This article first appeared in The Edge Malaysia Weekly on August 7, 2023 - August 13, 2023

A new energy efficiency unit, added to PRG Holdings Bhd’s stable of diversified businesses in the last two years, is expected to feature prominently in the growth plans of the group, which recently turned profitable in financial year 2022 (FY2022).

Filings with Bursa Malaysia show that revenue recognition from PRG’s property development project ­(Embayu @ Damansara West in Shah Alam, Selangor), manu­facturing division and the new energy efficiency unit have collectively helped PRG turn a profit.

PRG, which started operations as a producer of furniture webbing in 1983, later including plastic yarn in 1987, suffered losses between 2018 and 2021, which ran as high as RM49.68 million in 2019, largely due to the failure of its retail venture in Singapore, impairments from the group’s factory in China and, subsequently, the adverse effects of the Covid-19 pandemic.

“With those lessons now behind us, we are banking on our energy efficiency unit (Measurement & Verification Pte Ltd [M&V]) to drive the group’s growth,” PRG executive vice-chairman Datuk Lua Choon Hann tells The Edge in an interview in Kuala Lumpur.

PRG’s core businesses are now in property development and construction, manufacturing of elastic textile and furniture webbing, agriculture of teak wood and commercial crops, and energy efficiency.

The new energy efficiency unit, M&V, is a Singapore-based air-conditioning solutions provider that manages the energy efficiency of air conditioning for commercial buildings such as data centres, semiconductor factories, airport terminals, hotels, shopping malls and offices. Its clients include Singapore Changi Airport, Marina Bay Sands and VivoCity.

Lua explains that the acquisition of M&V came about when the largest shareholder of PRG, Datuk Simonn Ng Yan Cheng, made a personal investment in the entity about a decade ago.

Ng owns 13.74% of PRG, followed by Lua at 7.53%.

Subsequently, PRG ventured into the energy efficiency business in December 2021 by acquiring 37.25% of Energy Solution Group Ltd (ESGL), the holding company of M&V for the Singapore and Malaysia markets. The deal was done via PRG’s 50.45% manufacturing unit — Furniweb Holdings Ltd — which was listed on the Growth Enterprise Market of the Hong Kong Stock Exchange (HKEX) in October 2017. In August 2022, Furniweb acquired the remaining 62.75% of ESGL, the total cost amounting to RM36 million.

The acquisition of ESGL comes with a profit guarantee, where the remaining 50% of the purchase consideration or HK$29.1 million (RM15.71 million) is to be paid only if ESGL achieves the profit guarantee that the audited consolidated profit after tax for the period from Jan 1, 2022, to Dec  31, 2023, is not less than RM18.6 million (HK$34.5 million). If ESGL fails to achieve the profit guarantee, the vendor will compensate Furniweb for the differences.

PRG chief financial officer Vivian Ho says in FY2022, M&V made a net profit of some S$4 million on the back of more than S$20 million in revenue.

“We bought M&V under Furniweb [instead of directly under Bursa Malaysia-listed PRG] as the HKEX listing will be better recognised when expanding the business outside of Malaysia,” Lua says.

Former Bank Negara Malaysia director Datin Arlina Ariff was appointed to PRG’s board as a director in April, and Lua says Arlina’s expertise in corporate governance and her independent views will be helpful to the group’s growth.

M&V managing director Steven Kang, who was appointed as executive director on Furniweb’s board with effect from July 1, says that M&V has a strong clientele in Singapore despite substantial competition from multinational companies such as Honeywell International as well as other small- and medium-sized enterprises.

“M&V is [still] Singapore-centric, which we are trying to change [to scale up],” Kang says, adding that the business plan is to expand in Malaysia even though many players are fighting to get into the space.

“Once we have proven ourselves in this market, we can replicate our success in the Philippines,” says Kang, who anticipates demand for its solutions given the similarities in weather.

Before its acquisition by Furniweb, M&V completed several retrofit chiller plants, supply and instalment EMS (environmental management system) projects in Malaysia for Swiss Garden Hotel Kuala Lumpur and Klang Parade. The outfit also completed similar projects for Menara Ken TTDI, TWP Sdn Bhd and Park Royal Kuala Lumpur. M&V now does service maintenance for Klang Parade and Menara Ken TTDI.

