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PRG seeks further diversification
Shalini Kumar 
Lua says PRG Holdings is exploring other business opportunities to help boost growth, following its diversification into property
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PRG Holdings Bhd, which diversified from its core business of manufacturing niche furniture products into property development in 2014, is planning to undertake another new venture to further broaden its earnings base.

“We never discount any business opportunity that comes forward, but we are exploring various businesses. We have to be more aggressive and not only depending on organic growth. I’m looking at potential assets or businesses to buy in. We will be announcing something in the next one to two months,” group managing director Datuk Lua Choon Han tells FocusM.

Among the businesses the company is exploring include marketing of halal products and distribution of electric charging stations for electric vehicles.

In April, Premier International Marketing Sdn Bhd, a wholly-owned subsidiary of PRG, entered into a memorandum of understanding (MoU) with Felcra International Venture Pte Ltd and Overseas Investment Union of The Investment Association of China to explore the potential of halal marketing.

 

Halal market

The MoU will serve as a platform for PRG to tap into business opportunities and investment into China’s halal market, which will also diversify the revenue stream of PRG.

In June, PRG’s other wholly-owned subsidiary, Premier Electrify Sdn Bhd, signed a memorandum of collaboration with Sunsuria City Sdn Bhd to promote the use of electric vehicles in Malaysia.

Premier Electrify’s business is to be an operator, merchant, promoter, agent for sale and distributor of and dealer in electric charging stations for electric vehicles.

On this venture, Lua says feasibility studies are still being carried out.

“We have to assess the market first. If Malaysia is not the market for electric vehicles then we will put it on hold first. We are not in a hurry to go into something with high risk,” he adds.

While its move to broaden its income base is commendable, shareholders are concerned the company will be spreading itself too thin and lose focus on its core business.

As it is, PRG’s net profit declined 27.7% to RM2.3 mil for the six months ended June 30, from RM3.2 mil a year ago despite higher revenue of RM93.4 mil versus RM64.3 mil.

Shareholders are also worried the company’s ventures may have also bumped up its costs. In H1FY17, its administrative expenses rose to RM16.7 mil from RM10.6 mil a year ago while selling and marketing expenses increased to RM3.4 mil from RM1.8 mil.

PRG’s net cash from operating activities declined to RM8.5 mil as at June 30 from RM13.4 mil a year ago. However, Lua says there are no current plans to make a cash call, as its gearing level is currently at 0.17 times.

“We are also holding 75% of our Hong Kong-listed subsidiary; so that is another venue for us to raise funds. At the same time, the outstanding bank loan for our Picasso project is less than RM6 mil and our gearing is at 0.17 times, so I think I will be able raise financing through financial institutions, but not for the moment,” he explains.

PRG’s manufacturing unit, Furniweb Holdings Ltd was listed on the Hong Kong Stock Exchange’s (HKSE) Growth Enterprise Market last month.

This was a move to unlock the value of its manufacturing business.

Hopefully, we can migrate to the [HKSE] Main Board in one to two years, but in the meantime, we want to grow,” says Lua.

The division produces elastic yarn, elastic fabric and webbing for the apparel manufacturing, healthcare, food packaging, furniture and automotive industries. For FY16, the division was the group’s only profit-making segment.

 

Lacklustre demand

However, there is concern that the lacklustre demand across a number of regions, and that it derives a substantial portion of its revenue in US dollars.

“While a strong USD is good for the group in terms of translation of revenues into ringgit terms, a strong USD may affect demand by customers in other countries,” highlights Mercury Securities in a recent report.

Mercury Securities is maintaining its hold call on the stock and has set an FY18 target price of RM1.16.

“We hope and look forward to seeing stronger contributions from the group’s property and construction segment, especially when the earnings from the project at U5 Sungai Buloh start to roll in. The domestic construction sector has been boosted by various infrastructure projects.

“Meanwhile, some concerns remain over the revenue and earnings growth [for its manufacturing division], amidst the cautious global business sentiment, and dismal market environment,” it adds.

Lua says the focus on the meantime will remain on getting its RM5 bil development of affordable homes with Syarikat Perumahan Negara Bhd (SPNB) off the ground.

The MoU was signed in June with SPNB’s unit, SPNB Aspirasi Sdn Bhd, and a project management firm, Mimbar Nusantara Holdings Sdn Bhd, for a potential joint venture in the project.

Under this MoU, PRG will undertake construction works and project financing on the projects identified. For this project, PRG will be getting financing help from its collaboration partner, Jiangsu Provincial Construction (M) Sdn Bhd (JPC), and will be fully operated by them.

More recently, PRG inked a collaboration agreement with JPC to venture into highway, bridge, port, housing development, as well as project investment and financing projects in Malaysia and internationally.

As for its maiden property project, The Picasso Residence, the basement and sub-structure works were completed at the end of last year while podium works were completed in April. The development is expected to be completed by mid-2019, and has seen a take-up rate of 55% to-date.

PRG has another proposed development in Sungai Buloh. However, Lua says the project structure is still being fine-tuned.

“We are about to get the development order, but we are fine-tuning the structure because we are not in a hurry to push out or launch the project. The reason being there are quite a number of developments coming up [in the area],” he says.  



This article first appeared in Focus Malaysia Issue 257.