Ecofirst mulls venture into plantations

SUBANG JAYA: Ecofirst Consolidated Bhd is considering oil palm plantations in Indonesia as part of its future growth strategy.

CEO and executive director Datuk Tiong Kwing Hee said the group — with a diverse portfolio in property development and investment, construction and mining — may consider acquiring established or new plantation tracts within Indonesia’s Kalimantan, Sumatra or Java enclaves.

However, it is not a top priority at the moment. “It may happen or may not happen,” Tiong told The Edge Financial Daily after Ecofirst AGM yesterday.

He said the planned plantation venture will come “last” as it will be a capital-intensive business. Hence, the immediate priority is still property development, which has a faster turnaround time to generate the necessary cash flow to potentially finance the plantation aspiration.

Tiong said should Ecofirst acquire brownfield plantation assets or planted tracts, it may finance the purchase with cash and shares. This is to prevent Ecofirst from stretching its balance sheet further, he said. “Greenfield is cheaper. But in general, we need deep pockets to venture into plantations.”
Ecofirst’s substantial shareholders as at Sept 30 include Teoh Seng Kian (12.44%), Teoh Seng Aun (10.81%) and Purewise Sdn Bhd (7.4%).

Tiong: We need deep pockets to venture into plantations.

The group’s intention to venture into oil palm plantation in Indonesia coincides with its plans to expand its mining operations there.

According to Tiong, Ecofirst which has existing iron ore mining operations in Kalimantan, plans to acquire more iron ore mines or tracts with other mineral reserves in Indonesia. He said the group could spend US$10 million (RM31.9 million) on each mine, including the cost of setting up a processing plant and other infrastructure.

In August 2010, Ecofirst signed a cooperation agreement with Indonesia-based CV Geo Mineral Resources (CV GMR) to undertake iron ore mining within Kalimantan’s Tanah Laut Regency enclave. Under the deal, CV GMR agreed to share 60% of the iron produced with Ecofirst.

“The prospects are very good,” Tiong said. This takes into account the cost of extracting, processing and transporting iron ore at US$50 a tonne in Indonesia where the commodity is traded at US$100 a tonne.

On the existing JV with CV GMR, Tiong said Ecofirst had forked out RM4 million to undertake mining operations in Kalimantan. He said the processing plant has been commissioned and the facility is undergoing tests. The plant is scheduled to begin operations during the financial year ending May 31, 2013 with an annual capacity of 500 tonnes for a start.

Tiong expects Ecofirst to register a higher net profit in the current year ending May 31, 2012, helped mainly by its property division.

Other than development activities, Ecofirst’s property division includes two retail malls — 1Segamat in Segamat, Johor and South City Plaza in Seri Kembangan, Selangor. Rentals from both malls will form a major source of recurring income for the group.

Tiong said the group, which develops properties in Ipoh, may also consider other parts of the country. He did not elaborate, only indicating that the company is looking at a gross profit of RM20 million to RM 30 million for each property project.

Despite Ecofirst having turned around its fortunes, Tiong said the group has no immediate plans to declare dividends as it needs the cash flow to sustain its earnings momentum.

“But I will still consider rewarding shareholders with dividends,” he said, adding that Ecofirst also has no immediate fundraising plans.

Ecofirst’s latest financials have improved. It posted a net profit of RM2.03 million or 0.31 sen per share in the first quarter ended Aug 31 this year versus a net loss of RM2.12 million a year ago, helped by income from its property division. Group revenue more than doubled to RM14.92 million from RM6.03 million previously.

Under Tiong’s stewardship, Ecofirst has leapt into the black with a net profit of RM8.8 million in the financial year ended May 31, 2011. This followed net losses in the preceding four fiscal years.

Tiong recalled it was tough when he assumed the CEO post in January 2009 as he did not know where to start on rejuvenating the group.

A crucial concern then was that the group’s operations could not sustain its debt level, which prompted Tiong to reorganise the borrowings in which loans from some lenders were fully settled while credit lines from two other banks were restructured.

“I have frozen all the borrowings of Ecofirst,” he said, indicating that cost planning and cost cutting would be crucial to rebuild the group’s financials.

As at Aug 31, Ecofirst had a net debt of RM129.94 million, which translated into a net gearing of 1.1 times based on its shareholders’ funds of RM119.4 million.

The stock closed at 18.5 sen yesterday, giving it a market value of RM120.3 million.


This article appeared in The Edge Financial Daily, November 25, 2011.




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EcoFirst poised for new growth phase

KUALA LUMPUR: EcoFirst Consolidated Bhd has finally got its motor running after seven years of being in the red.

The Main Market-listed company, which has just turned around with a net profit of RM8.67 million for its financial year ended May 31 (FY11), is poised to chart a new chapter of growth, said group CEO and executive director Datuk Tiong Kwing Hee.

Among the new developments in the company are the revival of the long abandoned retail mall in Segamat, Johor; new property development projects — The Academia at South City Plaza and Taipan commercial centre at Ipoh — and its venture into iron ore mining in Indonesia, according to Tiong.

“There is a lot of potential for growth now. Even with the current global economic uncertainties, we will not be affected. When I took over (EcoFirst in 2009), the company was all below ground. Then I brought it to above ground and the only way to go next is up,” he told The Edge Financial Daily in a recent interview.

