Issue #5 - Who is more profitable?

I agree with LK that we should look at market leaders but there are also other criteria we should pay attention as well at this early stage.

1. Warren thinks that the best kind of business to own is one with high profit margins and high inventory turnover.
2. Warren believes investors should focus all his/her energy on determining the competitive advantage of any given company and the durability of that advantage.
3. Warren dislikes price-competitive businesses as they lack the economic might that will ensure that they can survive the bad news situations.

Below is a list of companies which I have filtered from previous list. It consist of 20 top revenue generating companies of each year from 2003 to 2005. Their gross profit margin (GPM) is also included for comparison.

FY2005                                 = Annual Revenue     GPM

-> S P SETIA BERHAD                    =  12,62,445,000     22.95%   
-> SUNWAY CITY BERHAD                  =  11,74,491,000     26.95%   
-> KLCC PROPERTY HOLDINGS BERHAD       =    733,932,000     48.70%   
-> MK LAND HOLDINGS BERHAD             =    696,628,000     15.93%   
-> IGB CORPORATION BERHAD              =    619,677,000     27.98%   
-> E & O PROPERTY DEVELOPMENT BERHAD   =    593,417,000     11.44%   
-> IOI PROPERTIES BERHAD               =    585,274,000     58.69%   
-> SIME UEP PROPERTIES BERHAD          =    516,498,000     23.02%   
-> PARAMOUNT CORPORATION BERHAD        =    502,819,000     16.04%   
-> NAIM CENDERA HOLDINGS BERHAD        =    493,782,000     27.53%   
-> MAH SING GROUP BERHAD               =    475,483,000     14.94%   
-> LBS BINA GROUP BERHAD               =    454,266,000     15.31%   
-> PJ DEVELOPMENT HOLDINGS BERHAD      =    435,526,000      6.73%   
-> ISLAND & PENINSULAR BERHAD          =    432,451,000    147.93%   
-> BANDAR RAYA DEVELOPMENTS BERHAD     =    429,903,000    -14.77%   
-> SUNRISE BERHAD                      =    413,590,000     36.43%   
-> TALAM CORPORATION BERHAD            =    391,939,000    -64.64%   
-> MALTON BERHAD                       =    371,867,000      2.96%   
-> UDA HOLDINGS BERHAD                 =    350,320,000     15.55%   
-> BOUSTEAD PROPERTIES BERHAD          =    341,346,000     25.52%   

FY2004                                 = Annual Revenue     GPM

-> TALAM CORPORATION BERHAD            =  12,32,493,000     12.01%   
-> SUNWAY CITY BERHAD                  =  10,25,593,000     18.09%   
-> S P SETIA BERHAD                    =  10,25,091,000     22.89%   
-> MK LAND HOLDINGS BERHAD             =    926,198,000     24.85%   
-> IOI PROPERTIES BERHAD               =    663,652,000     49.44%   
-> ISLAND & PENINSULAR BERHAD          =    576,642,000     28.09%   
-> ENCORP BERHAD                       =    557,160,000     -0.54%   
-> UDA HOLDINGS BERHAD                 =    538,245,000      7.44%   
-> IGB CORPORATION BERHAD              =    504,558,000     28.09%   
-> COUNTRY HEIGHTS HOLDINGS BHD        =    489,492,000      4.00%   
-> SIME UEP PROPERTIES BERHAD          =    462,504,000     37.61%   
-> PK RESOURCES BERHAD                 =    452,877,000      2.35%   
-> BANDAR RAYA DEVELOPMENTS BERHAD     =    425,013,000     16.81%   
-> E & O PROPERTY DEVELOPMENT BERHAD   =    411,817,000     16.57%   
-> LBS BINA GROUP BERHAD               =    407,969,000     16.93%   
-> PJ DEVELOPMENT HOLDINGS BERHAD      =    378,213,000      8.59%   
-> KLCC PROPERTY HOLDINGS BERHAD       =    362,008,000     45.23% (Only 2Q)
-> BOUSTEAD PROPERTIES BERHAD          =    359,948,000     39.64%   
-> MAH SING GROUP BERHAD               =    356,455,000     10.90%   
-> NAIM CENDERA HOLDINGS BERHAD        =    327,878,000     34.63%   

