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MB World confident of good performance this year
Ho Chung Teng 
The Taman Sri Penawar township spans 190.2ha and has a GDV of RM1.9 bil
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MB World Group Bhd is confident it will continue to post a good profit in the financial year ending Dec 31, 2017. This is despite concerns over possible lower recognition of profits from its Pinnacle Tower project, which is nearing completion, and its Taman Sri Penawar township project, which has just been launched.

According to its executive director Ng Liang Khiang, the Johor-based developer is optimistic of being profitable in FY17, backed by the launch of new phases worth up to RM492 mil in gross development value (GDV) in Taman Sri Penawar this year.

Among the launches are phase one comprising 265 single-storey terrace houses (sold out), phase two comprising 320 single-storey terrace houses (70% sold), Harmonia double-storey terrace houses (272 units, 85% sold) and the Desaru Avenue double-storey shop office (161 units, 90% sold).

Ng says the company is also looking to expand its land bank and tender for more projects from both the public and private sectors.

“Moving forward, we expect to launch more landed properties in Taman Sri Penawar, where the demand for such properties is still strong. We are working closely with the end-financier in securing loans for buyers,” Ng tells FocusM.

He says the first phase of the Taman Sri Penawar project was launched in March and has been well received by the public. “With the launch of new phases, the company expects the revenue to continue to come on stream for the coming few years,” he adds.

The township in Kota Tinggi, Johor, covers over 190.2ha, and has a gross development value (GDV) of RM1.9 bil. The project is expected to be completed in seven years.

Minority shareholders are concerned over the possibility of lower revenue and profit for FY17 as the company has only two ongoing projects with Pinnacle Tower at the tail-end of construction and Taman Sri Penawar at the beginning stage.

An accountant with a construction company says generally, construction companies and property developers are required to recognise revenue and profit based on a project’s percentage of completion.

He adds that a project’s earnings are usually based on an “S-curve”, where recognition of profit is low at the beginning and end of a project.

“At the beginning, costs will be high but there is little work done. Profit recognised will be high in the middle phase, as construction picks up speed. At the tail-end, profit recognised will be lower than the middle phase, as most profit would have been recognised earlier,” he explains.

However, Ng says the Pinnacle Tower project, which is expected to be completed by year-end, would be a major contributor to revenue for FY17.

For Q2FY17 ended June 30, MB World’s net profit increased by 162.36% to RM6.24 mil from RM2.38 mil a year earlier on the back of higher revenue of RM38.41 mil versus RM25.14 mil.

For the cumulative six months, the company posted a higher net profit of RM13.04 mil from RM3.44 mil a year ago while revenue rose to RM67.78 mil from RM44.05 mil.

Ng says the growth in the second quarter is mainly driven by its move to focus on the property-related and construction business. “And also the good response to Pinnacle Tower and the Taman Sri Penawar integrated township project,” he adds.

Many have turned cautious on the Johor property sector after China-based property developers were caught in Beijing’s escalating clampdown on capital outflows, along with stringent lending requirements imposed by local banks.

However, Ng says MB World is confident about the local market as the company offers different types of properties, such as single- and double-storey terrace houses, and double-storey shop offices, at an affordable price.

“There is still demand for affordable and mid-range properties. Moreover, in areas such as Desaru, the demand from investors is still high due to the positive spillover from the Desaru Coast, Pengerang Integrated Petroleum Complex and Rapid project.”

On Oct 3, last year, MB World set up construction arm, MB World Builders Sdn Bhd, to undertake the construction of all the phases under Taman Sri Penawar.

Ng says the setting up of an internal construction arm will allow MB World to manage and control cost and quality.

“Any risk that arises due to any party, be it internal or external, will still be undertaken by the developer,” he says, explaining that ideally, diversification in product development, market and region is the way to spread out risk.

With the soft property market in Johor, a number of players had offered discounts to boost sales.

MB World, for instance, introduced a slew of offers to related parties for Pinnacle Tower. The discounts are estimated to total RM25.59 mil. There is also a RM8.35 mil obligation for a 7% guaranteed rental return for two years.

This has not gone down well with the company’s minority shareholders. Some shareholders FocusM spoke too are worried that the developer may continue with its 30% discount policy for future projects, which may affect the profit margin.

A property developer points out that the profit margins of players are between 15% and 20%.

Ng says the Pinnacle Tower project will continue to be a major contributor to revenue in FY17

However, William Capital Plc chief investment officer William Ng Kok Kiong says a huge discount is acceptable if the profit margin is reasonable. “If a company earned 50% (margin), and now earns between 10% and 20%, it’s considered reasonable,” he tells FocusM.

MB World’s Pinnacle Tower has an initial estimated GDV of RM264.63 mil, and estimated gross development cost of RM180.52 mil. The estimated gross development profit is RM84.11 mil, giving a 46.59% profit margin.

MB World declined to comment on the discount given to related parties.

Besides the discount, it also offered free legal fees on the sale and purchase agreement and loan agreement, stamp duty on loan, free furniture package, free maintenance for two years, free two years’ internet subscription and two years of guaranteed rental return of 7% per annum on the net selling price.

This article first appeared in Focus Malaysia Issue 248.