18 May 2004

Extracted from The Star, Monday 15 March 2004

It looks like South Malaysia Industries Bhd`s (SMI) corporate restructuring exercise has given a new lease of life to the previously debt-laden property developer.

SMI, which completed the restructuring exercise last year, returned to the black in the year ended Dec31, 2003, after recording losses in the past six financial years.

It recorded a commendable performance for its fourth quarter - contributed mainly by its Property division – with a net profit of RM 4.6 million, compared with a net loss of RM 60 million in the same quarter of 2002, while revenue jumped 164% to RM47.2 million from RM 17.9 million.

Net profit for the year was RM 5.7 million, compared with a net loss of RM 70.8 million. Revenue rose 54.7% to RM104 million, from RM 67.2 million before.

Executive Director Peter Leow said the outlook for the company going forward was good. “We expect to be profitable this year, too, with a higher turnover compared with 2003”, he told Starbiz, adding that the property market was picking up with the improving economic situation and low interest rate environment.

“Although we are a small property player, our strength lies in the fact that our properties are market oriented, affordable to ‘Mr Average’ and pretty good, location- wise”, he said.

According to Leow, the restructuring exercise, completed last year, has enabled the company to look ahead.

“We plan to increase our landbank, be more cost efficient, strengthen our balance sheet and improve cash flow this year,” he said.

The company`s restructuring exercise included the conversion of its bonds, and secured and unsecured loans into redeemable convertible secured stocks (RCSLS), irredeemable convertible unsecured loan (ICULS) and warrants.

Another plus point of the restructuring was that it allowed the Company to reduce its interest servicing burden, since the annual coupon of the (RCSLS) issued to the bondholders, lenders and creditors was settle upfront by the issuance of ICULS.

“The upfront notional interest settlement of about RM 45 million only hit our profit and loss once in 2002. “There will be no interest payments for the Company for the next five years,” Leow said.

Leow said the Company was also aggressively looking to increase its landbank in the next few years as its current supply was expected to be exhausted by 2007.

“With earnings on the uptrend, we are building up our cash reserves for this purpose. However, the most efficient way would be via a share swap” he said. He added that being a small property developer which had experienced financial difficulties in the past will not make it an ideal candidate for bank borrowings.

The Company`s current property development projects consist of the 70-acre Kelana Indah projects and 90-acre Kuchai Entrepreneurial Park in the Klang Valley.

Marketing Manager Matthew Ng said the current development for the Kelana Indah projects is the 712-units Kelana Makota Condominiums.

The condominium project is expected to be completed by the year-end. “We have sold about 85% of the condominiums and are actively pursuing the sale of the rest of the units, which is expected to be taken up by the middle of the year,” he said, adding that the gross value of Kelana Makota was RM164 million. SMI also has another 18 acres of land pending development within the Kelana Indah project.

Ng said the company had planned to develop an eight-acre parcel and was considering a suitable range of properties in the area.

“We are considering two options, residential property consisting of large sized condominiums close to 2,000 sq ft as well as 650 sq ft serviced apartments, or commercial property consisting of 3 storey shop offices,” he said.

He said shop office development had vast potential, having been low key the past eight years.

Both types of properties will make similar contributions to the Company’s bottom-line; It is a matter of gauging the market,” he said, adding that the development would take off in the second half of the year.

Ng said the Company also wanted to move away from the mainstream 1,200 sq ft to 1,300 sq ft condominiums and focus on niche market for big condominiums and serviced apartments.

The Company has also launched Dynasty 3, its 152 units of two – three storey shop offices with a sales value of RM 117 million in Kuchai Enterprise Park, in the fourth quarter last year.

“We have sold 137 units and grossed RM 95 million so far. There should be no problems selling the balance 15 units by next month as we already a pool of prospects,” Ng said. He added that the area was becoming a vibrant area with the newly-completed Pantai Expressway.

The Company also has another 730 acres in Simpang Renggam, Johore, and 14 acres in Ipoh. Besides property development, Leow said, SMI’s other core business was the manufacture of assorted wires, which contributed 40% to the Group revenue.

The Company is in the midst of upgrading its wire manufacturing plant to enhance the quality and product range of its wires as well as to expand its production capacity. The wire manufacturing business, although contributing only about 10% to profit, is a stable business.

“The increased capacity will help us to increase exports, which currently make up 8% of revenue, by another 10%,”he said, adding that Company was planning to penetrate the Asean countries.

SMI also has three leisure and cineplex centers in Shanghai, Chongqing and Wuhan in the Peoples’ Republic of China.

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