of Corporate Planning Division, Malaysia Airports Holdings Berhad
4
Manager of Corporate Planning Division, Malaysia Airports Holdings Berhad
5
Manager of Land Development Division, Malaysia Airports Holdings Berhad
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Problems likely to be encountered and possible solutions
Problem Ways to encounter
Questions asked during the interview might Refine questions and consult with teacher
be not specific enough
Irrelevant use of business tools Go through the research question thoroughly
and brainstorm the most appropriate tools to
be used from business textbooks
Lack of relevant analysis Consultation with teacher
Some confidential data unavailable State the limitations faced while carrying out
the research
Biased opinions from interviews Interview more than one person and confirm
with the data available from secondary
sources
Action plan/research timeline
Dates Activities Modifications
16/4/2013 Business IA Briefing Brainstorm about the RQ
19/4/2013 Have a Research Question Change in RQ
19/5/2013 Send in rough proposal Analyse and reflect about the
weakness of the proposal
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23/5/2013-3/7/2013 Refine research question and Research question and
business tools business tools are modified
according to suitability
3/7/2013 Send in a proper proposal Need to follow the right
format
8/7/2013 Look for secondary datas on Find appropriate sources and
the internet ensure that the sources are
reliable
10/7/2013 Consultation with teacher
13-14/7/2013 Conduct interview with Mr. Get more views from other
Randhil Singh & his managers as well in order to
colleagues avoid biasness
18/7/2013 Begin writing
27/7/2013 Submit 1st draft
31/7/2013 Discussion with teacher about Analyse what are the past
first draft mistakes and learn from it
1/8/2013-1/11/2013 Refine draft
30/1/2013 Final submission
(479 Words)
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Introduction
MAHB6, a GLC7 formed in 1991, is a monopoly in the airport industry as it manages almost
all the airports in the country. It generates its own revenue through two via two sources, namely
aeronautical and commercial revenues8.
Of late, MAHB has expressed its concerns regarding its airport tax charges that has
remained stagnant for a long time. It is now changing its focus on improving its commercial
revenue, where strategies already been planned.
The opportunity arises as MAHB owns a substantial amount of land but there has not been
much development. With the Runway to Success 9 plan initiated, the company has decided
implement several new projects on the land granted by the government. MAHB has so far
successfully build a hotel and this time they are considering whether to build a factory outlet centre.
With this, a research question is formed - “Should Malaysia Airports Holdings Berhad (MAHB)
invest in building a factory outlet center to increase its commercial revenue?”
6
Malaysia Airports Holdings Berhad
7
Government linked company
8
Examples of commercial revenue are airport operations include car park, advertising, hotels, event management,
rental, Eraman, agriculture and others < Malaysia Airports : Runway To Success - Building a World Class Airport
Business 2010-2014. N.p.: Malaysia Airports, n.d. PDF.
http://ir.chartnexus.com/malaysiaairports/doc/business/Complete_version.pdf>
9
Malaysia Airports : Runway To Success - Building a World Class Airport Business 2010-2014. N.p.: Malaysia
Airports, n.d. PDF. http://ir.chartnexus.com/malaysiaairports/doc/business/Complete_version.pdf
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Methodology
Primary research is done by interviewing Mr Randhill Singh10 to find out about the
advantage and disadvantages of the project and the financial estimation of the project. Miss
Michelle and Mr Azhar were also interviewed, who both had knowledge about land development
projects to find out more about the risk of investing in this project and the condition of the market.
The data gained from the interview would help in constructing a SWOT Analysis, analyse the
location and market and estimate the payback period for the projects.
On the other hand, secondary data such as MAHB’s Annual Report and related articles is
taken from its website and other relevant sources, to investigate the financial performance of the
company. With the integration of these two, a more accurate and reliable evaluation can be made.
Despite all the above, uncertainties could arise and this is unavoidable. The interpretation
by the author could be biased and the estimation for each investment project might be unreliable.
The interviews that has been done is limited as the company may find some of the data confidential.
