The OSK group will continue to pursue strategic land banking opportunities for long-term growth and launch fewer projects this year, amid the current challenging market environment.
As at the end of 2019 (FY19), the group has 592.45 hectares of developable land with an estimated gross development value (GDV) of RM10.5 billion in Malaysia. OSK also has an effective GDV of RM2.3 billion in Melbourne, Australia, representing its share in the Melbourne Square mixed-use development project.
OSK group managing director Ong Ju Yan said its property development arm, OSK Property, will launch projects with a total GDV of RM311.9 million this year because of the challenging market sentiment.
It will launch Iringan Bayu Mekary Phase 3B, comprising double-storey terrace homes, and Phase 3C, featuring single-storey terrace homes in Seremban, Negeri Sembilan, as well as Bandar Puteri Jaya Precincts 4 and 5 in Sungai Petani, Kedah.
Apart from developing innovative products that meet the needs of prospective buyers, OSK Property will also focus on selling its unsold inventories in ongoing and completed projects through effective marketing strategies.
"Our team will focus on delivering properties launched and sold in FY18 and FY19 which should generate a healthy level of profits for our property division in FY20," said Ong in the group's 2019 annual report released yesterday.
Ong said that OSK foresees its financial year ending December 31, 2020 (FY20) to remain challenging for the property development division, which is currently a major contributor to the group's revenue and pre-tax profit, due to the lacklustre property market with continued challenges in the ability of purchasers to obtain end-financing, amidst concerns of a property supply overhang.
The OSK group generated total revenue of RM1.21 billion, a pre-tax profit of RM470.5 million, and a net profit of RM418.7 million for FY19.
The property development division recorded revenue of RM714.3 million, contributing 60 per cent to the group's total revenue and 43 per cent or RM200 million to the pre-tax profit.
Ong said, despite having to cope with the property overhang in Malaysia and the challenging property market environment in Australia, the division recorded a net sales of RM1.1 billion from ongoing projects and new launches in both countries.
OSK launched RM683.7 million worth of properties during the year in Malaysia, compared with RM748.6 million in FY2018.
As of December 31, 2019, the group's effective unbilled sales stood at RM1.6 billion.
Apart from property development (and property investment), the group has four other key segments which are financial services, construction, industries (cables and industrialised building system, and hospitality (hotels, resorts, vacation club) with operations in Malaysia, Australia and Vietnam.
On the hospitality front, properties operating under the "Swiss-Garden" and "Swiss-Inn" brands, which are managed by Swiss-Garden International Hotels, Resorts and Inns (SGI) are temporarily closed as of March 18, 2020, except those which provided essential services to the public during the Movement Control Order (MCO) period.
Three hotels are operating as quarantine centres for the Ministry of Health.
Aiming high in hospitality assets
Ong said the hospitality industry in Malaysia is experiencing increasing competition from unconventional hospitality offerings such as Airbnb, homestay properties and boutique hotels.
"International brands have also expanded their presence in Malaysia. This has resulted in a very difficult business environment for the industry in recent years," he said.
SGI's portfolio of nine hotels, resorts, and inns has a combined room inventory of over 1,650 rooms.
In FY2019, the division recorded revenue of RM58.8 million and a pre-tax loss of RM14.9 million, compared with a revenue of RM81 million and a pre-tax profit of RM73.6 million in the previous year.
Included in FY2018's pre-tax profit were gains from the disposal of two hotel assets amounting to RM93.5 million.
Ong said that OSK is continuously evaluating and rationalising its portfolio of investments as part of the group's efforts to ensure it generates optimal returns for its shareholders.
"We track the performance of each investment by balancing their risk adjusted returns to ensure effective capital allocation while optimising value creation to achieve long-term business sustainability," he said.
In June 2019, OSK inked a hotel branding and management agreement with Hilton Worldwide to rebrand Swiss-Garden Damai Laut in Lumut, Perak.
The hotel will be rebranded and managed under the DoubleTree by Hilton brand.
OSK has set aside RM35 million for Swiss-Garden Damai Laut to undergo an extensive renovation in stages, commencing this year.
Covid-19 a test of resilience, says OSK chief
OSK executive chairman Tan Sri Ong Leong Huat said the year 2019 was marked by several challenges that affected the segments in which the group operates.
However, the property development business performed well despite the challenging environment mainly due to the successful marketing efforts by the team, and an effective cost rationalisation approach taken by the property-construction partnership, he said.
"The rapid spread of Covid-19 in Malaysia after the first reported case on January 25, 2020, has delivered an unprecedented impact on major sectors of the economy.
"This crisis has proved to be a test of resilience and preparedness for many companies across the world. While we are thankful that most of our businesses have resumed operations during the third phase of the MCO, we also recognise the prevailing uncertainty in the global economy as the fight against Covid-19 continues," he said.
He said that the group remains prudent in leading the organisation through this crisis by strengthening its ongoing precautionary and business recovery measures moving forward.
"During the year, we have focused a lot of time and resources on clearing unsold properties. As a result of a series of successful marketing campaigns, we continue to retain only a minimal amount of unsold inventory, enabling us to sustain our strong balance sheet and stay agile as new opportunities arise," he said.
The property development division focuses on residential developments across high-rise projects and townships, and some may also include commercial and retail components.
In Australia, the first phase of Melbourne Square is 77 per cent complete, with the progressive handover of completed units expected to commence by early this year, he said.