Cover Story: Still in expansion mode

This article first appeared in City & Country, The Edge Malaysia Weekly, on September 11, 2017 - September 17, 2017.

An artist’s impression of Bandar Saujana Putra 6

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It has been a habit of LBS Bina Group Bhd managing director Tan Sri Lim Hock San to sip a cup of lemon water at the office whenever he is in Malaysia — he travels to China two to three times a month. It is no different on the morning City & Country interviews him at the company’s headquarters in Petaling Jaya.

To recap, LBS has been making the headlines recently for its various land acquisitions, property launches and corporate exercises, utilising the proceeds from the disposal of its Chinese assets in 2012. According to Lim, part of the proceeds have also been used to settle loans and pay shareholders special dividends.

The property developer had acquired three projects in China via the reverse takeover of Instagreen Corp Bhd post the Asian financial crisis and later sold two of these to Zhuhai Holdings Investment Group Ltd. It is now left with the 264-acre Zhuhai International Circuit (ZIC), which has a 3.5km professional racing track that has since hosted more than 1,000 local and international races.

The increase in land acquisitions and launches over the past few years is reflected in LBS’ sales figure and, subsequently, its market capitalisation. Sales rose to RM1.238 billion last year from RM1.029 billion in the previous year while its market capitalisation stood at more than RM1.3 billion compared with RM320 million five years ago, translating into an upside of more than 400%.

“Higher sales mean higher revenue and profit, which also means higher market capitalisation because institutional funds are coming in,” Lim explains. “Today, more than 35% of LBS’ shares, other than what is owned by the major shareholders, is held by institutional funds. LBS wants to grow as a dividend yield counter because investors expect returns when they invest in us. We also want LBS to perform better with better profits and PER (price-earnings ratio).”

 

Business diversification

LBS’ property development business has been diversifying into different segments of the market and expanding to different locations in Malaysia. It also took over construction company ML Global Bhd recently.

But the group is ambitious and does not plan to stop expanding. According to Lim, the group is looking to branch out further to enhance its earnings, and is now keen to develop properties that will generate recurring income. The first project would be via ZIC, whose undeveloped land the group is looking to transform into a development comprising motorsport, tourism and cultural components.

Lim explains that the idea for this came after Chinese President Xi Jinping proposed the country’s Belt and Road Initiative in 2013. Recognising the significance of the initiative for business and trade, the group began to look at ways of getting involved in it.

An opportunity arose when China’s Guangzhou city, the capital of Guangdong province, and Melaka became sister cities. As the president of Malaysia-Guangdong Chamber of Investment Promotion, Lim was indirectly involved in the collaboration and he suggested to the state government to establish a Melaka cultural and trade centre in Zhuhai. This was approved by the Melaka chief minister.

“We did that because the sister cities needed an information centre with regard to the collaboration,” Lim says. “We then initiated the ZIC Upgrading and Transformation Plan in March last year with a focus on three major things, namely racing track, tourism and culture.”

ZIC will be a pure commercial development, he adds. The tourism component will comprise a theme park, a factory outlet, a cultural and trade centre, a commercial section and hotels while under motorsport, there will be R&D centres and automotive workshops.

With connectivity between Zhuhai, Hong Kong and Macau enhanced by the completion of the Hong Kong-Zhuhai-Macau bridge by the end of the year, Lim is expecting the development to attract tourists and in turn increase LBS’ earnings for the long term.

“Every weekend, when there is a race at ZIC, there will be 30,000 to 50,000 visitors and if I can get them to go to the cultural centre and the theme park, that will greatly benefit us,” he explains. “They will learn more about Malaysia and may want to visit it. At the same time, the group will be earning money. It is a win-win situation.”

It seems that LBS does not want to limit itself to Zhuhai when it comes to developing properties that generate sustainable recurring income. It is planning similar business diversification back home.

“We are also looking to do a big project [that will generate recurring income] in Malaysia but the details are not confirmed yet. Currently, our recurring income comes from some small shops that we have rented out. When everything goes according to plan, our market capitalisation will go up,” Lim explains.

