Mah Sing Group Berhad

Forecast Income Statement for years 2023 to 2028

	Actual
	2022 (RM000)	Percentage of sales (%)
Revenue	2,317,228	100%
Cost of sales	(1,804,339)	78.87%
Gross profit	512,889	21.13%
Other income	44,792	1.93%
Selling and marketing expenses	(60,807)	2.62%
Administrative and other expenses	176,416	7.61%
Result from operating activities:	320,458
Financial income	2,465	0.11%
Financial costs	58,799	Remain the same
Net financial costs	(56,334)	2.43%
Profit before tax	264,124	11.40%
Income tax expense	77,326	24% of profit before tax
Net profit	186,798	8.06%

	Forecasted
	2023 (RM000)	2024 (RM000)	2025 (RM000)	2026 (RM000)	2027 (RM000)
Revenue	3,244,119	4,541,767	6,358,474	8,901,863	12,462,608
Cost of sales	2,526,075	3,536,504	4,951,106	6,931,549	9,704,168
Gross profit	718,045	1,005,262	1,407,367	1,970,314	2,758,440
Other income	62,709	87,792	122,909	172,073	240,902
Selling and marketing expenses	85,130	119,182	166,854	233,596	327,035
Administrative and other expenses	246,982	345,775	484,086	677,720	948,808
Result from operating activities
Financial income	3,451	4,831	6,764	9,470	13,257
Financial costs	58,799	58,799	58,799	58,799	58,799
Net financial costs	55,348	53,968	52,035	49,329	45,542
Profit before tax	393,293	574,130	827,302	1,181,742	1,677,958
Income tax expense (24%)	94,390	137,791	198,552	283,618	402,710
Net profit	298,903	436,339	628,749	898,124	1,275,248

Notes:

1. We employ the percent-of-sales approach to create a pro forma income statement. The various income statement elements are expressed as a percentage of the predicted sales after the sales forecast has been made.
2. For the estimate for the following five years, we assume that the sales growth rate will rise from 32.11% (20212022) to 40%. The Star claims that, beyond 2023, the picture is still favourable due to the young population's strong underlying need for real estate. First-time homebuyers should continue to have a stable demand for housing.
3. Currently, we're assuming that borrowing costs stay the same as they were in 2022. This is due to the fact that Mah Sing Group Berhad has taken out loans or issued bonds with a fixed interest rate as founder and group managing director Tan Sri Leong Hoy Kum stated that the group will continue to scout for and acquire new lands, supported by the company's confidence in the M-Series of affordable homes, and backed by healthy balance sheets, according to The Star.
4. The expected assessable profit for the year is multiplied by the Malaysian statutory tax rate of 24% (2021: 24%) to determine income tax. Additionally, the Finance Act 2022, which was published in the gazette on December 31, 2021, enacts the Prosperity Tax on businesses with high income during the Covid-19 pandemic period for the Year of Assessment 2022 only, with chargeable income up to the first RM100 million subject to a 24% tax rate and the remaining chargeable income subject to a one-time 33% tax.

Mah Sing Group Berhad

Forecast Balance Sheet for years 2023 to 2028

	Actual
	2022 (RM000)	Percentage (%)
Non-current assets
Property, plant and equipment	392,485	16.94%
Other non current assets:
Prepaid lease payments	3,196	0.14%
Right-of-use assets	57,576	2.48%
Investment properties	180,880	7.81%
Land held for property development	1,838,717	79.35%
Intangible assets	5,021	0.22%
Deferred tax assets	206,754	8.92%
Total non-current assets	2,684,629
Current assets
Deposits, cash and bank balances and investment in short-term funds	579,580	25.01%
Other current assets:
Property development costs	1,017,090	43.89%
Inventories	674,322	29.10%
Land held for sale	46,614	2.01%
Trade and other receivables	809,235	34.92%
Contract assets	501,962	21.66%
Contract cost assets	66,117	2.85%
Current tax assets	10,140	0.44%
Total current assets	3,705,060
Total assets	6,389, 689	275.75%
Equity and liabilities
Share capital	1,776, 057	76.65%
Reserves	11,637	0.5%
Retained earnings	1,770,989	76.43%
Non-controlling interests	28,482	1.23%
Total equity	3,587,165
Non-current liabilities
Medium term notes	1,001,136	43.20%
Term loans	254,575	10.99%
Long term and deferred payables	70,643	3.05%
Deferred tax liabilities	44,160	1.91%
Total non-current liabilities	1,370,514
Current liabilities
Trade and other payables	1,198,121	51.70%
Contract liabilities	114,158	4.93%
Term loans	74, 784	3.23%
Short term borrowings	20,996	0.91%
Current tax liabilities	23,951	1.03%
Total current liabilities	1,432,010
Total liabilities	2,802,524
Total equity and liabilities	6,389,689	275.75%

