This article first appeared in The Edge Financial Daily, on October 5, 2015.

BUTTERWORTH: Tourism-focused Sanbumi Holdings Bhd, which has been loss-making since 2006, is cautiously optimistic that its new diversification into property development would improve the company’s earnings prospect, beginning with a planned 37-storey serviced apartment project in Bukit Mertajam.

Its shareholders approved the new business venture last Wednesday during an extraordinary general meeting (EGM). It is also reviewing its non-performing units to restructure and consolidate its business, according to its managing director Datuk Chua Tiong Moon. He declined to specify which, but stressed that the group is working very hard to return to the black.

“This is the avenue we are choosing. We will continue with our core business of tourism activities, and restructure some companies while diversifying into property development.

“We are positive about our maiden project, which will reduce our reliance on one [core] business in the long run. We hope to generate more revenue for Sanbumi in the future through the property sector,” he told The Edge Financial Daily when met last week.

The serviced apartment project, to be located on 0.66ha of land at Jalan Rozhan, has an estimated gross development value of RM240 million. It will take off in the second half of next year and is expected to contribute to the company’s earnings in the next four years, said Chua.

“We have a business plan … we feel the project is expected to contribute positively to the company — that means no losses. But we cannot promise anything,” he said. “In Penang, we see the property sector recovering because of foreign purchases with the weakened ringgit, which [gives them] a 20% to 30% discount [from earlier this year],” he said.

Sanbumi’s aversion to continue relying on the tourism sector — particularly the Chinese tourist market — came after the company’s business took a blow following the two major Malaysian airline tragedies last year.

“Our main business is from Chinese tourists, who make up about 50% to 60% of tourist arrivals in Malaysia. We have hotels, tour agencies, and travels catering to them as it is a niche market. But the airline tragedies, as well as the kidnappings in Sabah, reduced the number [of Chinese tourists] significantly last year,” he said.

Apart from tourism, under which it owns and operates three hotels, a string of travel agencies and souvenir shops, the group is also in the timber/sawmill and crane businesses.

In its circular to shareholders, the group, which has a landbank of about 21.3ha, said the new diversification would redeploy part of its idle assets for more productive purposes. In the EGM, it also secured shareholders’ nod for placing a private placement to raise RM5.75 million to finance the preliminary development cost of the serviced apartment project.

Shareholders also agreed to Sanbumi’s 15.1 million treasury shares cancellation that would reduce its issued and paid-up share capital from RM189.24 million of 189.24 million shares to RM174.13 million of 174.13 million shares. The par value reduction would give rise to a credit of RM156.72 million, which would be used to offset the company’s accumulated losses.

Chua said the company would secure a bridging loan after considering its cash in hand, which stood at RM14.62 million as at June 30, 2015.

In its first quarter ended June 30, 2015 (1QFY16), net loss narrowed 53.9% to RM1.6 million, compared with RM2.5 million in the same period last year. Revenue also came in higher at RM11.3 million compared with RM6.4 million.

This brings its accumulated losses to RM120.59 million, as at June 30.