MAH Sing Group Bhd plans to divest its plastic manufacturing division to beef up the company’s operating cash flow and build up its landbank for a greater presence in the property development arena.

President and group chief executive Datuk Leong Hoy Kum said: ''Negotiations are ongoing with a few interested parties and the divestment exercise would be wrapped up by this year.

''The divestment price of the plastic division should reflect the good performance and goodwill since its listing in 1992. It should be on terms that will create and enhance shareholders’ value.''

Despite the competitive operating environment, the division had in financial year ended Dec 31, 2005, chalked up 80% growth in pre-tax profit and contributed 10% to group net earnings.

Wholly owned subsidiary Mah Sing Plastics Industry Sdn Bhd operates two plants – in Klang and Jakarta, and has net tangible assets worth some RM400mil.

Before Mah Sing ventured into property development in 1994, the plastic division was the company’s core business supplying to original equipment manufacturers and the end-user proprietary market.

Reflecting the strong headway in the property arena, Mah Sing’s listing status was transferred from the manufacturing sector to property in 2000.

Datuk Leong Hoy Kum at the latest bunglow prject in Aman Perdana.

Leong said the divestment of the plastic business would allow Mah Sing to focus entirely on the property business and emerge as a bigger property player.

''The gain from the divestment will be reflected in the year of disposal and the proceeds will be used to acquire more land and expand the property development business,'' he told StarBiz.

The disposal will also allow Mah Sing to pare down its borrowings of RM100mil, which is equivalent to a net gearing ratio of 0.42 times. Most of these borrowings consisted of term loans for land acquisitions.

''By focusing entirely on property development, Mah Sing will be able to leverage on its strong reputation and branding to move up the property industry ranks. Besides, the property business also offers better yields and returns to shareholders,'' Leong said.

The property division currently accounts for more than 90% of group net profit and 75% of revenue.

''We expect property development to continue providing the lion’s share of group earnings. With a successful business model which has yielded good take up rates, our target sales of RM600mil this year looks very promising and we expect another good year ahead,'' Leong said.

An aerial view of the of the Austin Perdana township.

He said despite the challenging market environment, Mah Sing managed to improve its market share, chalking up sales of RM509mil in 2005, a 68% increase compared with RM303mil in 2004.

Its undeveloped landbank of 626 acres are well spread within key growth areas in the Klang Valley and Johor. They have an estimated gross development value of RM1.5bil over the next five to six years.

Leong said the company was focusing on landed residential projects that were in the medium- to high-end range as this product segment was more resilient to inflation.

In the Klang Valley, Mah Sing is focusing on building semi-detached residences and bungalows, which account for only 4% of the total residential supply in the area.

''Our forte lies in building quality residences in well planned environment under the Legenda, Residence and Perdana series,'' Leong said. Mah Sing currently has four projects in the Klang Valley and three in Johor. Another three will be added in the Klang Valley within the year.

Leong said the company was looking to expand its landbank in high growth areas, especially the Klang Valley and Penang and was confident of firming up another three land parcels by year-end.

''All the land parcels have been earmarked for lifestyle developments in the medium- to high-end product series as they are more resilient to inflation,'' he added.

Down south in Johor, the focus will be on building lifestyle townships of quality residences within good locations and affordable mid range pricing.

Targeted for launch this year are three projects – Perdana Residence in Selayang, One Residence in Cheras and Sierra Perdana in Tebrau-Plentong, Johor.

Perdana Residence and One Residence, both gated and guarded enclaves of semi-detached homes and garden bungalows are slated for launch in the second half of 2006 and will contribute to earnings until 2009.

Leong said Sierra Perdana, which would feature an adventure-park lifestyle community, would tap the spillover demand from the company’s other successful project, Austin Perdana, which was just 10 minutes away. Austin Perdana in Terbrau, Johor will provide major sales upside from 2006 to 2009. ''We have recently launched shop offices namely Austin East and Austin Centerpoint and response has been very good since most of the residential properties in this matured neighbourhood are occupied, providing the critical mass for the businesses there,'' Leong said.

Sri Pulai Perdana in Skudai near Johor Baru is reaching the tail end of development, with a 94% take up rate.

The company expects the last phase of 141 double storey superlink terrace houses to contribute to earnings until 2008.

Source : The Star 22/05/2006