10
General Manager of Corporate Division, Malaysia Airports Holdings Berhad
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Findings and analysis
SWOT Analysis11
Strength
MAHB’s main strength is that it is well known GLC which is a monopoly in managing
airports in Malaysia. It also has a strategic location which is next to the KLIA12 itself, on the
outskirts of Klang Valley which does not have a lot of retail outlets to compete with. MAHB will
become the pioneer of premium outlet in Klang Valley. MAHB’s Factory Outlet Centre (FOC)
concept enable to offer slightly lower quality of premium products at a high discount and this
will become its competitive advantage compared to other shopping malls. However, MAHB
should improve their marketing strategy before other competitors penetrate into the industry.
Weakness
MAHB has its own weaknesses as there is only short land tenure which is only 25 years
will cause some complications of ownership in the future. However, MAHB is linked to the
government and could apply for a longer tenure for the land. Unstable cyclical aviation also
indirectly affects the amount of passengers coming in, but then this can be overcome through
careful forecasting of future economic situation.
11
This tool is used in order to examine and analyze the internal strengths and weaknesses, and also external
opportunities and threats which will ease the decision making of MAHB to build the factory outlet center or not.
Please refer Appendix 1
12
Kuala Lumpur International Airport
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Opportunities
There are lots of opportunities to be considered since there are a number of attractions
surrounding the site such as the all year event at Sepang International Circuit (F1, MotoGP etc)
and the new Tabung Haji Complex. As this would also attract plenty visitors to the FOC. Besides
that, the past data showing that there has been an increase in the spending of Malaysian for the
past few years and amount of passengers arrived annually has increased shows that it is a
bright future for MAHB as this healthy behavior will contribute more to their commercial
revenue. However this does not ensure success to MAHB as there may be some possible changes
in taste among the customers. Thus, it is important for MAHB to do a marketing research13 in
order to match and satisfy the customer and know the trend that will persuade them to shop at the
FOC.
Threats
On the other hand, MAHB faces threats from competitors who are developers that has
intentions to joining the bandwagon of the factory outlet center industry at the same place.
In order to overcome this, MAHB should make sure that their FOC finishes their construction first
as MAHB has had problems about delaying the opening of KLIA2 before. This is essential so that
they will become the first mover. Threats also could come from possible cannibalization from
the recently built KLIA2. To solve this, MAHB should set a different concept targeting different
market segments for the FOC. Double dip recession would be a threat that may cause a huge
13
Yap, Raymond. The New Shopping Hotspot. Working paper. CIMB, 17 Oct. 2011. Web. 10 Oct. 2013.
http://research.cimb.com/index.php?ch=5013&pg=5014&ac=40976&bb=file
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drop in air travel, which will reduce the amount of passenger. When the economy is unstable,
there would be lesser people to shop as there is less disposable income, and this reduces the amount
of revenue that could have been gained. However, this can be solved by proper planning by
MAHB.
Based on the SWOT Analysis above, it is deemed suitable for MAHB to build a factory
outlet centre since the strength and opportunities clearly outweigh the weaknesses and threats
due to the factory outlet centre concept is still new in Malaysia and opportunities that can be
captured by having the advantage of being in the location. However, the decision has its own risk
because Malaysia is still at infancy with this new industry, and MAHB lacks the experience in
managing a premium outlet centre so it is recommended for MAHB to find an experienced
operator to cooperate with.
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Location and Market Analysis
Figure 1 : Location of the site of factory outlet centre
The map above shows that the location of the FOC which is very strategic as it is located
near to the KLIA. Being at the southern parcel of the subject site exposes the FOC to have better
visibility and higher traffic volumes. Despite of not being at the site where most shopping hubs
would be, it is not located in the middle of the city full of traffic jams, which will make it easier
