Switching things up
Developers focus on diversifying to boost earnings
AS developers strategise their growth plans for the year, a number of them have placed added emphasis on business diversification.
Eco World Development Group Bhd (Ecoworld Malaysia) president and chief executive officer Datuk Chang Khim Wah notes that the group has expanded and diversified well beyond its roots as a township developer.
“With four sizeable revenue pillars now contributing strongly to sales, we are able to serve every segment of the residential, commercial and industrial markets,” he says in the company’s annual report.
The group’s four revenue pillars are its Eco Townships (comprising landed homes amid lush greenery and comprehensive lifestyle amenities); Eco Rise (consisting of a growing range of high-rise residential developments); Eco Hubs (shops and strata offices, as well as retail spaces); and Eco Business Parks (consisting of several industrial business parks developed to serve the needs of local and international industrial businesses).
Executive chairman Tan Sri Liew Kee Sin says the increasing size and strength of each revenue pillar has given Ecoworld Malaysia the flexibility and agility to adapt and adjust annual product launches to serve the market segment experiencing the most robust demand.
“This contributed in no small measure to the group’s remarkable track record of achieving average annual sales in excess of Rm3.6bil, while also increasing gross profit margins from pre-pandemic levels of 19.1% in financial year 2019 (FY19) to 24.2% in FY23,” he says in the same annual report.
As of Oct 31, 2023, Chang says the group’s future revenue remains healthy at Rm3.49bil, which provides it with clear near and mid-term earnings and cash flow visibility.
“Accordingly, the board is maintaining Ecoworld Malaysia’s FY24 sales target at Rm3.5bil. This will enable the group to focus on pursuing sustainable growth by improving absolute returns from our valuable landbank.
“Our aim is to extend the life of our mature land bank to reap the rewards of our investments in value creation, thus improving our capacity to continue rewarding our shareholders with good dividend payments in the years to come.”
For FY24, Chang says Ecoworld Malaysia will continue diversifying its revenue stream across all four pillars.
“We will be bringing another ‘duduk’ (serviced apartment) series to Iskandar Malaysia with Santai D’ Eco Spring. Meanwhile, the Klang Valley will see more duduk launches, namely Riang D’ Eco Majestic and Se.duduk D’ Kajang.”
Ecoworld Malaysia introduced the duduk series in 2020 with the aim of providing attainable homes without compromising its residents’ lifestyle needs.
Under the Eco Hubs pillar, Chang says Ecoworld Malaysia is revamping the commercial and retail space at Bukit Bintang City Centre to introduce a new food and beverage hub, Tuah 1895.
“This will add to our leasing portfolio, which we have been gradually building up over the years within our townships and integrated developments.”
Additionally, Chang says the group’s Eco Business Parks pillar is slated to continue experiencing strong demand, with a further boost expected from the Government’s New Industrial Masterplan 2030 that was launched last year.
“Prospects for Iskandar Malaysia are especially bright, backed by extensive improvements in infrastructure, especially the ongoing construction of the Johor Baru singapore Rapid Transit System (RTS) link.
“The RTS link, once completed, will significantly reduce the commute time between the two cities and boost economic and commercial activities in the southern state.”
Chang believes this will drive increased demand not just for industrial property, but also commercial and residential property as well.
Meanwhile, Sunsuria Bhd executive chairman Tan Sri Ter Leong Yap says business diversification, on top of the company’s focus on value engineering and cost streamlining, have proven beneficial for the group.
In pursuit of strategic growth, he says Sunsuria has extended its reach into the healthcare and education sectors, fostering ongoing development through strategic collaborations with established domestic and international partners.
“This expansion aligns seamlessly with our core business of property development, capitalising on the symbiotic relationship between these sectors.
“As educational institutions increasingly influence home choices for families and healthcare facilities gain prominence with ageing populations, our diversification serves to enrich the vitality and sustainability of our townships.”
Ter emphasises that this initiative is reflective of Sunsuria’s forward-looking approach.
Going into 2024, Ter says he anticipates another challenging year with a mixed outlook for the property market.
“Positive factors, such as household and retail spending indicators, low inflation and unemployment rates and proposed measures of income growth, provide some buoyancy.
“We also appreciate the revisions to the Malaysia My Second Home programme.”
However, Ter acknowledges that there are challenges, including proposed tax revisions and stamp duty adjustments.
“In response, Sunsuria will intensify its focus on value engineering and cost optimisation, safeguarding cash flow.”
In diversification, Ter says Sunsuria looks forward to the further maturation of its education and healthcare businesses.
“In particular, the first phase of Concord College International School, comprising facilities and amenities for academics, creative arts, science, library, dining hall, student residences, sports and recreation, will welcome its first intake of students in September 2024,” he says.
Another company that has been reaping the benefits of diversification is Sime Darby Property Bhd (SDP).
In the company’s 2022 annual report, group managing director Datuk Azmir Merican said the group is guided by its SHIFT25 strategy, by building further on its property development business while continuing to diversify its product mix.
The group’s SHIFT25 strategy is aimed at transforming the company from a pureplay property developer into a real estate firm by broadening and diversifying its income streams.
In the fourth quarter ended Dec 31, 2023, SDP posted a net profit of Rm131.26mil, up from Rm103.15mil, which brought earnings per share to 1.9 sen against 1.5 sen.
The group’s revenue rose to Rm1.01bil from Rm956.9mil.
The board of directors declared a second dividend of 1.5 sen, bringing the total dividend to 2.5 sen for FY23.
Over the entire 12-month period, the group reported a net profit of Rm407.91mil against Rm315.84mil in FY22 while revenue rose to Rm3.44bil – the highest recorded post-demerger – against Rm2.74bil in the previous year.
In a recent report, Kenanga Research noted that SDP is expanding its product mix by introducing more high-rise developments and industrial projects.
“This initiative reflects a proactive approach to capitalise on market demand and diversify its product offerings.”