This article first appeared in The Edge Malaysia Weekly on December 6, 2021 - December 12, 2021

OVER the past few months, Johor Corp Bhd (JCorp), the investment arm of the southernmost state in Peninsular Malaysia, has been in the news.

There was market talk of taking KPJ Healthcare Bhd private, partnering with private equity firm TPG Capital. Then there was the triggering of a general offer for property counter Damansara Holdings Bhd after JCorp bought a 49.57% stake for RM78.91 million, or 50 sen a share, from Seaview Holdings Sdn Bhd. Also in the news has been the much-touted IPO of QSR Brands (M) Holdings Bhd, which operates more than 1,350 KFC fast food outlets across Malaysia, Singapore, Brunei and Cambodia and owns the Pizza Hut franchise in Malaysia and Singapore.

Questions have also been asked about oil and gas service provider EA Technique (M) Bhd, in which JCorp has a 50.05% stake. EA Technique has suffered losses for its last five quarters and has been under water despite rising oil prices.

In an emailed response to questions from The Edge, JCorp president and chief executive Datuk Syed Mohamed Syed Ibrahim says, “We want our investee companies to be either No 1 or 2 in their industries; to do that, we want to focus on only four core verticals, namely wellness

and healthcare; real estate and infrastructure; agribusiness; and food and restaurants.

“We will divest non-core, non-strategic and non-performing companies and assets. By monetising some of our [assets], we can pare down our debt, pay dividends to our stakeholders and, more importantly, capture emerging opportunities to further grow our businesses,” he says in his first interview with the media since taking over the helm of JCorp in January 2020.

As at end-2020, the value of JCorp’s assets was pegged at RM22.81 billion, while its liabilities totalled RM14.29 billion.

Its key assets include plantation company Kulim (M) Bhd, which has a land bank in excess of 55,000ha in Malaysia and Indonesia; KPJ Healthcare Bhd, which operates 28 hospitals in Malaysia, a couple of hospitals in Indonesia, one each in Bangladesh and Bangkok, and a handful of retirement and aged care facilities; QSR Brands (M) Holdings Bhd, with its KFC and Pizza Hut restaurants in Malaysia, Singapore, Brunei and Cambodia; property development outfit Johor Land Bhd, which has a strong presence in the state; and more recently, Damansara Holdings, which is also involved in property development.

KPJ, a listed entity, meanwhile has 36.56% equity interest in Al-’Aqar Healthcare REIT, which owns 17 hospitals, three wellness centres, two colleges and one retirement village.

“Owning a wide range of businesses alone does not guarantee sustainability or optimum return on investments. Hence, this was the factor that drove us to reinvent ourselves,” notes Syed Mohamed.

For its financial year ended December 2020, JCorp suffered an after-tax loss of RM394 million, from RM4.56 billion in revenue.

Kulim was delisted from Bursa Malaysia in August 2016 after a selective capital reduction and repayment of RM2.2 billion or RM4.10 per share. JCorp controlled 61.87% in Kulim when the offer was made.

A search on SSM (Companies Commission of Malaysia) reveals that for its year ended Dec 31, 2020, Kulim suffered an after-tax loss of RM461.31 million from RM1.41 billion in revenue. As at end-2020, Kulim had total assets of RM6.14 billion and total liabilities of RM3.41 billion. It is also noteworthy that the company had retained earnings of RM2.73 billion as at end-2020.

According to Syed Mohamed, Kulim’s yield stood at 22.9 tonnes per ha while its oil and kernel extraction rates at 21% and 5.3% respectively are higher than the national average of 19.92% and 4.9%.

“We have big plans for Kulim as an integrated agribusiness player. From a pure plantation business, we are currently restructuring Kulim to focus on four main pillars — plantation, livestock, farming, and trading and services.

“Given the nation’s low self-sufficiency levels in meat and dairy production, Kulim has identified the livestock segment as a significant growth area. We currently have 6,000 head of cattle in our estates and optimally, we look to grow to 10,000 head.

“In terms of dairy production, we are bidding for the East Coast Economic Region Development Council’s Jemaluang Dairy Valley project with a strong and credible partner. We believe we stand a fair chance of landing the project, given our and our partner’s strength and capabilities,” Syed Mohamed says.

In September this year, the Johor government and the East Coast Economic Region Development Council signed a collaboration agreement to develop the Jemaluang Dairy Valley project in Mersing, Johor.

The project basically entails 275ha of land in Mersing being utilised to produce 5.1 million litres of fresh milk annually and is slated to commence operations in 2023.

On the possibility of Kulim’s shares being floated again, Syed Mohamed says, “We are in no rush to take Kulim to the market as yet. Just like JCorp and our investee companies, reinvention of the business is the key and principal driver of our strategies.

“Any relisting must provide capital appreciation, dividend yield and sustainable growth. Listing for the sake of listing is out of the question. So far, we are going in the right direction for a potential listing by 2024,” he says.

The flotation of QSR has been the subject of speculation for the past few years. There were reports of QSR’s valuations being low, which scuttled the exercise.