for customers to commute there. Besides, having a shopping mall in the middle of the city will
create more competition as there is a growing supply of shopping mall in Klang Valley as depicted
in the charts below:
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Chart 1 : Existing Supply of Shopping Centres in the Klang Valley by Location
Chart 2: Cumulative Supply of Existing Shopping Centres in Klang Valley
In the long term, the place is forecasted to be developed following the surrounding
development and the project will provide employment opportunities thus reducing the
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unemployment level in the area. The cost of sending retail products will also be easier as it is now
located next to the airport thus there would be lesser transport costs. Target group for this project
mostly comes from the passengers (business and leisure travelers), workers at the airport, people
living in the area and meeters and greeters.
Graph 1: Retail Sales Growth in Malaysia, 2007-2012
Demand has shown that there has been an increase in the growing pattern of growth
besides the fact that there is an increase in the consumption of products such as clothing. Hence,
these positive results gives green light to proceed with the project.
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Positioning Map
High price
14 Premium image
Budget image
15
Low price
Figure 2: Positioning map for the factory outlet centre in the retail market
MAHB has positioned its FOC to have a low price and a slightly lower quality than its
only competitor, which is Johor Premium Outlet as depicted in the diagram above. This
14
Insights: 5-ways to Survive a Day at a Premium Outlet. Digital image. RWScoop, n.d. Web.
http://www.rwsentosablog.com/2012/05/30/insights-5-ways-to-survive-a-day-at-a-premium-outlet/
15
Malaysia Airports Logo. Digital
image.Http://www.klccconventioncentre.com/images/articles/img_mahb.jpg. N.p., n.d. Web.
http://www.klccconventioncentre.com/images/articles/img_mahb.jpg
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will attract more rental revenues as it is predicted that out of an average of 24.2 million of the
people consisting Klang Valley population, domestic and foreign tourist at that area, 60% will
come to the FOC.16 However, MAHB must plan ahead as despite of many visitors at the area,
there may be not plenty of shoppers. 17 A strategy that can be done would be by using cost
leadership strategy by imposing low prices compared to their rivals, by having lots of discounts
and more promotions to raise awareness, because people who visit here came from different
income levels.
16
Lee Fei Fang, Michelle Personal Interview. 20th September 2011
17
Rick. "Five Ways to Improve Johor Premium Outlets." Bend Trend. Wordpress, 24 Jan. 2012. Web. 09 Sept. 2013.
http://bendtrend.com/2012/01/24/five-ways-to-improve-johor-premium-outlets
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Financial Analysis
Ratio Analysis
90
80
70
60
Percentage (%)
50
40
30
20
10
0
2006 2007 2008 2009 2010 2011 2012 2013
Year
Gearing Ratio Net Profit Margin Gross Profit Margin Return on Capital Exchange
Graph 2 : Gearing Ratio, Net Profit Margin, Gross Profit Margin, Return on Capital Exchange
for MAHB 2007-2012
Ratio Analysis18
The ratio analysis done above is performed in order to examine the financial situation of MAHB
to predict their future performance and to know that if they are in the suitable position to invest in
the FOC. The gearing ratio shows an increasing trend. This indicates that MAHB will be more
18
Refer Table 2 in Appendix: Sources taken from Annual Report Malaysia Airports Holdings Berhad 2007-2012
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exposed to increases in interest rate. Therefore, it is deemed unsuitable to make a loan in order to
invest in this project. However, MAHB can try to work with an operator from outside the country
which has more experience in the FOC concept. Their profitability ratio has indicate that they
have problems in managing revenue and cost, hence this is critical for MAHB to further
improve its financial situation by investigating and determining whether the problem lies on the
cost management, the marketing side or others.
Investment Appraisal19
Year Annual cash flow (RM) Cumulative cash flow (RM)
0 (192 901 486) (192 901 486)
1 17 644 000 (175 257 486)
2 18 958 000 (156 299 486)
3 20 270 380 (136 029 106)
4 22 081 091 (113 948 015)
5 32 022 084 (81 925 931)
6 18 211 300 (63 714 631)
7 37 807 012 (25 907 619)
8 37 678 054 11 770 435
9 37 545 228 49 315 663
10 46 956 149 96 271 812
19
This tool is used to evaluate the profitability and desirability of the project.
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Table 2: Payback period for the factory outlet center
