Listing of manufacturing unit gives PRG room to focus on property development, construction

KUALA LUMPUR (July 21): PRG Holdings Bhd expects the proposed listing of its manufacturing division on Hong Kong's Growth Enterprise Market (GEM) to be completed in October.

While the details of its public share offering has yet to be disclosed, executive director Datuk Lua Choon Hann said the listing signifies that the group is aiming for further growth in the manufacturing business while it is aggressively expanding its property development and construction divisions.

He said proceeds from the listing will fuel the division's expansion from multiple fronts.

"It is not just space expansion. We are also looking at improving our manufacturing process, development of our human capital and upgrading our digital and automation systems," he told reporters after PRG's extraordinary general meeting here today.

Lua also dismissed the perception that the manufacturing market is saturated as its core manufacturing product — fabric webbings — is used in multiple sectors, such as auto and retail.

"Our manufacturing division is tied up with demographics, so saying that the market is saturated sounds funny to me," he said.

He added that the group already has a head-start in Vietnam — one of the regional growth areas for manufacturing companies like PRG.

"You can now see other manufacturing companies starting to venture into Vietnam, but we are already there," said Lua.

About 47% of PRG's manufacturing revenue comes from Malaysia and Vietnam.

Since last year, the manufacturing division is PRG's only profit-making business, but Lua said PRG's bottomline for the second quarter ended June 30, 2017 will be supported by ongoing sales of its maiden property, Picasso Residences off Jalan Ampang here.

With the listing — which would see PRG remaining a controlling shareholder with a 75% stake in the listed manufacturing arm — PRG can then focus its financial resources on the RM5 billion gross development value (GDV) affordable housing projects it plans to undertake with Syarikat Perumahan Negara Bhd (SPNB).

The decision to list on the more stringent Hong Kong bourse can be seen as strategic, as it would also improve PRG's image in the eyes of international companies, such as in China, where PRG is seeking long-term partnership to help undertake the SPNB projects.

Under the June 14 memorandum of understanding (MoU) with SPNB, PRG has offered to finance the acquisition of lands for the developments.

"We are creating a new business model — previously SPNB will buy and develop [the lands]. Now we will fund the land and the construction, while SPNB will manage the marketing and sales," said Lua.

He added that PRG has looked into four of over 20 affordable housing developments involved under the RM5 billion umbrella project, the first of which will be outside the Klang Valley.

Nevertheless, Lua acknowledged that PRG's market capitalisation of RM310.96 million is relative to the scale of the MoU.

To manage this, PRG on July 17 inked an MoU with China's Jiangsu Provincial Construction Group Co Ltd, a 55%-owned member of China's biggest state-owned developer Greenland Group, which Lua said is indicative of a solid financial backing.

On July 6, PRG also inked an MoU with loss-making Singapore-listed oil and gas (O&G) firm Mirach Energy Ltd to undertake construction jobs.

Lua said the group has considered the risk involved, but sees the partnership with Mirach as beneficial for PRG.

"Mirach has been profitable previously, but they've been affected by the O&G industry. They want to venture into property and construction.

"If a company says they can bring in the financing for us, we will consider as long as it is beneficial for PRG. The most important thing is it can help us digest the RM5 billion worth of projects," said Lua.

Additionally, Lua said SPNB is obligated under the MoU to purchase any unsold unit 12 months after a development is completed, further reducing the risk for PRG. The market can expect the development to kick-start within six months from the date of the MoU, he added.

Meanwhile, Lua did not discount possible borrowings or cash call for further fundraising to manage the scale of the construction projects PRG have in the pipeline.

Considering that PRG shares have been climbing since 2016 to its multiple-year highs this year, with a net gearing of about 0.25% presently, which is relatively low for a construction company, PRG is now seated on a good position to tap into the capital market.

As at 3.05pm, shares of PRG were unchanged at RM1.04 with 95,100 shares traded, giving it a market capitalisation of RM310.96 million. Year to date, the shares have appreciated by 40.54%. — theedgemarkets.com

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