THE NEW CONTROLLING SHAREHOLDERS OF TAFI INDUSTRIES BHD are optimistic in the company’s ability to turn around its fortunes through new business strategies in the fiscal year ending December 31, 2021. (FY2021).
Armani Synergy Sdn Bhd, which completed its unconditional mandatory takeover of Tafi last October following the acquisition of a 51.01 percent stake the previous month, expects to streamline sales strategies in the loss-making furniture segment, secure joint venture projects for its new property development division, and win additional construction contracts.
“At the moment, our primary focus is on repositioning the furniture area. Tafi may appear to be at rock bottom at the moment, but things are changing and we are optimistic about the future,” Tafi group CEO Datuk Seri Bryan Wong Sze Chien tells The Edge in a virtual interview.
Wong, who is also the founder and chairman of Armani Group, was appointed to Tafi’s board of directors on October 30, 2020, with business partners Datuk Seri Azlan bin Azmi and Datuk Seri Andrew Lim Eng Guan, respectively, as group managing director and executive director.
The three men are partners in the Armani Group, which also invests in bakery retail, plantation, solar energy, and supermarkets.
“When we acquired Tafi, we considered divesting the furniture business in order to focus on Armani’s core operations. However, after speaking with Tafi’s management, we discovered that it is a very good company with low bank borrowings that has been managed by an experienced staff for the last decade or so. They were producing furniture for [Scandinavian ready-to-assemble furniture retailer] Ikea, which revealed a great deal about their current position. Unfortunately, the company ran into cash flow problems trying to stay up with Ikea, and as a result, entered into the US market, incurring losses.
“We realised that with some restructuring, Tafi could potentially be quite profitable, as evidenced by the company’s first-quarter FY2021 performance [after the acquisition],” Wong explains.
Tafi diversified into property development and construction activities in the fourth quarter of 2020, expanding beyond its main business of manufacturing wood-based panel systems for offices.
On Nov 5, 2020, its wholly owned subsidiary, Tafi Development Sdn Bhd, entered into a conditional joint development agreement with E Prompt Sdn Bhd for the development of a parcel of freehold land in Cameron Highlands, Pahang, into a mixed-use development project consisting of town houses, apartments, and commercial shops. The estimated gross development value (GDV) of the project is RM390 million, which the group intends to achieve over the following five years.
Additionally, the group is in negotiations with several parties for land joint ventures worth an estimated RM2 billion in gross development value, the majority of which we hope to convert into confirmed agreements,” Wong notes.
Financial prospects improve
Tafi returned to profitability in the first quarter ending March 31, 2021 (1QFY2021), with a net profit of RM1.06 million, up from net losses of RM5.38 million in 4QFY2020 and RM818,000 in 1QFY2020.
The quarter’s revenue was RM9.34 million, up from RM6.07 million in the preceding similar quarter and RM8.85 million in FY4Q2020.
Tafi was in the red in FY2018, FY2019, and FY2020, reporting net losses of RM4.6 million, RM3.8 million, and RM9.5 million, respectively.
It has not yet released its financial reports for 2QFY2021 due to the one-month delay given by Bursa Malaysia to companies required to submit quarterly results by August 31, 2021.
Tafi attributed the year-on-year increase in profit in 1QFY2021 to increased export sales and gains on the disposition of property, plant, and equipment (PPE) and right-of-use assets. The same was stated of its quarterly profit increase, which included an allowance for slow-moving inventories and an impairment loss on PPE.
As of March 31, the company had RM5.04 million in cash and cash equivalents and RM1.2 million in short and long-term borrowings. Armani Synergy had advanced it RM1.2 million in interest-free and repayable-on-demand advances.
Wong asserts that the group’s cash position and unused bank facilities provide it greater bargaining power with suppliers to obtain cash discounts for cost savings.
While Tafi expects to begin paying out 30% to 50% of its net profit to shareholders by 2024, the company will use cash reserves in FY2021 and FY2022 to develop its current businesses and maximise shareholder returns, Wong notes.
He adds that the business may also conduct bonus issues, as well as rights and private placements, in the near future to grow its property development and furniture segments.
“In the coming years, we may pursue mergers and acquisitions to expand the company. However, we are not in discussions with any party at the moment,” Wong explains.
Tafi is believed to be diversifying its revenue streams by vying for government and non-government furniture contracts.
“When we acquired [Tafi], we made a number of commitments, the most important of which was to avoid accepting loss-making orders or having an excessive concentration of customers from a single country. Our objective is to maintain a diverse clientele,” Wong explains.
Although more than 90% of Tafi’s orders presently originate in the United States, the firm is rebalancing its clientele mix to include a third from the United States, another third from the United Kingdom and the United Arab Emirates, and the remainder from Malaysia, he says.
As of Aug 31, Wong reports that Tafi had obtained RM14.1 million in local furniture supply contracts that are “more profitable and manageable.”
Meanwhile, Tafi’s three factories in Johor have the capacity to generate up to RM100 million in revenue — up from its current level of RM20 million to RM30 million — which Wong believes “can be easily met in the coming years given the new controlling shareholders’ rapid acquisition of new contracts since taking over.”
On Aug 25, Tafi and its wholly owned subsidiary T.A. Furniture Industries Sdn Bhd announced a strategic partnership with kitchen manufacturer and retailer Signature Group (through its subsidiary Signature International Bhd) and online-based subscription renovation platform OMG Free Reno Sdn Bhd to penetrate the local furniture and residential kitchen markets.
“With this partnership in place, we anticipate that our kitchen cabinet division will eventually contribute between RM10 million and RM30 million in annual revenue to the group,” Wong says.
Contracts for joint ventures and construction
Tafi is confident of securing a few joint ventures in property development by the end of the year as it continues to tender for building projects, according to Wong. He did not publish the parties’ numbers or names, however, pursuant to non-disclosure agreements.
The Armani Group’s ongoing projects total RM2.33 million in GDV and include high-rise apartments in Kuala Lumpur’s Bukit Lanjan and Cheras districts, Selangor’s Subang Jaya, Glenmarie, and Sungai Long; and integrated and industrial complexes in Selangor, Perak, Kelantan, and Penang. Its completed projects have a combined gross development value of RM748 million.
Tafi aspires to be a key player in the property development market in the next years through secured joint ventures or acquisitions totaling more than RM3 billion in gross development value (GDV) by 2023, which will generate an anticipated profit of RM450 million upon completion. The segment’s profit after tax margin is likely to be between 13% and 20%, Wong said.
“Going forward, we will concentrate our efforts on real estate development projects that can be started and completed within five years. This aims to maximise project returns by minimising upfront capital expenditures and squandered opportunity costs. We do not want to construct townships because this would need a lengthy period of time, additional interest charges, and opportunity costs,” he notes.
“We strive to differentiate ourselves from other listed developers on Bursa Malaysia’s Main Market, the majority of which have substantial land banks and are unable to realise their full value despite reporting a high prospective GDV. That is not a circumstance we wish to find ourselves in.”
Tafi’s shares soared 326 percent to a record high of RM2.94 last Thursday, up from 69 sen in June, valuing the company at RM364.37 million.
Published by Zack Baharum