Total investment 20 of the project is valued at approximately RM 192 000 000. Based on the
payback period shown below, it is estimated that in 7 years 11 months 23 days the project will be
fully be paid back. This shows that for a large FOC, MAHB is able to get back their investment
in a short amount of time. This is crucial to ensure that money can be returned as soon as possible
before uncertainties and unfavorable conditions in economy will happen.
Payback period: 192901486 – 11770435 = 181131051
181131051
x 365 = 342 days
192901486
7 years 11 months 23 days
𝐴𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡
Average Rate of Return: 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 x 100
96271812/10
= x 100 = 4.9 %
192901486
Besides that, short payback periods would prevent MAHB from having liquidity crises
or paying back the interest at a higher rate. Also, since the money could be received faster, this
enables them to proceed with other projects that will increase other their commercial revenues. In
addition to payback period, average rate of return indicates that its profitability would be 4.9% per
20
Lee Fei Fang, Michelle Personal Interview. 20th September 2011
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year. This shows that the project is very profitable and hence would complement the objective
of MAHB in order to increase their commercial revenue.
The tools used, however, might not be necessarily accurate and precise as the forecasts
are based on the assumptions and projections made on previous data which is from the (JPO).
The cash flow forecast might not be the same as JPO’s as, despite having the same concept, both
are located at different places with different demography, and also it depends on various factors
such as fluctuations in the economy. Although the forecast has been done by research experts, but
there are still room for errors as forecast are not necessarily accurate. But then again, this problem
could be overcome by having the management to focus on producing more effective financial
strategies such as reducing uncertainties in forecasting.
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Conclusions and recommendations
After thoroughly examining using analytical tools, I recommend that Malaysia Airports
Holdings Berhad should invest in building a factory outlet centre in order to increase its
commercial revenue.
This is due to several factors, SWOT showed that the strengths and opportunities clearly
outweigh its weaknesses and threats. The proposed location is a unique and suitable site that would
be able to attract people from variety of demographics. Through the financial analysis conducted,
it has shown a lot of positives where the payback period and average rate of return indicates that
the project has high profitability and will pay back in a short period of time. Although MAHB’s
gearing ratio is high and their profitability ratio is low, this can initially be overcome by doing a
joint venture with a more experienced company in the industry.
It is hereby recommended that MAHB conduct more specific market research to be able
to identify the target market and what they want, and revisit its marketing strategy. On the financial
standpoint, projected figures should be scrutinized further taking into considerations and
anticipating possible economic issues.
Certain limitations can be overcome, for example, SWOT Analysis may be subjective as
each manager may interpret it differently. Besides, the biasness of the interviewee might affect the
direction of the objective of the business report. Additionally, the market has not been studied in
depth where there are no specific research made for potential customers on the factory outlet
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products. The estimated financial figures made in the projections might also not be very accurate
as there would be fluctuations in the economy.
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Bibliography
Interview
1. Singh, Randhill. Personal Interview. 20th September 2011
2. Lee Fei Fang, Michelle Personal Interview. 20th September 2011
3. Abdul Karim, Azhar. Personal Interview. 3rd October 2011
Reference Books/Sources
1. R Jewell, Bruce. An Integrated Approach to Business studies. 7. Ed, Longman, 2006. Print
2. Hoang, Paul. Business & management. Melton, Vic.: IBID Press, 2007. Print.
3. Stimpson, Peter. Smith, Alex. Business and Management for IB Diploma. Cambridge, UK:
Cambridge University Press, 2011. Print.
4. DTZ Consulting Research
5. Annual Report Malaysian Airports 2007-2012
Journals
1. Sikos T, Tamas. "Key to the Success of the Outlet Shopping Centers Located in
