Space for smaller property players

KUALA LUMPUR: Amid the large mergers taking place in the property industry, smaller players believe there is still space for niche property developers.

The recently announced mergers of six big property developers to create three enlarged entities will invariably change the Malaysian property scene.

In November, the property industry was jolted by the news of three proposed mergers as developers race to become bigger.

UEM Land Holdings Bhd got the ball rolling with the proposed takeover of Sunrise Bhd. With a combined market capitalisation of nearly RM10 billion and a landbank of over 12,000 acres, it will create the country’s largest property company by market capitalisation.

Shortly after, IJM Land Bhd and Malaysian Resources Corp Bhd (MRCB) announced plans for a marriage that will make the new entity the second largest, with a market capitalisation of about RM7.2 billion and over 9,000 acres of land.

Then Sunway Group’s Tan Sri Jeffrey Cheah and his daughter Sarena proposed to merge Sunway Holdings Bhd and Sunway City Bhd into a single entity, which will have a market capitalisation of RM3.3 billion and over 2,000 acres of land.

Being big has its advantages, as the players in the three merger exercises note. They include access to cheaper funding, increased investor interest and better economies of scale.

In the old landscape, two large players — S P Setia Bhd and UEM Land — stood out among many mid-tier companies. Even then, only S P Setia managed to garner substantial foreign investor interest, fetching premium valuations. By comparison, most property stocks traded below book value.

With the changing landscape, there will be four large players — UEM Land-Sunrise (market cap: RM10 billion), IJM Land-MRCB (RM7.2 billion), S P Setia (RM5.2 billion) and the merged Sunway (RM3.5 billion).

The three largest players will have price-to-book ratios of over two times, and price-to-earnings ratios of well over 20 times, which could set a new benchmark pricing for the sector.

Can the smaller players still hold their own and occupy strategic niches in the market post-merger?

Eric Chan, executive director of Eastern & Oriental Bhd (E&O), said there will still be a need for small property developers with a strong brand.

“There is definitely room for smaller, niche players. We can move faster, we have less red tape to deal with, we can have faster turnaround for our projects,” said Datuk Fateh Iskandar Mohamed Mansor, Glomac Bhd’s group managing director and CEO .

Tan Sri Leong Hoy Kum, Mah Sing Bhd’s managing director and group chief executive, said, despite the bigger merged entities’ stronger balance sheets there would still be room for niche players with a focus on their own strengths.

With a market capitalisation of RM1.5 billion, Mah Sing will rank among the top ten largest developers in the new pecking order. E&O and Glomac have smaller market capitalisation of RM940.6 million and RM505.2 million, respectively.

Interestingly, all three companies have also evolved into their current form from quite different entities, either through mergers and acquisitions, or diversification exercises.

Within the last decade, Mah Sing has evolved from being a successful plastics manufacturing company into a far more successful property developer, led by Leong, its entrepreneurial CEO and founder.

Meanwhile, E&O has a corporate history as colourful as the hotel it is named after, and is no stranger to mergers and acquisitions.

Helmed by low-profile businessman Datuk Terry Tham Ka Hon, E&O most recently conducted a Sunway-like merger exercise in 2008. Back then, E&O privatised its listed subsidiary, E&O Property Development Bhd (E&O Prop) into a single larger entity. That wasn’t the first privatisation attempt — a general offer exercise in 2005 saw E&O increasing its stake in E&O Prop, but not enough to privatise the company.

Glomac was listed in 2000, but its history started in 1988 when two entrepreneurs, Tan Sri FD Mansor and Datuk Richard Fong, joined forces to start a property development company.

Today, Glomac is recognised as a successful niche developer with a landbank of 900 acres. It continues to be run by the two founders, together with FD Mansor’s son, managing director Fateh. Glomac also holds the distinction of having sold the most expensive office space in downtown Kuala Lumpur. Menara Glomac, next to the KLCC Petronas twin towers, was sold for a record RM1,120 psf at the end of 2007, just before the financial crisis.

