Construction projects, serviced residence to drive growth
O&C Resources Bhd (OCR), an up-and-coming property development and construction company, set to return to the black in the coming financial year particularly with the procurement of a slew of government contracts within the past six months.
Not only do these contracts provide OCR with revenue from construction, but the latest memorandum of understanding (MoU) signed with Universiti Sains Islam Malaysia (USIM) will provide the company with a sizeable recurring rental income for 22 years.
OCR group managing director Billy Ong Kah Hoe says the company will be able to see a profit by the end of calendar year 2017.
“With our contracts in hand, we should be able to break even by the end of our financial year ending July 31, 2017 (FY17).
“The company should fully turn around by the end of December 2017, driven by three construction projects and the launch of our serviced residential development Isola at Jalan Yap Kwan Seng, which will be launched within the first half of 2017.
“Hence, we will see more results coming in during FY18,” Ong tells StarBizWeek in an interview.
For FY16, OCR registered revenue and net loss of RM38.45mil and RM4.09mil respectively, which was an improvement from RM36.76mil and RM7.99mil, respectively, in FY15.
There have also been new appointments in OCR’s boardroom. On Dec 23, it appointed former Al-Rajhi Banking And Investment Corp (M) Bhd CEO Datuk Azrulnizam Abdul Aziz as executive director.
“We are very pleased Azulnizam joined our board. We are hoping to leverage on his expertise and network in banking and financing to bring OCR to a higher level,” said Ong.
Meanwile, the MoU with USIM was signed by Visi Anggun Properties Sdn Bhd, an 80%-owned subsidiary of OCR, for the construction of in-campus accommodation for 3,000 students and 1,200 medical students by way of build-operate-transfer.
This means that OCR will construct and develop the said properties for three years, followed by deriving rental income from the projects, and later transferring the ownership of the developments to USIM after 22 years.
Currently, the university has a total enrollment of 12,000 students but only 3,000 hostel units available on campus.
However, OCR chief financial officer Bernard Tan says it is still too early to gauge firm figures of the earnings generated from this project.
“The MoU serves as an initial understanding for further discussions and to work out details of the project in terms of planning, building, design and construction, as well as operations of the student accommodations.
“After finalising these details, only then we can work out the exact earnings that this project will provide to OCR,” says Tan.
As of January 6, 2017, OCR has an orderbook value of RM287mil and tenderbook value of RM1.3bil.
Apart from that, OCR has secured two Perumahan Rakyat 1Malaysia (PR1MA) housing contracts – one in Bukit Jalil, Kuala Lumpur, worth about RM155mil and the other in Seri Gading, Malacca for RM101mil.
Both projects are expected to be completed in 36 months each, from the date of possession.
The estimated profit attributable to OCR from both projects over the construction period is estimated at RM7.98mil for the Bukit Jalil project and RM6.17mil for the Seri Gading project.
“Looking at the current market situation, affordable housing projects pose less risk, as affordable housing like PR1MA are considered sold – we just have to build it.
“Though it may seem that our focus at present is on affordable housing projects, we do not set ourselves to be entirely an affordable property developer, but one who can develop both affordable and premium properties,” says Ong.
As for OCR’s property development division, the company has five projects in the pipeline located in Kuantan, Malacca and the Klang Valley, with a combined gross development value (GDV) of RM926mil.
These projects will be launched within the next two years.
The company has a joint venture with Masbe Coffee Sdn Bhd (MCSB) to develop a serviced residential property, Isola, in Jalan Yap Kwan Seng.
In October 2015, OCR bought a 51% stake in MCSB, which has the rights to develop a 1,492-sq-m freehold land for RM5mil.
Isola consists of 140 serviced units with a GDV of RM204.94mil.
Located within the vicinity of the Petronas Twin Towers, Ong says Isola’s sales will get a boost from the weakened ringgit, since its location will pique the interest of foreign investors.
“We are quite optimistic on the property market, going forward, so we do not intend to hold back any launches.
“Most of our property projects are carried out through joint ventures. This means there is no holding cost for the land.
“Nevertheless, we are growing our land bank this year, which currently amounts to 30 acres,” says Ong.
Formerly Takaso Resources Bhd which manufactures and trades rubber and baby products, OCR today is in its transformation process to become a full-fledged property developer and construction company.
Ong emerged as a substantial shareholder late last year after the mid-sized developer OCR Land Holdings Sdn Bhd acquired a 13.81% stake in Takaso.
To date, OCR Land and Ong control about 22.7% of the company.
At present, OCR’s property development and construction segment contributes an estimated 15% of the company’s revenue but come FY18, Ong looks to grow the segment to 60%.
While the company is likely to divest its manufacturing and trading businesses, Ong says the timeline to do so has not been finalised.
“We have since managed to reduce losses from these two businesses. Should a good option comes along (to sell the businesses), we will consider and decide on the next course of action.
“But for now, we are still running the manufacturing and trading businesses,” he says.