Optimal Site." Hungarian Geographical Bulletin 2009 58.33 (n.d.): 181-200.
Hungarian Academy of Sciences, 2009. 9 Nov. 2013.
http://www.mtafki.hu/konyvtar/kiadv/HunGeoBull2009/HunGeoBull_2009_3_181-
200.pdf
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Websites
1. Cheng, Thean Lee. "Business News." Too Much Retail Space? -. The Star, 5 Oct. 2013.
09 Nov. 2013.
2. “Johor Premium Outlets Factsheet.” Johor Premium Outlet .(N.d) : 1-5. Web. 9 Nov
2013. http://www.premiumoutlets.com.my/downloads/factsheet-ORI-01.pdf
3. Echevarne, Rafael, Dr. "Money Matters." Money Matters. Aviation Media, 20 Mar. 2012.
Web. 09 Oct. 2013. http://www.airport-world.com/item/1452-money-matters
4. "'KLIA Aeropolis' Presents Revenue Growth for MAHB." Free Malaysia Today. Free
Malaysia Today, 18 Sept. 2013. Web. 13 Oct. 2013.
http://www.freemalaysiatoday.com/category/business/2013/09/18/%E2%80%98klia-
aeropolis%E2%80%99-presents-revenue-growth-for-mahb/
5. Rick. "Five Ways to Improve Johor Premium Outlets." Bend Trend. Wordpress, 24 Jan.
2012. Web. 09 Sept. 2013. http://bendtrend.com/2012/01/24/five-ways-to-improve-johor-
premium-outlets/
6. Yap, Raymond. The New Shopping Hotspot. Rep. CIMB, 17 Oct. 2011. Web. 10 Oct.
2013. http://research.cimb.com/index.php?ch=5013&pg=5014&ac=40976&bb=file
7. Yew, Calvin. The Best Is Yet to Come. Rep. CIMB, 21 Feb. 2013. Web. 31 Dec. 2013.
https://cimbequityresearch.cimb.com/EFAOnTheWeb/EFAWebAPI/GetDocPDF.asp?Do
cGUID=64FC6C26-D53B-48DB-9775-FA4785BBD632&A=CIMB
8. Company Focus - Malaysia Airports. Bloomberg: MAHB MK | Reuters: MAHB.KL. PP
11272/04/2010(023521). Rep. Malaysia Equity Research, 13 May 2009. Web. 31 Dec.
2013.
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http://klse.fraserdirect.com.sg/archive-
companyfocus/1.%20Company%20Focus/By%20Company%20Name/Counter%20Name
%20M%20-%20Z/MAHB%2020090513%20Update.pdf
9. Malaysia Airports : Runway To Success - Building a World Class Airport Business 2010-
2014. N.p.: Malaysia Airports, n.d. PDF.
http://ir.chartnexus.com/malaysiaairports/doc/business/Complete_version.pdf
Image
1. Malaysia Airports Logo. Digital
image.Http://www.klccconventioncentre.com/images/articles/img_mahb.jpg. N.p., n.d.
Web. http://www.klccconventioncentre.com/images/articles/img_mahb.jpg
2. Insights: 5-ways to Survive a Day at a Premium Outlet. Digital image. RWScoop, n.d.
Web. http://www.rwsentosablog.com/2012/05/30/insights-5-ways-to-survive-a-day-at-a-
premium-outlet/
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Appendices
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Appendix 1: SWOT Analysis
STRENGTH WEAKNESS
-Well-known monopoly that manages a lot of airport in - Short land tenure26
the country, experienced at running commercial - Out of the main shopping area (Kuala Lumpur,
operations21 Selangor).27
- Strategic location (suburban)22 - Unstable cyclical aviation industry affects the
- Great accessibility as it is surrounded by a network of airport passenger movements 28
highways23
-Natural heavy traffic flow enable people to tempted to
go shop at the places around the airports24
-Pioneer factory outlet centre in the Klang Valley25
OPPORTUNITIES THREAT
-Yearly event Sepang F1 could attract spectators to - Possible cannibalization with Malaysia Airport’s
shop29 shops in the area such as KLIA2
-New Tabung Haji complex too will attract people to -Double dip recession might causes a substantial drop
come in air travel, which causes lower passenger traffic33
- Strong Malaysian spending for the past few years30 -Might not able to fully lease all retail space34
- Strong domestic exchange rate encourages spending31 -Competition from the future competitors35
- Lack of shopping complexes in the area 32
Table 1 : SWOT Analysis
21
22
Singh, Randhill. Personal Interview. 20th September 2013
23
Ibid
24
25
26
Ibid
27
Ibid
28
Company Focus - Malaysia Airports. Bloomberg: MAHB MK | Reuters: MAHB.KL. PP 11272/04/2010(023521).
Rep. Malaysia Equity Research, 13 May 2009. Web. 31 Dec. 2013.
http://klse.fraserdirect.com.sg/archive-
companyfocus/1.%20Company%20Focus/By%20Company%20Name/Counter%20Name%20M%20-
%20Z/MAHB%2020090513%20Update.pdf
29
30
Ibid
31
Ibid
32
33
Ibid
34
Ibid
35
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Appendix 2: Ratio Analysis
Year RoCE Net Profit Margin Gross Profit Margin Gearing Ratio
𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑙𝑜𝑎𝑛𝑠
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 =𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 x
= 𝑇𝑜𝑡𝑎𝑙 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 =𝑆𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 x =𝑆𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 x
X 100 100 100 100
(RM Million) (RM Million) (RM Million)

