KUALA LUMPUR (April 22): Furniture maker Len Cheong Resources Sdn Bhd, a wholly-owned subsidiary of Len Cheong Holding Bhd (LCH), has proposed to jointly develop a 0.92 hectare of agricultural land in Melaka with Goldpeace Corporation Sdn Bhd into residential houses, with an estimated gross development value (GDV) of RM6.7 million.

In a filing with Bursa Malaysia, LCH said its unit inked a joint venture (JV) agreement with Goldpeace Corporation, which owns the land to undertake the development.

The JV is part of the company’s proposed plan to diversify its business into the property development sector.

LCH is principally engaged in the business of sawmilling, manufacturing and trading of furniture and furniture parts and timber logs.

Under the joint venture, LCH said its unit Len Cheong Resources will be the developer of the project and Goldpeace shall be entitled to 19% of the project’s GDV.

LCH said the parties are planning to develop 18 units of single storey semi-detached houses and one bungalow on the freehold land in Bukit Lintang, Melaka Tengah.

The company said the plan is expected to be submitted to the local authority for approval by third quarter of 2016.

LCH said the project, expected to commence in the second half of 2017, will yield an estimated profit of approximately RM1.99 million to its unit.

The project is expected to be completed within two years and will be funded by a combination bank borrowings and/or internally-generated funds, it added.

LCH said the revenue derived from its existing furniture business has been declining since 2009 due to a decline in world demand, as a result of the global financial crisis in 2008 to 2009, as well as the current dampened global economy.

“The group continues to operate in a challenging environment due to uncertainty in the global economy and strong competition from other low cost producing countries, such as China and other South East Asian countries,” it said.

“The proposed JV provides LCH with an opportunity to diversify and expand into the property business, where the industry margins are significantly higher than the group’s current business,” it added.

LCH said the proposed JV would contribute positively to its future earnings and improve the financial position of the LCH Group, saying it anticipates the new venture into property business to contribute 25% or more of the group's net profit in future.

LCH also said it has the capacity, capabilities and resources to diversify into the property sector, as its chairman Datuk Seri Sow Chin Chuan and some of the key management of Len Cheong Resources have been involved in property development, as well as construction business in Melaka since 2010, with the completion of several housing development projects, such as Taman Seri Tanjung Minyak and Tanjung Semudra Condominium.

The proposed JV does not require the approval of LCH shareholders, however, the proposed diversification is subject to the approval LCH shareholders at an extraordinary general meeting to be convened.

LCH shares closed 3 sen or 9.09% higher at 36 sen today, for a market capitalisation of RM23.76 million.