This article first appeared in The Edge Malaysia Weekly on June 21, 2021 - June 27, 2021

BERJAYA Corp Bhd’s (BCorp) three-year strategic plan to streamline the group has provided very little by way of new information as major details are kept under wraps, industry observers say.

After three months at the helm, CEO Abdul Jalil Abdul Rasheed last week unveiled a plan under which the conglomerate would be transformed into a consumer group focused on core business segments, reorganised as retail, food and beverage, property, hospitality and services (including gaming, environment, digital services and financial technology).

“This is just a repeat of what has been made known. Everybody knows BCorp has these segments. It seems to be focusing on every segment, so what is the concrete plan?” a fund manager asks. As at Oct 1 last year, BCorp had 109 main subsidiaries, associated companies and joint ventures.

“I don’t think the plan is transformative. If you have recategorised your business segments, then at least you must tell what the non-core business is.”

In reply to queries, BCorp says it has identified some of the non-core businesses to be hived off under the rationalisation plan but prefers not to be specific, as there are many complexities involved. “We will reveal the details when the time comes.”

The plan also calls for BCorp’s debt to be slashed by half — to RM2.5 billion — in the next three years, through asset or business disposals of RM2 billion to RM5 billion in the next two to five years, as well as dividend payments from its listed subsidiaries.

BCorp has interests in seven entities listed on Bursa Malaysia, as well as Singapore’s Informatics Education Ltd and Berjaya Philippines Inc. The group’s two key local subsidiaries on the local bourse are Berjaya Land Bhd and Berjaya Sports Toto Bhd (BToto).

While its intention to address the high debt level is commendable, industry observers are sceptical about its ability to pare its borrowings, given that only BToto appears capable of providing stable and substantial dividends to the group. BToto’s rolling 12-month dividend yield stands at 5.2%.

“How much dividend can BCorp get from its subsidiaries? It is unable to repay the debt, which has been a big challenge for BCorp,” the fund manager says.

A better method, he suggests, is the disposal of main subsidiaries — including even BToto — to pay off the group’s huge mountain of debt, comprising mostly finance costs.

“For me, the best way to restructure the group is by selling the gaming business, which is deemed a mature industry. The illegal operators are more tech-savvy than the legal operators because the government’s regulations do not allow the legal players to use technology,” he says.

Nonetheless, it would not be an easy decision to sell BToto — the group’s cash cow — but how else to unlock its value?

In 2013, BToto announced plans to list its wholly-owned subsidiary Sports Toto Malaysia Sdn Bhd as a business trust in Singapore. Unfortunately, the plan was scrapped because of challenging market conditions and the poor performance of real estate investment trusts (REITs) and other business trusts in the country.

“The business trust plan was workable at one point. It can monetise some value while the group can still hold some units,” another fund manager observes, adding that investors are frustrated, as BCorp’s restructuring plans have tended to disappoint.

Although another possible disposal could include its stockbroking business undertaken via Inter-Pacific Securities Sdn Bhd, he says, “It sounds like BCorp does not want to let go [of] the business. Even if it wants to sell, it may not be able to fetch a high valuation, owing to its minimal contribution.

“It makes sense if the group wants to cut the financial services segment, but it is not the major solution for the group,” he points out, noting that BCorp’s property assets are more significant. “Unless it wants to chop off the property segment or merge with another property developer.”

Early in June, BCorp sold its remaining 51% stake in Berjaya Auto Alliance Sdn Bhd to Bermaz Auto Bhd and others for RM6.67 million. Berjaya Auto Alliance is involved in the distribution of vehicles under the Peugeot marque in Malaysia and the sale was part of the group’s restructuring and rationalisation exercise to divest itself of non-core assets.

Hit hard by the Covid-19 pandemic, BCorp reported a net loss of RM196.22 million for the nine months ended March 31, 2021 (9MFY2021), against a net profit of RM223.87 million in the previous corresponding period.

That said, the group was already in the red from FY2018 to FY2020, with net losses ranging from RM111.76 million to RM357.87 million.

BCorp was non-committal over whether retrenchments or voluntary separation schemes would form part of its restructuring plan. “We are in the process of reassessing the group’s existing operating model to realign with our strategic objectives. So, in terms of cost-cutting, we are currently focusing on operational measures, identifying how we can scale down on expenses, improve processes to make our operations leaner and more cost-efficient, and reallocate resources to maximise value creation,” the company says, in reply to queries from The Edge.

To improve the performance of its operating subsidiaries, Jalil says, BCorp is considering options such as an initial public offering, mergers and acquisitions or a joint venture.

Looking at the group’s corporate structure, the first fund manager believes Cosway would be the “most likely” entity to be listed. He says: “There is not much for the group to list. There is a possibility for Cosway, but the performance numbers are not very good. If there is any listing, I don’t think it will be substantial.”

Asked whether Cosway was being considered as a listing target, Jalil maintains that BCorp’s priority for the direct-selling company is to focus on operational efficiencies, streamlining its geographical footprint and segmenting its products. “After that, we will look at the options that are available,” he says.

Listed in Hong Kong in 2009, Cosway Corp Ltd was taken private two years later in 2011.

For the financial year ended June 30, 2020, Cosway Corp Bhd recorded a significantly lower revenue of RM403.7 million compared with RM576.7 million in the previous financial period, according to BCorp’s 2020 annual report.

The Malaysian operations accounted for nine-tenths of the total, with Hong Kong, Taiwan, China and online operations making up the balance.

BCorp fully owns Cosway (M) Sdn Bhd, e.Cosway Sdn Bhd and Cosway (HK) Ltd; it holds a 70% stake in Cosway (Guangzhou) Cosmetic Manufacture Co Ltd. These subsidiaries are involved in the direct selling of household, personal care, healthcare and other consumer products.

A CTOS search shows, however, that Cosway (M) has been in the red in the most recent three years, with a lower net loss of RM41.96 million for the financial year ended June 30, 2020 (FY2020), compared with RM65.63 million a year ago.

Web-based eCosway also struggled last year as it experienced a net loss of RM2.86 million for FY2020 against a net profit of RM888,505 the year before.

The earnings performance of its overseas operations remains unclear at this juncture.

Clearly, BCorp’s restructuring plan did not gain traction with the market, as its share price fell by 1.7% over the past week.

Against its recent peak of 50.5 sen, the stock has declined 42.6%, closing at 29 sen last Friday, which translates into a market capitalisation of RM1.47 billion.

BCorp’s share price performance last week is telling in that much had been expected of Jalil — the first CEO of BCorp who is not a family member.

The counter had rallied after his appointment to the company, as investors believed he could improve the group’s performance, having been entrusted with the reins by founder Tan Sri Vincent Tan Chee Yioun, who is now non-executive chairman.

Perhaps the market anticipated bolder steps, because there are many cross holdings and subsidiaries with businesses that may not be a good fit within the BCorp entity.

To be fair, it is still early days for Jalil, but the honeymoon period may be over.

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