Commercial property loans 22.7% higher

PETALING JAYA: Credit for the purchase of commercial properties in March grew by 22.7% year-on-year, raising concerns in some quarters of a potential asset bubble.

This loan growth in the non-residential sector, which includes industrial and commercial properties, was the highest followed by credit growth for the construction sector at 19.2%.

Meanwhile, loan growth for purchase of residential properties in March had somewhat moderated to 13.9% year-on-year.

“Starting from the end of 2009, there has been a big loan growth in the non-residential sector,'' Pong Teng Siew, head of research, InterPacific Research, said. “The pick-up in loan growth in this sector was evident in the second half of 2009.''

Illustrating the rapid pace of loan growth, the total stock of loans in the non-residential sector has grown from RM70bil in June 2009 to RM116bil currently, or 66%.

“This is faster than for any kind of loans,'' said Pong. “Can this pace of loan growth be sustained?''

“At the moment, demand for non-residential properties is a reflection of the strength of the economy,'' said Pong. “If there is a lot of demand for office space, then the 66% growth would be a reflection of the confidence in take-up.''

However, a note of caution is that projections of strong demand usually lead to overbuilding, and eventually an oversupply situation.

The presence of too many listed property and construction firms also places pressure on the need to grow profits.

“The non-residential sector has grown significantly but the bulk in value is still in residential which comprised 28% of total loans in March,'' said Low Yee Huap, head of research, Hong Leong Investment Bank.

“Meanwhile, non-residential properties made up only 11% of total loans in March.''

Over the past few years, a low interest-rate environment and accumulation of liquidity has encouraged the buying of shophouses and offices, while some high-rise buildings come with commercial titles.

“But if the situation (of rapid loan growth) gets out of hand, it will cause a potential bubble,'' said Low. “There needs to be a balance for healthy growth.”

Recently, there has also been a lot of non-residential launches. Moreover, the purchase of non-residential properties is not subject to the loan-to-value cap.

“It's become a trend now for commercial launches, with smaller commercial units and sohos being built for affordability.

“It is more a matter of market forces and changing of customer preferences,'' said Chan Ken Yew, associate director of Kenanga Investment Bank Bhd and head of its research division.

By The Star

Islamic City set to take shape in Shah Alam

Popular landmark: The Sultan Salahuddin Abdul Aziz Shah mosque.

SECTION 5 in Shah Alam is set to be turned into an “Islamic City” after the final plans have been approved by the Shah Alam City Council (MBSA) and Selangor government.

The “Islamic City” includes a 20ha area surrounding the iconic Sultan Salahuddin Abdul Aziz Shah mosque and Shah Alam Lake Gardens.

Five consultants presented their designs for the development of an “Islamic City” at a workshop held at The Saujana Hotel Kuala Lumpur recently.

Representatives from Ikhtisas Planner, AJC Planning Consultants, IZM Planning Consult, DPZ Asia and Prof Emeritus Dr Ismawi Zen, who is a lecturer in the Architecture and Environmental Design, presented their designs and how each could use the area after taking into account the lake, mosque and courts, nearby.

Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim said he was sceptical when the idea was first mooted by Shah Alam mayor Datuk Mohd Jaafar Mohd Atan.

However, he said the idea made sense and it was now time to turn those dreams into reality.

He added that the state together with MBSA would also have to come up with ways of preventing traffic congestion with the influx of cars into the city.

Khalid also wanted the “Islamic City” to be an ideal location for businesses, educational institutions and other activities.

“We have to look at all angles from marketing Shah Alam to designing the area,” he said.

He added that Islamic elements and traditions should also take precedence in one’s design.

He said the design and architecture should also be appropriate.

The cost of the project has yet to be determined but it would be between RM2bil and RM3bil as it covered a large area.

When completed, Khalid said it would be a new breather for Shah Alam and could further boost the city’s potential in business, tourism and art.

He said he wanted to look at all designs and recommendations before deciding to go ahead with the project at the end of the year but declined to comment on when the project would be completed.

By The Star

UDA’s dilemma on Pudu Jail project

It needs to follow directive but also needs to consider the best deal for the project

KUALA LUMPUR: UDA Holdings Bhd is still evaluating proposals of all parties for the redevelopment of its Pudu Jail land and wants the preferred bid to be the one that is in its best commercial interest.

Even though the board has approved the proposal by Everbright International Construction Engineering Corp last year, the Finance Ministry (MOF) has directed UDA not to consider the company and instructed UDA to prepare a masterplan based on parcelling the land into three.

A special committee formed by UDA's board has included the development model proposed by Everbright in its evaluation to ensure that UDA's long-term commercial interests are protected.

On protecting bumiputra interest, UDA, under the Everbright proposal, will own a significant portion of the assets in the project and will ensure bumiputra contractors will be given the opportunity to participate in all stages from consulting, construction and retail space

Chairman Datuk Nur Jazlan Mohamed said the committee was at the initial stages of developing the masterplan but early indications were that the development model proposed by Everbright gave the best returns to UDA .

“On a commercial basis, Everbright's proposal is the best because it will develop the land as one piece. If the land is cut into three parcels, you know you will lose the value of the land,” he told StarBiz in an interview.

“But we have not come to a conclusion yet.”

MOF has asked UDA to divide the land into three one is for a bumiputra controlled party, another by a bumiputra company in a joint venture with others and the third parcel is open to a non-bumiputra company.

Under Everbright's proposal, the China company will fund the entire development of the land that has been called Bukit Bintang City Centre (BCCC). Its proposal comes with a committed funding of US$1bil and Everbright will take the construction and financing risk, build a contiguous retail space of 2 million sq ft, a car park and a convention centre and hand it over to UDA.

All that time, UDA will retain control of the land and Everbright will, after handing over the assets UDA needs in four years, develop its own properties on the land at its own pace.

Given the amount of commercial space that is planned in Kuala Lumpur, Everbright will have the muscle and foreign connection to handle the flood of floor space that will come on stream in the next few years.

The best option so far for the bumiputra developer will see UDA take on a lot of the risk Everbright is willing to shoulder. UDA. together with the bumiputra developer, must secure the funding for developing the project, which will lower the returns it will obtain.

That means the property will have to be injected into a special purpose vehicle and the ownership of the land will be charged to a bank to get the funding.

The land will have to be charged to the bank in order to raise the funding since UDA does not have the cash to fund the multi-billion ringgit project,

That will translate into lower earnings for UDA compared with the proposal by Everbright.

Furthermore, the floor space it will have to lease out to retailers once the project is completed under the parcelled-out proposal will also be smaller as the land would have been sub-divided among three different developers.

Nur Jazlan said the proposal by Everbright would mean that UDA stands to receive RM300mil to RM400mil a year in income from its property at BCCC, which is essential for a company that has just 400 arces that can be developed.

