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This article first appeared in The Edge Malaysia Weekly on November 11, 2019 - November 17, 2019

MALAYAN United Industries Bhd (MUI), which placed its Corus Hotel Hyde Park in London, the UK, up for sale a few months ago, it is now doing the same for a retail asset on Penang island. The asset, located in Kompleks Bukit Jambul, may fetch as much as RM50 million, industry experts say.

Proceeds from the sale may be used to pare down debt. MUI declined to comment when contacted by The Edge to confirm the sale and what it plans to do with the proceeds.

A recent “For sale” advertisement sighted by The Edge states that a high-yield retail space in Bukit Jambul, currently occupied by a hypermarket operator, is available for sale. The advertisement also highlighted that 145,843 sq ft of space, located on the basement and ground floor of Kompleks Bukit Jambul, are up for sale. This freehold asset, in the neighbourhood of a well-known mixed-use development, offers a 5% yield with capital gains potential.

An online search reveals that the asset is tenanted by Mydin Hypermarket and belongs to MUI. A cross-check with MUI’s annual report for the financial year ended June 30, 2019 (FY2019), released on Oct 31, confirms that the asset belongs to MUI and that it is located in Jalan Rumbai.

“The group is mindful of its current gearing position and is making concerted efforts to unlock selected assets that will enable it to lessen its financial leverage while strengthening its liquidity,” MUI says its “Management discussion and analysis” segment of its latest annual report.

As at June 30, MUI’s borrowings amounted to RM822.2 million, of which RM539.93 million was current. Its deposits, bank balances and cash stood at RM241.5 million. Its gearing ratio stood at 1.36 times.

MUI saw its net loss widen in FY2019 to RM102.61 million from RM56.95 million previously. It posted revenue of RM392.9 million, compared with RM400.18 million a year ago.

The 22-year-old property was purchased by MUI in August 2007. The net book value (NBV) as at FY2019 was RM19.09 million, down from RM19.78 million a year ago.

The complex, also known as KBJ, is a seven-storey strata retail building built at a cost of RM350 million in the mid-1990s. The now delisted Metrojaya Bhd, a MUI group company, purchased the 145,843 sq ft space in 1996 for RM28.84 million. In 1997, Metrojaya opened a hypermarket called Cosmart Bukit Jambul. It also operated a Reject Shop at the complex. It is not clear when Cosmart shut down, but The Edge has learnt that Mydin hypermarket took over the space in 2011.

Based on the advertisement, a valuer contacted by The Edge reckons that the asset could fetch as much as RM50 million or RM342 psf and says that if the 5% yield is nett, this makes for a decent deal in the current market. However, a more conservative industry player merely states, “It cannot go for lower than RM20 million.” He points out that smaller units of 1,000 sq ft are being sold for RM400 to RM500 psf.

The other widely reported asset MUI has placed on the market is Corus Hotel Hyde Park in London. In April, MUI said it had appointed international investment bank NM Rothschild & Sons Ltd to seek a buyer for the 388-room hotel in Lancaster Gate. MUI bought the 147-year-old building, which houses the hotel, in 2001. Based on the NBV of the properties listed in MUI’s FY2019 annual report, the hotel is the most valuable asset owned by the group.

In an interview with The Edge in September, MUI chairman and CEO Andrew Khoo Boo Yeow said the hotel sale was underway. He added that the Oct 31 Brexit deadline had probably created more uncertainty and slowed down the process as well as reduced the number of potential buyers.

The hotel is being sold for more than £200 million. Khoo also highlighted that the group is not cash-strapped and in urgent need of selling the asset. The hotel sale would merely expedite its three-year transformation plans, he said.

MUI is halfway through a three-year transformation plan that includes a corporate and capital restructuring, asset rationalisation and business transformation exercise.

It is worth noting that in FY2019, the group disposed of three lots of leasehold land with a four-storey shoplot each in Kuala Lumpur for a RM3.4 million profit and two warehouses in Selangor for a RM16.4 million profit.

Citing Malaysia’s gross domestic product growth forecast for 2019 of 4.6%, MUI, in its annual report , says it expects “the business landscape for retail, hotel, property and confectionery industries in Malaysia to remain difficult with signs of competition intensifying further this year”.

MUI expects its hotel division to continue to face strong headwinds with the competitive market conditions not letting up. Nevertheless, the Corus Hotel group is projected to remain profitable.

“The retail division, especially Metrojaya group, will undergo some needed restructuring of its operations, and expects to see improved operating results this year,” it says.

The confectionery group is continuing with its planned corporate and business reorganisation, which will enable it to more efficiently respond to market needs. As a result, The Network Foods Group expects to see stronger profitability for the current financial year.

As for its property division, MUI plans to continue to build on its strong growth in profitability, despite the overall soft market.

Shares of MUI closed at 21 sen last Thursday, giving it a market capitalisation of RM615.8 million.

 

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