GRAND-FLO BHD does not appear to be the right stock for a Goods and Services Tax (GST) theme on Bursa Malaysia. However, according to its president and managing director

Tan Bak Hong, the company is a clear beneficiary of the consumption tax because its sales force automation (SFA) solution enables its clients to capture all the output tax at one go. This solution, Tan adds, will come in handy when businesses start filing their tax claims with the Customs Department.

“Many have underestimated the importance of GST claims. This task has to be computerised because it cannot be done manually. If you do your claims slowly, they will be delayed and the result will be cash-flow problems,” he tells The Edge.

Grand-Flo’s SFA solution, dubbed ManageSales, will allow the speedy consolidation of the businesses’ input tax, thus enabling them to submit their claims at the earliest possible date, Tan adds. It will also allow mobile workers, especially those in van sales operations, to perform route sales, direct store deliveries, market and distribution checks.

As the solution is now GST-ready, the sales operation and management teams are freed from tedious calculations and they can expect fast recovery of GST claims from the government.

Thanks to this benefit from the new tax regime, Tan expects Grand-Flo (fundamental: 1.8; valuation: 1.4) to post a record-high revenue in its first quarter ended March 31, 2015 (1QFY2015). “The positive effect of GST will send our revenue in 1QFY2015 to an all-time high. Year on year, we can almost double it,” he says.

Grand-Flo did not do very well in 1QFY2014 with its revenue declining to RM14.2 million, down nearly 25% from RM18.9 million a year ago. Traditionally, the tracking solutions provider reports a revenue of RM14 million to RM15 million in its first quarter.

In its financial year ended Dec 31, 2014 (FY2014), Grand-Flo made a net profit of RM6.1 million on revenue of RM85.6 million. It declared a dividend per share of one sen, which represented 68% of the group’s net profit that year. The company has a policy of distributing a minimum 20% of net profit to its shareholders.

Consumer good companies, including those in confectionery and tobacco, are using Grand-Flo’s solution to avoid the GST claims hassle. “Gardenia and Massimo were already our clients and more recently, because of GST, the likes of Mighty White and Fuji Bakery as well as a Johor-based bakery have become our new customers,” says Tan.

Commenting on why Grand-Flo is not seen as a GST beneficiary, Tan says most investors are looking for companies with a core software business. “Besides the fact that we have diversified [into property development], if you look at our EDCCS (enterprise data collection and collation system) business, there are our hardware and software segments. So, investors might think the impact of GST on us is not as great as that on pure software companies,” he explains.

In 2013, Grand-Flo acquired a 52% stake in Jalur Bina Sdn Bhd to kick-start its maiden property project, called The Glades, in Alma, Bukit Mertajam. With a gross development value (GDV) of RM63 million, the project features a total of 76 semi-detached houses and bungalows.

Last year, the company acquired 50% plus one share of Innoceria Sdn Bhd, which holds the rights to and interests in a mixed-use development in Batu Kawan. Dubbed the Vortex Business Park, it has a GDV of RM220 million.

The property division is expected to account for half of Grand-Flo’s revenue and profit from FY2015 onwards with the remaining half coming from its traditional businesses.

Initially, the company planned to expand its total GDV from RM283 million to RM500 million by early this year but considering the weak market sentiment, it has had no choice but to push back its target to 2016. It will also not proceed with its third project in Batu Kawan, Penang.

“We cannot be too aggressive, given the current market condition, the impact of GST and tighter lending guidelines. It is difficult for buyers and developers to get bank loans. So, we are taking a safe approach,” says Tan. However, he reveals that Grand-Flo will be appointing a new executive director to take charge of the property division as it is still eager to go big in the sector.

Tan admits that Grand-Flo is no longer keen on operating in Thailand as he sees the internet business there requiring huge capital expenditure. The company’s 20%-owned associate Simat Technologies PCL, which is listed in Thailand, started as a tracking solutions provider before venturing into fibre-optic, high-speed internet services in the country.

Simat has to date secured 5,000 subscribers. Its internet division reported a loss of RM5 million last year but it is expected to break even when its customer base reaches 10,000 subscribers.

To recap, Grand-Flo bought a 49% stake in Simat for only RM3.4 million in 2005. Today, its 20% stake is worth RM60 million compared with Grand-Flo’s market capitalisation of RM131.87 million.

Tan says the plan is to exit the investment at RM100 million. “If we can find the right buyer, we might let it go. We can make money at any price we sell. There will always be huge investments in the telecoms business. Eventually, our stake in Simat will be diluted as the company will keep issuing shares to raise funds,” he points out.

This article first appeared in The Edge Malaysia Weekly, on May 4 - 10, 2015.

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