“The best solution is for UDA to have enough retail space to allow it to earn substantial recurring income to continue to have money to acquire land and grow as a developer.

“What is UDA's long term future and the Puda Jail land provides the only hope for UDA where if developed properly, UDA can get the right quality assets that can give it recurring income.

“That's why the decision on the Puda Jail land is not a normal decision. We need to develop the right quality assets to give us the recurring income for us to have a future,” he said.

Shopping centres need to be of a big size to attract the traffic to be successful. He said the retail space at the Puda Jail land will require a contiguous space in order to compete against the like of Pavilion and Mid Valley Megamall.

If the carved out proposal gives UDA retail space in three separate locations, Nur Jazlan said it would be hard to attract retailers and shoppers to the retail parts of the development.

“If it is not integrated, it will be hard to attract people. We won't achieve the rental yields.”

Nur Jazlan said the Government had not pumped money into UDA after it got listed in the 1990s and he did not think it would do so in the future. UDA has been asking for more land since it has been privatised but has yet to be allocated any.

Nur Jazlan said it was also easier to stratify the assets if the property was built by a single developer.

“It will be a problem if the land was parcelled out as you will be dealing with three different parties,” he said.

Nur Jazlan said it would not be easier to REIT out at a later date if the assets were jumbled up with different developers.

By The Star

Emas Kiara arm buys land for RM5.3m

Emas Kiara Industries Bhd (EKIB)'s wholly-owned subsidiary, Noblecorp Sdn Bhd, has acquired land in Kulai, Johor, from Creative City Development Sdn Bhd for RM5.258 million.

The company would obtain a bank loan to complete the acquisition which would not only benefit the group but also help diversify into different businesses including investment.

In a filing to Bursa Malaysia, EKIB said the property outlook in Johor was expected to be positive taking into consideration the advanced stage of completion of major infrastructure works.

"Major projects in Iskandar Malaysia are coming on this year and the investment prospects enhanced by the Economic Transformation Programme would also contribute to the overall positive outlook," it added.

Barring unforeseen circumstances, the acquisition is expected to be completed within three months.

By Bernama

WCT focuses on value creation

Opening soon: The Paradigm Mall in Kelana Jaya is near completion and is set for opening on May 23. Among its tenants are Tesco, Golden Screen Cinemas, Padini Concept Store, Marks & Spencer, Zara, Elle, G2000, Harvey Norman, Toys R’ Us and Popular Bookstore.

WCT Bhd is keen to expand its presence in the local property market and is actively seeking out new land to replenish its landbank in the Klang Valley and other parts of the country.

Executive director Choe Kai Keong says although WCT's forte is in engineering and construction which contributes 64% of the group's operating profit, it is building up its presence in property development, investment and management.

“By 2016, contribution from construction and engineering is expected to reach a more equitable level of 45%, while that from property development will increase to 30% from 21% now, and investment and management to 25% from 15%,” he tells StarBizWeek.

The group has more than 2,000 acres that are in various stages of development, and has recently acquired two parcels of 468 acres and 57 acres in the Klang Valley.

Choe: ‘Besides the Klang Valley, we are also on the look out for land in Iskandar Malaysia, Penang, Kota Kinabalu, Vietnam and China.’

Choe says the land costing RM450mil has potential gross development value (GDV) of RM5.2bil.

The 468 acres in Rawang, Selangor, would be developed into an integrated township comprising mainly medium to medium-high priced properties. The development worth an estimated GDV of RM1.2bil is set for launch in 2014 and is slated for completion in 10 years.

The 57-acre in Overseas Union Garden in Kuala Lumpur is planned for a mixed development of residential and commercial project worth RM4bil.

The target launch is 2014 for completion in eight years.

WCT's healthy balance sheet provides a war chest of RM800mil which can be used for land acquisition. Its net gearing ratio at 0.4 times allows room for the group to expand its landbank.

“Besides the Klang Valley, we are also on the look out for land in Iskandar Malaysia, Penang, Kota Kinabalu, Vietnam and China. This is in line with our strategies of branching out into a more balanced and broader range of property offerings including high-rise residences, luxurious homes, service apartments, offices, shopping malls and hotels,“ Choe adds.

He says despite concerns of a market slowdown amid the prevailing economic uncertainties, demand for good quality properties, especially landed houses, in good locations with accessibility and amenities, is still strong.

WCT has lined up some RM1bil worth of project launches this year. They comprise RM320mil worth of high-rise condominiums in 1Medini in Iskandar Malaysia; RM400mil of landed housing units in Bandar Parklands, Bukit Tinggi Klang; RM120mil apartments in Bukit Jelutong; and RM150mil luxury homes in Klang.

For the financial year ending Dec 31, 2012 (FY12), WCT is expecting sales to jump to RM700mil from RM450mil recorded in FY11. In the first quarter ended March 31, it chalked up sales of RM200mil.

Flagship projects

“In widening our market presence, we will be leveraging on our expertise and track record in the development of WCT's flagship township Bandar Bukit Tinggi in Klang and the recently completed d'Banyan luxury homes in Kota Kinabalu,” Choe says.

WCT's 1,336 acre parcel in Bandar Bukit Tinggi, Klang, is in advanced stage of development into an integrated township; with another 350 acres to be developed.

The project will have a GDV of RM4.8bil, of which some RM3.3bil worth of properties have been completed in the past 15 years. The balance of another 350 acres with GDV of RM1.5bil is expected to take five more years.

WCT has a 56-acre parcel in Klang that has been earmarked for a luxurious housing project worth some RM450mil. The project is slated for launch in the fourth quarter of this year.

A 2.26-acre commercial parcel in Bukit Jelutong will be developed into 280 units high-rise apartments. The RM120mil project is also planned for a fourth quarter launch.

In Johor, WCT owns 21 acres in Iskandar Malaysia. The first parcel of 11 acres is earmarked for 1Medini high-rise residential units with GDV of RM700mil. Launched in January, it will take five years to be fully-developed.

The second parcel of 10 acres across the road from 1Medini will be developed into the Medini Business District comprising mixed commercial properties worth some RM800mil.

WCT's maiden project in Kota Kinabalu, the d'Banyan is a 22-acre high-end residential project comprising bungalow villas, semi detached homes and super link villas worth a GDV of RM269mil.

However, the group's 33 acres in Ho Chi Minh City, Vietnam, will not be taking off anytime soon pending the conclusion of the land resettlement process.

Although it has been issued with the investment certificate by the Vietnamese authorities in 2008 for the first 23 acres and in 2011 for the balance 10 acres, the project's launch had been delayed due to weak consumer sentiment caused by the unstable dong and high interest rates.

