New property launches to boost Ho Hup’s profit growth

This article first appeared in The Edge Financial Daily, on July 30, 2018.
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KUALA LUMPUR: Construction and property development player Ho Hup Construction Co Bhd is expecting profit growth to accelerate in the financial year ending Dec 31, 2019 (FY19), given better earnings visibility from its RM1.8 billion property project launches.

“We do not expect significant profit contribution from the new launches in FY18, but we are expecting this year (FY18) to be more robust than FY17 as earnings will still come from our current Aurora Place in Bukit Jalil and we might see some recognition of income from our recently soft-launched Kota Kinabalu project.

“The remaining of 2018 and 2019 will be busy years for us with the final stage completion work [for Aurora Place] and our property project launches [worth about RM1.8 billion] towards the year-end after we have deliberately delayed it over few years,” chief executive officer (CEO) Datuk Derek Wong Kit Leong told The Edge Financial Daily.

Ho Hup’s net profit fell 30.3% to RM8.64 million in the first quarter ended March 31, 2018 (1QFY18), from RM12.39 million a year ago, although quarterly revenue climbed by 64.6% to RM58.49 million, against RM35.54 million a year ago.

In FY17, Ho Hup’s net profit fell 38.4% to RM40.54 million, from RM65.79 million a year ago; while revenue contracted 25.6% to RM179.68 million from RM241.37 million.

The group has started recognising contribution from its joint venture (JV) project with Malton Bhd, dubbed Bukit Jalil City, where Aurora Place and Aurora small offices and versatile offices (Sovo) are located. Ho Hup is entitled to 18% of the sale of development properties from this project.

Launched in 2012, Aurora Place comprises three-, four- and five-storey shop offices and retail floors. Sovo, which was launched in 2013, comprises 209 units of flexible office suites for lifestyle and work purposes, above the three-storey shop offices of the Aurora Place.

“Our properties are all suitably located where the demand is there. Definitely, the main impact will be next year as you will see the fruitful [contribution] from the new project launches that we will do in Kota Kinabalu, Kulai, and Bukit Jalil,” he added.

The launches — worth a total gross development value (GDV) of RM1.8 billion — include the first phase of Laman Iskandaria in Kulai, Johor comprising shops and houses with GDV of RM500 million, a high-end service apartment in Bukit Jalil sitting on a 2.8-acre (1.13ha) piece of land (GDV of RM500 million) as well as Crown Service Suites and Crowne Plaza Hotel in Kota Kinabalu (GDV RM800 million).

Wong said Laman Iskandaria township development will be launched between August and September this year, while the group is in the midst of handing over the keys to buyers of Aurora Place.

“This (Laman Iskandaria) will be our maiden flagship development and it is currently under construction. Now, we are in the midst of handing over the keys to Aurora Place buyers and followed by Sovo [buyers]” he said.

Last month, Ho Hup soft launched its mixed-development project in Kota Kinabalu — the 323-unit Crown Service Suites and 376-room five-star Crowne Plaza Hotel, which saw a take-up rate of about 30% based on bookings received.

Wong said the Crowne Plaza Hotel will be managed by InterContinental Hotels Group and slated for completion in 2021.

“We will focus on Kota Kinabalu and we are confident that the take-up rate will reach up to 70% by the end of the year,” said Ho Hup chief financial officer Lee Heng Aun, looking at Sabah’s tourism as the main key catalyst.

At the same time, Wong said the group will continue to look for suitable pieces of land for development.

“I think we have not been actively looking but we plan to start now around the Klang Valley area if the price is right,” he shared, adding that currently, the group’s total land bank stood at about 500 acres.

Besides property development, Ho Hup which is involved in construction and supply of building material, foresees the Kuala Lumpur-Singapore high-speed rail (HSR) project as a bonus to the group, if the new government chooses to proceed with the project. This is because it has experience with government-related jobs, having been involved in the construction of the Petronas Twin Towers, National Sports Complex, Kuala Lumpur International Airport (KLIA), and the Light Rail Transit System (LRT), among others.

“If it (HSR) does happen it will be a bonus to us but if it doesn’t then we will be slightly affected compared to other companies because our quarry is near to the HSR and we are more into a smaller-ticket project rather than a big-ticket project,” he said.

Prime Minister Tun Dr Mahathir Mohamad has said that Malaysia would negotiate for a deferment of the HSR project with Singapore so as to avoid paying compensation under an earlier plan to scrap it.

Ho Hup has three business divisions, namely property, which contributed about 70% of the group’s revenue, construction (20%) and building materials (10%).

“Our property segment is looking promising for next year, while for our construction division, we will continue to tender for the right ‘strategic fit’ government project. Both of them (property and construction) are stable businesses for us.

“For the building material segment, we see it to be a bit weak right now because it depends on the HSR project potential review but we will continue to supply quarry materials for infrastructure projects for road and breakwater works,” he said.

The group currently has a tender book of RM2 billion and an order book of about RM300 million, comprising all government-related jobs sustainable for two years, said Wong.

Going forward, Wong is hoping for lending rules on properties to be relaxed, in tandem with the property market improvement.

“We haven’t done new launches in the last four years. However, since the election we see more positive take-up [rate] in our project, so that’s why we are launching our projects now (FY18) because we see the market is improving,” he said.

Ho Hup closed unchanged at 53 sen last Friday, giving it a market capitalisation of RM198.7 million.