Asian Pac looking for more stable earnings

Asian Pac Holdings Bhd is looking at a more stable revenue stream from recurring income through its KK Times Square II project in Kota Kinabalu, Sabah.

The group planned to replicate the project model in Peninsular Malaysia, possibly in Johor Bahru, Penang or the Klang Valley, said Asian Pac managing director Datuk Mustapha Buang.

The Kota Kinabalu project is housed under its unit Syarikat Kapasi Sdn Bhd. The company will not sell any of the retail lots in its mall development within the project, but retain the units for investment gain and rental income.

KK Times Square II consists of a retail mall of net lettable area of about 673,797 sq ft and exterior shoplots as well as five blocks of 631 luxury apartments. The total gross development value (GDV) is estimated at RM1.4 billion to RM1.5 billion and the project is scheduled to be completed by 2013.

“Instead of just buying land, we are now going into investments. For a mid-sized property developer like us, there is only so much land bank we can maintain to sustain revenue from property development.

“Asian Pac’s long-term goal is to diversify into more recurring income. We believe this will give us the (earnings) stability that we are looking for,” Mustapha told The Edge Financial Daily recently.

KK Times Square II will also add another 3,000 parking bays to the group’s parking management business that includes a multi-storey carpark in Kuala Lumpur with 440 bays and two parking facilities in Kota Kinabalu totalling 1,340 bays.

Revenue from parking management provided the company with another source of recurring income, but was not expected to be a substantial amount, said Asian Pac executive director Chuah Swee Guan.

Instead, it was rental income that would provide the main boost to recurring income by adding about RM40 million per year beginning in 2013 when the mall is completed. Presently, the company receives about RM1.2 million per year in rental income from six acres of land in Kepong that has been rented out to the Carrefour hypermarket chain.

KK Times Square mall will be grade “A” shopping space and more than 50% of the space will be taken up by fashion retailers, and food and beverage outlets, said retail consultant for the project, Allan Soo.

Soo is managing director of CB Richard Ellis (Malaysia) Sdn Bhd, the local arm of a multinational retail consulting firm.

“The Kota Kinabalu market is buoyant, as witnessed by the growth in retail sales turnover for shops in One Borneo which has brought in new brands to the market since 2009,” he said.

However, KK Times Square mall will be the first in the city to have full control of the tenant mix, as it will not sell any of its retail lots. Shopping malls in Kuala Lumpur such as 1 Utama and Mid Valley Megamall operated on a similar model, said Soo.

The high-end project would be successful, he said, because “the population is large but within 15 minutes’ drive time, our primary catchment has over 400,000 population with an average household income exceeding RM4,000 per month plus two million tourists a year.”

“This suggests a middle-income position mall of regional size. So 700,000 sq ft is supportable,” Soo said.

The success of the plantation sector had added to the affluence of Sabah, said Asian Pac’s Chuah.

Recent launches of luxury residential properties “particularly those with seaviews and golf course views” in Kota Kinabalu had been snapped up, despite being priced at RM700 to RM800 per sq ft, he said.

KK Times Square II residential apartments will have views of the neighbouring City Waterfront & Sutera Harbour Marina, Golf & Country Club, said Chuah.

The neighbouring KK Times Square Phase I, Signature Office, which was completed in 2007, has experienced investment gains of 45% to 60% since its launch, according to the company. Signature Office consists of 12 blocks of five- to eight-storey shop offices.

Syarikat Kapasi which is developing the KK Times Square project last Tuesday signed an agreement with Affin Investment Bank Bhd to raise RM200 million over the next five years under a commercial paper and medium term note (CP/MTN) programme.

Malaysian Rating Corporation Bhd (MARC) rated the entire programme MARC-1/AAA-1.

The ratings agency said Syarikat Kapasi’s near-term earnings visibility was somewhat limited given its reliance on development revenue from its serviced apartments and exterior shop lots, although car park rental from its completed projects would provide a modest recurring earnings stream.

Notwithstanding this, noteholders would be insulated from the downside risks in relation to Syarikat Kapasi’s credit profile by virtue of the guarantee provided by Danajamin, MARC said.

For the year ended March 31, 2010 (FY10), Asian Pac posted a net profit of RM20.2 million on revenue of RM101.6 million compared with RM1.1 million and RM83.4 million, respectively, in FY09. The weak FY09 earnings were due to the downturn in the property sector due to the global financial crisis, said Buang.

Asian Pac also has a number of projects in the peninsula and will be launching in the third quarter of this calendar year a shophouse project in Johor with GDV of RM100 million, a commercial project in Wangsa Melawati, Kuala Lumpur with GDV of RM70 million and a shop and apartment project in Kepong worth RM300 million.


Written by Loong Tse Min
This article appeared in The Edge Financial Daily, July 5, 2010.