“Although the dong is stabilising and inflation is under control, we are still waiting for consumer confidence in Vietnam to return before launching our project there. In the past two months, bank interest rates have dropped by 2% and things should continue to get better,” he adds.

Widening income streams

Next year, WCT can look forward to higher contribution from its investment and management activities with the coming on-stream of its two latest retail assets - Paradigm Mall and KLIA-2 Integrated Complex.

Choe says WCT will own 2.1 million sq ft in net lettable area (NLA) of retail space in the country by the second quarter of 2013.

The group's investment and management projects comprise its maiden retail project, AEON Bukit Tinggi Shopping Centre and Premire Hotel in Klang, and two toll highway concessions in West Bengal, India.

The duration of the highway concessions, awarded by the National Highway Authority of India, is from 2004 to 2020 and contribute to RM10mil to RM15mil in annual earnings to the group.

WCT's maiden retail project, AEON Bukit Tinggi Shopping Centre with NLA of 1.1 million sq ft, was opened in Klang in 2007.

Construction of Paradigm Mall in Kelana Jaya is near completion and the mall with NLA of 700,000 sq ft is set for opening on May 23.

The mall is already 91% occupied with average base rental of RM6 per sq ft. WCT will operate and manage the Paradigm Mall.

Among its anchor tenants are Tesco, Golden Screen Cinemas, Padini Concept Store, Marks & Spencer, Zara, Elle, G2000, Harvey Norman, Toys R' Us, Popular Bookstore, TGI Friday's, Starbucks, and Chili's.

Its next retail project, the KLIA-2 Integrated Complex with 350,000 sq ft of retail space at the departure and arrival levels, is due to open in the second quarter of 2013.

The project is a 25 + 10-year build-operate-transfer concession which is 70% owned by WCT and 30% by Malaysia Airport Holdings Bhd.

“Each of the mall is expected to provide an annual internal rate of return of 6% to 8%. This translates to some RM10mil in revenue from Bukit Tinggi Shopping Centre, about RM10mil to RM15mil from Paradigm Mall, and RM15mil to RM20mil from KLIA-2,” Choe adds.

He says WCT's investment and management division is also looking to expand into the hospitality sector and planned to open its second Premire Hotel in 2014.

The new Premire Hotel to be located beside the Paradigm Mall in Kelana Jaya will have 350 rooms.

WCT's maiden hotel, the 250-room 4-star business class Premire Hotel in Klang, was launched in 2010.

“We plan to expand our portfolio of retail and hotel assets to widen our earnings streams and it will be done in tandem with our expansion into new growth markets,” Choe says.

Trailblazer in GCC

In engineering and construction, Choe says WCT has build up a strong presence in the Gulf Cooperation Council (GCC) region with 10 projects to its name in the past decade.

The Yas Marina F1 Circuit in Abu Dhabi, UAE, built at a cost of RM4.2bil is the most expensive F1 circuit in the world.

The most high profile projects are the two F1 circuits in the region - Bahrain F1 Circuit and Yas Marina F1 Circuit in Abu Dhabi, UAE.

WCT's first entry project in the GCC is the Bahrain circuit which was completed in 2004.

Built at a cost of RM600mil, it holds the record as the first F1 circuit ever to be built in a desert.

The highly acclaimed circuit soon landed WCT another project - the Yas Marina F1 Circuit - which at a cost of RM4.2bil is the most expensive F1 circuit in the world.

The project, a 50:50 joint venture between WCT and its Bahraini partner, Cebarco, was completed in 2009.

The WCT management is understandably excited that the group is blazing the trail for Malaysia in the GCC construction and infrastructure business, and hopes to make further inroads in the region.

Despite the global financial meltdown and prevailing economic uncertainties in many parts of the world, the group believes there are still much untapped opportunities in the GCC countries.

“We currently have two projects in Qatar - the Government Administrative Office worth a contract value of RM1.3bil, and the New Doha International Airport contract worth RM3.2bil which is a 49:51 joint venture between WCT and Gamuda.”

WCT has an outstanding construction order book of RM3.3bil, with half of the amount comprising projects in Malaysia and the balance in the GCC.

It is also bidding for some RM5bil worth of new contracts.

By The Star

SP Setia expands footprint in Penang

Property developer SP Setia Bhd is on the lookout to acquire more strategic pieces of land in Penang in a bid to extend its footprint in the state.

Presently, it is looking to buy three parcels of land on the island by the middle of the year.

The company, which currently boasts an undeveloped landbank totalling close to 40 hectares in the state, is in the final stages of negotiation to acquire land in Tanjung Bungah
and Jelutong.

SP Setia Property (North) general manager Datuk S.Rajoo told Business Times the company is eyeing two parcels of land in Tanjung Bungah totalling 10.2ha while the parcel of land in Jelutong measures 3.6ha.

“We are hoping to conclude the land acquisition deals by the middle of June and are planning mixed residential housing projects on the plots,” he said in an interview.

Present was the company’s deputy general manager for the northern region’s property division Khoo Teck Chong.

SP Setia made its entry in the state more than five years ago via the Setia Pearl Island development which is sprawled over a 45ha site and carries a development value of RM1.2 billion.

The project comprises three-storey terraced homes, semi-detached units and commercial lots, and is located between 4km and 5km from the proposed site of the second Penang bridge at Batu Maung and 20km from George Town.

“We would like to extend our presence to other parts of the island and have been doing so through our projects in George Town.

“We have acquired two pieces of land in Balik Pulau totalling 12ha for purposes of landed residential units,” Rajoo added, saying that the launching date of the project has yet to be determined.

Khoo said the last piece of undeveloped land at the Setia Pearl Island site is expected to be launched by the third quarter of 2013.

Carrying a development value of RM350 million and sprawled over 7.6ha of land, he said the project, called The Breeze, will
comprise low-rise and high-rise dwellings respectively.

"Our new launches," Khoo said, "will include exclusive high-rise condominiums at Teluk Kumbar which we hope to launch by the second half of 2013."

The QBees project, comprising 98 condominium units, will be sited on a 1.2ha plot and carries a gross development value of RM50 million.

Other planned launches include Penang's first Green Building Index residential project, which will be sited in the second phase of its Setia Greens development at Cangkat Sungai Ara.

"We are looking at launching more eco-housing via this project, which will comprise landed houses and one condominium block on a 5.6ha site," Khoo said.

By Business Times

Applying the brakes – made for the short term – can be dangerous

Does the anti-lock braking system (ABS) really make driving safer? I thought so until I came across an interesting finding recently.

In his book What the Dog Saw, Malcolm Gladwell shared the result of a famous experiment conducted years ago in Germany. The experiment equipped part of a fleet of taxis in Munich with ABS. The rest of the fleet was left alone, and the two groups of drivers were placed under secret observation for three years.

