TALAM Corp Bhd and Kumpulan Europlus Bhd (KEB), which completed a rationalisation and merger exercise last Monday, should be able to chart strong earnings growth based on their core competencies, controlling shareholder Tan Sri Chan Ah Chye said.
The exercise resulted in the consolidation of Talam and Europlus Bhd's property divisions under Talam while KEB would handle all the non-property related businesses, comprising construction, infrastructure, manufacturing and plantation.
Chan said KEB had now become the parent company, with its crown jewel being its 49% stake in the enlarged Talam.
“We now have a more transparent and focused corporate structure for both companies. This whole exercise streamlines the group's business directions, enabling each company to excel within its own specialty and will enhance corporate governance by eliminating potential conflict of interest,” he told a media briefing in Kuala Lumpur yesterday.
He said KEB's order book of RM800mil now was expected to grow to RM3.8bil upon the confirmation of a number of notable projects, including the proposed RM2.4bil West Coast Expressway, the RM250mil Shah Alam - Shah Alam 2 Highway and the RM450mil Canal City project.
The contract for the West Coast Expressway, which is pending final approval from the relevant authorities, is expected to be signed anytime soon. It is earmarked for completion by the end of 2007.
Meanwhile, Talam is confident of selling about 12,000 property units a year for annual sales of about RM1.5bil. Of its total 17,500-acre land bank, about 10,000 acres are still available for development over the next 15 years.
“We have been through very tough times, mainly as a result of heavy borrowings to expand our land bank. The exercise will improve our capital base and drastically pare down our debt,” Chan said.
Chan, who is Talam executive chairman as well as KEB president and chief executive officer, said that a decade ago, Talam and Europlus had borrowed to expand their land bank for property development.
“We have learnt a good lesson from this episode and will no longer look to acquire massive land bank. From now on, if we need to acquire land, they will be smaller parcels or via joint ventures with land owners to reduce the need for borrowing,” he added.
Talam and Europlus were both suspended on the KLSE on Oct 14, pending the merger exercise. Talam closed at RM1.75 and Europlus at RM1.13.
Next Monday, Talam would be re-listed under the property sector while KEB would assume the listing status of the de-listed Europlus under the construction sector.
Chan said his twin flagships would start on a clean slate with KEB debt-free and the enlarged Talam with a “much more comfortable” gearing level.
The total borrowings of Talam would be pared down from RM2.16bil in January to RM700mil by the end of this year. The debt would be further reduced by around RM150mil to RM200mil a year to RM306mil by 2007.
Talam's paid-up capital has increased to RM489mil from RM215mil before the exercise while KEB's paid-up capital grew to RM473mil from RM270mil previously.
Talam's share capital also rose to 489 million shares from 215 million in January while KEB's 269 million shares have increased to 473 million.
Chan said Talam's shareholders' fund was expected to improve to RM1.46bil by 2007 from RM928mil and this would reduce the company's gearing ratio to 0.2 times from 2.3 times before the exercise.
He said the lower gearing would translate to strong improvement in the company's earnings per share (EPS) as “there will no longer be any pressure to sell our property fast and this should lead to higher gross profits”.
With the improved gearing, Chan said the expense for servicing loan interest would also be reduced by at least four to five sen per share.
As at Jan 31, Talam's EPS was 16 sen while Europlus' was 14 sen.