Hap Seng Consolidated Bhd expects its property and plantation divisions to contribute the bulk of its revenue going forward.
Group managing director Datuk Edward Lee says the company’s existing property projects are already starting to contribute significantly to its earnings.
“In 2015, the property division will continue to be our focus. The landbank that we have will help contribute to the company,” Lee tells StarBizWeek.
According to him, Hap Seng has landbank totalling 1,700 acres – mostly in Sabah.
“We have about 60 acres within the Klang Valley. The projects here are mostly niche, high-end developments. The ones in Sabah are townships.”
Lee says the company’s unbilled sales stood at RM600mil as at September 2014.
For its third quarter ended Sept 30, the operating profit of Hap Seng’s property division grew to RM170.4mil from RM31.2mil in the previous corresponding period while revenue rose to RM112.7mil from RM102mil a year earlier.
Year-to-date, the property division’s operating profit surged to RM601.7mil from RM93.1mil a year ago while revenue increased to RM675.9mil from RM242.5mil previously.
The better earnings were due to higher revenue from ongoing project developments, particularly its luxurious condominium projects, “The Horizon” and “Nadi Bangsar” in Peninsular Malaysia and Bandar Sri Indah in Tawau, Sabah. Earnings were also boosted by fair value adjustments.
According to Lee, the property division’s two flagship investment properties, Menara Hap Seng and Menara Citibank, continue to enjoy good occupancy and rental rates while tenants of Menara Hap Seng 2 have started moving in since last month.
He adds that the company’s Andana@D’Alpinia (Garden Villa and Condo) was officially launched in September with encouraging response.
Overall, Hap Seng’s property division contributed close to 70% of the company’s operating profit for the quarter under review.
It was also recently reported that the company would launch two property projects with a combined gross development value (GDV) of close to RM2bil in the Klang Valley next year.
Lee says he is unperturbed that foreigners now need to pay a minimum of RM1mil to acquire property in Malaysia.
“The portion of foreigners that purchase our properties is small – about 20%,” he says, adding that he is optimistic about the outlook for the company’s property division, going forward, despite a softening of the market currently.
“The properties we have are in prime locations,” Lee says.
Separately, Lee says that Hap Seng is open to the idea of listing its property arm in the future.
“It’s always an option. We have no plans at the moment, but maybe some time down the road. When we have a reason to raise funds, we will consider it.”
The company’s plantation division, meanwhile, registered a lower operating profit of RM32.9mil for the third quarter ended Sept 30, compared with RM41.9mil in the previous corresponding period.
Revenue was higher at RM123.4mil from RM115.2mil a year earlier – mainly attributable to higher crude palm oil (CPO) sales volume.
The lower operating profit during the quarter was affected by lower average selling price of CPO and higher production costs.
“We believe that the plantation industry should be stable next year. We are looking for opportunities to acquire plantations in Sabah.
“We also recently received our licence to build a refinery there which should be ready in two years,” says Lee.
According to him, Hap Seng currently has a planted area of 35,500ha, with 90% of mature areas. “We believe the CPO price should stabilise at around RM2,500 per tonne next year,” Lee says.
Hap Seng’s year-to-date plantation revenue and operating profits were better due to higher average selling prices and sales volume for all palm products coupled with lower unit production cost.
The average selling price realisation of CPO at RM2,474 per tonne and palm kernels at RM1,780 per tonne was 8% and 51% higher than the previous year, Lee says.
Hap Seng’s net profit during the quarter rose 38% to RM194.42mil from RM141,24mil in the previous corresponding period, while revenue was flat at RM828.93mil compared with RM829.47mil a year earlier – mainly due to improved earnings from its business divisions.
For the nine-months ended Sept 30, net profit increased to RM565.04mil from RM445.57mil a year ago, while revenue rose to RM2.78bil from RM2.45bil previously.
Apart from the property and plantation divisions, Hap Seng’s other divisions are the automotive, fertiliser, credit financing, quarry and building materials and trading units.
Lee says the company’s automotive division contributed around 2% to the company’s operating profit in the third quarter and has good growth prospects. Hap Seng is known for its Mercedes Benz dealership in Malaysia.
“Mercedes Benz is well known. And because of our association with the brand, it enhances customer confidence in us, especially our property buyers.”
Lee says the company has six showrooms or “autohaus” in Malaysia currently. “We’re looking at more down the road. Our aim is to enhance customer satisfaction and the after sales service.”
Hap Seng’s automotive division’s revenue and operating profit for the third quarter were higher than previously by 43% and 35% respectively - at RM185.2mil and RM1.9mil respectively.
This was due to higher sales and better margins achieved in all segments, namely the passenger vehicle, commercial vehicle and after sales segments.
Sales volume of passenger vehicles was at 547 units in the third quarter and 1,608 units year-to-date, which is higher than the corresponding period by 14% and 20% respectively.