Most people would expect that with the installation of the ABS in a vehicle, driving would be safer. The outcome of the experiment proved otherwise. For some drivers, ABS did not reduce their accident rates. It turned them into inferior drivers instead. They drove faster, made sharper turns, showed poorer discipline and braked harder.

The author explained this phenomenon with the theory of Risk Homeostasis which states that under certain circumstances, changes that appear to make a system or an organisation safer in fact do not. Human beings have the fundamental tendency to compensate lower risks in one area by taking greater risks in another. In that particular experiment, the drivers used the additional safety elements to drive faster and more recklessly.

Contradictions

To a large extent, this theory can be applied to many aspects of our life. While one can take the additional precautionary methods, the fundamental problems should also be addressed to achieve the desired results.

Recently there has been a proposal to raise the floor price of properties for foreigners from RM500,000 to RM1mil to curb or control the prices of houses from increasing too fast. This proposal is on top of the other “cooling off” measures such as the 70% housing loan policy for purchase of a third property, the increase of real property gains tax from 5% to 10% imposed on properties sold within two years of the sale and purchase agreement, and the new ruling on housing loan limits based on net income rather than gross.

There is no doubt that the introduced “cooling off” measures have reduced the buying spree of properties. However, the intended objective of these measures to control the price of properties has yet to be seen. Introducing measures without critically identifying the root cause of the increasing property prices may instead create situations that would not be beneficial to the industry as explained by the theory of Risk Homeostasis.

So, what determines rising prices?

We need to find the root cause of the issue in order to identify a long term solution. The basis for rising property prices now is largely due to the direct and indirect impacts of quantitative easing programmes i.e. the increase of money supply, carried out by governments around the world since the start of the global financial crisis. Value slump

When there is too much money chasing too few goods, prices will increase but not necessarily value. In reality, we are facing a situation where there is too much money in the system, causing a decrease in the real value of money and pushing up prices of goods and services including construction materials.

For example, in early to mid 2000, a condominium in Mont'Kiara which was sold around RM500,000 would now cost us about RM800,000, equal to a 60% increase. But measured in a different “currency”, that condominium would have cost us 8kg to 10kg of gold in early to mid 2000 and today, only worth about 5kg of gold. This is a sharp decline of 38% to 50% and is an illustration of how prices are going up due to the drop of currency value because of worldwide inflation and pump-priming policies.

However, if the property prices are not allowed to rise, it is not possible for developers to build below costs when the construction costs are constantly rising. This will cause a shortage of supply which will further push up prices in five to 10 years time.

Balancing act

Let us examine specifically the future supply and demand of properties in the Klang Valley.

On the demand side, the government aims to grow the population in Greater KL from the existing six million to 10 million by year 2020. Hence, an additional one million housing units (assuming four family members per home) is needed in the next eight years. It would mean that property developers need to supply 125,000 new housing units in Greater KL every year to meet the expected increase in population.

According to the statistics published by National Property Information Centre, the primary market only managed to launch 49,290 new housing units nationwide in 2011, with only 12,705 housing units in KL and Selangor. This indicates there is a demand exceeding supply scenario that can result in future severe consequences.

If the government continues to introduce more “cooling off” measures to curb or control house prices and to stifle temporarily the buying appetite of home buyers, it will slow down the rate of production of new houses by developers. The unintended consequences of stifling supply will create a massive housing bubble five to ten years later in Greater KL because of the extreme demand and supply imbalance.

The ABS experiment mentioned at the beginning taught us a valuable lesson. Understanding any long-term-unintended consequence is paramount before taking any actions. Putting measures in place that do not resolve the root cause may instead backfire on us. With that in mind, perhaps we shouldn't apply the brakes on housing need and instead look at the bigger picture to find longer-term solutions to our housing industry.

FIABCI Asia Pacific chairman, Datuk Alan Tong has over 50 years of experience in property development. He was FIABCI World president 2005/06 and was named FIABCI Property Man of the Year 2010. He is also the group chairman of Bukit Kiara Properties.

By The Star

Tambun Indah seeks JV partners for Klang Valley projects

PROPERTY developer Tambun Indah Land Bhd is looking for joint-venture (JV) partners to spread its wings out of Penang where its flagship project is based.

“We would like to expand into the Klang Valley, but our focus will be more on the outskirts like Kajang and Rawang where there is still plenty of land,” managing director Teh Kiak Seng says.

The company is in “several discussions” with landowners for this purpose, he says but nothing has been firmed up.

“We prefer to do JVs with landowners, the overall returns may be lower but we will not have to come up with so much money to buy land, there's less risk then,” Teh tells StarBizWeek.

For now, Teh and his team are focusing on their flagship project, the Pearl City integrated township in Simpang Ampat, which will have a gross development value (GDV) of more than RM3bil when completed.

The mixed residential and commercial township sits on a 1,001-acre site which is expected to be fully developed by 2020, complete with a business park which will house schools, hotels and hypermarkets.

So far, 450 acres have already been developed into residential and shop units.

There are plans to launch two more projects within Pearl City this year.

“We are enjoying a spillover of buyers from the island where property prices have skyrocketed since 2010,” Teh says.

For example, a terrace house on Penang island now costs around RM800,000. On the mainland, the same type of house would cost some RM300,000, he says.

“We see the gap (in price) eventually closing,“ Teh says, attributing it to new infrastructure coming onstream such as the Second Penang Bridge and the Double Track Commuter Train which will enhance connectivity between the island and mainland.

The proximity of the Pearl City development to more than 10 industrial parks, which are capable of generating thousands of job opportunities, will also play a part in ensuring that its properties enjoy a steady price trend as workers buy up units to live in, according to Teh.

He says that apart from the two residential projects within Pearl City that Tambun Indah will launch this year, there are three more, namely the RM39.3mil BM Residence in Bukit Mertajam, RM41mil Carissa Villas in Bagan Lallang, and the RM180mil Straits Garden in Jelutong on the island.

The funding of Tambun Indah's new projects will be through the issuance of 88.4 million shares through a rights issue which will raise RM44.2mil.

The two-for-five rights issue, which was approved at a recent shareholder meeting, is expected to be completed in June. It would also effectively increase Tambun Indah's share capital to RM154.7mil, comprising 309.4 million shares.

After these new projects are launched, Tambun Indah will have more than 600 acres of undeveloped land, mostly in Pearl City and some on the island.

The company currently has 10 ongoing projects, mainly residential that it launched over the past two years.

“These have had an average take-up rate of more than 80%,” Teh says.

Gross margins stand at about 30%, he adds.

