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Saturday, July 11, 2009

What’s in store for property firms involved in large mergers

MALAYSIAN property companies will continue to grow both organically and through mergers and acquisitions (M&As). The question is which method of growth is better for the industry.

While most Malaysian property players are moderately sized in terms of assets and market capitalisation (if they are listed) compared with their overseas peers, there will be more larger players coming onstream with talk of more potential M&As underway, especially those involving government linked companies.

The mega Sime Darby merger in 2007 that involved Sime Darby Bhd, Kumpulan Guthrie Bhd and Golden Hope Plantations Bhd has created the country’s largest property group in terms of land assets and sales.

The next merger in the pipeline is touted to be the amalgamation of Permodalan Nasional Bhd’s three property companies – Island & Peninsular Bhd, Petaling Garden Bhd and Pelangi Bhd. Together, they will have more than 10,000 acres of land bank.

The Sime Darby merger resulted in the new merged entity with a sprawling plantation land of close to 500,000 acres, of which 37,000 acres are under Sime Darby Property Bhd, the group’s property arm.

Among the critical issues to be addressed for a successful merger include leadership and staff morale after the amalgamation exercise.

These large property groups with their large landbank will do well if strategic plans are in place to unlock the value of these land through quality and innovative product offerings. In fact, they should take the opportunity to spearhead good sustainable and environment-friendly projects to promote a greater appreciation and care for our planet.

Ultimately, the property business is about holding power as it involves huge capital outlay and holding cost.

The larger the landbank, the heavier the holding cost and the onus is on developers to unleash their ingenuity and creativity to turn these land into well sought after addresses.

Expanding through organic growth certainly has its merits as the companies have built up their reputation, brand name and product specialties over the years, and they have rightfully earned the respect and trust of property buyers. More importantly, those who have developed their own successful business models have become industry leaders and trendsetters in their own right.

Companies such as SP Setia Bhd is well regarded for adding substantial value to greenfield township development in new growth areas.

It is one of the top industry performers in terms of sustainable earnings and sales and is well known for its innovative marketing expertise and product offerings.

Its capability in product innovation and designing has won the company many industry awards, both on the local and international stage.

Another industry innovator, Mah Sing Group Bhd is well known for its ability to develop small pockets of land within a short time frame. The fast project turnaround model has contributed to the company’s consistent good earnings and strong compounded annual growth in its top and bottom lines.

At the end of the day, it is important for a broad spectrum of property developers, whether big or small, to co-exist and continue making a mark in their respective market and product forte so that the industry will grow in depth and buyers will have a wider selection of property products to choose from.

What is important is for these developers to add value to the property landscape and contribute towards lifting the living environment, whether the projects are in the local or overseas markets.

While the company’s size and financial capability matter, especially if it involves huge greenfield developments with substantial holding cost, it is important to maintain one’s market niche and product specialties.

The degree of success of property companies speak a lot about their management skills and expertise, product design and innovation, branding quality and price premium.

It is important to have a competent and trustworthy management team in place. They are the faces behind a company’s name that property buyers and the investing public relate to.

The faces behind companies and organisations will have a bearing on the level of trust and confidence that customers and the investing public have in these companies.

Meanwhile, with the emergence of large multinational property groups vying for a share of the international property market, especially the insatiable China and India markets, our own home-grown property groups should also harness their skills and export their expertise to these high growth countries.

Property players with well-established brand names and financial capability should further benchmark against other international players and take the opportunity to shore up their image as international players.

Spreading their wings overseas will offer the opportunity for greater earnings growth for developers with an eye to expand offshore and give them an opportunity to break out of their comfort zone.

Deputy news editor Angie Ng believes the local property industry, with its resilient and versatile players, will be among the first to recover from the dreary sentiment brought on by the global financial crisis.

By The Star (by Angie Ng)

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