JTI Malaysia seeks buyer for Shah Alam plant

This article first appeared in The Edge Malaysia Weekly, on November 20, 2017 - November 26, 2017.
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JT International Bhd (JTI Malaysia), a unit of Tokyo Stock Exchange-listed Japan Tobacco Ltd, has put its factory in Shah Alam up for sale following its decision to shut down its manufacturing facility in Malaysia amid a challenging operating environment.

Sources say it may be able to get between RM30 million and RM40 million for the factory that is located on a five-acre site. When contacted, JTI Malaysia said, “We can confirm that the land will be put up for sale.” However, it did not provide details about the land size and floor area of the building nor did it indicate the estimated value of the asset.

Industry sources tell The Edge that real estate consultancy Rahim & Co has been hired as the exclusive marketing agent. It is learnt that several real estate agencies had hoped to be appointed to sell the land. Rahim & Co declined to comment.

JTI Malaysia’s move comes a year after the closure of another tobacco plant in Selangor. British American Tobacco (M) Bhd (BAT), citing the challenging business environment, shut down its manufacturing operations as part of its restructuring and sold its factory in Virginia Park, Petaling Jaya.

BAT, which sells the Dunhill, Kent and Pall Mall brands, sold its factories and two parcels of leasehold land, measuring a total of 5.3 acres, for RM218 million in cash to LGB Properties (M) Sdn Bhd, which plans to redevelop the site.

Details of JTI Malaysia’s factory sale remain sketchy, but The Edge understands the land is leasehold, with about 50 years remaining on the lease, based on the area it is located in. The factory is located in Persiaran Raja Muda Shah Alam near the roundabout, easily visible from the road, and just 700m from the Cadbury Confectionery factory.

A prospective purchaser could modify the plant to fit its needs, but the land may also be suitable for development, according to a real estate agent-cum-valuer.

“The plant appears old and as such, the purchaser may want to consider redevelopment of the land,” says the estate agent, who did not want to be named. The value of the land alone, he estimates, could range from RM100 psf to RM140 psf.

For comparison, in August, Chemical Company of Malaysia Bhd (CCM) inked a deal to dispose of its 70.93-acre tract in Jalan Asam Jawa 16/15 in Shah Alam — just 2.4 km from JTI Malaysia’s factory — for RM190 million to GBA Corp Sdn Bhd. That works out to RM61.50 psf for the land, which has about 54 years remaining on its lease.

However, this tract is much larger than JTI Malaysia’s parcel and it is also possible that contamination issues at the site may have to be addressed.

In August 2016, Amalgamated Industrial Steel Bhd sold leasehold factory land, measuring 10.01 acres or 436,036 sq ft, in Jalan Utas 15/7, Shah Alam, for RM69.5 million. At the time of the sale, the lease had 53 years remaining. Assuming the factory is old with minimum value, the price of the land works out to RM159 psf.

It is interesting to note that Rahim & Co also handled the sale of the BAT factory as well as CCM’s land.

JTI Malaysia announced in May that it had decided to close the Shah Alam factory by December 2017 after an extensive review of how it supplies its products to its customers and the operating environment in Malaysia.

Over the past few years, it said, the operating environment has been extremely challenging especially because of the significant and alarming growth of illegal tobacco products, which has cornered 57% of the market.

This led to a 25% drop in the overall legitimate market and an increase in costs associated with the fight against illegal trade, resulting in a complete loss of scale throughout its supply chain, said the company, which is known for its Winston and Mevius (previously Mild Seven) brands.

Operational limitations significantly hindered the sustainability of its manufacturing operations in Malaysia and the further development of its business in the country, it added.

The company also said the free trade agreement regime in Malaysia is also not favourable to exporting products to non-Asean countries and does not enable it to benefit from the opportunities provided by other existing free trade mechanisms, adding to the costs of its current operations in Malaysia.

The closure of the factory will see 270 employees losing their jobs by the end of next month. To ensure consistency in the quality of its products and supply to consumers in Malaysia, JTI Malaysia said it will source products for the local market and other Asian markets from its other production facilities.