Tambun Indah, which claims to be the first to introduce the concept of guarded and gated (landed property) in Seberang Prai, made a net profit of RM23.6mil for the financial year ended Dec 31, 2011 against a net profit of RM25.2mil a year earlier.

“I personally believe that prices on the island, the highest at about RM1,200 per sq ft now from about RM800 per sq ft in 2010, will not go up further due to increasing competition. We intend to benefit from that,” he says.

On average, Tambun Indah's Seberang Prai properties are selling at below RM300 per sq ft. More than 90% of its property development projects are located on the mainland.

By The Star

Proposal to sell Mid Valley, Gardens malls

PETALING JAYA: KrisAssets Holdings Bhd has proposed to sell Mid Valley Megamall, the Gardens Mall and their related assets to its parent IGB Corp Bhd for RM4.6bil.

It said in a filing with the stock exchange that the disposal would be satisfied via cash and the issuance of 3.4 billion units in IGB REIT, the retail real estate investment trust that the latter plans to list on the Main Market of Bursa Malaysia.

It also proposed an offer for sale of 670 million consideration units by Mid Valley City Gardens Sdn Bhd via the initial public offering (IPO) of IGB REIT. The company added that it wanted to distribute 2.73 billion consideration units, as well as the remaining cash proceeds from the sale of the two properties and the IPO to its entitled shareholders at a date to be determined and announced later.

In addition, it has proposed amendments to the memorandum and articles of association of KrisAssets to alter the par value of its ordinary shares from RM1 to two sen to facilitate the proposed capital reduction and repayment.

It was earlier reported that IGB Corp, the country's third largest property developer by market value, planned to raise some RM700mil through the REIT, which may be listed in the second half.

IGB has appointed CIMB Investment Bank Bhd, Credit Suisse Group AG and Hong Leong Investment Bank Bhd as joint global coordinators for the initial public offering.

KrisAssets has established a new subsidiary, IGB REIT Management Sdn Bhd, to act as the proposed management company for the REIT. Following the completion of the proposed disposal of its two malls, KrisAssets will be a company without any business or operations.

The board has no intention of maintaining KrisAssets' listing status.

By The Star

Security at what cost?

Communities have been proactive in promoting security but more police support is needed

WHAT does it take to build a city a simple, functional spot under the sun that draws people in and provides enough for them to build a home, find work and enjoy all that is within their resources to enjoy?

Let's forget about phrases like “world class city” or “state-of-the-art city”. These are just empty phrases that do not mean anything. There are many components that go towards building a city security, clean air and water, healthcare, education, a city employment opportunities, public transport and other services. The list can be a lenghthy one.

But let's just focus on security, which is likened to a roof over our heads. The roof keeps out the rain and other elements. There is no point in having a leaky roof.

Of late, we read constantly about crime being reduced. But while there are statistics that point to this, we feel no safer than before.

Last Thursday, the country rejoiced when 12-year-old Nayati Moodliar was reunited with his parents after going missing for a week. Many missing children either end up dead, or continue to be separated from their loved ones.

His abduction prompted the introduction of new measures like putting up closed-circuit television surveillance cameras (CCTVs) around school premises. Mont'Kiara, which comprises predominantly high density condominium products, is known for its layers of security features. That is one of the reasons why many live there, forgoing a landed property with a compound.

In high-rise residential projects, there are access cards programmed to allow entry to the floor one is staying in and to public areas like the swimming pool and gym. We also have gated and guarded communities. Some of the newer townships in Petaling Jaya employ their own security guards with the permission of the local authorities and put up bars and other security features like rows of drums to seal off escape routes in the event of a break-in. Other residential areas do not strictly go by the gated and guarded definition but have security guards and perimeter fencing.

In our search for peace and safety to build and raise a family, we have put a premium on security, either by installing alarms or living in places that comes with such features. There is nothing wrong with this.

But has anyone asked why we have come to this? And to what extend can these measures ensure that our children and loved ones will be secured and safe? While it may be relatively safe within the gated and guarded community and internal break-ins may, or may not, be an issue it is what happens on the streets that is of concern today.

Once a person is outside these “safe” perimeters, he or she is at the mercy of unsavoury and unwanted attention, which may be in the form of snatch theives, robbers, kidnappers or other tricksters, as in the case of Nayati, who was kidnapped while walking to school. Does this mean we install these features in public areas and how far should we go in pursuit of these measures?

While installing CCTVs in public areas like schools, malls and basement car parks and shops may help, there is the cost of keeping them in serviceable condition. But even if the images of tricksters and kidnappers' get-away cars are caught on camera, is there a system where this images and information can be relayed in minutes or seconds to police patrols who will then take it from there? In other words, patrol cars equipped with audio visual gadgets. It sounds so Hollywood. But we've seen enough of police car chases on TV.

This goes back to the systems we have. If cars can come with TVs and police patrol cars with walkie-talkies, why can't these gadgets and their functions be integrated in order to relay images to speed up the pursuit of criminals on-the-run?

But we have to admit that installing security gadgets that integrate seamlessly with policing comes with a cost. Another simple and cost effective way would be police presence.

Yes, there is a need for the men in blue to ride around on motorcycles, some to be in police patrol cars. But we also need those who will patrol on foot on a sustainable intermittent basis, not just because a high-profiled crime has been committed. This will give a sense of security to the people and at the same time serves as a deterrent, to a certain degree, to street crime.

There is something very wrong when the people spend so much money on being safe when they are at home, yet remain vulnerable to all sorts of crime when they hit the streets. We need police presence, and we also need to weed out corruption at all levels of the Government. We need a roof over our heads, but not a leaky one.

Deputy news editor Thean Lee Cheng thinks the building blocks that go towards making a city liveable is more than gleaming towers.

By The Star

Former Star site to undergo RM900mil development into Pacific Star

Ngan with a model of the Pacific Star project in section 13, Petaling Jaya.

PETALING JAYA: Island Circle Development (M) Sdn Bhd will be joining the ranks of other developers to change the skyline and landscape of Sect 13, Petaling Jaya with an upcoming project comprising an office tower, a block of office suites, a retail podium and three blocks of serviced apartments ranging from 25 to 33 floors.

The Pacific Star, with a gross development value of about RM900mil, would sit on the former site occupied by Star Publications (M) Bhd in Jalan 13/6, which had since been converted to commercial 99-year leasehold, MNH Global Assets Management Sdn Bhd general manager Ngan Yeow Meng said. MNH is a wholly-owned subsidiary of Island Circle.

Ngan said the project, expected to be completed in 2016, would be part of a special project area designated by the Petaling Jaya City Council to be be converted to commercial use from industrial.

The project is a 51:49 joint venture between JAKS Sdn Bhd, the contractor, and Island Circle respectively.