“We are looking out for contracts for data centres, high-tech electronics factories and district cooling plants. We are less keen on offices as [the air-conditioning systems there typically do not run 24 hours a day]. Currently, there is a data centre in Johor where we have begun works. It is a good opportunity for our Malaysian expansion,” Kang says, sharing that M&V’s targets for contract projects and maintenance services in Singapore will be to contribute 50% and 30% respectively to M&V’s overall revenue, while the remaining 20% is expected to be derived from new contracts in Malaysia.

Lua says that PRG’s goal is to grow M&V’s revenue to S$60 million (RM203 million) per annum by 2028, while Kang adds that his aim is to triple M&V’s maintenance business contribution to 30% over the same time frame, from 10% currently.

“Our maintenance business tided us over the pandemic. Our priorities are to grow this recurring income base for our shareholders and expand out of Singapore,” says Kang, adding that the profit margin from maintenance jobs would now “conservatively touch above 10% of the company’s revenue”.

Asked whether PRG was overly diversified, having gone into businesses with little or no clear synergies between them, Lua and Kang contend that business opportunities are more important than business synergies between the parties.

“I am relying on [business leaders] like Kang for M&V, CEO and executive director Jimmy Cheah [Eng Chuan] and chief operating officer Tan Chuan Dyi for Furniweb, and managing director Datuk Wee Cheng Kwan for the property [and construction division]. Eventually, PRG can unlock the entities’ values by exploring their standalone listings,” Lua says.

On the property front, PRG’s RM294 million gross development value residential property development project (Embayu @ Damansara West in Shah Alam) is slated for handover by the end of this month.

Other projects include Tower A at Picasso Residence condominium in Kuala Lumpur for which PRG is the main contractor — Tower B has yet to be awarded — and a school in Melaka. The contract value for Tower A is RM41 million and the school, RM30 million.

“For property, we [build] small residential projects which can sell fast,” Lua says. “Our manufacturing division has provided a stable income for many years. But there was a 10% decrease in sales orders which may bring about a slight reduction in revenue for the first quarter but it should pick up in the later part of the second quarter.”

PRG has two parcels of land in Gua Musang, Kelantan measuring 901 acres, which were purchased in October 2019 for RM89.2 million (RM59.2 million cash and 40.3 million new shares at 74.45 sen each, amounting to RM30 million).

“About 30% of the land is teak plantation, [and] harvesting is in progress. The rest is for commercial crops, durian and pineapple. They have been planted and will be harvested next year,” Ho says.

For the first quarter ended March 31, 2023, PRG posted a slightly higher net profit of RM4.17 million, from RM4.09 million in the same corresponding quarter a year ago, on increased revenue of RM92.7 million from RM59.5 million earlier. The group’s profit before tax (PBT) came in at RM11 million, a tad lower than the RM11.5 million last year.

In a filing with Bursa Malaysia, the group said the increase in revenue was mainly attributable to the energy efficiency business and increased revenue recognition from higher sales and construction progress from ongoing projects. The decrease in PBT, however, stemmed from lower profits in its property and construction segment and manufacturing division, offset by profit from the energy efficiency business.

PRG does not have a formal dividend policy. While it paid out dividends in the past, ranging from 0.5 sen to six sen per share between FY2007 and FY2016, this came to a halt after Furniweb’s listing on HKEX and the subsequent loss-making years.

Lua and Ho say that while PRG held to its cash reserve policy during the difficult years, it is time to “reward the shareholders”.

They explain that PRG has the intention to declare dividends again, beginning with Furniweb as it is the group’s most profitable entity due to its manufacturing and energy divisions.

“We are cautiously optimistic that a dividend payout by Furniweb this year, and PRG next year, will be possible following the completion of our corporate exercise by the second quarter of next year, which will see PRG increasing its stake in Furniweb from 50.4% to 67.6%. This is subject to our shareholders’ approval,” shares Lua, adding that Furniweb, which had contributed less than 50% of PRG’s total revenue as at FY2022, is expected to exceed that amount in FY2023.

As at last Friday, shares of PRG traded at the 22 sen range, having climbed 57% from 14 sen in the last 12 months, to value the company at RM90.22 million.  Over the same period, shares of Furniweb climbed 47.6% to close at 31 Hong Kong cents last Friday from 21 cents previously, valuing the company at HK$186.49 million.  

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