(RM Million)
2007 289.3 289.3 404.9 112

1432
x100 = 1380
x 100 = x 100 = 1432
x 100 =
1380
20.20% 20.96% 29.34% 7.82 %
2008 305.8 305.8 432.4 434.7

x 100 = x 100 = x 100 x 100 =
1809.7 1513 1513 1809.7
16.89% 20.15% 24.02%

=28.58%
2009 378.6 378.6 480.1 1161

x 100 = x 100 = x 100 = x 100 =
1845.8 1637 1637 1845.8
20.51% 23.13% 29.33% 62.89%
2010 317.5 317.5 475 3073.6

x 100 = x 100 = x 100 = x 100 =
3806.6 1637 2468 3806.6
8.34% 19.4 % 80.74%

19.25%
2011 401.2 401.2 574.2 3001.5

x 100 = x 100 = x 100 = =3880.3x 100 =
3880.3 2754.8 2754.8
10.33% 14.56% 77.3 %

20.84 %
2012 394.5 394.5 602.8 3646.9

x 100 = x 100 = x 100 = x 100 =
4480.5 3548.1 3548.1 4480.5
8.80% 11.12% 17% 81.34%
Table 2 : Ratio Analysis

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Ratio Analysis
90
80
70
60
Percentage (%)
50
40
30
20
10
0
2006 2007 2008 2009 2010 2011 2012 2013
Year
Gearing Ratio Net Profit Margin Gross Profit Margin Return on Capital Exchange
Graph 1 : Ratio Analysis
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Appendix 3 : Investment Appraisal
Year Annual cash flow (RM) Cumulative cash flow (RM)
0 (192 901 486) (192 901 486)
1 17 644 000 (175 257 486)
2 18 958 000 (156 299 486)
3 20 270 380 (136 029 106)
4 22 081 091 (113 948 015)
5 32 022 084 (81 925 931)
6 18 211 300 (63 714 631)
7 37 807 012 (25 907 619)
8 37 678 054 11 770 435
9 37 545 228 49 315 663
10 46 956 149 96 271 812
Table 2: Payback period for the factory outlet center
Payback period: 192901486 – 11770435 = 181131051
181131051
x 365 = 342 days
192901486
7 years 11 months 23 days
𝐴𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡
Average Rate of Return: 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 x 100
96271812/10
= x 100 = 4.9 %
192901486
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Appendix 4 : Annual Report 2007-2012 (Taken from Malaysia Airports’ Websites)
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Appendix 5 :Interview transcript

Interview with Mr. Randhill Singh – General Manager of Corporate Planning Division
1. Can you tell me more about Malaysia Airports Holdings Berhad?
Malaysia Airports was originally formed by the Malaysian Parliament. They have divided
the Department of Civil Aviation and the company into two entities, in order for them to
focus on different set of responsibilities. It is done so that the company could focus more
on operations, and management of airports. It manages many airports in Malaysia and
other countries too. The company generates revenue through two ways which is
aeronautical which include passenger service charge (PSC), aircraft landing and parking
fees and other charges. Majority of non aeronautical revenue comes from mostly business
and commercial activities.
2. What are some important issues that Malaysia Airports are currently facing now?
Well, it is noticed that in the past years, there hasn’t been an increase in airport charges in
terms of taxes. We have among the lowest airport tax charges in the world. Therefore the
revenue gained from it has been stagnant. As a government linked company, we have the
key performance indicator to improve our financial situation in terms of revenue growth
and profitability.
3. What has been done to overcome this problem and what is your strategy?
From 2008, we have been implementing the Runway to Success program. This
programme was largely derived from the increasing trend in the non-aeronautical revenue
when the ratio has gained from 40:60 to 30:70. Among the objectives of the program was
provide service excellent, emphasize on commercial development, involve more in
corporate responsibility.
4. What are your past projects and what do you think of the decision you’ve made in
the past that causes the success of the projects?”
Among our past projects are the Sama-Sama Hotel. The hotel was built in order to ease
the tourist to have a rest at a hotel nearby.
5. Do you think building a factory outlet centre is a good decision to make? Why did
you choose this among other potential projects?
We are considering some other projects too such as building a concert hall, theme parks
and an autocity. Building a factory outlet centre, in my opinion, is a great choice mainly
because factory outlet store itself is an attraction due to it selling luxurious items with a
cheaper price despite the less quality. Building a normal shopping mall may not attract
people because it is the same as any other shopping malls in other places. Therefore the
title factory outlet centre gave the building a unique selling point and competitive
advantage. People are willing to travel to reach here in order to gain attractive discounts.
People from the Klang Valley also don’t really have to travel further away to JPO to gain
this deal. Besides that, its strategic location which is situated next to the airport brings
benefit as while people in the airport might be tired and bored, so there is some
entertainment available instead of doing nothing productive in the airport.
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6. What kind of market segments are you targeting?