Established in 1973 and formerly known as Kumpulan Emas Bhd, EcoFirst is a diversified group with business in property, construction, agriculture, network marketing and mineral resources.

While the past decade has been anything but golden for the group, it is now forging a new identity and business direction with a new CEO — and with some results to boot.

Indeed, the company recently made new headway under the helm of Tiong. It resumed construction of a retail mall in Segamat that it had abandoned for almost nine years, said Tiong.

Branded as 1Segamat, the complex is expected to open for business in December 2011 and will become a major revenue contributor to the group in the future, he added.

“With the 1Segamat project coming on-stream, I foresee revenue contribution from property management to the group will go up to 40% (from the current 25%) in the next financial year,” said Tiong, adding that the retail mall could fetch a valuation of up to RM80 million when it is completed.

“Once an anchor tenant is secured, we will get about 85% to 90% occupancy rate. And the income will come in three months after it opens (in December). We don’t collect rental in the first three months to give our tenants a boost in confidence,” he said.

Situated near the Segamat bus station and taxi terminal, 1Segamat complex comprises three shopping levels with a gross area of 450,000 sq ft and two levels of car park.

The complex has secured an occupancy rate of 75%, with tenants that include Lotus Five Star Cinema, Popular bookstore and Watson’s personal care store, said Tiong.

According to him, EcoFirst spent a total of some RM34 million to develop the only mall in Segamat.

In addition, the company plans to revamp its South City Plaza at Seri Kembangan and bring the retail mall to the next level with the construction of two blocks of 13-storey serviced apartments and commercial space named The Academia to attract a bigger crowd to the mall.

“The take-up rate (for The Academia) is good. We have also recently signed an agreement with UPM (Universiti Putra Malaysia) to place up to 3,000 of its overseas students to live here,” Tiong said, adding that the company would start to recognise profit from the development starting FY12.

“The GDV (gross development value) of The Academia is around RM100 million to RM120 million and we expect to gross in some RM40 million. The profit will be used to repay borrowings and plough back to redevelop South City Plaza,” he said.

Tiong said the construction of The Academia is expected to be completed by the middle of next year and EcoFirst plans to invest some RM10 million to build a 12-hall cineplex in the existing mall.

“We have talked to a few parties and Lotus (Five Star Cinema) says it can guarantee drawing a total of 60,000 visitors a month. With the 12 halls, South City Plaza would house one of the biggest cinemas in the south of Kuala Lumpur,” he said.

The Academia aside, EcoFirst’s wholly owned subsidiary Curah Bahagia Sdn Bhd is currently developing a commercial property project — Taipan @ Ipoh Cybercentre — with a GDV

of some RM300 million, which will keep the company busy for another three years.

Profit contribution from Curah Bahagia is expected to come in during FY12.

Meanwhile, EcoFirst’s construction arm has recently been short-listed as one of the contractors for the upgrading works of army camps in Malaysia.

“We are confident of getting three or four of the 100 camps,” he said, adding that the upgrading of one camp could amount to some RM20 million. EcoFirst’s construction arm currently makes up some 25% of its total revenue, according to Tiong.

One of the noteworthy developments of EcoFirst’s business plans is its recent venture into mineral resources business.

Its wholly owned subsidiary Opal Horizon Sdn Bhd had on Aug 5, 2010 entered into a co-operation agreement with CV Geo Mineral Resources for the exploitation of an iron ore mine in South Kalimantan, Indonesia.

The mining operations started last month after the machinery and processing equipment were installed and commissioned in July 2011, according to EcoFirst’s notes accompanying its announcement to Bursa Malaysia.

“We only spent some US$1 million to buy the mines with all the machinery being installed. We think within a year of operations, we can get back our money and the balance in the years to come is all profit. But we will just stop there, we are also looking at other mines too,” said Tiong.

In terms of its network marketing division, he said the unit is in midst of developing and commercialising some health products such as black garlic. Its agro-biotechnology unit is currently exploring the planting of organic agarwood on its 1,000-acre farm in Desaru, Johor.

All in all, Tiong said the group would use its internally generated funds to finance its business plans as much as impossible without resorting to borrowings.

EcoFirst had disposed of its then 19.86% stake, comprising 17.69 million shares, in education services provider SEG International Bhd (SEGi) for RM30.6 million cash in March 2010 to part-repay its borrowings. In retrospect, the timing of the sale was bad for EcoFirst, as SEGi’s shares surged some 10 times just months later as the education company started to turn around strongly.

At as May 31, EcoFirst had RM105.39 million long-term borrowings, RM27.63 million short-term borrowings and RM3.45 million cash, translating into a net debt of RM129.57 million. Based on its shareholders’ fund of RM118.62 million, the company’s net gearing amounted to some 1.09 times.

The company made a net profit of RM8.68 million for FY11 versus a net loss of RM41.4 million for FY10 on the back of 18.5% increase in revenue to RM24.98 million from RM21.07 million. Earnings per share was 1.38 sen versus loss per share of 6.36 sen previously.

EcoFirst closed at 15 sen last Friday, which was some 17.8% discount to its net asset per share of 18.25 sen as at May 31. At this price the company has a market capitalisation of RM97.5 million.

With the upcoming business developments, things could be a bit hectic for EcoFirst to digest. But it will be interesting to see how this company that has just returned to profitability after seven years of struggling in the red can chart new growth ahead.


This article appeared in The Edge Financial Daily, October 31, 2011.