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8/7/2019 BizFin_ICA2_Report

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Industry Research

On the 16th February 2009, Bintan Resorts announced the total number of visitor arrivals in 2007 and 2008 as

333,771 and 397,833 respectively. This has shown a significant increase of 19.2% in the number of arrivals to

Bintan Resorts in 2008.

The number of visitor arrivals from Singapore in Bintan Resorts in 2008 was 111,985 which make up nearly 1/3

of the total arrivals. This figure shows a growth of 5.4% when compared to the previous year.

Ministry of Manpower (MOM) reflects Singapores wages and earnings per employee based on 4th quarter of

year 2008 as $4,229. This figure was the monthly average for the quarter earned by each employee. This

figure has the least growth rate of 2.4% and the highest growth rate for the year was at the 1st quarter of the

year with 10.6%.

Based on the above research, we can see that Singapores economy is slowing down from 2007 to 2008 due to

natural disasters and economic crisis, which can be seen from the wages growth rate. Despite the drop in

average wages and earnings of each employee, you can see that the number of Singaporeans travelling to

Bintan Resorts is still increasing with a total of 111,985 in 2008. This shows that even many people will cut

back on their leisure travel; they will not give up on travelling as Bintan Resorts offers an excellent and

affordable holiday package that attracts them from going back for leisure.

From the above conclusion, it is worth to invest in the project as the visitors arrival trend is proving good.

Nevertheless, we also have to look at the potential risks that we will face when investing Ferry Co.s ferries

operation business. Such risk includes the slowdown in Singapores economy, competition from existing

ferries operators, potential competition for Bintan tourism and other relevant risks.

As upon the research that we did, we found out that Singapores external trade is dropping over the quarters.

Singapore being the trading country, a drop in the external trade simply means our revenue is dropping too.

The percentage dropped for previous quarter was 9.6 to 28 in the first quarter in 2009.

There are competitions from the existing ferries operators which also offer ferry service in Singapore, namely

the Pasir Panjang Ferry Terminal and World Trade Centre Ferry Terminal. Not only that, we will also face

competition for Bintan tourism which is outside of Singapore. Indonesia also provides ferry service to Bintan

Resorts at Nongsa Ferry Terminal and Telaga Punggur Ferry Terminal in Batam.

Other relevant risks are competition with agencies providing travelling service to Bintan. After conducting the

research, I have roughly found out that there are 500 over agencies in Singapore providing such service, which

consists of air travel and ferry.


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Statistics of Tourist Arrival in Bintan

Yr/Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2005 15,006 18,857 22,713 19,864 23,470 26,755 28,411 30,065 26,151 23,228 22,829 30,73

2006 24,011 20,992 25,923 25,804 25,597 29,872 30,698 30,778 25,910 26,814 23,216 33,99

2007 19,507 23,191 23,775 25,248 27,099 32,455 30,483 34,074 27,417 27,388 27,599 35,53

2008 27,313 29,656 33,191 25,980 34,651 36,031 35,876 38,274 30,440 32,062 30,973 43,38

Statistics of Earnings & Wages ofSingaporeans

Average (Mean) Monthly Nominal Earnings 2005 2006 2007 2008

Singapore $ Per Employee

Annual 3,444 3,554 3,773 3,977

1st Qtr 3,592 3,700 3,903 4,316

2nd Qtr 3,175 3,297 3,578 3,690

3rd Qtr 3,166 3,256 3,481 3,674

4th Qtr 3,843 3,961 4,130 4,229

Growth Rate (%) for 4th Qtr 2.2 3.1 4.3 2.4

2008 Visitor Arrivals (Jan-December) Breakdown by Nationality of Major Markets

Country Korea Japan UK China Australia India Malaysia USA

8% 6% 4% 4% 4% 3% 4% 2%

France Germany Taiwan

Hong

Kong

New

Zealand Russia Singapore Indonesia Others

2% 2% 2% 1% 1% 1% 28% 21% 7%


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year 0-

Beg of 2010

year 1-

2010

year2-

2011

year 3-

2012

year 4-

2013

year 5-

2014

workings references

(below)

Initial

investment $(24,200,00

0)

