Group ventures abroad to capture growth in new markets
PETALING JAYA: The PPB Group Bhd continues to play its cards right in its effort to capture growth in new markets.
Given limited growth prospects domestically due to the saturated population dynamics in Malaysia, the company had ventured into neighbouring markets for access to quicker growth for its core business segments.
The diversification had paid off over the years and this had clearly delivered both value and growth to its shareholders.
Despite deriving close to 70% of its earnings from its 18.55% stake in Singapore-listed Wilmar International Bhd, PPB’s management had not rested on its laurels but gained further by expanding its own core business segments.
These business segments include investments in the grains and agribusiness, film exhibition and distribution (FED), property, environmental engineering and utilities and consumer products segment.
PPB has operations in Vietnam, Indonesia, Myanmar, Thailand, China and Singapore.
And despite the company’s strong and geographically diverse operations, its share price have not caught up with the strong expansion in net asset value per share of RM16.80 in FY15 from RM14.19 the year before.
“Clearly the share price is not within our control. But the fact that our share prices have risen actually shows some confidence by investors in our company,” managing director Lim Soon Huat said.
“Our effort and focus is to continue to drive our net asset values. This depends on Wilmar’s performance but it also reflects the potential of our core businesses,” he added.
PPB’s defensive flour business segment was the first key division to venture abroad in a big way and these are paying off today.
Its 80%-owned subsidiary FFM Group owns five flour mills in Malaysia, two in Vietnam, one each in Indonesia and Thailand.
FFM also has a 20% interest in nine associates in China with a combined milling capacity of 14,950 tonnes per day.
In Vietnam where it operates a 51% owned subsidiary, FFM had expanded the plant’s capacity there to 500 tonnes of wheat flour per day last year and it will add 500 tonnes per day to its existing mill in Pasir Gudang, Johor.
While its profits in the financial year 2015 (FY15 ended Dec 31) was driven in part by net foreign exchange translation gains, the company still registered 10% year-on-year growth in revenue compared with FY14.
The company is also moving its film exhibition and distribution business along well, strongly withstanding the various pressures faced from the various alternatives available in the marketplace.
Its domestic operations have performed well and the FED segment is also expanding abroad.
It had first expanded abroad into Vietnam in 2013 with a 25% acquisition in Galaxy Studio JSC which was later increased to 40%.
This year it will inject US$6.5mil (RM26.86mil) into a joint venture to open a multiscreen cinema in the biggest shopping complex in Cambodia.
“In hindsight, the cinema business has been going good for us ever since the early 2000s when the 18 screens Mid-Valley was opened. That period marked some sort of change when malls became the popular place to hang out in our climate,” Golden Screen Cinemas (GSC) chief executive Koh Mei Lee told StarBiz.
GSC (then known as Golden Communications (M) Sdn Bhd) was first established after taking over the cinema operations of Shaw Brothers Malaysia in 1987.
The cinema operations further expanded when it acquired the then Borneo Filem Organization (M) Sdn Bhd which owned the Cathay Organisation cinemas.
“We bought into the business while it was already making a profit and we grew the brand name. Like any other business it goes through its ups and downs and during the times of VHS and TV the cinema business was not doing so well then,” Koh said.
The FED segment is now the second biggest constituent or 17% (RM66mil) to PPB’s core business profits of RM399mil in FY15.
Today despite the rise in input prices it keeps costs contained for the masses so that it will be able to capitalise on growing economies of scale from its leading market position.
“Costs have risen over the years but we have innovative ways of pricing our tickets to help offset this. The main cost is film rental: about half of the ticket price of RM15 is for us to lease the movie to screen, next is rental of the premises,” she said.
“Tickets are also influenced by the entertainment tax of 25% net and the goods and services tax of 6% or 31% in total,” Koh added.
Other than its FED segment, its EEU business segment also has exposure to countries including in China and Indonesia.
While only contributing to 3% or RM11mil to its total core business profit in FY15, the growth in this segment was phenomenal last year.
The segment’s revenue grew 83% to RM255mil while profits jumped more than 100% to RM11mil due to the increase in the number of engineering projects secured and the progressive revenue recognition from completed projects and those at the final stages of construction.
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