One of the rules of investing is not to fall in love with an asset. For many years, it appeared that Malayan United Industries Bhd (MUI) founder Tan Sri Khoo Kay Peng had broken the rule, given his apparent attachment to Corus Hotel Hyde Park in London.
He had held on to the hotel, which MUI has owned since 1997, even when the group was in need of cash.
However, after four decades of building up his business empire, Khoo stepped down early last year and handed the reins to his second oldest son Andrew Khoo Boo Yeow.
Andrew, who is MUI chairman and CEO, is far less sentimental about the group's crown jewel. He cannot afford to be, especially as MUI needs adequate financial resources to put its turnaround plans into action.
He says the toughest part of the turnaround process for him is obtaining adequate resources to put the plans to work.
"For a turnaround to work, we need three ingredients — first, the need to have a vision; second, the people to realise it, and thirdly, the resources to be able to do so. Hence, we have to look at the recycling of our assets and divestments," Andrew tells The Edge in a recent interview.
Last month, MUI announced plans to sell the Corus Hotel Hyde Park, at a time when the group is at the halfway mark of a three-year turnaround plan, which includes a corporate and capital restructuring, asset rationalisation and business transformation exercise.
The London hotel is undoubtedly the group's crown jewel. Reports about the disposal of the hotel — a stone's throw away from London's iconic Hyde Park — are not exactly new. In September 2014, The Edge Financial Daily reported that MUI was seeking to divest the hotel for £200 million and had appointed Debutesq Group, a luxury real estate firm, to manage the sale. However, in a filing with Bursa Malaysia on Oct 1, 2014, MUI denied that it was selling the hotel, as well as the appointment of Debutesq.
Now, it looks like a disposal of the hotel, which bears the Malaysian flag and the Union Jack at its entrance, is finally underway. MUI has appointed international investment bank N.M. Rothschild & Sons Limited as the financial adviser for the sale.
Before Rothschild's appointment, Andrew reveals that the group had received an offer of slightly more than £200 million (RM1.07 billion) from an interested party. "We appointed Rothschild as we wanted to do a proper exercise in which we could the derive the actual market value for the asset and realise the best possible price," he says.
The RM1.07 billion ballpark amount would help strengthen MUI's balance sheet, given that its total borrowings, sans its cash balance, stood at RM588.95 million as at December last year.
A rough calculation shows that it could also result in a gain on disposal of more than RM800 million in MUI's profit or loss statement, given the hotel's net book value of RM256.47 million as at June 30 last year.
How does the senior Khoo feel about the disposal of the hotel?
"It's been more than a year since I took over, and my father has left [ the group] in my hands to help drive the business in a new direction," Andrew says.
"From my perspective, I need to look at the group on a holistic level. When we unlock an asset [of this magnitude] we can reinvest in other [ventures]. The ultimate purpose is to drive further value for our stakeholders."
The group is open to sale options — whether an outright sale, or a sale and potential leaseback in which the management of the hotel is still retained by MUI.
"At this stage, it is still too early to say, but we are looking at identifying a buyer within the next three to four months. Since the appointment of Rothschild two weeks ago, there has already been some interest expressed," says Andrew.
Business turnaround on track
Andrew had said last December that he hoped to return the group to the black in 18 months, which would mean a return to profitability by its financial year ending June 30, 2020 (FY2020).
The fruits of its turnaround activities can already be seen in the first six months of the current financial year, with the group's net loss narrowing to RM794,000 from a whopping RM20.23 million a year ago. The properties and hotels divisions contributed almost two thirds of its earnings, with the balance coming from its retail and food divisions.
However, the group's retail brand Laura Ashley racked up a loss of RM2.82 million against a profit of RM6.66 million in the previous corresponding period.
Associate company Laura Ashley Holdings Plc, in which MUI has a 35.17% stake, operates some 150 retail stores in the UK selling home accessories, furniture, decorations and fashion items, as well as a hotel, Laura Ashley The Belsfield.
Nevertheless, Andrew's confidence in the brand remains intact. "We are going to have a new Laura Ashley hotel in Hobart, Australia, and we have three more UK Laura Ashley hotels in the pipeline. We also hope to set up a Laura Ashley hotel in central London after the Hyde Park sale is completed, and there is also a chance that we may set up a Laura Ashley tearoom in a major mall in Singapore.
"As for our UK retail stores, our count now is about 150 stores, but when their leases come up for renewal, we may reduce the number to maybe 110 or 120," he says.
Also weighing down earnings is Metrojaya.
In Malaysia, MUI's retail division operates four Metrojaya department stores — in Mid Valley Megamall, the Curve in Mutiara Damansara, Plaza Pelangi in Johor and the Suria Sabah shopping mall. Recently, it pulled down the shutters on the underperforming Metrojaya in City One Megamall in Kuching.
"Generally speaking,department stores have [seen a decline] in attracting footfall, and that is a global trend. That's why for us, a lot of focus is being put into our Metrojaya Midvalley store. Right now, we are in the midst of renovating Living Quarters on the top floor, which should finish by the end of June, and we are bringing in some exclusive and new brands such as [home furniture brand] iloom from South Korea, Thai [fashion] brands Mc Jeans and NaRaYa, as well as Benjamin Barker."
On the property side, the group's flagship property development, the Bandar Springhill township along the Seremban-Port Dickson highway, has seen a 85% take-up rate for its latest launch of double-storey terraced houses.
"Those units are priced at RM400,000 or less. For [our property division], we need to find a sweet spot that is affordable, yet modern and contemporary, and importantly, meets the needs of the target market," says Andrew.
The group's food division, which manufactures chocolate brands such as Tango, Crispy, Tudor Gold and Kandos, recorded more than a 240% increase in profit in 6MFY2019, thanks to higher local and export sales and the appointment of a new distributor in Singapore.
"There will be a rebranding of some of our chocolate brands. For example, Krispy 2.0 is coming out soon, which means new packaging and a new formula, and that should happen in the next three to four months. We are also looking at bringing in a new durian brand, which could have its own by-products such as chips, paste, ice cream and so forth, to target our export markets. If downstream goes well, we may even plan to go upstream and buy some durian plantations," says Andrew.
MUI has also not neglected its financial services business, though that has not been identified as one of its core businesses.
"We have started to move into the digital transformation strategy for our stockbroking business, PM Securities Sdn Bhd, but in that particular scenario, we will be open to strategic partnerships," he says.
Year to date, MUI shares have risen 15% to 19 sen last Thursday, giving the company a market capitalisation of RM557 million.