KUALA LUMPUR (Feb 10): In May last year, O&C Resources Bhd (OCR) shareholders gave the rubber and baby products manufacturer the greenlight to diversify into property development.
In the ensuing period, the group has shifted its main focus from loss-making manufacturing and trading businesses to multiple facades of property ventures, bagging projects “faster than expected”.
“We are looking at a lot of projects merely [nine] months after the mandate [from shareholders],” said group managing director Ong Kah Hoe.
One newer category in play is affordable housing, which the group is highly focused on, in line with the government’s affordable housing plans for this year.
The group’s construction tender book, worth RM1.3 billion, comprises only affordable housing projects, located in the Klang Valley, Melaka and Pahang.
Last year, OCR was awarded two PR1MA (1Malaysia People’s Housing Programme) projects in Bukit Jalil, Selangor and Alor Gajah, Melaka with gross development values (GDV) of RM131.75 million and RM101.1 million respectively.
The group is also the project management consultant (PMC) for another affordable housing project by the Pahang State Foundation, comprising 25,000 units. Currently in planning for the first 1,000 units, the whole project is expected to bring in RM91 million in net profit to OCR.
However, the company did not miss out on mid- to high-end property developments, which chief financial officer Bernard Tan said are still attractive to foreign buyers and investors.
Flexus, its 286-unit property in Jalan Kuching here with a GDV of RM31 million, is one of its flagship developments that has retained buyer interests for its prime location.
“There was even one purchaser asking us about taking the whole block. With the currency rate, the price is even more competitive,” Tan said.
Despite existing demand, Tan noted that financing for high-end property developers is a key concern, on the back of the slowdown in general property uptake.
“Financing from banks for high-end property is quite stringent at the moment. Motel, hostel and hotel business models are more preferable to fund managers and analysts for its consistent, recurring income,” he added.
Towards this end, OCR recently signed a memorandum of understanding with Universiti Sains Islam Malaysia to build two student accommodations and a teaching hospital on a build-lease-transfer basis over the course of 22 years.
Subsequently, OCR plans to build a hotel and a serviced apartment in Melaka for an estimated GDV of RM206 million, as well as another 978-unit serviced apartment and commercial centre in Kuantan — located besides the five-star Zenith Hotel — for another estimated RM330 million GDV.
With these projects and more set for this year and next year, the group has begun talks with banks to finance its ventures.
“Our net gearing is zero at the moment,” said Tan. “We are still assessing the amount that we actually need, as details for some projects are just about finalised.
“We are looking at around one-third of our future costs to come from borrowings,” he added.
Disposing of its manufacturing arm may be an option, but OCR will not head there too soon, Ong said.
“We are still working on ways to recover the losses and make it profitable. There are many parties talking to us and we will consider again by this year,” said Tan.
With a 30-acre (12.14ha) land bank as well as its current order book worth RM287 million, the group’s hands are full at the moment. “On top of that, our Pahang PMC contract will easily keep us busy for the next seven years,” Ong said.
OCR’s revenue is currently split between manufacturing (23%), trading (60%), and construction (17%). It is looking to boost construction to raise 60% of its total revenue, as its bulk in trading has a small margins.
“On the other hand, many of our construction projects are initiated through joint ventures,” said Ong. “Our PMC contract, for example, does not incur additional cost, as we [will] use our existing resources to provide the service to the state.”
The group’s plans to turn around by the end of this year, as previously reported, may work out after all.
This article first appeared in The Edge Financial Daily, on Feb 10, 2017.