*CALCULATION 1

Revenue

Ferry Fare

Income

Workings:

Number of

Passenger

per Annum

190400 228480 266560 304640 342720 *CALCULATION 2

Fare Per

Trip

40 40 40 47.5 47.5

Revenue

from Fare $ 7,616,000 9,139,200 10,662,400 14,470,400 16,279,200

No. of passenger per

annum*Fare Trip

Food And

BeverageIncome $ 190,400 228,480 266,560 304,640 342,720

No. of passenger per

annum*Revenuefrom

food and

beverage($1)

Total

Revenue $ 7,806,400 $ 9,367,680 $ 10,928,960 $ 14,775,040 $ 16,621,920

Revenue from fare+

revenue from f&b

Expenses:

Advertising

expense $ 20,000 20,000 20,000 20,000 20,000

fixed advertising

expense=$20 000

Advertising

Agent

Commissio

n

$ 152,320 182,784 213,248 289,408 325,584

Revenue from

fare*0.02

Fuel

Expense

544000 544000 544000 544000 544000 $400*(Total no. of

trips

annually)CALCULATIO

N3*

Manageme

nt wage 592,060.00 603,901.20 615,979.22 628,298.81 640,864.78

CALCULATION 4*

CPF

Contributio

n

$ 85,848.70 $ 87,565.67 $ 89,316.99 $ 91,103.33 $ 92,925.39

Annual budgeted

salaries*0.145

operational

staff wage $ 400,000 $ 400,000 $ 400,000 $ 400,000 $ 400,000

Fixed stage wage $20

000*20 staff

ferry

operatinglicenses

fees

$ 40,000

40,000 40,000 40,000 40,000

operating license

fee($20 000)* 2ferries

depreciatio

n expense

(ferries)

$ 1,200,00

0

1,200,000 1,200,000 1,200,000 1,200,000

CALCULATION 5*

Ferries

maintenan

ce and

repair cost

$ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000

maintenance and

repair cost per

ferry($100 000)*2

Total


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Expenses $3,740,440.

00

$3,794,586.4

0

$3,849,206.4

5

$ 3,950,005.

62

$4,011,313.5

7

Net Profit

Before Tax $4,065,960.

00

$5,573,093.6

0

$7,079,753.5

5

$ 10,825,034.

38

$ 12,610,606.

43

Total revenue for yea

-Total expense for

year

Tax/Saving

s @ 18% $(731,872.8

0)

$(1,003,156.

85)

$(1,274,355.

64)

$(1,948,506.1

9)

$(2,269,909.1

6)

Net profit before

tax*0.18

Net Profit

After Tax $3,334,087.20

$4,569,936.75

$5,805,397.91

$ 8,876,528.19

$10,340,697.27

Total revenue for yea

-Tax expense

After tax

Operating

Cash Flow

$4,534,087.

20

$5,769,936.7

5

$7,005,397.9

1

$ 10,076,528.

19

$11,540,697.

27

Net profit after tax +

depreciation expense

Terminal

Value $14,000,000.

00

7000000*2

Overall

Net Cash

Flow

$(24,200,00

0)

$4,534,087.

20

$5,769,936.7

5

$7,005,397.9

1

$10,076,528.1

9

$25,540,697.

