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KUALA LUMPUR (Mar 7): Billionaire Tan Sri Robert Kuok's PPB Group Bhd has earmarked close to RM250 million to grow its property and cinema-related businesses, in a longer-term bid to cut earnings reliance on its 18.3% associate and largest earnings contributor Wilmar International Ltd.
Of the group's RM507 million committed capital to date, some RM130 million goes to Golden Screen Cinemas Sdn Bhd (GSC), while RM13.5 million has been slated for its property arm, PPB chief financial officer Leong Choy Ying said.
However, at least another RM100 million could be added to grow the property business by 3Q12, once plans to develop some of its landbank are finalised, PPB managing director Tan Gee Sooi told analysts and reporters at a briefing on Tuesday.
Eapen Thomas, general manager of the property division, said the plan is to focus on the higher-end properties and niche markets where it reckons demand is less affected. "We've just launched [13 bungalows in Bukit Segar, Cheras, priced at RM8 million each] and one third have already been taken up," Thomas said, when asked whether PPB is expanding the properties businesses late in the property bull cycle.
As it is, earnings from the property division will beat last year's. "Last year we only had rental income from our malls and offices [and no property launches]," he said, adding that the Cheras and an ongoing development in Bukit Mertajam, Penang, have an estimated gross development value of RM250 million.
For FY11, contributions from the property segment to the group's pre-tax profit of RM1.06 billion were small, only 1.5% or RM15.6 million. That is down from RM38.05 million in FY10.
But that is poised to grow with plans already underway to develop some of its old cinema sites and landbank, totalling 400,000 sq ft, into commercial or high-end residential properties. These include land in Taman Megah, Petaling Jaya and an office block in Damansara Jaya, Selangor. "We plan to start as soon as we can, with one or two malls this year," Tan said.
The expansion could present new sites for its cinema arm as well. With the RM130 million, GSC is looking at opening 11 cinemas from now through 2014 in Pahang, Selangor, Negri Sembilan, Johor and Sarawak. Seven openings are planned this year. At least two of these new cinemas will be in a new format called GSC "Lite", aimed at catering for smaller market centres. The first GSC "Lite" is scheduled to open later this month in Mentakab, Pahang, followed by one in Miri, Sarawak. The group expects to retain its leadership position and 40% market share with the planned opening.
Some 70% or RM355 million of the group's current committed capital expenditure over the next two years will go to expand its flour business, held under 80% owned FFM Bhd.
Besides retaining its market share in Malaysia, Tan said FFM will double its flour milling capacity in Indonesia by year-end with the addition of a second plant, capable of producing 1,000 tonnes of flour per day. FFM has five flour mills in Malaysia and one in Vietnam. It has agreed to take a 20% stake in seven of Wilmar's flour mills in China and is in a joint venture to build a new flour mill in Vietnam.
For FY11 ended Dec 31, PPB's net profit halved to RM980.37 million from RM1.88 billion in FY10, in the absence of an RM841 million one-time gain for the sale of its sugar-related business the year before. Wilmar contributed about RM790 million to PPB's earnings last year.
Operationally, earnings at PPB's flour milling division were hit by higher raw material costs even as the cost of wheat rose by some 17.4% year-on-year.
FFM managing director Ong Hung Hock said competition made it hard to pass on cost increases, and the group is still investing to expand its market share in its seven-month-old bread business.
Margins for the flour milling and related businesses will continue to be tough going forward, despite global wheat production forecast to remain high this year, because Australian premium white wheat, the industry standard for flour, is no longer cheap.
"Most of the wheat [in the market] is low grade and cannot be used here... A good harvest means that there is more wheat per acre of land and protein content in the wheat decreases," he said.
Tan thinks the group will be able to weather the challenges faced by the industry better than smaller peers, due to its experience, size and tie-up with Wilmar. "We expect to make money from the businesses we go into, but [flour milling] is not a big margin business," he said.
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