By The EDGE Malaysia (This article appeared in The Edge Financial Daily, December 8, 2010.)

Daiman to expand beyond Johor

JOHOR BARU: Daiman Development Bhd plans to expand to other parts of Malaysia after having been in the Johor property market for almost 40 years.

General manager Siah Chin Leong said the company had been looking for land in the Klang Valley for the past few years.

He said the areas that it had identified included Cheras, Kajang and Shah Alam but the land price there was too high and some of the land offered was not strategically located for housing projects.

We'll continue with our search. Sooner or later, we will find suitable land, Siah told StarBiz after the company's AGM recently.

He said apart from the Klang Valley, Daiman might also venture into Malacca, Negri Sembilan and Penang.

The company would even consider going into Singapore as demand for private properties there was still good due to the influx of wealthy buyers from abroad, he added.

In April 2008, Daiman's wholly-owned subsidiary Caversham Universal Ltd subscribed to a 70% equity in CNES Property Pty Ltd for A$875,000.

Australia-based CNES was formed in February 2008 and it is now building some bungalows in Perth.

Siah said demand for properties, especially residentials, in Johor had picked up after almost a two-year hiatus following the global economic recession.

He said this could be seen from the many new property launches, especially in Johor Baru, albeit the small number of units launched.

Siah said Daiman would launch 75 double-storey linked houses with prices from RM300,000 and 44 double-storey cluster homes priced from RM480,000 in Taman Gaya here in the first half of 2011. These units will have a gross development value (GDV) of RM40mil.

The company will also launch 68 double-storey cluster homes with a GDV of RM24mil in Taman Daiman Jaya in Kota Tinggi in the third quarter.

It will also offer 16 one-and-a half-storey semi-detached factory buildings with a GDV of RM30mil in Taman Perindustrian Murni Senai in the first quarter.

For the financial year ended June 30 (FY10), Daiman posted RM29.74mil net profit on RM123.319mil revenue compared with RM23.44mil and RM107.125mil respectively in FY09.

By The Star

Pantai plans Gleneagles hospital in Iskandar

PANTAI Holdings Bhd plans to build an estimated RM500 million hospital in Iskandar Malaysia, Johor, to help provide more world-class healthcare services in the country.

The hospital, to be called Gleneagles Medini Hospital, will be built on a 6ha site that Pantai is buying.

The land is in the mixed development area of Medini, Iskandar, the group said in a statement yesterday. It said Gleneagles Medini Hospital will be jointly developed with Global Capital & Development Sdn Bhd (GCD).

An agreement was signed between GCD, a consortium led by Mubadala Development, and Pantai's wholly-owned Pantai Hospital Johor Sdn Bhd.

"This development will set new benchmarks for quality healthcare to reinforce Malaysia's capacity in delivering world-class medical services to both Malaysians and foreign partners," Pantai chairman Khairil Anuar Abdullah said in the statement.

The healthcare complex will eventually comprise a 300-bed private tertiary hospital and a 150-suite medical office block with centres of excellence.

GCD chief executive Keith Martin said the group is proud to be working with Pantai. "The high standards set by Pantai are aligned with GCD's vision to ensure the best in planning, design and management within Medini."

By Business Times

Scond stage of LRT extension project estimated at RM1.7bil

The tender for the facilities works under Package B for both the Kelana Jaya and Ampang lines would be called upon approval of the final railway scheme, which is expected by mid-2011. — AFP

PETALING JAYA: Although the contract awards for the first phase (Package A) of the light rail transit (LRT) extension project have eluded the big construction players, the big boys will have another chance to bid for phase two (Package B), which is estimated to be worth about RM1.7bil, by the middle of next year.

On Nov 26, Syarikat Prasarana Negara Bhd (SPNB) awarded contracts worth RM1.7bil for Package A of the RM7bil LRT extension project involving the Kelana Jaya and Ampang lines.

The main contract of Package A of the Kelana Jaya line, valued at RM950mil, was awarded to Trans Resources Corp Sdn Bhd (TRC). UEM Builders Bhd and Intria Bina Sdn Bhd jointly won the sub-contract works worth RM93.2mil.

