KUALA LUMPUR (July 18): Property development and construction outfit Ireka Corp Bhd, which unexpectedly announced last Tuesday that it had called off its plan to build a RM203.14 million mall for Aeon Co (M) Bhd in Negeri Sembilan on part of a freehold plot that it was acquiring to sell to Aeon, is expecting to roll-out six property launches over the next 18 months, with total expected gross development value (GDV) of RM1.3 billion.
The group’s property development segment slipped into a loss of RM4.23 million in the financial year ended March 31, 2016 (FY16), compared to a profit of RM5.18 million in the previous year, largely due to marketing and other expenses incurred for future projects. No new projects were launched during the year.
“Last financial year, we were facing challenges and we have delayed launches of our property projects due to weak property sentiment,” the group’s strategy and corporate development director Chan Chee Kian told The Edge Financial Daily.
Chan is also of the belief that the market is already "stabilising", citing that he has seen Ireka’s competitors’ projects enjoying fair take-up rates. Further, observers are expecting that the surprise 25-basis point cut in the benchmark rate by Bank Negara Malaysia to 3% will provide a much-needed boost to the cooling property market.
“We are positioning ourselves in that [affordable housing segment]. We are a fairly niche player and most of our new projects are in the right segment. We also don’t launch multiple projects at the same time,” Chan added.
The six projects Ireka has planned are mainly spread out in Kajang and Nilai (with a small portion in Mont'Kiara), including the first phase of its dwi@Rimbun Kasia project, a courtyard-style apartment project in Nilai, which has an expected GDV of RM130 million, and will be the first to be launched.
The group’s FY17 business, however, will still have to rely on its construction segment as its planned property projects are only expected to provide meaningful contribution to the group’s earnings from FY18, said Chan.
According to the group’s latest financial statement, it has tendered for about RM3.99 billion worth of contracts over the last twelve months. As at end March 31, the group’s order book stood at about RM1.12 billion, of which RM513 million remained outstanding.
Last Tuesday, Ireka announced its plan to sell part of a 8.71ha freehold plot it is acquiring in Senawang, Negeri Sembilan, to Aeon for RM53.66 million, which would have seen it undertaking the construction of a RM203.14 million mall for Aeon on the land, fell through due to the non-fulfilment of conditions precedent by both parties under an agreement it inked with Aeon in December 2014.
However, Chan said Ireka does not expect its aborted plan to build the mall for Aeon to hinder the group’s earnings recovery.
He said Ireka is actively bidding for local construction projects, such as the Sungai Besi — Ulu Kelang Expressway and the mass rapid transit, adding the projects it is currently working on are profitable.
Further, he said the group is expecting brighter prospects ahead as its 23%-owned associate Aseana Properties Ltd and the group’s property and construction segments are likely to return to profit this year.
Ireka, which has been loss-making since FY13, saw its net loss widened to RM40.47 million in the FY16, compared with RM2.26 million in FY15, mainly due to its RM16.81 million share of loss from Aseana.
Ireka had previously said it expected to turn around in FY15, but has since missed its mark. The completion of the Aloft deal, however, has stoked hopes again.
“Our financial performance in the past few years was mainly dragged by Aseana, as most of the net losses come from Aseana-owned properties. We are working on that [turnaround], supported by Aseana’s gains.
“Following the sale, Aseana should be able to record a gain this year, despite some forex losses. Its contribution to us is quite significant if it makes a gain,” he said.
Aseana completed its sale of the Aloft Kuala Lumpur Sentral Hotel in mid-June. Aseana, which is listed on the London Stock Exchange, sold the hotel for a gross transaction value of US$104.6 million (about RM412.12 million) to Prosper Group Holdings Ltd.
Chan, who is expecting US$10 million in October from Aseana from the Aloft sale as its first tranche distribution, said most of the disposal proceeds will be used as Ireka’s working capital.
“Some may be used to reward Ireka’s shareholders as dividend. We haven’t decided yet as it (the sale proceeds) won’t be a one-off windfall [but will come in phases],” he said.
He also assured that the UK’s decision to leave the European Union has not affected Aseana, as the latter’s assets are mainly located in Vietnam and Malaysia, while earnings are recognised in US dollars.
Aseana is expected to continue realising its assets and distribute the cash among shareholders as it winds down its business after obtaining its board’s green light to do so in June last year. Depending on prevailing foreign exchange rates, Ireka’s portion of the capital distribution would work out to about RM250 million.
However, Chan declined to divulge which asset would be disposed of by Aseana next, saying only “we are working on various opportunities at this point in time”.
Aseana’s remaining projects, completed and upcoming, carry a collective, estimated GDV of US$771 million.
This article first appeared in The Edge Financial Daily, on July 18, 2016. Subscribe to The Edge Financial Daily here.