Earlier, LBS streamlined its construction business under ML Global via a RM300 million corporate exercise that involved a share swap and issuance of new preference shares. Its unit MITC Sdn Bhd sold a 75% stake in MITC Engineering Sdn Bhd for RM225 million in exchange for 200.82 million ML Global shares.

Lim says MITC Engineering, whose core activities are civil engineering, design and build and the trading of building materials, was formed in 2007 to improve the quality of the properties built by the group and to do external work selectively.

“As MITC Engineering had grown, we thought it was time to put it in a listed entity,” says Lim, who is also group managing director of ML Global. “By taking over ML Global, the company could do external work [provided the price was right], even though it was still doing mostly LBS jobs. It could also do small-scale developments or turnkey projects to increase its earnings. If ML Global does well, it will enhance LBS’ profits as well.”

Currently, ML Global’s order book stands at RM2.05 billion. LBS added to the capability of the construction arm after it signed a memorandum of understanding with Sany Construction Industry Development (M) Sdn Bhd in July to work together on manufacturing Industrial Building System (IBS) precast products for projects in the next few months.

This move will help ML Global tackle the increasing labour cost and ensure work quality. It is also expected to enhance the company’s profit and turnover as it improves its competitiveness in the industry.

“Currently, the cost of the precast system is almost the same as that of the traditional method but the system will ensure quality and speed,” Lim explains. “Our upcoming projects, such as SkyLake Residence, will be using the system and we are looking to use it in our Bukit Jalil project and other landed home projects. Labour issues are increasing, so the precast system is a good way forward as it requires less manpower.”

Recently, the group announced that it is buying Gerbang Mekar Sdn Bhd — the owner and operator of the M3 Mall in Gombak — to enter the retail business. The mall is part of a larger mixed-use development called Medan Mega Melati.

 

Future launches

LBS has planned several launches worth more than RM2.7 billion until the end of this year, namely Alam Perdana (RM627 million), the Bukit Jalil project (RM1.29 billion), Bandar Saujana Putra 6 (RM388 million), SkyLake Residence (RM372 million), Desiran Bayu (RM77 million) and Zenopy Residensi (RM232 million).

Of these, Alam Perdana and the Bukit Jalil project will feature 1Malaysia Civil Servants Housing while SkyLake Residence will offer affordable serviced apartments.

The group has 17 ongoing projects worth RM3.2 billion and owns 3,920 acres of undeveloped land in the Klang Valley, Johor, Ipoh, Cameron Highlands, Kota Kinabalu and Gotong Jaya.

“We have many pieces of land and we are waiting for the market to recover,” Lim says. “LBS’ bread-and-butter business is still property and I believe our share price will continue to rise because of our reputation. The price of the land we bought a long time ago, if we can hold it, will continue to go up, which is good for the group.”

In fact, LBS has planned RM11.5 billion worth of launches for the next three years, subject to market conditions, he adds. According to Lim, the group’s current situation is wan shi ju bei zhi qian dong feng, which loosely translates into “all is ready except for the opportunity”.

“We have products ready to be launched, so on average there will be RM3 billion worth of launches a year. The property market is cyclical, so the medium to high-end properties will come back into fashion because house owners will want to upgrade when the economy turns around. I expect a lot of changes in the economy in three years with foreign investments coming in while our national borrowings stand at 55%. By then, we might go for properties that are more high-end.”

However, Lim believes affordable housing will still be the main segment buyers look at because they want to own a house. He urges homebuyers to buy now if they have the money because property prices are unlikely to go down due to the increasing cost of land, building materials and labour, as well as inflation.

 

Future plan

As for the group’s management plan, Lim hopes to groom young people in the group into a professional team.

“We have to train young people … yes, we can hire from outside but if there are capable young people who have been with the group for years, we want to promote them.

“As for our succession plan, a lot of people would naturally want to pass on the business to the next generation. But I don’t want to pressure my children, who are now in the group, into it. And my brothers’ children are still young.”

The 60-year-old hopes to take the group to the next level by increasing its sales figures and market capitalisation. With the strategies already in place, he will probably realise his dream sooner than later.