Since the brands are luxurious but not very expensive, we have targeted from people to
young adults that comes from various types of background. It is clear that low prices
attract people but despite that we have to also consider and take into account the level of
quality. In order to do that, we have made sure we have employed the right people
7. What is the SWOT of doing this project?
Strengths: It is surrounded by a network of high ways; therefore this implies that there is
an excellent accessibility for customers to visit this place. Also, there is a high visibility
and direct frontage onto the highway to attract the customers. The sizable land area
allows flexibility at planning stage, so that is a good thing for us. Sub-urban location in
Sepang is a benefit to us since there is a lower land cost which decreases our cost of
doing it and ample space for open air parking. The fact that it is remote from downtown
full priced shopping districts is our strength that we’re most confident of.
Weakness- There is only short land tenure – which is only 25 years from Feb 2009.
Opportunities – There is a high passenger volume of KLIA & LCCT – which has
approximately 21 million and 13 million and this our chance to capture the benefit of the
passenger volume. The events at Sepang F1 Circuit may potentially be helpful in
attracting consumers since every year they would have about 2000000 spectators.
Lembaga Tabung Haji new complex that has been build will definitely help boost the
people in the area. And the emergence of the factory outlet centre will have the advantage
of holding the title of the first factory outlet centre in Klang Valley, and it is planned to
be one of the biggest factory outlet centre in Southeast Asia.
Threat – There will be some challenges whether to build by own fund or finding the
right operator. There will also be possible cannibalization with the existence of KLIA2.
8. What are your main concerns about this project?

The main concern is there could be direct competition in the future. Land development is
a very risky investment to do, since we have to consider a lot of social and economic
factors. However, of course there are some benefits such as it is noticed that Malaysian
economy is forecasted to grow at about 5.0-6.0%. Also the consumer price index has
risen for mostly food and beverages and clothes.
9. What do you think stakeholder might react to this?

We would expect a positive feedback from most of our stakeholders, ranging from our
investors to the customers. This investment in the factory outlet centre, we expect in the
long run would generate a lot of revenue, as the investment seems to have many positive
outlook in the future. The investors would be really glad since positive outlooks will lead
P a g e 36 | 38
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to greater returns and this can improve our performance as a government linked
company.
10. How much is the total cost of doing this project, and what do you think of the
expected outcome?
We have been using cashflow forecast from DTZ Consulting Research, based on the
Johor Premium Outlet cashflow. But since there is some differences between JPO and our
factory outlet centre, the figures may vary slightly, thus it might not be totally accurate to
conclude using this cashflow forecast.
11. Can you tell me a little bit about the marketing strategy of the factory outlet centre?
The competitive advantage that can be gained by factory outlet centres in this market is
due to its attractive price coupled with high quality goods. Price is low because of it is
actually bought directly from the factory in bulk as these factories will offer low prices
because the product is damaged, even slightly or if its outdated. This competitive
advantage will definitely generate a lot of revenue for the company. However, there will
be a new competitor that might threat the factory outlet center by having price
competition.
In order to make factory outlet attraction that will cause people other than passengers to
come is by introducing to them a range of variety of products. Since it will be one of the
largest factory outlet store, they can provide different brands to cater each segment.
Prospective renters would be a range of high end brands to Asian exclusive stores. Other
than these brands, high end brands from Asia would be encouraged to be available to add
more variety to people who have a different taste in style.
The easy accessibility enables many potential customers to come and visit the place other
than tourists that either come to Malaysia or stop by Malaysia for transit.
A lot of emphasis is needed to be focused on this promotion as it is crucial to inform the
customers about the existence of the factory outlet store. At the beginning, Malaysia
Airports could promote it by having an open day with special kind of promotion and by
the help of public relations. The influence of artists have on the customers could attract
them to come although it is located far away from the city hub.
Interview with Miss Michelle

