Saturday, 17 June 2017

(The Star) PRG piques interest with RM5bil affordable housing project

Over the week, the curiosity of many people was piqued when little known PRG Holdings Bhd announced that it had entered into a RM5bil MOU with the Finance Ministry’s wholly owned Syarikat Perumahan Negara Bhd (SPNB) to develop affordable homes.

Specifically, PRG has entered into an agreement to explore collaboration opportunities with SPNB to take on nationwide affordable housing projects worth about RM5bil.

In a filing with Bursa Malaysia, PRG said it signed an MoU with SPNB’s unit SPNB Aspirasi Sdn Bhd, and a project management firm Mimbar Nusantara Holdings Sdn Bhd (MNH) for a potential joint venture (JV) in the project.

Under this MoU, PRG will undertake construction works and project financing on the projects identified. Meanwhile, MNH will manage the JV housing project, including consultation, advising, facilitating and other related and required works.

PRG group managing director Datuk Lua Choon Hann says more is being done in building up PRG. For example, PRG’s manufacturing arm has submitted its application for a Hong Kong listing on the Growth Enterprise Market which is expected to happen sometime in September.

On the MOU with SPNB, Lua hopes this would help make people take notice of PRG as a serious property and construction player. “This is an important milestone for us. Considering the strong track record of our construction team, we are confident that we will be equally effective in our delivery of the projects,” says Lua.

He added that this was going to be PRG’s strategy moving forward - forming joint ventures with strategic partners to develop property development projects.

On the MOU with SPNB, Lua says that some 20 initial projects have been identified. PRG is hopeful to start work on one to two of the projects over the next few months. The size of these projects will be in the range of RM200mil to RM300mil each.

“While it is not yet formalised, our scope of work will likely be in construction and project financing. SPNB will be in charge of the marketing, consultancy and management of this joint venture.”

Lua says PRG may need to raise some funds for the land acquisition of these projects.

But Lua said that there were parties intefor project financing, there were already interested parties looking to partner PRG.

“The Chinese are definitely interested,” he says.

Lua says that the target is to complete building all RM5bil of the affordable homes over the next 5 to 8 years.

“If we have project financing, we can do this very quickly. Should we start work on some of these projects this year, earnings contribution will be visible next year onwards,” he says.

PRG was formerly known as Furniweb Industrial Bhd.

Lua found himself in the driving seat of the company after PRG’s former executive director, Datuk Seri Yeoh Soo Ann of Encorp fame, stepped down from his post on Nov 30 and sold his entire 25.45 million shares or 17.47% stake in the company.

Lua is today the single largest shareholder of the company with a 17.25% stake in the company.

This is followed by PRG’s managing director for property and construction Datuk Alex Wee Cheng Kuan with a 10.17% stake.

On its planned Hong Kong listing, PRG had on May 11 proposed to list its manufacturing and manufacturing-related business on the Growth Enterprise Market (GEM).

PRG will continue to be a controlling shareholder holding not more than 75% of the enlarged issued share capital of listco.

The listing proceeds are to be utilised for expansion and working capital.

PRG currently has a market capitalisation of RM313mil and is trading at a historical price earnings ratio (PER) of 66 times at its current price of RM1.05.

Nonetheless, interest on the stock has been strong.

The stock is already up 45% on a year to date basis.

PRG’s PER is set to drop particularly in 2018, when the bulk of its maiden property earnings start kicking in.

Rakuten Trade research head Kenny Yee has a Buy recommendation on PRG with a RM1.40 target price based on 14x PER FY18 as their property venture is set to boost earnings for FY17 and FY18.

On its core business, PRG started operations in the production of furniture webbing and the provision of niche products for the textile and apparel, furniture, automotive and food packaging industries. It has since diversified its core business to include property development and construction after the completion of a few corporate exercises.

“It currently has seven factories (three in Malaysia, four in Vietnam) with an average utilisation rate of 90%. This division reaped a decent net profit margins of 10% for its financial year ended Dec 31, 2016 on the back of a 10% growth in revenue to RM98mil. Some 80% of its products are for the export markets,” says Rakuten Trade research head Kenny Yee.