FY2003                                 = Annual Revenue     GPM

-> FURQAN BUSINESS ORGANISATION BERHAD = 10,655,788,000     31.08%   
-> MK LAND HOLDINGS BERHAD             =    912,903,000     29.09%   
-> S P SETIA BERHAD                    =    821,741,000     21.79%   
-> TALAM CORPORATION BERHAD            =    793,004,000      8.11%   
-> SUNWAY CITY BERHAD                  =    740,787,000     14.68%   
-> IOI PROPERTIES BERHAD               =    579,435,000     47.25%   
-> ENCORP BERHAD                       =    567,273,000      2.38%   
-> IGB CORPORATION BERHAD              =    532,166,000     34.64%   
-> ISLAND & PENINSULAR BERHAD          =    506,990,000     28.61%   
-> SIME UEP PROPERTIES BERHAD          =    459,793,000     38.85%   
-> UDA HOLDINGS BERHAD                 =    411,923,000     -4.03%   
-> LBS BINA GROUP BERHAD               =    349,419,000     14.59%   
-> COUNTRY HEIGHTS HOLDINGS BHD        =    344,282,000      5.83%   
-> BANDAR RAYA DEVELOPMENTS BERHAD     =    339,136,000     18.28%   
-> PJ DEVELOPMENT HOLDINGS BERHAD      =    332,180,000      2.52%   
-> PK RESOURCES BERHAD                 =    330,199,000     -2.36%   
-> METRO KAJANG HOLDINGS BERHAD        =    321,298,000     18.28%   
-> PETALING GARDEN BERHAD              =    283,970,000     29.07%   
-> GLOMAC BERHAD                       =    277,048,000     19.28%   
-> ASIA PACIFIC LAND BERHAD            =    240,355,000     10.38% 

The above 3 criteria will help to filter out the above list further:
Criterion #3
- Since the main business of the above list of companies are property developments, this criterion should not be applied in this case. As there are more than 100 list companies in this sector, it is difficult to believe price-competitive value does not exist here.

Criterion #2
- In other words, companies with good track record (durability) is important. Although having the ability to stay in the top 20 list for 3 consecutive years (2003->2005) is a poor measure of durability but this is a good start to filter out weaker candidates.
- Apply this criterion, the list is left with 12 companies below.
1. S P SETIA BERHAD
2. SUNWAY CITY BERHAD
3. MK LAND HOLDINGS BERHAD
4. IGB CORPORATION BERHAD
5. IOI PROPERTIES BERHAD
6. SIME UEP PROPERTIES BERHAD
7. LBS BINA GROUP BERHAD
8. PJ DEVELOPMENT HOLDINGS BERHAD
9. ISLAND & PENINSULAR BERHAD
10. BANDAR RAYA DEVELOPMENTS BERHAD
11. TALAM CORPORATION BERHAD
12. UDA HOLDINGS BERHAD

Criterion #1
- If we set the bar to consider only companies with at least 20% gross profit margin, the list is further reduced to 6 companies below.
- The number 20% is not a very high unreasonable since this just a gross profit margin number.
1. S P SETIA BERHAD
2. SUNWAY CITY BERHAD
3. IGB CORPORATION BERHAD
4. IOI PROPERTIES BERHAD
5. SIME UEP PROPERTIES BERHAD
6. ISLAND & PENINSULAR BERHAD

Progressing from here, we should analyze in detail each company's financial performance before deciding if they are a worth investing into but that will be another issue.

ps. Please bear with my format as blogger does not support fancy formatting when posting with Safari browser. Fortunately there will soon be. (http://help.blogger.com/bin/answer.py?answer=921)