1. What are the financial costs of doing this project?
The cost is about 192 million. (Hands in the estimated paypack period figure)
2. How many people do you predict that will come annually to the factory outlet
centre?
Itis predicted that out of an average of 24.2 million of the people consisting Klang Valley
population, domestic and foreign tourist at that area, 60% will come to the factory outlet
centre. These data are based on our previous data we collected before.
3. What are some of the benefits and drawbacks of doing this project?
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Factory outlet centre is a pretty new retail concept in this country, and based on the JPO’s
performance, which captured 1 million visitors in the first 6 months, we are predicting
that about 2-2.4 million customers will spend their time here, considering that they
consists of Klang Valley residents, domestic tourists, and foreign hotel guests. We have
also seen that the Klang Valley is already saturated with full-priced shopping outlets, thus
the location of the outlet centre and the unique selling point. Additionally, which is the
low prices luxury items provided here, it seems like it is a viable project to work on.
Therefore, if we can achieve this, then it will help to increase our commercial revenue.
There are basically few drawbacks identified from the project which is well, the fact that
we lacked experience in managing and selling premium outlet items.
Interview with Mr Azhar

1. I was made to understand from Mr Randhill, Corporate Planning that part of the
initiative to increase the commercial revenue is to develop the landbanks
surrounding KLIA. What are the projects that has been identified?
We have started the aeropolis concept where land banks will be developed into integrated
townships i.e residential, commercial office, theme park, industrial maybe.
2. What in your opinion would be the first project to be started?
We are in the preliminary stage to conduct a feasibility study to build a factory outlet and
an autocity
3. What will be the cost involved and that will be endorsed by the board of directors?
At this moment, based on the preliminary study the cost would be around 200 million.
4. Will this be funded internally or through other ways?
We are exploring various strategy with regard to funding. We are looking at possibilities
of joint ventures, running it ourselves, and even acquisition or merger.
5. How confident are you that these projects would take off?
Hehe, I am quite confident. Initial SWOT analysis shows that it is a good project. If the
financial analysis to be done shows positive results then I’m confident that our board of
directors would say yes.
6. Can you share with me some of strengths of doing this project?
Our strength probably lies in the location of the KLIA itself. We have the population and
the surrounding area i.e Sepang District lacks shopping outlets. Then, there are
connectivity and access factors where there are highways and trains networks around
KLIA. Additionally there are minimal weaknesses and threats.
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Business IA for International Baccalaureate - 22/25 (Grade A)

Conference Paper · February 2014

Syanaz Bazil Ahmad Kamal

Corporate Strategy A View project

The user has requested enhancement of the downloaded file.

support, which made the research project a successful one.

building a factory outlet centre to increase its commercial revenue?”

its commercial revenue?

in their commercial revenue.

Key Area of Syllabus

1.5 External Environment

3.2 Investment Appraisal

3.6 Ratio Analysis

4.2 Marketing Planning

financial part of analysis.

factory outlet centre market for the location analysis

-Sources from DTZ Consulting Research and Department of Statistics Malaysia

Problems likely to be encountered and possible solutions

Problem Ways to encounter

be not specific enough

Irrelevant use of business tools Go through the research question thoroughly

and brainstorm the most appropriate tools to

be used from business textbooks

Lack of relevant analysis Consultation with teacher

with the data available from secondary

Action plan/research timeline

Dates Activities Modifications

16/4/2013 Business IA Briefing Brainstorm about the RQ

19/4/2013 Have a Research Question Change in RQ

19/5/2013 Send in rough proposal Analyse and reflect about the

weakness of the proposal

23/5/2013-3/7/2013 Refine research question and Research question and

business tools business tools are modified

3/7/2013 Send in a proper proposal Need to follow the right

8/7/2013 Look for secondary datas on Find appropriate sources and

the internet ensure that the sources are

10/7/2013 Consultation with teacher

Randhil Singh & his managers as well in order to

colleagues avoid biasness

18/7/2013 Begin writing

27/7/2013 Submit 1st draft

first draft mistakes and learn from it

1/8/2013-1/11/2013 Refine draft

30/1/2013 Final submission

aeronautical and commercial revenues8.

revenue, where strategies already been planned.

invest in building a factory outlet center to increase its commercial revenue?”

Findings and analysis

careful forecasting of future economic situation.

managing a premium outlet centre so it is recommended for MAHB to find an experienced

operator to cooperate with.

Location and Market Analysis

Figure 1 : Location of the site of factory outlet centre

in the charts below:

Chart 1 : Existing Supply of Shopping Centres in the Klang Valley by Location

Chart 2: Cumulative Supply of Existing Shopping Centres in Klang Valley

living in the area and meeters and greeters.

Graph 1: Retail Sales Growth in Malaysia, 2007-2012

for MAHB 2007-2012

cost management, the marketing side or others.

Year Annual cash flow (RM) Cumulative cash flow (RM)