Garment maker Yong banks on property

Garment manufacturer Yong Tai Bhd is growing its presence in the property development market despite the current soft market.

It has entered into memorandum of understandings (MoUs) with five vendors to launch property projects with a combined gross development value (GDV) of RM7bil over the next eight years. The proposed projects are in Malacca, the Klang Valley and Johor.

Yong Tai, which ventured into property development last year, is banking on property development to turn around its loss-making garment business.

The group, which has a market capitalisation of RM74.6mil, intended to acquire more land.

“There are still some documentations and due diligence that must be done and this will buy us some time. We believe the market will rebound,” executive director Ng Jet Heong told StarBiz in an e-mail.

Yong Tai has been making losses since 2008. Its loss-making garment subsidiaries Golden Vertex Sdn Bhd and The Image Outlet Sdn Bhd have been affected by stiff competition from China and Vietnam.

On June 30, Yong Tai announced that it was selling its interest in the two subsidiaries to Extreme Riches Sdn Bhd for RM2. It is expected to record a paper gain of RM6.77mil from the sale.

“We are confident of making profits in the current financial year ending June 30, 2016 after being in the red for many years,” said Ng, adding that it could now focus on property development.

Asked if the company intended to shut down its garment business, Ng said it was reducing its operating and administrative costs in the textile and garment businesses since its other retail subsidiaries were still making reasonable profits.

Yong Tai had signed a deal with Malacca-based PTS Properties Sdn Bhd to build a 29-storey luxury condominium hotel known as The Pines in that state last year.

The group is also the project manager of the mixed development project dubbed The Apple and Courtyard by Marriott, a 32-storey service apartment and 16-storey four-star hotel in Malacca. For the nine months ended March 31, the company’s net profit stood at RM1.1mil compared with a loss of RM1.9mil a year ago. Revenue for the period nearly double to RM86mil.

Yong Tai had signed agreements with PTS Impression Sdn Bhd, Yuten Development Sdn Bhd, Terrawest Resources Sdn Bhd, Land and Build Sdn Bhd and Admiral City.

Of the potential projects, the company said the Malacca development jobs could contribute GDV worth RM6.3bil, while those in the Klang Valley and Johor Baru may contribute RM341mil and RM363mil respectively.

Ng said the five potential projects with a landbank size of over 110 acres were expected to contribute to Yong Tai’s bottom-line in the long run.

The group will generate recurring income once the The Apple project and “Impression Melaka”, which will host cultural shows are ready in 2017.

The funding for the proposed acquisitions will come from RM63.32mil raised through a rights issue and special issue of shares in June.

Of the RM63.32mil, RM35mil is proposed to be pumped in to partially finance its mixed development project, The Apple and Courtyard by Marriott in Malacca and RM16.32mil to be set aside for future property projects.

Ng said the group had plans to grow its property development business, aiming for 80:20 contribution to its bottom line compared with 60:40 currently.

Yong Tai’s share price was at its highest on July 31, at 78 sen.

“The property market could be quiet for some time now. Some developers have even delayed their property launches due to the soft market,” a property valuer said, adding that the majority have adopted the “wait-and-see” approach.

Meanwhile, a report by rating agency Moody’s Investors Service said it expected demand for residential property in Malaysia to slow further this year, crimped by the property cooling measures imposed in 2013 and the weaker sentiment.

It said developers focused on residential projects in Johor, Kuala Lumpur, Selangor and Penang would face challenges in achieving their sales targets.

Moody’s pointed out that despite the banking system being well positioned to deal with a soft landing in property prices, delinquencies on mortgages and construction-related loans were likely to increase, albeit from low levels.

“Malaysian banks have robust capital buffers and healthy pre-provision profitability. That said, we consider mortgages with high loan-to-value ratios and loans to over leveraged households and developers to be at risk of payment slippage,” said Moody’s. - By The Star