Construction to drive FFH revenue growth

KUALA LUMPUR (Sept 28): Federal Furniture Holdings Bhd (FFH) expects equal top-line contribution from its newly acquired construction business and its traditional core activity of furniture manufacturing and interior fit-out, for the financial year ending June 30, 2018 (FY18).

This projection is based on the fact that FFH has secured construction projects worth more than RM600 million through Pembinaan Masteron Sdn Bhd (PMSB), in which the group bought a 60% stake for RM33 million last November from the family of FFH founder and chairman Datuk Choy Fook On

For the 18-month period ended June 30, 2017 (FFH recently changed its financial year end to June from December), the group registered a cumulative revenue of RM208.52 million and a net profit of RM6.19 million. The group’s construction business, which accounts for only seven months of the 18-month cumulative period, contributed a significant RM75.28 million or 36.1% of the revenue.

“Due to the acquisition, you will likely see FFH with a substantially increased turnover coming from the construction business,” group executive director Datuk Choy Wai Ceong told a media briefing yesterday.

He said there are eight construction projects — comprising mostly hotels and condominiums — totalling RM608 million still to be awarded by the Masteron Group this year, and which are to be completed within the next 36 months.

“On an average of RM200 million worth of execution a year, the profit before tax (PBT) margin that PMSB is expecting is at least 6%, which gives FFH a steady flow of income for the next three years,” he said.

A back of the envelope calculation suggests that with the 60% stake FFH owns in PMSB, it could expect a PBT contribution of about RM7.2 million per year from its construction division.

Wai Ceong added that for now, the group still has a balance of unbilled contracts valued at RM266.7 million, on top of the RM593.3 million worth of projects previously awarded and executed.

Earnings visibility for its construction division is robust, as FFH is banking on the Masteron Group’s portfolio of ongoing and planned property development projects worth not less than RM3 billion in gross development value, slated to be developed over the next 10 years, he said.

The bulk of it comes from the first phase of the PJ South City project named The Verando, and Lakeside City in Puchong.

Meanwhile, managing director Datuk Choy Wai Hin said the group expects to lease a 40,000 to 50,000 sq ft plant in Dongguan in the Guangzhou province for its Starbucks China project.

The group has set aside capital expenditure of RM5 million to RM10 million for the required machinery.

FFH’s share price eased 0.5 sen or 0.79% to 63 sen yesterday, giving it a market capitalisation of RM68.67 million.

This article first appeared in The Edge Financial Daily, on Sept 28, 2017.

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