Gadang to build up property division

KUALA LUMPUR (Feb 10, 2014): Gadang Holdings Bhd is looking to double contributions from its property division to the group's topline to 40% by 2016 from 20% currently, its managing director and CEO Tan Sri Kok Onn said.
The diversified group said its property segment, utility and plantation divisions will eventually provide solid support to the group's total income base where currently construction is still the main driver.
"Property now contributes about 20% to turnover but starting from next year, it will be more. It can easily touch 25% to 30% once we start launching the projects in our pipeline. In terms of profit from the division, it is quite good," he told SunBiz in an interview recently.
Kok said by 2016, it hopes to achieve 50% contribution from its construction segemnt, 30% to 40% contribution from property development and the balance from utilities and plantation.
"We are progressing well in the property division and our prospects for this financial year (ending May 31, 2014) will be better than last year. Last year we made RM32 million in profits.
"This year will be better, although the first half was a bit lower mainly because of the property billing which is slow but our sales are okay," he said, adding that it has over 200 acres of land currently.
Some of the ongoing projects include Jentayu Residensi in Tampoi, Johor with gross development value (GDV) of RM174 million, Capital City also in Tampoi, Johor with GDV RM2.2 billion and Residensi Vyne in Sungai Besi, Kuala Lumpur with GDV RM500 million.
It also has a joint venture (JV) with Cyberview Sdn Bhd to develop the K-Workers Housing Project in Cyberjaya with GDV RM1.06 billion and is in the midst of planning a township in Pokok Sena, Kedah with GDV RM300 million.
Kok said it wants to further its JV with Cyberview, specifically for an integrated commercial project in Cyberjaya.
"We are thinking if we can work closely together and perform well, they might give us more of their jobs. They have few billion worth of projects in Cyberjaya.
"We are also looking for more land. We have bought a piece of land in Taman Melawati, Kuala Lumpur but we haven't completed the sales and purchase agreement," he said.
He added that it is also in talks with landowners in Johor but has yet to close any deals there.
Commenting on measures announced by the government to curb speculative buying in the property market, Kok said the impact on the company's property sales is very small and the property market is still very bullish.
"Only in terms of bank loans there will be some impact, as those buying their second property will get a lot of queries. There will be some impact but sales is still strong, depending on location," he said.
As for the rising cost of materials, he said the impact is minimal as steel and cement prices are controlled by the government.
"Maybe there is just a 5% increase in all-in cost. Actually, labour is the problem. We don't have enough skilled labour to do first-class finishings. We can get semi-skilled labour easily but it is not easy to get skilled labour," he added.
As for overseas property projects, he said it is not keen unless the market has strong local demand.
"If you develop a project overseas and target Malaysian buyers, money goes out of the country. Our focus is more on Malaysia. If we decide to go overseas and the local people buy, that's okay because we can make money and bring it back. That's my philosophy. We prefer markets where local demand is strong," he said.
Meanwhile, its construction division remains its biggest contributor with an order book of RM1.6 billion and tender book of RM6 billion comprising seven projects that it is eyeing.
Out of the seven projects, it has already tendered for three namely the design and build contract for the privatisation of Kinrara-Damansara Expressway, RAPID Cogeneration Plant by Petronas and a 268-bed hospital in Kuala Krai, Kota Baru.
Kok said it is confident in securing at least RM2 billion out of the RM6 billion worth of projects.
As for the plantation business, it expects the division to start contributing in 2016 when the plantations are all matured.
"By this year, we will complete all our planting on 5,000 acres in Ranau, Sabah. We are looking for more land, we want to have more JVs with landowners around the Ranau area. Buying land is very expensive. Planted land now can easily cost RM20,000 to RM25,000 per acre so we will JV with landowners. Once we start harvesting, we'll split the profits with landowners based on a fixed revenue per tonne," he said.
Gadang Holdings is also looking to establish a dividend policy, possibly by this year or next, said Kok.
"Last year we gave 3%. Now we're looking into it and we have asked our internal auditor KPMG to look into it, we want them to give us a guideline," he said.
He said on average, it has been paying dividends of about 2% but it is aiming to increase the dividend payout this year onwards to more than 3%.