This article first appeared in The Edge Malaysia Weekly on September 20, 2021 - September 26, 2021

THE new controlling shareholders of loss-making Tafi Industries Bhd are confident of making a turnaround through new business strategies in its financial year ending Dec 31, 2021 (FY2021).

Armani Synergy Sdn Bhd, which completed its unconditional mandatory takeover of Tafi last October after acquiring a 51.01% stake the month before, expects to streamline sales strategies in the loss-making furniture segment, secure joint-venture projects for its new property development division and bag more construction contracts.

“Turning the furniture segment around is our priority for now. Tafi may appear to be at rock bottom now, but things are changing and we are confident of what we can achieve,” Tafi group CEO Datuk Seri Bryan Wong Sze Chien tells The Edge in a virtual interview.

Wong, also Armani Group’s founder and chairman, was appointed to Tafi’s board on Oct 30, 2020, along with business partners Datuk Seri Azlan bin Azmi and Datuk Seri Andrew Lim Eng Guan as group managing director and executive director respectively.

The three men run property development and construction businesses under the Armani Group, which also has investments in bakery retail, plantation, solar energy and supermarkets.

“When we took over Tafi, we did consider disposing of the furniture business, given Armani’s core businesses. But after discussing with Tafi’s management, we saw that it is a very good company with low bank borrowings, managed by an experienced team in the last one to two decades. They were manufacturing furniture for [Scandinavian ready-to-assemble furniture chain] Ikea, which said plenty about where they stood at that time. Unfortunately, the company ran into cash flow issues in keeping up with Ikea and so ventured into the US market thereafter, and incurred losses.

“We saw that with some restructuring, Tafi could actually be very profitable, which has been proven in the first quarter results for FY2021 [since the takeover],” Wong says.

Despite the company’s operations being subsequently forced to cease during the rolling lockdowns this year, Wong says orders remain on track for it to deliver a profit for FY2021.

In the fourth quarter of 2020, Tafi diversified from its core business of manufacturing wood-based panel systems for offices into property development and construction activities.

Its wholly owned unit, Tafi Development Sdn Bhd, entered into a conditional joint development agreement with E Prompt Sdn Bhd on Nov 5, 2020, to develop a parcel of freehold land in Cameron Highlands, Pahang, into a mixed-use development project comprising town houses, apartments and commercial shops. The project has an estimated gross development value (GDV) of RM390 million, which the group targets to realise over the next five years.

“In addition, the group is negotiating with various parties for land joint ventures with a total estimated GDV of RM2 billion, much of which we hope to realise into confirmed agreements,” Wong says.

For the first quarter ended March 31, 2021 (1QFY2021), Tafi swung into the black with a net profit of RM1.06 million from net losses of RM5.38 million in 4QFY2020 and RM818,000 in 1QFY2020.

Revenue for the quarter was RM9.34 million, an improvement from RM6.07 million in the previous corresponding quarter and RM8.85 million in FY4Q2020.

Tafi was in the red with net losses of RM4.6 million, RM3.8 million and RM9.5 million in FY2018, FY2019 and FY2020.

It has yet to release its financials for 2QFY2021 as it had opted for the one-month extension granted by Bursa Malaysia for companies that are due to submit quarterly results by Aug 31, 2021.

In a filing with the stock exchange, Tafi attributed the year-on-year improvement in profit in 1QFY2021 to higher export sales and gains on disposal of property, plant and equipment (PPE) and right-of-use asset. The same was observed of its quarter-on-quarter improvement in profit in addition to an allowance for slow-moving inventory and impairment loss on PPE, it said.

As at March 31, the company had cash and cash equivalents of RM5.04 million, and short and long-term borrowings totalling RM1.2 million. It had received RM1.2 million in interest-free and repayable-upon-demand advances from Armani Synergy.

Wong says the group’s cash position and unutilised bank facilities give it better bargaining power to request for cash discounts from suppliers for cost savings.

While Tafi intends to commence its dividend policy to pay out 30% to 50% of its net profit to shareholders by 2024, the company will be preserving cash in FY2021 and FY2022 to enhance its current businesses to maximise returns for its shareholders, Wong explains.

He adds that the company may also undertake bonus issues in the foreseeable future, as well as rights and private placements to expand its property development and furniture segments.

“We may engage in merger and acquisition activities to grow the company in the coming years. However, we are not in talks with any party for now,” Wong shares.

Tafi is understood to be venturing into the local furniture market by tendering for government and non-government furniture contracts to strengthen revenue.

“When we took over [Tafi], we took a few stands, chief of which were to not accept loss-making orders or have an overconcentration of customers from a single country. Our strategy is to have a diversified clientele,” Wong explains.

Although more than 90% of Tafi’s orders currently come from the US, the company is rebalancing its clientele mix so that a third will be from the US, another third from the UK and UAE, and the balance, from Malaysia, he adds.

As at Aug 31, Wong says Tafi had secured a total of RM14.1 million worth of furniture supply contracts locally, which are “more profitable and manageable”.

Meanwhile, the production capacity in Tafi’s three factories in Johor enables it to yield up to RM100 million in sales — from its current level of RM20 million to RM30 million — which Wong says “can be easily met in the coming years given the new controlling shareholders’ swift bagging of new contracts since coming on board”.

On Aug 25, Tafi and its wholly owned unit T.A. Furniture Industries Sdn Bhd announced a strategic partnership with kitchen manufacturer and retailer Signature Group (under Signature International Bhd) and online-based subscription renovation platform OMG Free Reno Sdn Bhd to penetrate the local furniture and residential kitchen market.

“With this arrangement, we expect our kitchen cabinet segment to eventually contribute sales of RM10 million to RM30 million per annum to the group,” Wong says.

Wong says Tafi is confident of securing a few joint ventures in property development by the end of the year as it continues tendering for construction contracts. However, he did not reveal the number or name of the parties involved due to non-disclosure agreements.

Armani Group’s ongoing projects, which have a total GDV of RM2.33 million, include high-rise condominiums in Bukit Lanjan and Cheras in Kuala Lumpur, Subang Jaya, Glenmarie and Sungai Long in Selangor; and integrated and industrial developments in Selangor, Perak, Kelantan and Penang. Its completed projects have a total GDV of RM748 million.

Tafi aims to be a significant player in the property development sector in the coming years with secured joint ventures or acquired developments with total GDV in excess of RM3 billion by 2023, to collectively yield an estimated profit of RM450 million following the completion of these projects. Profit after tax margin for the segment is expected to be between 13% and 20%, Wong says.

“Moving forward, we will focus on property development projects that can be launched and completed within five years. This is to maximise returns on the projects by minimising incurrence of upfront capital and wasted opportunity costs. We do not intend to develop townships as that spans long periods, incurs additional interest expenses and brings about opportunity costs,” he points out.

“We seek to be very different from other listed developers on the Main Market of Bursa Malaysia, most of which carry heavy land banks and are unable to realise their value despite reporting a high potential GDV. That’s a situation we wish to avoid.”

Shares of Tafi ballooned 326% to a record high of RM2.94 last Thursday from the 69 sen level in June, giving the company a market capitalisation of RM364.37 million.

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