Ho Hup Construction on a roll

Its Aurora Place @ Bukit Jalil project fully sold

A year after its exit from PN17 status, small-cap construction and property developer Ho Hup Construction Co Bhd is on a roll.

The company, which dates back to the 1960s, is among the top five of RHB Research’s Top Malaysia Small Cap Companies 2015. PN17 denotes a company in financial distress.

“We are delighted,” says chief executive officer Derek Wong Kit-Leong (pic) in his office in Bukit Jalil, Selangor.

Wong has several other reasons to smile. Mixed commercial development Aurora Place @ Bukit Jalil has sold out and earnings are visible.

This project has been a “huge success”. It occupies about 5 acres and comprises shop offices, retail floors and small offices, versatile offices. The project is fully sold and Wong will be keeping an 18-storey office block, the only office block in that development so far for recurring income.

The entire 10-acre plot, with a GDV of about RM1.1bil, is part of the 60 acres held by its subsidiary Bukit Jalil Development Sdn Bhd (BJD). The other 50 acres would be developed under a joint development agreement between BJD and Pioneer Haven Sdn Bhd, a subsidiary of Malton Bhd, which will be developing Pavilion Bukit Jalil there.

Having completed sales for his first parcel, Wong is targeting to build two blocks of serviced apartments on the remaining three acres after making allowance for infrastructure and amenities like roads and drainage system.

He will be leveraging on the success of Malton’s 50-acre development, which, according to RHB Research, will be launched soon as Bukit Jalil City this year.

Under an agreement hammered out some years ago, Ho Hup will be entitled to 18% of the GDV ranging from RM4bil to RM4.5bil for the 50-acre project.

Phase 1 of shop offices on that 50 acres with gross development value (GDV) estimated at RM345mil were launched by the Malton subsidiary in the second quarter of last year. BJD’s 18% entitlement of this first phase as at March of this year was RM23.8mil.

Phase 2, comprising two and three-storey retail shops and two blocks of serviced apartments have also been launched and BJD’s entitlement as at March 2015 is RM1.1mil.

So earnings are “visible”.

According to RHB Research, the company has combined unbilled sales of RM576.9mil from its two main core business, construction (RM301.5mil) and property development (RM275.4mil). Malton is expected to launch serviced apartments sometime this year at RM800 per sq ft close to the Lai Meng primary school and the new LRT station.

Wong says he launched his three-storey shoplots in 2012 from RM2.8mil, or RM600 per sq ft a few years ago. Two years later in 2014, Malton launched its at RM800 per sq ft, 25% higher. It was a huge jump in prices, even when taking into consideration the rise in prices during that period.

The development of Bukit Jalil City is mainly driven by Malton and the value creation of that 50 acres will be from the retail mall, which have been tagged as “Pavilion Bukit Jalil”, according to a report by RHB Research. This means Ho Hup’s 18-storey block is the only office space there. So, despite an oversupply of office space in the Klang Valley, Wong is unperturbed.

Ho Hup’s Aurora Place and the adjacent three acres that it will develop later on are its main project currently, says Wong.

“We are basically leveraging from the money which would come in from the 50 plus 10 acres, estimated at between RM90mil and RM100mil annually for the next seven to eight years,” says Wong.

Between RM300mil and RM400mil will be put aside for the next two years to buy land in the Klang Valley, Penang and Kota Kinabalu. It will focus on hybrid development with the likes of Aurora Place.

Wong says the company would like to increase its after tax profit of about RM65mil last year by between 20% and 25% a year.

He says once Malton starts branding Bukit Jalil City – expected to take place this year – visibility of the entire development will increase.

As it is, there is already a lot of interest in the various developments in Bukit Jalil with the Berjaya Group having a strong foothold in that area. On a smaller scale basis, boutique developer Exsim Development Sdn Bhd is also there.

Wong says some of the established townships nearby include Seri Kembangan, Sri Petaling, Puchong, Bandar Kinrara and Overseas Union Garden.

According to the RHB report, the Bukit Jalil City mall by Malton will likely be the jewel asset. Leasing activities are already under way for the mall, with a size of 2.4 million sq ft on a net lettable basis.

The report says although the property sector has been slow this year, there are still pockets of opportunity and Bukit Jalil may be one of them, “especially for developers with niche or strategic locations. Malton is one of them,” the report says.

The report goes on to say that in view of the recent re-rating of Ho Hup, and the good relationship between both Ho Hup and Malton, the going should be good for both going forward.

Wong says that over the next 12 months, the company would like to add projects to their books.

It is in the midst of completing a Johor military force camp for the Johor state government with a provisional contract value of RM87mil. This is expected to be completed this year. One of its units has also entered into a joint venture with Zaykabar Co Ltd to develop a high-end residential project, with an estimated GDV of US$200mil (RM634.8mil) in Yangon.

Wong says it would like to be in Myanmar and hopefully will not have to pay too much “tuition fees” as it would like to undertake some of the construction projects there later on.

Revenue from its two core businesses are about equal, with RM195.8mil coming in from construction and RM186.7mil from property development for its 2014 financial year. The company would like to increase its after tax profit of about RM65mil last year by between 20% and 25% a year. Property development contributes about 80% of the profit.

Wong says property development provides a better margin, hence his interest in this segment.

“We are now running a very lean team of 50 to 60 staff. Some of our staff have left and started their own business and we work with them.

“Being tagged PN17 for years, our debts are low. And going forward, we are planning to be more aggressive on the local front,” says Wong.

He says there was a time when it was difficult to get jobs because of the PN17 stigma. Now that it has resolved that, and with the Bukit Jalil project getting good response, things should be good going forward.

Ho Hup was a fairly well-known developer and construction company which started in the 1960s. However, mismanagement set in at around 2000, which culiminated in it coming under PN17 status in 2008.

During that bleak period, it was also embroiled in a long drawn-out court tussle with Malton Bhd that was eventually resolved in 2012 with Ho Hup getting 18% of the GDV for the Bukit Jalil development with the balance 82% going to Malton, and a separate 10 acres to be developed by Ho Hup. - By The Star