Thursday 07 Dec 2023
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This article first appeared in The Edge Malaysia Weekly on June 20, 2022 - June 26, 2022

THE move by the Yap family — which took over Grand-Flo Bhd about three years ago — to transform the IT service provider into a property developer has started to bear fruit, as shown by its impressive financial results last year.

Since renamed NCT Alliance Bhd, the group reported a sixfold increase in net profit to RM33.7 million in the financial year ended Dec 31, 2021 (FY2021), following the shift to focus solely on property development.

Founding executive chairman and managing director Datuk Seri Yap Ngan Choy expects its two major projects in Genting Highlands, Pahang, namely Grand Ion Majestic and Grand Ion Delemen, its largest earnings contributors in FY2021 — to continue providing the group with earnings visibility and recurring income for the next three years.

“Despite the Covid-19 pandemic, sales of our current property projects have been quite good so far. We remain confident and optimistic that we can maintain the good momentum in FY2022. We are hoping to add more value to NCT this year,” he tells The Edge in an interview.

According to Yap, the remaining gross development value for Grand Ion Majestic is RM537.4 million, while the remaining GDV for Grand Ion Delemen is RM125.07 million.

“Our estimate is that Grand Ion Majestic will give us a potential gross profit of RM252.2 million or return on investment (ROI) of 120% over three years. Meanwhile, Grand Ion Delemen will provide us with a sustainable recurring income and potential profit of RM37.2 million, which represents an ROI of 40%,” says the 65-year-old, whose son Yap Chun Theng sits on the board as executive director.

YBG Yap Consolidated Sdn Bhd — jointly controlled by Yap and his younger brother Datuk Joe Yap Fook Choy — emerged as a major shareholder of Grand-Flo in July 2019. The shares were acquired from Grand-Flo’s previous owners, namely its founder Derrick Tan Bak Hong, his wife Yap Li Li and his business associate Chuah Chew Hai.

Today, YBG Yap Consolidated is the controlling shareholder of NCT with a 50.4% stake. Other major shareholders include Kenanga funds, Etiqa funds and Wong Engineering Corp Bhd CEO Yong Loy Huat.

NCT non-executive director Sae-Yap Atthakovit, 28, points out that at end-December 2021, the total remaining GDV from all of the company’s ongoing projects stood at RM865.5 million, while unbilled sales amounted to RM298.3 million.

“Our priority is to recognise profits from the balance GDV of these projects in the next two to three years. As long as there is construction progress, we don’t see any major hiccups for our bottom line. The more advanced the work progress is, the more profits we can recognise,” he says.

Atthakovit, who is the son of Joe Yap, adds that NCT is studying the structure of some potential acquisitions. If good opportunities arise, the company may consider buying land or even taking over certain property projects in Selangor and Melaka.

“To us, the most important criteria are that these are quality assets and they could contribute positively to our earnings. Of course, we also have to make sure these locations are good and, obviously, cost is another major factor,” says Atthakovit.

White knight

Puchong-based NCT is known for its expertise in rehabilitating abandoned mega property projects in Malaysia. In 2012, it was assigned to revive the country’s largest abandoned housing project — the 1,275ha Bandar Baru Salak Tinggi in Selangor.

Two years later, it picked up what was known as Pahang’s largest abandoned project — Genting Highlands Billion Court — where it branched out into the hospitality industry by building a five-star hotel there. The project, now known as Grand Ion Delemen, was acquired for RM212.9 million in June 2021.

Going forward, NCT does not discount the possibility of undertaking new property developments, says Yap.

“Although NCT is known as a specialist in reviving abandoned projects, we are actually an all-rounder property developer. As long as the land and opportunities are viable, and if our company has the financial strength, we can always explore these,” he adds.

“We can go in on our own or enter into a joint venture, with the ultimate goal of growing the company. But there are no immediate plans to undertake new projects for now.”

The group has four or five ongoing property developments to keep it busy.

Yap notes that NCT has a strong track record and the company has never failed to deliver any project. “As a revival specialist, our biggest strength is that our entry cost is lower than that of other developers. We don’t have to purchase land with hefty price tags. This gives us a good start and makes it easier to sell our projects at a more competitive price.”

Unfazed by EPS dilution

Despite concerns about NCT’s enlarged share base following the RM212.9 million acquisition of the project that would become Grand Ion Delemen — mainly via redeemable convertible unsecured loan stocks (RCULS) — Atthakovit insists that the group’s earnings per share (EPS) remains strong.

Recall that the purchase consideration of the project was satisfied by the issuance of RCULS worth RM197.71 million in four tranches. The remaining RM15.19 million was paid in cash.

“In other words, our listed company [NCT] gets control of Grand Ion Delemen with a deferred payment scheme. It can now sell the property units, immediately recognise the revenue, get the cash flow and enjoy the rental returns from the commercial units,” he says.

Atthakovit adds that the earnings dilution for NCT has been manageable over the past three years. “In fact, our top and bottom line have grown significantly, so much so that they have cancelled out any potential EPS dilution to our stock.”

For perspective, NCT recorded a net profit of RM2.6 million in FY2019 and RM5.6 million in FY2020 before its net profit surged to RM33.7 million in FY2021.

“Three years ago, our share base was 470 million. Today, it has slightly more than doubled to 972 million shares. But our earnings have increased by 13 times in three years. So, not only do we not see any EPS dilution, we also expect EPS growth in FY2022 and the coming years,” he says.

Although NCT’s share base will be expanded further to 1.37 billion upon full conversion of the RCULS, Atthakovit points out that the loan stocks have an eight-year tenure. “We [YBG Yap Consolidated] will not be converting all the RCULS overnight. In any case, NCT will have ample time to absorb the impact of any potential EPS dilution,” he adds.

The share price of Main Market-listed NCT had declined 24% year to date to close at 39.5 sen last Friday, giving the company a market capitalisation of RM387.7 million. The counter is currently trading at a historical price-earnings ratio of nine times.


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