This article first appeared in The Edge Financial Daily, on January 18, 2016.

KUALA LUMPUR: Amid a soft property market, Ho Hup Construction Co Bhd will take a cautious stance when it comes to launching its property development projects in Kota Kinabalu, Sabah, and Bukit Jalil here, with a combined estimated gross development value (GDV) of RM1.2 billion, this year.

The small-cap construction and property developer is also looking into raising more funds, and does not rule out the possibility of a rights issue in the near term to strengthen its balance sheet.

“Although the property market is a bit soft, property business is still our main focus this year. There are still opportunities as our land cost is very low, especially in Bukit Jalil,” Ho Hup chief executive officer Datuk Derek Wong Kit Leong said in an interview with The Edge Financial Daily.

According to Wong, for the financial year ended Dec 31, 2015 (FY15), its property segment is expected to contribute 80% of the group’s net profit. The contribution is anticipated to remain about the same for FY16.

As the segment remains the main growth driver of the group, Wong does not rule out the possibility of being classified under the property sector on Bursa Malaysia in the future to better reflect the company’s core business.

However, given the slowing property market, analysts have raised concerns about property developers’ ability to maintain sales.

Wong dismissed the worries and said he expects the group’s order book to be replenished with the launches of a high-end residential project in Bukit Jalil, as well as a mixed-development project in Kota Kinabalu over the next two years.

“If you ask me, we don’t expect a fantastic year, but because it has been slow for the last couple of years, a lot of launches have been held back, so there is demand.

“However, if we think the market is not so good, we will delay the launches. If not, both of these plans will be done in the second half of 2016,” Wong said.

The Kota Kinabalu project, which comprises serviced apartments, a hotel and commercial retail floors built on a five-acre (2.02ha) piece of land, has a GDV of RM700 million.

“We are in a very advance negotiation with a five-star international hotel operator ... we still think that although the market is a bit soft, [the] Kota Kinabalu market is still holding well; tourist arrivals are increasing,” Wong added.

Meanwhile, the development project in Bukit Jalil, with a GDV of RM500 million, comprises high-end serviced apartments. According to Wong, its 2.8-acre plot is the last piece of land the group has in Bukit Jalil, following a successful joint venture (JV) with Malton Bhd on the 50-acre land in Bukit Jalil.

“We are riding on the success of our JV partner. This last piece of land is right beside the JV land, yet we will carry the development project entirely on our own,” Wong said.

Wong also highlighted that the group had strong unbilled sales for launched projects of about RM240 million, which can last one year.

Currently, the group has total land bank of 494 acres, located in Bukit Jalil, Kota Kinabalu and Kulai, Johor. The group has recently proposed to acquire a 70% stake in Intact Corporate Approach Sdn Bhd for RM20 million to gain the right to develop a 429-acre plot located within the Yayasan Pelajaran Johor Academic City near Kulai.

“We are always looking for new land bank, especially [when] land prices are more realistic now,” Wong said, adding that the Klang Valley remains the group’s preference.

Wong explained that the group is not targeting to expand in the Iskandar region, which is overbuilt.

Underpinned by the JV project with Malton and construction jobs secured last year, Wong expects profit growth in FY16 to be better than FY15.

“We expect FY15 to be better than FY14, and FY16 to be slightly better than FY15,” Wong said, adding that the earnings driver for FY16 will be supported by the strong unbuilt sales from the JV project with Malton.

The group started to recognise the JV’s contribution in 2014. As at Sept 30, 2015, the group had recognised up to RM41 million profit from the JV, through its 18% share in the JV.

“For 2016, we should get RM15 million every quarter from the JV. The contribution is expected to last until 2022,” Wong said.

On the construction segment, the group’s projects under negotiation and tender stood at about RM2 billion, and it expects job wins of at least RM300 million for FY16. Meanwhile, it has a construction order book of RM520 million, which is expected to last two years.

“The group has started to win jobs after exiting from PN17 status since May 2014. We are putting a lot of emphasis on this division (construction) as well. We are aggressively bidding for infrastructure and civil works,” Wong guided.

Ho Hup lost 0.5 sen or 0.51% at its close of 97 sen last Friday, with a market capitalisation of RM338.1 million.