27

REFERENCES

CALCULATION 1

set up cost $ 200,000

ferry cost (2 ferries) $ 24,000,000

Total Initial cost $ 24,200,000

CALCULATION 2

INFO 1 ferry 2 ferries trips

No. of

Psg

/2trips/2

ferries

No. of

operational

days

No. of psg

in a year

Each ferry capacity (100%) 280 560 2 1120 340 380800

at 50% capacity 140 280 2 560 340 190400

at 60% capacity 168 336 2 672 340 228480at 70% capacity 196 392 2 784 340 266560

at 80% capacity 224 448 2 896 340 304640

at 90% capacity 252 504 2 1008 340 342720


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CALCULATION 3

No. of trips a day(1 ferry) 2

No. of trips a year(1 ferry) 680

No. of trips a year(2 ferry) 1360

CALCULATION 4

2010 2011 2012 2013 2014

Monthly Management

wage $ 4,229 $ 4,313.58 $ 4,399.85 $ 4,487.85 $ 4,577.61

No of management staff 10 10 10 10 10

Bonus of 2 months $ 8,458 $ 8,627.16 $ 8,799.70 $ 8,975.70 $ 9,155.21

Annual Wage Per Staff $ 59,206 $ 60,390.12 $ 61,597.92 $ 62,829.88 $ 64,086.48

Total Management

Wage $ 592,060 $ 603,901.20 $ 615,979.22 $ 628,298.81 $ 640,864.78

CALCULATION 5

Cost per ferry 12000000

useful life 20 years

depreciation per year (per ferry) 600000

depreciation per year (2 ferries) 1200000

EVALUATION DECISION Why?

NPV $18,161,580.00 Dont invest NPV6%

Payback Period 3.78years Invest 3.78 years


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Capital Budgeting

Year 0 - At

beginning of 2010

Year 1 -

2010

Year 2 -

2011 Year 3 - 2012 Year 4 - 2013 Year 5 - 2014 Workings/ Formulae

Initial

Investment ($24,200,000) 24000000 + 200000

Revenue:

Ferry Fare

Income $7,616,000.00 $9,139,200.00 $12,661,600.00 $14,470,400.00 $16,279,200.00

No. of passengers

per annum*fare per trip

(Workings)

Number of

passengers

per annum 190,400 228,480 266,560 304,640 342,720

280*2*2*340*

% of ridership

(multiply by)

fare

per trip $40.00 $40.00 $47.50 $47.50 $47.50 Given

Food and

BeveragesIncome $190,400.00 $228,480.00 $266,560.00 $304,640.00 $342,720.00 No. of passengers *1

Total revenue $7,806,400.00 $9,367,680.00 $12,928,160.00 $14,775,040.00 $16,621,920.00

Ferry fare income+

F&B

Expenses:

Advertising

annual

commision $152,320.00 $182,784.00 $253,232.00 $289,408.00 $325,584.00 ferry fare income*2

Advertising

expense $20,000.00 $20,000.00 $20,000.00 $20,000.00 $20,000.00 Given

Fuel Cost $272,000.00 $272,000.00 $272,000.00 $272,000.00 $272,000.00 (400*2)*340

Management

Team wages $592,060.00 $602,209.60 $602,209.60 $602,209.60 $602,209.60

Staff cost+ Bonus

+Salary Increment

(Workings)

Staff Cost $507,480.00 $507,480.00 $507,480.00 $507,480.00 $507,480.00 (4229*12)*10

Bonus $84,580.00 $84,580.00 $84,580.00 $84,580.00 $84,580.00 (4229*2)*10

Salary

Increment $10,149.60 $10,149.60 $10,149.60 $10,149.60 507480*2%

CPF

Expenditure $85,848.70 $87,320.39 $87,320.39 $87,320.39 $87,320.39

14.5%

*management team wages

Operational

Staff

wages $400,000.00 $400,000.00 $400,000.00 $400,000.00 $400,000.00 20000*20

Ferryoperating

licenses $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 20000*2

Depreciation $1,200,000.00 $1,200,000.00 $1,200,000.00 $1,200,000.00 $1,200,000.00 24000000/20

Maintenance

and

repair cost $200,000.00 $200,000.00 $200,000.00 $200,000.00 $200,000.00 100000*2

Total

Expenses $2,790,531.30 $2,829,673.21 $2,900,121.21 $2,936,297.21 $2,972,473.21

Net profit

before tax $5,015,868.70 $6,538,006.79 $10,028,038.79 $11,838,742.79 $13,649,446.79

Total revenue-

Total expenses


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Tax @ 18% $902,856.37 $1,176,841.22 $1,805,046.98 $2,130,973.70 $2,456,900.42 18%*NPBT

Net profit

after tax $4,113,012.33 $5,361,165.57 $8,222,991.81 $9,707,769.09 $11,192,546.37 NPBT-Tax

After tax

operating

cash flows $5,313,012.33 $6,561,165.57 $9,422,991.81 $10,907,769.09 $12,392,546.37 NPAT + depreciation

