Yong Tai expects to exit garment business by June

KUALA LUMPUR (April 17): Yong Tai Bhd is set to exit its loss-making textile and garment business by selling its remaining wholly-owned subsidiary Syarikat Koon Fuat Industries Sdn Bhd by June.

“We are talking to the previous owner [of Syarikat Koon Fuat Industries] and we expect to dispose of the company by June, albeit at a loss. We want to focus on growing our property development business instead,” its chief executive officer Datuk Boo Kuang Loon told The Edge Financial Daily in a recent interview.

The textile and garment business contributed 17% to the group’s revenue in the financial year ended June 30, 2016 (FY16).

Yong Tai, established in 1971, started its business as a garment manufacturer whose businesses include the manufacturing and dyeing of fabrics, as well as trading and retailing of textile and garment products and related fashion accessories. However, due to the challenging operating environment in the textile and garment industry, the group slipped to a loss in FY05 and only managed to turn a profit in FY15 after it decided to diversify into the property development business.

The group also sold off its loss-making wholly-owned garment-making units Golden Vertex Sdn Bhd and The Image Outlet Sdn Bhd for RM7.05 million in FY15.

Yong Tai’s net profit increased threefold to RM2.86 million in FY16 from RM686,000 the previous year. This was despite a 57.5% decline in revenue to RM7.19 million in FY16 from RM16.92 million in FY15, as it disposed of some of its business activities in the manufacturing and dyeing of fabric and related products and depended solely on its The Apple property project in Melaka, which was under construction.

Boo said the total outstanding gross development value (GDV) for all its property projects in Melaka and Kuala Lumpur stands at nearly RM9 billion, which will keep the group busy for the next eight to 10 years.

“Our total land bank is about 138 acres, which mainly comprises the Impression Malacca project. We also have two parcels of land in Kuala Lumpur — Bukit Bintang and Jalan U-Thant,” the 45-year-old said, adding that Yong Tai has no intention to increase its land bank in the immediate term.

Yong Tai is currently developing Impression Melaka, an integrated resort destination featuring grand theatrical performances, along with hotels, leisure avenues, residential areas, commercial and educational facilities.

Yong Tai is also developing three other projects in Melaka — the 39-storey The Apple serviced apartment project, a 248-room Courtyard by Marriott hotel and a 390-room luxury hotel called The Pines.

“The projects in Melaka has a total GDV of around RM7.5 billion,” Boo said, adding that the projects in Jalan U-Thant and Bukit Bintang have a combined GDV of RM1.4 billion.

Yong Tai, on April 7, 2017, signed a joint-venture agreement with KOF Holdings Sdn Bhd to develop the land at Jalan U-Thant — belonging to government-owned Rubber Industry Smallholders Development Authority — and turn it into a residential development with a GDV of RM180 million.

“The plot of land has secured a development order to build a 10-storey high residential apartment with 108 units. The theme for this project is different as we want to build affordable apartments with built-ups from 600 sq ft to 1,000 sq ft,” Boo said, adding that the project’s gross development cost will be RM155 million.

“Compared with other projects in the city centre, most developers are building bigger residences to cover the land cost. But how sellable can that be if every developer adopts the same approach?” he added, opting to be different from the rest.

As for the site in Bukit Bintang, Boo said Yong Tai will be building a four-star hotel there.

“We have secured a plot ratio of 14 times, and we are looking to bring a hotel that is affordable yet suitable to be located in Bukit Bintang as we don’t want to enter into a [price] war with other five-star hotels surrounding that area,” Boo said, adding that the project’s other components include a serviced apartment based on an initial cost of RM1,600 per sq ft.

According to Boo, Yong Tai has ample room to gear up, as it is flushed with RM287 million in cash and zero borrowings.

“Yong Tai can gear up to 50%, and theoretically, we can borrow up to some RM300 million if we need to. But I would say that Yong Tai will be very prudent in managing its cash and leverage as we do not want to fund projects with unnecessary heavy debt,” he said.

On its outlook for FY17, Boo expects Yong Tai to post “modest and positive profit” as it is in the initial stage of embarking on its property projects.

“Earnings will pick-up from FY18 onwards in line with our property projects’ progress,” he said, expecting the property market to recover by year end.

“I see the property market needing another six to nine months to recover. Some of the issues that must be tackled include policymakers loosening some of the lending guidelines,” he added.

Boo said he plans to grow Yong Tai’s market capitalisation to over RM1 billion, without giving a definite timeline.

This article first appeared in The Edge Financial Daily, on April 17, 2017.

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