Star sold the 6-acre odd land last year to JAKS Island for RM135mil. In return, Star will get a 13-storey office building with a gross build-up of 270,000 sq ft known as Star Tower. There is a 9-storey attached podium, part of which will be for retail use.

Other components of the project include a 16-storey Beta office suite tower which consists of 258 units including duplex suites, with the smallest being 341 sq ft and duplex units of 560 sq ft.

Retail space will add up to a total of 350,000 sq ft over four floors. The retail space would be put on lease, Ngan said.

There will be three blocks of serviced apartments at the back end of the project. Two of which will be 33-storey high and the remainder 25-storey tall. There will be about 2,000 units of parking space in the entire project divided between four levels of basement and five levels of elevated parking space. Ngan says the area has a plot ratio of 1:3.5 which means that it can build up to 3.5 times its land area.

The office suites and two residental blocks will be open tomorrow and Sunday for the public to register their interest, Ngan said.

The office suites and serviced apartments will be sold at more than RM700 per sq ft, with a maintenance service and sinking fund of 33 sen per sq ft. Utilities will be 25% to 30% higher than if it were on a residential title development. The units put up for registration this weekend include office suites ranging from 341 sq ft to 600 sq ft.

The size of the serviced units open for registration ranges from 617 sq ft to 800 sq ft.

The larger two- and three-bedroom units with build-up of 988 sq ft and 1,242 sq ft respectively will be sold later this year at a different price.

Ngan said the former Star building, which was subsequently occupied by Universiti Tunku Abdul Rahman had been demolished, and piling work would begin once the company got the green light from the authorities.

Ngan said Sect 13, bordered by Jalan Kemajuan, Jalan Semangat and Jalan Universiti, would be converted into a bustling special project area.

Island Circle is also building Pacific 63, which is just a few blocks away from Pacific Star, adjacent to Jaya One.

Already pockets of it have been converted to commercial use, this being Jaya One which sits on the former Aluminium Company of Malaysia site of nearly 11 acres fronting Jalan Universiti, Jaya 33 which fronts the commercial area of Sect 14 and Centrestage, another serviced apartment project.

The 13-acre F&N factory land is also expected to be converted to mixed commercial development with hotels, office and service suites.

By The Star

Johor Mid Valley City land to cost RM259mil

PETALING JAYA: IGB Corp Bhd has agreed on a price of RM259mil or RM165 per sq ft with Selia Pantai Sdn Bhd for three parcels of leasehold land measuring 36 acres in Plentong, Johor.

The land is for a proposed Mid Valley City-type mixed development, via a joint venture between IGB Corp and Selia Pantai.

IGB Corp will have a 70% stake in the joint venture, with the balance owned by Selia Pantai.

IGB Corp will fund its 70% portion of the project via internal funds and bank borrowings.

IGB Corp told Bursa Malaysia that no valuation was carried out on the land, which is owned by Selia Pantai.

The purchase price was arrived at on a willing-buyer-willing-seller basis, after considering factors such as the prevailing market value of properties in the same vicinity and surrounding infrastructure.

By The Star

Sime homes in on property

SIME Darby has entered into a conditional agreement with CapitaMalls Asia Ltd to form a 50:50 joint venture (JV) to develop a shopping mall in Taman Melawati, Klang Valley.

Sime is finally getting its act together in growing its property division, in line with the company's strategy to further unlock value for its property division through strategic joint ventures (JV). This JV shows the management's effort to further enhance and grow its property division.

Investment in shopping malls would also generate recurring income. Property investment made up only 5% of the property division's pretax profit (7% of financial year ended June 30, 2011 profit before interest and tax).

CapitaMalls Asia is Asia's leading shopping mall developer, owner and manager. It owns a few malls in Malaysia, such as Sungei Wang Plaza in Kuala Lumpur and Gurney Plaza in Penang.

This development will be CapitaMalls Asia's sixth mall in Malaysia but it will be its first greenfield development in Malaysia.

The shopping mall is strategically located at the centre of Melawati township and surrounded by established residential areas. This project would complement its on-going and future projects in the township. Sime has about 905 acres of landbank in the area.

The shopping mall has a site area of about 242,000 sq ft and a total net lettable area of about 635,000 sq ft. The total development cost is expected at RM500mil (RM250mil for Sime) and it is likely to be funded internally given Sime's strong cash position.

Marginal earnings impact (expected) from this JV. We are not expecting any material earnings impact arising from this JV in financial years 2012 to 2014 given that this development is scheduled for completion in 2016. Also, the property division contributed only about 7% of profit before interest and tax in financial year 2011.

By The Star

Kimlun secures RM148.5m property project in Shah Alam

KUALA LUMPUR: Kimlun Corporation Bhd has secured a RM148.54mil contract to build the apartments and ancillary buildings in Shah Alam.

It said on Friday its unit, Kimlun Sdn Bhd had accepted the letter of award from Esquire Corner Sdn Bhd for the project.

Work is expected to be completed by September 2014.

By The Star

Rising value of properties a real concern

KUALA LUMPUR: The Government needs to address the issue of affordability of residential properties as persistently high prices have become an issue to many people.

“We have computed the affordability (issue). Prices have risen to a level that has created some concern. In fact the International Monetary Fund (IMF) in its Article 4 consultation report has mentioned that this is the main risk or vulnerability facing the Malaysian economy: overvalued house prices,” Ratings Agency Malaysia Holdings Bhd (RAM) chief economist Dr Yeah Kim Leng said.

“It is not a bubble yet largely because for certain segments the income level is sufficient to absorb those kind of (high priced) houses. But there comes a point where you will find declining demand largely because of rising vacancies or declining rental yields that will help to cap property prices,” Yeah told journalists at a press briefing yesterday after RAM's annual general meeting.

Yeah expected an eventual soft landing for the property market in Malaysia but also said that developers should be ready for any change in market dynamics.

“Developers must take the risk that should there be a slowdown or market crash (that) they are in a position to absorb it without creating problems for the banking sector or economy. But at this juncture we are quite comfortable that most developers are going in (to the market) with their eyes fully open,” Yeah said.

“Most of the property companies that we have rated (credit rating) are fairly strong in their credit quality. Overall we are looking at maybe certain smaller developers that will be at risk but by and large I think that the property market is in a sustainable basis. But watch out for too high prices that will create affordability problems,” he added.

Meanwhile, RAM's CEO Foo Su Yin said the agency expected corporate bond issuances for the whole of Malaysia will total between RM80bil and RM85bil this year from about RM70bil in 2011 noting that issuances had accelerated in the first four months in 2012 compared to the previous year.

“The issuance in the first four months of RM44bil has already exceeded what was (at the level) half year last year so the RM80bil-RM85bil is achievable this year. We expect most of the bond issuances to come from the infrastructure and the banking sector,” Foo said.

