Paragon Globe aims to be township developer

This article first appeared in The Edge Malaysia Weekly, on March 23, 2020 - March 29, 2020.

Pei Seng: It’s not just about top and bottom lines … first, we have to transform the company. Photo by Patrick Goh/ The Edge

Goh: We (Paragon Globe) aspire to become a township developer rather than just a boutique developer. Photo by Patrick Goh/ The Edge

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WHEN Datuk Seri Edwin Tan Pei Seng and his younger brother Datuk Seri Godwin Tan Pei Poh bought a controlling stake in sanitary ware distributor Goh Ban Huat Bhd (GBH) from elusive tycoon Tan Sri Robert Tan Hua Choon in September 2017, they had a clear goal — to turn it into a full-fledged township developer.

The company was renamed Paragon Globe Bhd in April 2018 and reclassified as a property counter in January this year, with some of its legacy businesses being sold back to Hua Choon and his companies.

“The disposal of the trading business and the reclassification of sector marked the completion of Stage 1 of our metamorphosis. As we aspire to grow into an integrated township developer, we hope we can soon benchmark ourselves against such developers. That will be Stage 2 of our metamorphosis,” Pei Seng tells The Edge in an interview.

The next two years will be important for Paragon Globe. “It’s not just about top and bottom lines. The numbers will come later. But first, we have to transform the company,” he says.

Paragon Adventure Sdn Bhd had in 2017 acquired a 51% stake in GBH from its then largest shareholder Hua Choon for RM145.7 million or RM1.40 per share. Paragon Adventure is co-owned by Pei Seng and Pei Poh, who are renowned in Johor’s property scene through Joland Group of Companies, which was founded by their father Datuk Tan Eng Boon.

“Joland is basically a land owner and a small developer. About 10 years ago, my brother and I started Paragon Group by acquiring land from our father, and then we built several projects under the Paragon brand. Today, our listed company Paragon Globe is still in the early stage of its corporate journey and it will take time for us to grow it,” says the 39-year-old Pei Seng.

Paragon Globe had in February disposed of its entire stake in GBH Bathroom Products Sdn Bhd, Dcor Bath Sdn Bhd and GBH Crown Lynn Sdn Bhd, which are involved in the business of trading and distribution of ceramic sanitary wares.

Hua Choon, who is widely known as the Casio King, remains a substantial shareholder of Paragon Globe with a 9% stake.

The group saw its net loss widen to RM3 million in the financial year ended March 31, 2019 (FY2019), from RM828,000 in the previous year.

Pei Seng reveals that Paragon Globe has at least two major projects in the pipeline. One is the development of a private hospital in Sepang, Selangor, which is expected to begin construction this year and be completed in 2022. The group also plans to develop a 31.1-acre parcel near EduCity in Iskandar Puteri, Johor, into a commercial area in the next three to four years.

Selgate Sepang Hospital

Although the public has a perception that investments in the healthcare and wellness sector take a longer time to break even, Pei Seng says the increased spending in the sector and the increasing demand for healthcare services have encouraged Paragon Globe to venture into this industry.

“To us, venturing into the healthcare business has always been in the back of our mind. In Johor, we did some market studies and decided to apply for a licence to operate private hospitals as our first step into the healthcare sector. We applied to build one in Ulu Tiram (using our private company), then another one in Sepang (using Paragon Globe),” he reveals.

The Selgate Sepang Hospital will be operated by Selgate Healthcare Sdn Bhd, a unit of Selgate Corp — a wholly-owned subsidiary of Selangor State Development Corp — that has committed to build 10 new private hospitals in Selangor.

The construction of Selgate Sepang Hospital is expected to cost Paragon Globe RM80 million to RM100 million, while the funding will be a combination of 20% equity and 80% bank borrowings.

“We are working together with several financiers and have found that banks have a good appetite for lending for healthcare assets. The construction of the project will easily take two years. We cannot rush it but, hopefully, we can start [construction] work this year,” says Pei Seng.

Once the project is completed, Selgate Healthcare will operate the hospital for 15 years, with an option to extend for another 15 years. Paragon Globe, as the asset owner, will collect rental as recurring income.

“For the first 15 years, our expected recurring income should be around RM200 million. For the second 15 years, once we pay back the bank loan, we would generate more profits for the company,” Pei Seng explains.

He adds that Paragon Globe will continue to develop and expand its healthcare business as it intends to become an integrated township developer with a focus on Johor and Greater Kuala Lumpur.

“We are continuously on the lookout for good opportunities to expand our property development activities. We hope to eventually integrate the healthcare, education, hospitality, industrial and business park into a township development in the long run,” says Pei Seng.

 

Integrated Sustainable Living project

Paragon Globe’s first land deal after its diversification into the property sector is the 31.1-acre parcel in the Integrated Sustainable Living (ISL) township located in Iskandar Puteri.

On Dec 5 last year, the group signed a conditional share purchase agreement with Iskandar Capital Sdn Bhd to acquire the land for RM60.96 million, or RM45 per sq ft. Iskandar Capital is jointly owned by Kumpulan Prasarana Rakyat Johor Sdn Bhd, Khazanah Nasional Bhd and the Employees Provident Fund.

Paragon Globe CEO Gary Goh Soo Liang says the strategic location of the land, which is within the vicinity of Iskandar Malaysia, fits well into the group’s future expansion plan.

“We aspire to become a township developer rather than just a boutique developer. Of course, to begin with, we have no choice but to be a boutique developer first,” he says.

Goh points out that to kick-start the development, Paragon Globe plans to build drive-through restaurants, corporate offices and shopoffices.

“We hope that these early projects will be the catalyst to draw crowds and then we can bring in some entertainment and lifestyle elements. But more importantly, it has to fit into Khazanah’s 3,000-acre master plan — the ISL township,” he says.

Goh acknowledges that the outright purchase of the 31.1-acre parcel is only Paragon Globe’s first step to tap into the ISL mega development.

Its second step is to establish more collaboration with Khazanah’s group of companies there. “We want to work together with them more. Our aim is clear — we want to be a township developer. With just 31.1 acres of land, we can never be a township developer. We hope to achieve more together with them,” he says.

Goh adds that the developments over the last six months have showcased Paragon Globe’s ambition and deal-making capabilities. “By the end of the next five years, we will embark on the next phase of growth to solidify our position as an integrated township developer. [By then,] we hope that our valuation will reflect our market positioning.”

Shares in Paragon Globe closed down 7 sen or 7.69% at 84 sen last Wednesday, giving it a market capitalisation of RM156.79 million. The share price has fallen 19% over the past year.

 

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