This article first appeared in The Edge Financial Daily on April 23, 2018

KUALA LUMPUR: After more than five decades in the furniture business, construction is set to be the mainstay of Federal Furniture Holdings (M) Bhd (FFHB) following the completion of its acquisition of Pembinaan Masteron Sdn Bhd (PMSB).

“Furniture will still be our business; but top-line and profit generator will be led by PMSB,” FFHB managing director Datuk Choy Wai Hin told a media briefing after the company’s AGM last Friday.

Choy believes earnings from construction will be sustainable as PMSB would receive work from Masteron Sdn Bhd, a privately held property firm controlled by the Choy family.

He projected 75% of FFHB’s turnover would come from construction in the future, and a significant portion of its furniture business would also be tied to construction (in the form of interior design jobs post-building).

The “continuous flow of construction work” awarded to PMSB is expected to keep FFHB busy for the next 60 months, he said, adding that margins would be reasonable.

“PMSB can expect at least 7% to 12% of margins from the (construction) works.”

Earlier this year, FFHB paid the Choy family RM27 million for the remaining 40% stake in PMSB, after buying in late 2016 a 60% interest for RM33 million.

Choy did not discount the possibility that Masteron’s businesses, including hotels and properties, could be injected into FFHB in the future, but said there are no plans at present.

To better reflect the change, the company is seeking to be called Federal International Holdings Bhd.

Contribution from construction is already growing. In the first six months to end-December, it accounted for 74.5% of the company’s total revenue compared with 36.1% in the 18 months from January 2016 to end June 2017. (FFHB recently changed its fiscal year end).

On future dividends, Choy said, “We have been giving dividends for the past two years, and we will ensure that there is a dividend flow to keep up.”

He said a healthy cash flow was important to the payouts as the company would not increase dividends at the cost of gearing.

“Our gearing is low — about 0.1 times, but we (also) want to ensure the cash flow is healthy.”

In the second quarter to end December, the company posted a net profit of RM1.1 million on a revenue of RM45.31 million.

FFHB shares closed 0.5 sen or 1.19% lower at 41.5 sen last Friday, giving it a market capitalisation of RM43.24 million.