On another matter, Yeah said that the Malaysian economy should be fairly protected against any economic shocks that comes out of Europe due to the ongoing economic crisis there and that the first quarter economic growth may even beat analysts expectations.

“Domestic demand has been fairly robust and with slightly firmer exports we should be doing fairly well. Nevertheless the risks still remain substantial because of the, so-called, regime changes that had happened in Europe that put the whole Euro at risk. Malaysia has so far been able to ride through the soft patch in the global economy,” he said.

Meanwhile, on the issue of the growing government debt or also known as deficits of presently about 56% of GDP, Yeah said this figure may hover at about 56%-57% by the end of this year and said debt should ideally be used to finance productive investments to ensure future economic growth.

He also said the risks from the non-bank lending sector also known as the shadow banking system could be limited as its portfolio was relatively small compared to total bank loans portfolio and may not pose a systemic risk to the economy at this point in time.

“We may have however, isolated problems arising but it should not pose a systemic risk to the economy or banking sector,” he added.

By The Star

Sime, CapitaMalls plan RM500m mall

The RM500 million shopping mall in the Klang Valley is expected to be completed in 2016.

KUALA LUMPUR: Sime Darby Property, the country’s largest developer by landbank size, plans to develop a RM500 million shopping mall in the Klang Valley, in partnership with CapitaMalls Asia Ltd.

The mall, to be located on 242,000-sq-ft freehold land in Taman Melawati here, is expected to be completed in 2016.

It will have a net lettable area of around 635,000 sq ft and serve a catchment population of about 800,000 people within a 10-minute drive.

Sime Darby Property and CapitaMalls yesterday inked a conditional
agreement to form an equal joint venture to undertake the project.

“We are confident that our partnership with CapitaMalls Asia to develop this site is the best strategy to maximise returns on our investment and diversify our income portfolio.

“The synergistic partnership provides us the platform to leverage on their experience as the leading shopping mall developer, owner and manager in Asia,” Datuk Wahab Maskan, Sime Darby Property’s managing director said in a statement yesterday.

For CapitaMalls Asia, the project will be its first greenfield
developments in Malaysia.

The group owns five other malls in the country, namely Queensbay Mall in Penang; Gurney Plaza, also in Penang (owned through its stake in CapitaMalls Malaysia Trust); a majority interest in Sungei Wang Plaza in Kuala Lumpur; The Mines in Selangor; and East Coast Mall in Kuantan, Pahang.

Its chief executive officer Lim Beng Chee said the new mall would cater to the under-served retail needs of the residents in the area.

The mall is surrounded by the residential areas of Taman Melati, Wangsa Maju, Taman Permata and Kemensah Heights.

By Business Times

Sime Darby Property in tie-up

PETALING JAYA: Sime Darby Property and CapitaMalls Asia Ltd have entered into a conditional agreement to form a 50:50 joint venture to develop a shopping mall on a freehold site in Taman Melawati, Kuala Lumpur, at a cost of about RM500mil.

The site had an area of about 242,000 sq ft and is the last sizeable plot of commercial land in the township, the companies said in a joint statement to Bursa Malaysia.

Both companies will develop the shopping mall with a total net lettable area of about 635,000 sq ft on the site. The mall is expected to be completed by 2016.

By The Star

Malaysia's PNB seeks $1 bln loan for London property buys-Basis Point

KUALA LUMPUR (Reuters): Malaysian investment fund Permodalan Nasional Bhd (PNB) is seeking a 628 million pound (us$1.01 billion) five-year term loan to take out two six-month bridge loans for its shopping spree on three landmark London properties, a Thomson Reuters publication, Basis Point, reported on Thursday.

Basis point quoted sources as saying said PNB has been in talks with around seven banks, including Bank of Tokyo-Mitsubishi UFJ, Mizuho Corporate Bank , OCBC Bank, Scotiabank, Standard Chartered Bank, Sumitomo Mitsui Banking Corp and UOB to arrange the facilities.

The first bridge entailed a StanChart-led facility, which will back the 350 million pound purchase of Milton & Shire House on Silk Street, the current headquarters of law firm Linklaters, Basis Point added.

The Malaysian government-linked fund planned to borrow a 250 million pound loan to take out the bridge earlier this year, but it decided to get the larger-sized new loan after it went on to buy two more London properties, according to Basis Point.

PNB has bought three London office properties since the start of the year, two of which were acquired from German fund KanAm for about 570 million pounds.

By The Star

PKNS joins with DKLS for RM1.5bil project in Sec 17 PJ

Days numbered ?: The land that currently houses four-storey flats in Section 17 will most likely make way for a mixed development with a gross development value of RM1.5bil

PETALING JAYA: Not unlike a few other government agencies that own large swathes of valuable land, the Selangor State Development Corp, or PKNS, is pushing ahead with redevelopment plans in some of its prime areas.

A noteworthy development surfaced last Friday in a filing with Bursa Malaysia, where DKLS Industries Bhd said it had entered into a heads of agreement with PKNS to redevelop a parcel of land in Section 17, Petaling Jaya, measuring 6.4ha.

This area currently houses numerous blocks of old flats, including a green reserve for the area.

DKLS said the project would entail a mixed development comprising commercial, retail and residential units with a gross development value (GDV) of a whopping RM1.5bil.

The area concerned has been drawing a lot of interest lately, according to property consultants. It is next to the factory area, which is in the midst of a major redevelopment programme. That area has already transformed itself to become a mixed commercial and residential hub, anchored on the Jaya One development.

Jaya One is currently in its final phase of development with a GDV of RM360mil mainly for residential units, having already developed some RM600mil worth of commercial properties.

Besides Jaya One's planned serviced apartments, there are currently two other similar projects being planned for Section 13.

One is named Pacific Star (opposite Jaya One) developed by Island Circle Development (M) Sdn Bhd, which is a mixed development of commercial space and residential units on a 6.04-acre land. While further up the area, Fraser & Neave Holdings Bhd would be starting site works in September to develop a RM1.6bil mixed development project on 13 acres which is currently housing its factory.

PKNS declined to comment for this article and said it would provide updates once plans were more firm.

It is likely though that the project may have its fair bit of opposition, considering that the redevelopment encroaches on the green reserve located between Section 13 and Section 17, along Jalan Universiti. It is yet unknown if the new plans include preserving or enhancing that green area.

Although the state-owned corporation declined to comment, sources familiar with the situation said that PKNS was likely to engage the affected residents in a similar way that it did when it embarked on the redevelopment of the PKNS Taman Keramat flats in Jalan Jelatek in 2010.

