This article first appeared in The Edge Malaysia Weekly on July 31, 2023 - August 6, 2023

TWO years have passed since diversified group Berjaya Corp Bhd (BCorp) outlined its three-year transformation plan, with the key goal being to substantially cut debt through the disposal of non-core assets as well as through dividend payments from its listed subsidiaries.

The plan was announced by former CEO Abdul Jalil Abdul Rasheed in June 2021. It is not immediately known if there have been any changes to this transformation plan following Abdul Jalil’s departure from the group in March 2022.

When met at BCorp’s groundbreaking ceremony for its affordable housing project in Subang Jaya last Friday, BCorp founder and adviser Tan Sri Vincent Tan Chee Yioun declined to respond to The Edge’s queries. Questions emailed earlier to the group also remained unanswered at press time.

Nonetheless, in the group’s 2022 annual report, Tan notes that “BCorp is making good progress with its three-year strategic plan as reflected by our achievements during the financial year under review.

“Moving forward, the group remains focused on its strategy to future-proof its businesses and, at the same time, continue to explore and invest in business opportunities around the region and globally.”

Being a consumer-centric firm, BCorp operates in four business segments — retail, hospitality, property and services. The group has interests in seven entities listed on Bursa Malaysia, as well as Singapore’s Informatics Education Ltd and Berjaya Philippines Inc. The group’s key local subsidiaries on Bursa Malaysia are Berjaya Land Bhd,  Sports Toto Bhd, Berjaya Food Bhd and 7-Eleven Malaysia Holdings Bhd.

Tan stepped down as non-independent and non-executive chairman in March this year amid several board changes, which also saw the appointment of his daughter Nerine Tan Sheik Ping as BCorp’s new joint CEO. As a result, BCorp became the first listed local company to have an all-female board.

Under the transformation plan, the group’s debt was to be reduced by half to RM2.5 billion from RM5 billion two years ago. Nonetheless, the group’s total borrowings remained elevated at RM5.8 billion as at end-March 2023, comprising RM3.54 billion in long-term borrowings and RM2.26 billion in short-term borrowings. Its cash and cash equivalents as at end-March 2023 stood at RM1.18 billion.

Certainly, BCorp would still be far from achieving its debt-reduction target if the group were to continue with its debt-cutting exercise.

Financially, the group has also yet to convince its shareholders of a sustainable improvement. For the first nine months of its financial year ended June 30, 2023 (9MFY2023), it posted a net loss of RM37.97 million against a net profit of RM5.81 million in the same period a year ago, dragged down mainly by lower contribution from HR Owen, a luxury car distributor that operates a number of vehicle franchises in the specialist car market for both sales and after-sales.

BCorp only managed to make a profit in FY2022 with net earnings of RM51.77 million that year, after being in the red since FY2018. In FY2022, some 54.9% of its RM8.16 billion revenue was derived from the retail segment, followed by services (32.7%), hospitality (8.5%) and property (3.9%).

Services include gaming and lottery management, financial services; environmental services and clean technology investment; telecommunication and information technology-related services, solutions and products.

As at October 2022, there were a total of 102 main subsidiaries, associated companies and joint ventures within the group.

A fund manager who declined to be named says it would be ideal to sell off more of its not-so-important businesses and retain the key businesses. “There are too many subsidiaries within the group. At the end of the day, what investors want is continuity of the business transformation plan, which bodes well for its future growth.”

The fund manager tells The Edge that another option for the group is to undertake a consolidation exercise by way of mergers and acquisitions, though it may not be easy for a conglomerate like BCorp to sell its stake in businesses. “Buyers may press down the price following any news of a disposal.”

LeInves PLT chief investment officer William Ng believes BCorp’s recent move to dispose of its waste management business to Naza Corp Holdings Sdn Bhd for RM700 million was a wise business decision given the nature of the business which requires dealings with the government.

As for 7-Eleven’s recent disposal of its 75% stake in Caring Pharmacy Group Bhd to BIG Pharmacy Healthcare Sdn Bhd for RM637.5 million, Ng says 7-Eleven could have fetched a better price as the merged entity would command a substantial market share in the pharmacy business.

“Caring Pharmacy doesn’t really provide the effect of ‘one plus one equals to more than two’ within 7-Eleven. That said, we think that the selling price is not at an optimum level,” he says.

Thus, he expects BCorp’s minority shareholders to raise questions about the pricing at its extraordinary general meeting to be held later. The deal was premised on a price-earnings ratio of 19.6 times for Caring, which recorded a net profit of RM43.3 million (excluding the Indonesian operation) for FY2022.

Tan holds a 22.34% direct stake in 7-Eleven as well as a 6% indirect stake via several entities.

The Caring Pharmacy deal will enable 7-Eleven to redirect its future resources to growing its convenience store business. The divestment is expected to yield a one-off gain of RM214.3 million, or RM1.30 per share. Ng says there have also been expectations from 7-Eleven shareholders for it to declare a special dividend.

Separately, he highlights the fact that the group has to step up its efforts to minimise its inter-company share purchases and, hence, tackle the many cross holdings. “This will lead to a holding cost, which does not benefit the company, but only the major shareholders.”

Closing at 29.5 sen last Friday — for a market value of RM1.76 billion — BCorp’s share price has stayed flat year to date. Tan’s direct and indirect stakes in the group stand at 7.51% and 8.81% respectively, down from 20.85% and 13.39% in early October 2022.

It is worth noting that BCorp is in talks to buy a controlling stake in MCIS Insurance Bhd from South Africa-based Sanlam Ltd. The deal is pending approval from Bank Negara Malaysia. Sanlam holds 51% of MCIS while Koperasi MCIS Bhd holds 44.39% equity interest. The remaining shares are held by individuals. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.