Terminal

value $14,000,000.00 7000000*2

Overall net

cash flows ($24,200,000) $5,313,012.33 $6,561,165.57 $9,422,991.81 $10,907,769.09 $26,392,546.37

NPV $22,925,436.17

Internal Rate

of

Return (IRR) 28%

Payback

Period 3.27

Workings for

paybackperiod: Year 1 to 3 $21,297,169.71

Amt to recover $2,902,830.29

Remaining Years 0.266125022

NPV

By using the NPV to calculate, we should not invest as the NPV of $22,925,436.17 is lesser than $24,200,000

IRR

By using the IRR method, we can invest in the company as the rate of return of 28% is more than 6%

Payback period

This project can be taken when we use the payback period method as the payback period is 3.27 which is lesser than the

company maximum payback period of 5 years


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Part 3

b i) Amount of cash to be financed

= 70% X 2420000= $16940000

50% of financing needed

= 50% X $16940000= $8470000

Number ofbonds to be issued

= $8470000/5000= 1694 bonds

ii) Par value = $5000

n= 10Coupon rate= 4%K= 6%

Value of shares

= (interest X PVIFA (k%, n)) + (Par value X PVIF (k%, n))= ((4%X$5000) X PVIFA (6%, 10)) + ($5000 X PVIF (k%, n))= ($200 X 7.3601) + ($5000 X 0.5584)

=$4264

Number of shares to be issued

= $47966000/$4264= 11249 shares


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Part 4: Financing Decisions

Given now that if KOH Brothers Group Limited wants to make an investment to set up and operates a new

ferry operating company (Ferry Co) that operates ferries between Singapores Tanah Merah Ferry Termina

and Bintan, Indonesia. Out of the company set-up costs and ferries purchase costs of $24.2 million, 70% need

to be financed.

Basically, there are 2 sources of capital; it is either Debt Capital or Equity Capital. Debt Capital is cheaper as

compared to other forms of financing because lenders take lower risks than other long-term contributors ocapital. Whereas, Equity Capital is long-term funds provided by the firms owners and it is expected to remain

in the firm forever.

To decide on whether to use Debt Capital or Equity Capital, we use Debt Ratio as a gage to make our decision

Debt ratio measures theextent which the firms activities are financed by borrowing and the firms ability to

service the debt. Based on the Debt Ratio calculated between 2007 & 2008, the Debt Ratio for KOH Brothers

Group Limited is 0.7194, and between 2006 & 2007, the Debt Ratio is 0.7025.

In this case, there is a 0.0169 increase in the Debt Ratio, which means that the higher the Debt Ratio is, the

higher will be its risk and the greater the chances of a higher return.

Hence, if Equity Capital is use for financing, an increase in the Required Rate of Return (k%) would result in a

decrease in a share price. Based on the Debt Ratio calculated, there is an increase. Therefore, there would be

a high risk investing through Equity Capital which then result a decrease in share price, and therefore, less

money would be received for the financing.

Also, if Debt Capital is use for financing, the price ofbond would be affected by the interest rate (k%) and the

number of years to maturity (n). If the Required Rate of Return (YTM) is less the Coupon Rate, the presen

value of thebond would be greater than the par value. This means that thebond would be sold at a premium

and additional capital would be raised for financing.

Therefore, it would bebetter for KOH Brothers Group Limited to use Debt Capital for financing for the company

based on their current financial leverage. Debt Capital is cheaper to use as compared to Equity Capita

financing. This is because lenders take lower risk than other long-term contributors of capital. Also, in the

viewpoint of KOH Brothers Group Limited, there is tax deductibility of interest payment. This would be cost

saving for KOH Brothers Group Limited as they are able to conserve more cash.


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Appendices

Most of the information:

http://203.81.55.53/brcms/ImageRepository/Corporate%20Info/News%20Release/VA%2008.pdf

Earnings and Wages:

http://www.mom.gov.sg/publish/momportal/en/communities/others/mrsd/statistics/Earnings_and_Wages.html

Other Webpage commenting on KOH BROS:http://www.asiabuilders.com/asiabuilders/KOH-BROTHERS-GROUP-LIMITED_Singapore_Company_80025803.aspx

Homepage of KOH BROS:

http://www.kohbrothers.com/Default1.html

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