KUALA LUMPUR (Jan 26): LB Aluminium Bhd (LBA), which is involved in the manufacturing, marketing and trading of aluminium extrusions, said it plans to diversify into property development in a bid to increase its income.
In a filing with Bursa Malaysia today, LBA said the proposed diversification will allow the group to take advantage of attractive investment opportunities as and when they arise, and help reduce LBA's reliance on its manufacturing business, which is increasingly competitive and subject to volatility of its primary raw material.
Currently, LBA — which operates mainly in Malaysia — derives 75% of its revenue from domestic sales, while the remaining 25% comes from export sales. With that, it expects the property development business to result in a diversion of 25% or more of the group's net assets and contribute 25% or more to its net profits.
Still, the group noted the challenges faced by the property sector, saying that the Malaysian market is still in "a state of imbalance" between its supply and demand, due to the oversupply of non-affordable residential housing and idle commercial space.
In the residential sector, however, there is a situation of undersupply of affordable homes of which untapped market still exists, LBA pointed out.
"Being a new player in the market, our group will also face fierce competition from the existing larger players. Such risks and challenges include the need to source for lands in good locations as well as focus more on marketing in order to establish our brand name," said LBA.
Nevertheless, it is of the view that the long-term prospect for property development is encouraging, given the positive outlook of the Malaysian economy.
"When undertaking any possible investments, the board will consider factors such as cash flow requirements of the group, the projected returns on the investment, the required resources and associated costs involved as well as the prevailing market conditions," LBA said.
LBA shares closed unchanged at 64.5 sen, valuing the group at RM160.27 million.