	Forecasted
	2023 (RM000)	2024 (RM000)	2025 (RM000)	2026 (RM000)	2027 (RM000)
Non-current assets
Property, plant and equipment	549,554	769,375	1,077,125	1,507,976	2,111,166
Prepaid lease payments	4,542	6,358	8,902	12,463	17,448
Right-of-use assets	80,454	112,636	157,690	220,766	309,073
Investment properties	253,366	354,712	496,597	695,236	973,330
Land held for property development	2,574,208	3,603,892	5,045,449	7,063,628	9,889,079
Intangible assets	7,137	9,992	13,989	19,584	27,418
Deferred tax assets	289,375	405,126	567,176	794,046	1,111,665
Total non-current assets	3,758,636	5,262,091	7,366,928	10,313,698	14,439,178
Current assets
Property development costs	1,423,844	1,993,382	2,790,734	3,907,028	5,469,839
Inventories	944,039	1,321,654	1,850,316	2,590,442	3,626,619
Land held for sale	65,207	91,290	127,805	178,927	250,498
Trade and other receivables	1,132,846	1,585,985	2,220,379	3,108,531	4,351,943
Contract assets	702,676	983,747	1,377,245	1,928,144	2,699,401
Contract cost assets	92,457	129,440	181,217	253,703	355,184
Current tax assets	14,274	19,984	27,977	39,168	54,835
Deposits, cash and bank balances and investment in short-term funds	811,354	1,135,896	1,590,254	2,226,356	3,116,898
Total non-current assets	5,186,697	7,261,377	10,165,928	14,232,299	19,925,218
Total assets	8,945,334	12,523,468	17,532,856	24,545,997	34,364,395
Equity and liabilities
Share capital	1,776,057	1,776,057	1,776,057	1,776,057	1,776,057
Reserves	16,221	22,709	31,792	44,509	62,313
Retained earnings	2,479,480	3,471,273	4,859,782	6,803,694	9,525,171
Non-controlling interests	39,903	55,864	78,209	109,493	153,290
Total equity	4,311,660	5,325,902	6,745,840	8,733,753	11,516,831
Non-current liabilities
Medium term notes	1,401,459	1,962,043	2,746,861	3,845,605	5,383,847
Term loans	356,529	499,140	698,796	978,315	1,369,641
Long term and deferred payables	98,946	138,524	193,933	271,507	380,110
Deferred tax liabilities	61,963	86,748	121,447	170,026	238,036
Total non-current liabilities	1,918,896	2,686,455	3,761,037	5,265,452	7,371,633
Current liabilities
Trade and other payables	1,677,210	2,348,094	3,287,331	4,602,263	6,443,168
Contract liabilities	159,935	223,909	313,473	438,862	614,407
Term loans	104,785	146,699	205,379	287,530	402,542
Short term borrowings	20,996	20,996	20,996	20,996	20,996
Current tax liabilities	33,414	46,780	65,492	91,689	128,365
Total current liabilities	1,996,340	2,786,478	3,892,671	5,441,340	7,609,478
Total liabilities	3,915,236	5,472,933	7,653,708	10,706,792	14,981,111
Total equity and liabilities	8,226,897	10,798,835	14,399,548	19,440,545	26,497,942

Question:Analyse impact of potential business plans and project yearly sales growth rate

To apply the judgmental approach in forecasting Mah Sing Group Berhad's pro forma balance sheet for next year, we make a number of assumptions about levels of various balance sheet accounts: 1. It is assumed that the growth in non-current assets will be aligned with the projected sales growth. Property, Plant, and Equipment (PPE) is estimated to represent approximately 16.94% of the sales, while other non-current assets are expected to account for around 98.91% of the sales. 2. The assumption made for working capital which comprises current assets and current liabilities will be adjusted proportionately to accommodate the anticipated growth in sales. 3. Current assets will rise in line with sales, with cash deposits, cash and bank balances are 25.01% of sales and other current assets are percentage of sales respectively. 4. It is forecasted that no new stocks will be issued by Mah Sing Berhad during the forecast period. Therefore, the share capital will remain the same at RM1,776, 057. 5. Other aspects of equity, such as reserves, will increase at a constant rate of 0.5% while the retained earnings and non-controlling interest at 76.43% and 1.23% of sales respectively. 6. Although the non current liabilities are long term obligations, Mah Sing anticipates the need to expand these liabilities as a means to manage and mitigate potential risks the company may encounter in the future. As sales increase, both other non-current liabilities and current liabilities will also see a corresponding rise. 7. Short term borrowing will remain constant as we determine whether Mah Sing Berhad requires any additional funding