My views on YB Pandan's financial analysis of TH

Assalamualaikum and a very good day to everyone,

Here I am again with yet another blog post on TH. This time, it's about YB Pandan aka En. Rafizi Ramli's analysis on TH financials from 2009 - 2015. I have read the entire document and I have to say that the analysis is quite overwhelming even for a seasoned accountant. I will not go into the details of the analysis but I'll just jump in into the areas that I do agree and disagree with Rafizi. For ease of reading, I shall go point by point on the areas that I would like to comment on. 

1. Kedudukan rizab Tabung Haji diunjurkan terus negatif bagi tahun kewangan berakhir 31 Disember 2015 iaitu dua tahun berturut-turut rizab Tabung Haji mengalami defisit. Ini selaras dengan peringatan yang diberikan oleh Bank Negara Malaysia. Rizab yang negatif bermakna Tabung Haji tidak berkeupayaan memulangkan semua simpanan pendeposit Tabung Haji jika ia dituntut serentak oleh pendeposit (dihuraikan di dalam Bahagian 3).

On the above statement, I agree with Rafizi in that Tabung Haji reserves will continue to be negative for the financial year ended (FYE) 31 December 2015. However, he does not elaborate further that the key contributor to the drop in reserves is the reduction of fair value reserves for securities available for sale which is NON DISTRIBUTABLE to the depositors and thus doesn't effect payment of dividends and/or bonuses. Also, on the ability to return all depositors savings, it should come from the distributable portion of reserves i.e. retained earnings and also the depositors savings fund column (you guys are welcome to give feedback if I may be wrong here). Please refer below for a clearer picture:

However, I do concur that the bonus payment is eating up the reserves. Thus, TH should be more prudent in future to ensure that the retained earnings figure does not further reduce as a result of bonus payment to depositors. 

A friend of mine has also asked whether is there any potential liquidity issue plaguing TH. On that note, I personally believe that there is no liquidity issue so far, based on the numbers available. Looking at the financial statements as at 2014, even after the bonus payment of RM 3.2 billion, TH has a total cash and cash equivalent balance of RM 9.5 billion at Group level. However, again TH needs to be careful to not dry up their reserves. 

Another point that I find a bit perplexing is the statement below:

i. Keuntungan bersih sebanyak RM3.53 bilion seperti yang diumumkan Datuk Seri Jamil Khir tidak mengambil kira kerugian akibat kejatuhan harga saham-saham yang dipegang Tabung Haji berdasarkan “Dasar Perakaunan Penting” (Significant Accounting Policies) yang diamalkan oleh Tabung Haji (rujuk mukasurat 245, Laporan Tahunan Tabung Haji 2014 mengenai dasar perakaunan bagi “sekuriti tersedia untuk dijual”).

ii. Ini berbeza dengan amalan biasa syarikat korporat yang mengamalkan dasar perakaunan bahawa kejatuhan nilai saham direkodkan terus di dalam penyata pendapatan supaya ia lebih menggambarkan nilai sebenar saham yang dipegang.

Read on especially on bullet point (ii), En Rafizi mentions that corporates have an accounting policy to directly book any drop in value of securities held straight into its income statement. This is NOT in line with the accounting standards related to securities held for sale, as TH is not in the share trading business (unlike securities firms or investment banks). Thus, any changes in fair value of securities should be recorded in fair value reserves until it is disposed, where only then any gains or losses should be booked in the income statement. 

All in all, my view on this matter is yes, TH should be prudent in its bonus payment policy and monitor its reserves closely. However, all parties analysing the financial statements should be fair in their assessments of TH's financial health so that readers get a fair and informed view over what is happening in TH. 

Disclaimer: The above writeup is totally my personal observation of TH's financials and I do not represent any person or organisation in expressing my views. Any comments or feedback on this posting is much appreciated. Thanks for your time to read this. 

Wassalam,
Azim