THE entry of Encorp Bhd’s former managing director Yeoh Soo Ann into Furniweb Industrial Products Bhd as its single-largest shareholder in late August has put the furniture webbing manufacturer on the radar of investors, as evidenced by the 37% jump in its share price since mid-July.
All eyes will be on Yeoh to see what he will do to realise Furniweb’s aspiration to become a property developer, seeing it has shareholders’ funds of only RM75.18 million and no landbank.
|Yeoh: There are a lot of gaps in the market that can still be filled [despite the slowdown in the property market]|
“When I came into Furniweb, I was actually quite concerned about its [financial] capability, because property development requires the fire power and cash flow. So, how do we expand into property without [a large amount of] cash, just like we did with Encorp?” Yeoh says in an interview with The Edge. “We’ll start off with joint ventures (JVs).”
Yeoh, now executive director of Furniweb, says the company aims to be nimble in developing properties for various markets because it will form JVs with landowners rather than buy land and develop it on its own.
This would also save Furniweb the cost of landownership while it waits for another upcycle in the property market. Yeoh says the company will be positioned as a niche property developer catering for the market’s needs and demands, thus it will capitalise on any opportunity that comes its way.
“I think there are a lot of gaps in the market that can still be filled [despite the slowdown in the property market]. A friend of mine is developing a project in Kota Baru. He is selling at about RM700 per sf, yet he has already managed to sell almost 70% of the units.”
“There is beauty in being a small player [in property development], people are more willing to come and talk to you about a partnership,” he adds.
At the close of the second quarter ended June 2014 (2QFY14), Furniweb was in a net cash position with cash and deposits totalling RM24.94 million while total debt stood at RM17.44 million.
Furniweb has a long way to go but Yeoh says its clean balance sheet, positive cash flow and profitability will allow it to take on the financing needed for its property development arm.
For now, the company’s main business remains the production of furniture webbing and components, as well as rubber strips and fabrics. It has a presence in Asia-Pacific, Europe and North America.
Furniweb’s revenue and net profit have been volatile in the past six years as the company was embroiled in a stiff price war to retain market share. In 1HFY14, it registered a net loss of RM1.22 million compared with a net profit of RM2.01 million the year ago.
Yeoh says Furniweb will eventually be classified as a property company and derive most of its income from property development. It will keep the furniture business, with plans to streamline operations, upgrade machinery to enhance production efficiency, and expand its market presence.
After selling his shares in Encorp to Felda Investment Corp three months ago, 53-year-old Yeoh felt restless. Now that he has bought a 17.4% stake in Furniweb, he is brimming with ideas on how to add value to the company, and plans to announce one or two property development JVs before the year is over.
Yeoh is tight-lipped on details but shares his plans for the company’s upcoming maiden property development project, a 472-unit condominium in Jalan Jelatek, Kuala Lumpur. “I’m going with two options: One is that we go with what we have today and sell en bloc and I would take the money and expand [our property development arm]. The other is the possibility of converting the project into a commercial property to add value.”
He has been in talks with a few foreign parties who are interested in purchasing all the units. Valued at about RM1 million each, the units meet the floor price set for overseas property buyers.
“We will only construct if we sell [all the units], because if we don’t break even and we start construction, it will eat into our cash flow,” Yeoh explains.
According to Furniweb’s circular to shareholders, the condominium project, to be completed in four years, will be undertaken by a 60:40 JV between Furniweb’s wholly owned subsidiary Premier Gesture Sdn Bhd and Almaharta Sdn Bhd. The project will have a gross development value (GDV) of RM560 million and cost RM380 million, translating into a gross profit margin of 32.14%.
However, if it is decided that the project should be a commercial endeavour, he has suggested to landowner Almaharta to hold on and wait for the land’s value to appreciate. “At the end of the day, it’s all about the question of enhancing the value. If you do that, the GDV will easily double.”
Yeoh has carved a reputation for turning companies around. After a management buyout of GW Plastics Holdings Bhd, he streamlined its operations and customised its product offerings for each client, eventually multiplying the company’s net profit by more than 14 times in six years.
Next, he sold off its packaging business to competitor Scientex Bhd and redistributed RM1.19 per share to shareholders when its stock was trading below the 40 sen band.
Yeoh attributes his strength to his accounting background. However, he also says it is important to understand the business and focus on finding opportunities. “[When I was in Encorp], we were the second party to enter Johor, actually, after UEM Group Bhd. At the time, nobody wanted to go into the state. But we saw an opportunity. There is a lot of catalytic development around — Legoland, Educity and so on.
“Nobody sold properties in Johor at RM1,000 per sq ft [at the time]. Even the valuers valued the land at 400 to 500 per sq ft. But suddenly, everyone realised there was a gap. It’s a question of going in before others,” Yeoh says.
While Furniweb will soon have a new core business, Yeoh says it is a company that will see slow but steady growth.
At last Thursday’s close of 85.5 sen, it was trading at 16.3 times historical price-earnings ratio.
This article first appeared in The Edge Malaysia Weekly, on September 29 - October 5, 2014.