For the Package A Ampang line extension project, Bina Puri Holdings Bhd and Tim Sekata were jointly awarded the main contract and sub-contract works worth RM634.6mil and RM67.7mil respectively.

RHB Research Institute said that other players could still bid for jobs under phase two of the LRT extension project.

It looks like the first phase of the LRT line extension work packages have eluded big names such as Gamuda Bhd, IJM Corp Bhd (IJM), WCT Bhd, Sunway Holdings Bhd and Malaysian Resources Corp Bhd (MRCB).

However, there is always a second chance for these pre-qualified main contractors and sub-contractors to bid for the remaining works, it said in a recent report.

The first phase of the Kelana Jaya line would be a 9.2km extension from the Kelana Jaya station to Summit. The second phase would involve a 7.8km extension from Summit to Putra Heights.

Package A of the Ampang line involves a new 7.4km stretch from the Seri Petaling station to Station No. 5, while Package B would see a 10.3km extension from Station No. 5 to Putra Heights.

According to SPNB, the tender for the facilities works under Package B for both lines would be called upon approval of the final railway scheme, which is expected by mid-2011.

We estimate that the remaining work packages are worth about RM1.7bil as well, said RHB Research.

IJM and MRCB told StarBiz that they would be participating in the tender for Package B of the LRT extension project.

Kenanga Research said there were still contracts of significant value yet to be awarded under Package A of the LRT extension project.

Based on the newsflow, Package A for the Ampang line could be valued at RM1.5bil and Kelana Jaya line at RM1.9bil. With the recent contract awards to Bina Puri and TRC, there will be projects worth another RM600mil and RM800mil respectively left to be awarded in the short term, it said in a report.

By The Star

Tesco's 36th Malaysian outlet is in Seremban 2

TESCO stores hypermarket chain, the world's third largest retailer, opened its 36th outlet in the country on Monday, in Seremban 2.

The new RM107 million Tesco Extra replaced its old outlet, located a few metres away, with a much bigger building covering 15000 sq m to accommodate the growing demand in Seremban, Negri Sembilan.

Mentri Besar Datuk Seri Mohamad Hasan, who officiated at the opening ceremony, said the state government is pleased with foreign investors, especially hypermarkets giants like Tesco, opening up their stores in the state as they provide customers a wide range of products at low prices.

"There will be two more outlet openings soon in Senawang and Nilai and another approved project in Lukut, Port Dickson, with close to RM500 million investment in total," he said.

"I hope Tesco would consider opening stores in places such as Bahau to allow the people at the outskirts to enjoy hypermarket experience in their neighbourhood," he added in his speech.

Also present was Tesco Stores (Malaysia) Sdn Bhd chief executive officer Tjeerd Jegen.

Mohamad said small and medium entreprises are protected despite the entry of foreign retailers, as close to 85 per cent of the products sold at Tesco are local products.

"We want to ensure local industries are protected and not left behind," he said.

Jegen, who has been in the country for seven months, said the opening of the new store in Seremban had a special meaning to Tesco Malaysia as it is the birthplace of hypermarket's first ever Extra format.

"Tesco Extra is a completely new format to not only Tesco in Malaysia but also the group worldwide.

"The format supports and caters to the wider needs of small businesses apart from our end-user customers," he said, adding that the total overall direct investment in Malaysia has surpassed the RM4 billion mark.

Jegen said the new outlet boasts a new food court, a play area, 90 tenants and restaurants, more than 60,000 lines of products and 1200 parking lots.

"The store also provides close to 1,000 job opportunites as well as cares for the environment with 20 per cent less carbon emission with less use of air-conditioning and energy-efficient lighting.

"We hope to reduce carbon emission by 50 per cent in 2020 and become carbon-neutral by 2050," he said.

Jegen added that Tesco has created more than 13,000 jobs since its inception in 2001 and hopes to open more stores in the country in the near future.

By Business Times