KUALA LUMPUR: Veteran stockbroker Tan Sri Ong Leong Huat plans to merge PJ Development Holdings Bhd (PJD) and OSK Property Holdings Bhd soon, which will create the country’s first-tier property group.

“We have that in mind. I think it will be quite soon. You will hear from me,” Ong told a news conference after PJD’s extraordinary general meeting here yesterday.

He said the consolidation of PJD and OSK Property will create a larger entity with stronger financial muscle, higher efficiency, as well as attracting top talent.

“If you have two companies doing the same thing, and when you consolidate them into a bigger one, you can do better things and deliver better results. That is why the financial institutions, banks and software companies are going into giant corporations,” said Ong.

However, he said it remains to be seen if the combined entity will remain listed on Bursa Malaysia.

“It is not our intention to privatise [these companies], but to synergise them,” Ong said.

Ong is group managing director of OSK Property as well as non-executive chairman of PJD.

He emerged as a substantial shareholder of PJD in November 2013 with a 21.31% stake, taking the place of older brother Wong Ah Chiew. He also controls 71.65% of OSK Property.

PJD managing director Andrew Wong Chong Shee, who is the younger brother of Ong, downplayed the speculation of a possible merger with OSK Property in November last year.

According to Ong, the property development sector has a low-entry barrier and is becoming difficult for smaller or niche developers to deliver nowadays, as the overall profit margins of property companies remain low at about 10%.

“The [property development] business is not that lucrative. Now that all the players are buying expensive land, there will be further margin squeeze. In the volume game, you need economies of scale.

[Therefore,] we want to propel them (PJD and OSK Property) into the top tier and thus, they have to be a larger entity. At the moment, we are a second-tier developer,” said Ong.

A first-tier developer has an annual turnover of RM3 billion, while a second-tier has RM1 billion, he explained.

PJD generated revenue of RM1.169 billion in the financial year ended June 30, 2014 (FY14), 41% higher than RM827 million a year ago.

OSK Property’s revenue in the first half ended June 30, 2014 (1HFY14) stood at RM324 million, while its full-year revenue could reach RM648 million on an annualised basis.

Ong said PJD is expected to see profit growth of 20% in FY15, up from RM224 million in FY14, driven by its ongoing projects such as YOU City @ Cheras in Kuala Lumpur, Woodsbury Suites @ Harbour Place in Butterworth, Penang, as well as a serviced apartment project in Sungai Karang, Kuantan, Pahang.

Earlier at the meeting, shareholders gave PJD the green light to acquire a 2.026ha piece of freehold land in Southbank, Victoria, Australia from Dynasty Falls Pte Ltd for A$145 million (RM416.6 million) in cash.

The prime land is earmarked for a mixed development with an estimated gross development value of RM8 billion to RM9 billion to be completed in five to seven years.

Ong said this is PJD’s first major project outside Malaysia and is expected to contribute a higher profit margin compared with local projects.

PJD shares closed six sen higher at RM1.79 yesterday, giving it a market capitalisation of RM808.6 million. OSK Property’s share price advanced three sen to RM2.35, with a market cap of RM567 million.

This article first appeared in The Edge Financial Daily, on October 10, 2014.