This article first appeared in The Edge Financial Daily, on December 9, 2015.

KUALA LUMPUR: Umno-linked KUB Malaysia Bhd expects an improvement in earnings for the next financial year ending Dec 31, 2016 (FY16) on gains of RM5.93 million realised on the disposal of two non-core assets on Monday.

The proceeds from the disposal will go towards reducing its borrowings, which stood at RM61.89 million as at Sept 30. This is equivalent to a gearing ratio of 22%, while cash balance was at RM101.73 million.

The group reported a 76.6% drop in net profit to RM1.33 million in the nine months ended Sept 30, 2015 from RM5.71 million a year ago.

KUB president and group managing director Datuk Abdul Rahim Mohd Zin said the group is streamlining its operations by disposing of non-core assets that do not fit into its strategic portfolio, while increasing productivity to optimise its other strategic assets to yield better returns in FY16.

“My goal is to ensure the group’s financial sustainability by eliminating non-core and non-performing assets that do not fit into KUB’s portfolio. This in turn, will lighten our balance sheet by gradually reducing liabilities from our book,” Abdul Rahim said in his first press conference since his appointment on Aug 17.

“Hopefully the group will have ample room to breathe as we embark on optimising our assets,” he added.

On Monday, KUB announced the disposal of two subsidiaries — A&W Restaurants Thailand Co Ltd and KUB Builders Sdn Bhd — for a total of RM3.7 million.

“We disposed of the two assets because we want to streamline our operations to be more focused in what we do best. The two assets have their own liabilities, and they will not be our problems anymore. Proceeds from the disposal will also be used as working capital to expand our business,” Abdul Rahim said.

The disposal will see the liabilities of A&W Thailand (RM45.34 million) and KUB Builders (RM49.88 million) struck off its balance sheet.

“We will continue to retain A&W restaurants in Malaysia as the business has recently chalked some good numbers. Efforts are in place to beef up the A&W business in Malaysia by strengthening sales, while opening more stores at strategic locations,” he said.

“We are assessing various options to raise cash, but it may not be immediate and may not be through the capital market as yet,” he added.

Meanwhile, Abdul Rahim said KUB expects the Petaling Jaya City Council to issue the development order for the redevelopment of its iconic A&W restaurant in Petaling Jaya by as early as the third quarter of next year.

The group plans to develop the land into a mixed-development with a gross development value of nearly RM300 million, he added.

“I am hopeful that we can get approval to increase the plot ratio from 1:4 to 1:8,” he said.

On its joint-venture (JV) with Malaysian Steel Works KL Bhd (Masteel) (valuation: 1.2; fundamental: 0) to build a RM1.23 billion inter-city rail project in Johor, Abdul Rahim said it remains status quo, pending further finalisation and discussion with Masteel.

“The project is led by Masteel. But for now, I would like to affirm our commitment with respect to the JV.

“To me, if the project does not make sense, then we will pull out immediately. That said, it is still too early for me, as the new KUB head, to make any hasty decision and comments on this matter. We are still assessing many other things,” he added.

Abdul Rahim also said KUB is tendering for projects worth RM1 billion in contract value.

“The contracts are for our information and communications technology division, as well as power and oil and gas divisions. We will continue to seek more opportunities in these areas,” he said.

Abdul Rahim said KUB is also looking to double its plantation landbank within two years by acquiring brownfield assets in Indonesia, particularly in Sumatra. Currently, KUB owns 7,328.66ha of land in Johor and Sarawak, with a total net book value of RM13.2 million.

“Given the current scenario, we see that valuation for some assets seems affordable. We are mindful of acquiring new assets though, as we are conscious of pricing, and the value that it will create for the group. Any acquisition must be immediately accretive to our earnings,” he said, adding that KUB will be allocating some RM200 million to RM300 million to fund acquisitions.

KUB (valuation: 0.9; fundamental: 1.15) shares closed 3.39% lower at 29 sen yesterday, giving it a market capitalisation of RM158.59 million.

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