“It is no secret; an IPO has always been on the table. The very important question now is timing. When is the right timing?

“The team has worked hard to strengthen our footprint; we are stable, and we are in a position where we can wait for the optimal time for an IPO,” says Syed Mohamed.

“While 2020 was exceedingly challenging given the Covid-19 pandemic-related disruptions, which resulted in zero sales from our dine-in business for a prolonged period, we were nonetheless able to demonstrate our resilience. This has primarily been driven by our e-commerce initiatives.”

For FY2020, QSR raked in after-tax profits of RM192.42 million from RM4.83 billion in revenue.

As at end-December 2020, it had total assets of RM6.64 billion against RM3.87 billion in total liabilities.

QSR and its unit KFC Holdings (M) Bhd were taken private by JCorp in February 2013. JCorp partnered with the Employees Provident Fund (EPF) and private equity firm CVC Capital Partners Ltd to privatise the entities in a RM5.2 billion deal. EPF and CVC formed Melati Asia Holdings Ltd with a 51% and 49% stake respectively.

JCorp’s unit Massive Equity Sdn Bhd holds a 55.63% stake in QSR while Melati Asia Holdings controls 44.01%.

“There are enormous upsides in the food and restaurants business,” Syed Mohamed says.

In the past, QSR’s proposed IPO was touted to be in the RM6 billion region.

At its close of RM1.02 last Thursday, JCorp’s 36.63% unit KPJ had a market capitalisation of RM4.58 billion. Meanwhile KPJ’s 36.56% unit Al-’Aqar Healthcare REIT ended trading at RM1.14, valuing it at RM839 million.

For its nine months ended September, KPJ chalked up net profits of RM32.57 million from RM1.94 billion in revenue. As at end-September, KPJ had deposits, bank and cash balances of RM316.96 million, and short-term liabilities of RM866.04 million and long-term debt commitments of RM970.81 million.

KPJ paid a first interim dividend of 0.25 sen per share, which works out to a payout of RM10.75 million in the financial year ending December 2021 (FY2021). JCorp’s portion of the dividend payout was a tad shy of RM3.94 million.

While he did not answer questions on the potential privatisation, Syed Mohamed says, “The reality is, dividend yield from KPJ is low and we cannot continue with business as usual, as the healthcare sector is already very competitive. KPJ must pursue organic and inorganic growth as part of its strategies in hospital and non-hospital operations as well as telehealth.

“We have various corporate bodies discussing potential collaborations with us, and this clearly points to the fact that despite all the doom and gloom, Asean, and in particular Malaysia, holds much potential,” he says.

Meanwhile, JCorp’s acquisition of a 49.57% stake in Damansara Holdings on Sept 14 this year for RM78.91 million, or 50 sen a share, and a subsequent transaction nudged its shareholding to 81.04%. Prior to the acquisition from Seaview Holdings, the vehicle of well-connected businessman Datuk Daing A Malek Daing A Rahman, JCorp had a 13.81% stake in the property company.

To recap, in February 2014, JCorp sold 51% in Damansara Holdings (then known as Damansara Realty Bhd) to Daing A Malek for 50 sen a share or RM78.89 million, which was a huge discount as the company’s share price then was RM1.71.

Although a mandatory general offer was triggered on Sept 27 following JCorp’s recent acquisition, the low offer price of 50 sen a share resulted in tepid response to the offer. At the time of the MGO, Damansara Holdings was traded at 48.5 sen.

At its close of 50 sen last Thursday, Damansara Holdings had a market capitalisation of RM159.19 million. For its first quarter ended Sept 30 (1QFY2022), the company suffered a net loss of RM4.56 million from RM38.48 million in sales.

Syed Mohamed says, “We aim to strengthen our core businesses. We see Damansara Holdings as being complementary to our real estate and infrastructure segment.

“The acquisition of Damansara Holdings allows us to build up our capability and capacity in the asset lifecycle management business and allows us to become an integrated end-to-end player in the real estate value chain. Through this acquisition, aimed at enhancing and unlocking value, we are looking to consolidate and expand in this segment,” he adds.

It is also noteworthy that JCorp has another property company. In mid-2009, JCorp privatised Johor Land Bhd (JLand), forking out just over RM90 million to acquire 58.1 million shares or the 25.15% it did not own in the property outfit.

As at end-December 2020, JLand had total assets of RM2.53 billion and total liabilities amounting to RM1.03 billion.

For its financial year ended December 2020, JLand registered after-tax profits of RM70.82 million from RM364.8 million in revenue. As at end-December 2020, the company had retained earnings of RM986.67 million.

It is not clear what JCorp will do with its two large property companies.

Syed Mohamed says, “To provide some perspective, JCorp was established by the [Johor] state to undertake the development of strategic projects with substantial multiplier effects that contribute towards the growth of the economy.

“We needed to reset, reimagine, future-proof and reshape our strategies for long-term value creation to shift towards an agile, resilient and sustainable JCorp,” he says.

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