Dubbed the 'Columbia Flats'' for its drug and vice dens during the 1980s, the flats are to be replaced with a RM900mil mixed-development project called Datum Jelatek.

The project comprising four 45-storey buildings of residential and commercial units, a hotel and shopping mall, would be developed by PKNS and its subsidiary company, Worldwide Holdings Bhd.

PKNS had compensated RM250,000 to RM300,000 for each house and RM450,000 to RM500,000 to business lot owners of the Taman Keramat flats.

As for the plans for the Section 17 redevelopment, it had been previously reported that PKNS' business development engineer, Yeo Cheng Chuan, and DKLS Industries Bhd senior manager Yee Chee Yong had proposed a replacement unit at the new development in the same location for the owners of the Section 17 flats.

The report said that residents of the 592 sq ft units would be given a 700 sq ft unit in the new development.

On top of that, there was also a proposal for a RM5,000 moving-out allowance, RM8,000 moving-back allowance as well as a rental subsidy of RM500 per month until the project is completed.

In addition to that, the leasehold period of the new development would be renewed to 99 years instead of 30 remaining on the existing titles.

Last year, PKNS had put the market value of the units at RM96,496 (592 sq ft at RM163 per sq ft) each.

If those plans materialise, it does seem as if the current flat owners would be getting a pretty good deal, considering that another up coming development named Pacific Star, which is located a stone's throw away, is selling for a far higher price.

PKNS is also embarking on several large-scale redevelopment projects, including the Sports City, Kelana Jaya, which is where the PKNS Stadium is located, via a joint development with Melati Ehsan Bhd.

It is also developing the PJ Sentral Garden City, a RM2.6bil joint-venture redevelopment with Nusa Gapurna and the Employees Provident Fund. Nusa Gapurna group is the same developer of the 348 Sentral project in Jalan Tun Sambanthan, Brickfields.

Another PKNS project in the pipeline is the PJ Elevated City, a RM3bil mixed-development project which is also part of the Western Digital factory expansion programme.

Industry sources said that with ownership in different key projects around Selangor, PKNS was likely to retain ownership of a few of the valuable properties to enable itself to venture into becoming a real estate investment trust (REIT).

Previously it had called off a proposed venture with AmanahRaya REIT (ARREIT) to inject some key assets into ARREIT. It is understood that PKNS changed its mind about the injection as it wanted to look at the other properties it was developing, as possible injections into a REIT.

Hence, it is likely that PKNS' REIT injection plans will resurface again at some point, judging from the many other strategically-located redevelopment and urban regeneration projects in the Klang Valley it is working on.

PKNS general manager Othman Omar is reported to have said that the state-owned corporation would be adding another RM6bil worth of new projects by the end of 2012, in addition to the RM14bil that was already announced.

By The Star

F&N sees revenue from property development in FY16

KUALA LUMPUR: Fraser & Neave Holdings Bhd (F&N) will start seeing a new revenue stream from property development come its financial year ending Sept 30, 2016, as it will be launching a RM1.6bil mixed development in its ex-dairy premises in Section 13, Petaling Jaya, in June 2013.

“Currently this 13-acre land houses F&N's dairies production plant. Site preparation works will begin this September, and will see a mixed development which consists of an F&N tower, a hotel, offices, retail outlets and residential suites by June 2013,” F&N chief executive officer Datuk Ng Jui Sia told a media briefing yesterday.

For F&N Dairies Malaysia, production of its new Pulau Indah facilities in Klang has just commenced, and the shift from its plant in Section 13 to Pulau Indah is expected to be completed by September.

F&N is partnering FCL Centrepoint Pte Ltd, a subsidiary of Frasers Centrepoint Ltd (FCL), to develop this ex-dairy premises.

FCL is one of Singapore's top three residential property developers and retail mall owners and operators. It has also developed properties and malls in the UK, Australia, New Zealand, Thailand, Vietnam and China.

F&N had divested 50% of its interest in this development land to FCL and recognised RM55mil in the quarter to March 31, 2012, being 50% of the capital gain of RM110mil.

Meanwhile, most analysts concurred that F&N's earnings would pick up in the second half, but many were still uncertain of its prospects. While the soft drinks segment is doing well, the dairies segment both in Malaysia and Thailand is still uncertain, driven by high raw material costs, and downside bias from its flood recovery.

“F&N is an extremely well-run company and I think they are doing the best they can. However, Malaysia is also a pretty matured market for dairy products. We don't expect to see huge growth in these segments. It will be stable in line with market at best,” said one consumer analyst.

F&N's second-quarter ended March 31 net profits declined by 18.89% to RM107.06mil from RM131.99mil in the previous corresponding period as revenue dropped to RM730.43mil from RM1.01bil previously.

It also declared an interim dividend of 20 sen, which will be paid on Aug 1.

Ng said the key declines came mainly from the cessation of the Coca-Cola business, the 200-day flood disruption in Thailand and higher raw material cost and competitive pressure in the Malaysian dairy operations.

Sales in Thailand dropped by half as production stoppage disrupted supply to the market. The Rojana factory in Thailand recommenced operations in March and ramped up to full capacity in April.

Dairies Thailand's factory was affected by floods, leading to a 52% slump in its first-half revenue to RM231mil. As a result of the lower sales volume, the factory could not cover its overheads, causing an operating loss of RM30mil.

“Even though we should see a stronger second half as Dairies Thailand resumed production in March, we cut forecasts to account for pricier raw materials,” said CIMB Research analyst Foong Wai Mun.

F&N made a cumulative write-off of RM89.44mil for the current two quarters. Interim property damage insurance claims based on current replacement cost accepted by insurers and recognised to date were RM80mil, of which the insurers had disbursed RM74mil in payments.

On a half-year basis, F&N's net profits dropped by 37.7% to RM148.8mil from RM239.07mil on the back of lower revenue, which declined to RM1.47bil from RM2.04bil previously.

F&N mitigated the loss of the Coca-Cola contract by raising its soft drinks revenue without Coca-Cola) by 8%, driven by higher sales of Seasons, Redbull and its new products (Zesta and Clearly Citrus).

Ng added that F&N was rethinking its fruit juice segment as it was also not growing.

“Revenue was also helped by market penetration into Brunei and contract packing for exports to its sister company in Singapore. However, operating profit margins fell 7.6% to 9.3% due to higher commodity prices, especially for sugar,” said Foong.

Meanwhile, Maybank analyst Kang Chun Ee said that until the shift to Pulau Indah, expected to be completed by September, F&N would continue to see rising operating costs as a result of a duplication in operations.

A deferred tax assets (DTA) of RM55mil in relation to the halal hub tax incentive was granted to the plant and the estimated balance of RM21mil in DTA would be recognised in the second half of this year, said Kang.

By The Star