Hua Yang maps out strategy [The Star]
Friday, 9 June 2017
SELAYANG: Fresh from securing shareholder approval for raising its stake in Magna Prima Bhd, the CEO of Hua Yang Bhd, Ho Wen Yan, has laid down key strategic moves.
For one, both companies will not be merged. Rather, a detailed joint-venture agreement is being inked out. Ho, who belongs to the founding family of Hua Yang, reiterated that the attraction of Magna Prima is the 2.62 acres that used to house Lai Meng School along Jalan Ampang in the vicinity of the KLCC twin towers.
The possibility of hiving off that parcel of land has also been ruled out.
“Previously, it (Magna Prima) did put the land on the market. Currently, it is resubmitting new plans for the development of that piece of land,” Ho told reporters after Hua Yang’s EGM.
“The Jalan Ampang land is the most valuable asset of Magna Prima. Prime assets within KLCC depend on a few factors, such as the current market situation. Once the property sector recovers, we can really look at unlocking the value of the land.”
Recall that Hua Yang, a property company focused on building affordable homes, first took up a 10.84% stake in Magna Prima on Jan 25, 2017 for RM66.6mil or around 25 sen per share.
Then on April 19, Hua Yang proposed to raise its stake to 30.96% by paying RM123.7mil or RM1.85 per share. Hua Yang shareholders approved this at the company’s EGM yesterday.
The deal did raise questions, considering that Hua Yang is well known for its affordable housing developments, while Magna Prima is a luxury property developer.
But said Ho: “Our investment (into Hua Yang) is worth more than what we had paid for. We bought the remaining 20.12% at RM1.85 because it allows us to buy a big block. If we go into the market to buy, it may even go above RM1.85 because there are not enough sellers in the market.
“But the value of the company is better than that and we hope to unlock that value very soon,” said Ho, who was appointed as Magna Prima’s executive director in February.
Magna Prima bought the Jalan Ampang land in March 2010 for RM148.2mil cash (or around RM1,350 per sq ft). The initial plan was to develop the Lai Meng land into what would be called the Jalan Ampang Iconic Towers, a mixed development comprising residential, business, retail, hotel and corporate offices, with a gross development value of RM1.8bil.
Ho said Magna Prima is actively exploring the best plans to unlock the value of that piece of land.
“Planning guidelines have changed, so Magna Prima is resubmitting for new approvals. I do not have the information on what the approvals are about.”
He added that there were no plans for a merger between Hua Yang and Magna Prima.
“I have no information on that. I just joined the company (Magna Prima) as an executive director. My role there is to help them unlock the value of their land bank. Currently, there are no plans for a merger that I am aware of.
“Magna Prima has five parcels of land with good value within the Klang Valley. It is working with us to unlock the value of these parcels of land and this will help realise the investment by Hua Yang.”
Ho acknowledged that both companies offered different products in the market.
“Strategically, both companies can still have their separate identities. Hua Yang will continue to focus on the affordable segment. This new investment gives us an opportunity to tap into a mid-to-high segment, as well as the Klang Valley segment more meaningfully.”
Ho added that Hua Yang had no plans to increase its stake in Magna Prima beyond 33%, which would trigger a mandatory takeover offer.
Hua Yang will fund the RM123.7mil purchase of the additional 20.12% stake in Magna Prima through 30% internal funds and 70% bank borrowings.
The company is in a net debt position of over RM230mil and according to Ho, its gearing ratio will be at 0.5 times upon raising the debt for the Magna Prima block of shares.
For now, Ho said the immediate aim is to assist Magna Prima in its operational and communication needs.
“On the Hua Yang side, we’re strong in a few things, namely, operations and execution. So, that’s a skills set we can bring to Magna Prima and help it execute its projects more efficiently at much better cost management.
“We are also quite experienced in terms of media and investor relations. It’s something we can share with Magna Prima, as it has been under the radar for a long time.”
In the mid to long term, Ho said both parties would be looking at collaborating on new projects in the Klang Valley.
“We’re always looking at new land bank. Once we see something that both companies can enter into, we will kick it off.
“If we find a piece of land that is suitable for Hua Yang, Hua Yang may buy it. We’re setting up some guidelines for the two companies to have a joint venture.”
For its fourth quarter ended March 31, Hua Yang’s net profit plunged 56% to RM9.46mil from RM21.32mil in the previous corresponding period, while revenue dropped to RM80.68mil from RM127.57mil.
The company owed the lower earnings to the completion of three high-rise projects in the Klang Valley – Metia Residences, Residensi Flora @ One South and Sentrio Suites.
For the full year ended March 31, net profit fell 45% to RM60.74mil from RM110.07mil in the previous corresponding period, while revenue declined 33% to RM385.36mil from RM575.74mil previously.