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Property & construction group TA Corp's fortunes seen turning around this year

16 June 17 | The Business Times


PROPERTY and construction group TA Corporation may see a turnaround in its fortunes this year as it seeks to scale up its distribution business and ride the expected recovery in construction and property development through pre-cast manufacturing and prefabricated prefinished volumetric construction (PPVC).

In an interview with The Business Times, group CEO Neo Tiam Boon said that the group is looking to extend distributorship to new products in existing markets and enter new markets in South-east Asia such as Cambodia, Laos and Vietnam.

Distribution will become another core business after construction and property, he said. It has been growing about 20 per cent in revenue each year in Myanmar and we expect this to continue to grow over the next many years.

The group currently distributes high performance motor oil and lubricants in Singapore, Myanmar and Thailand. It is the exclusive distributor for BP Castrol lubricants in Singapore and Repsol lubricants in Thailand.

In Myanmar, it distributes a wider range of products including lubricants, tyres, heavy commercial vehicles, trucks, buses and automotive spare parts. Brands for which it has exclusive distributorship there include Shell Eastern Petroleum, Korea's GS Oil, Italian commercial vehicle manufacturer Iveco, construction equipment maker CASE Construction, tyre maker Continental as well as Chinese bus manufacturer Zhongtong.

Securing distributorships in new markets from these clients is a natural extension of the business, Mr Neo said. His preferred mode of expanding into new markets is still through joint ventures, as opposed to the slower process of growing organically.

The move to ramp up the distribution business, which accounted for 11 per cent of group revenue in 2016, has been driven by the need to stabilise its earnings stream given the cyclical nature of construction and property development.

Gross margins from the distribution business are in the 30 per cent region, while margin compression in Singapore's property market has brought development margins to below 10 per cent.

Provisions for property impairments had plunged the group into the red in the past two fiscal years. But since these impairments are unlikely to be repeated, Mr Neo said he is hopeful that the return to profitability in the first quarter ended March 31 will continue for the rest of the year, and fiscal 2018 and 2019 should be very good years.

And with some S$72.7 million of cash on its balance sheet as at March 31, the group is more than able to repay the S$40 million worth of bonds maturing on March 29, 2018, he added.

The construction and property development businesses will still remain key pillars going forward; they accounted for 67 per cent and 18 per cent of group revenue respectively in fiscal 2016, higher than distribution's 11 per cent share. The group's investment properties, mainly a 9,200-bed dormitory in Tuas and commercial building New World Centre, contributed only 4 per cent to 2016 revenue.

But TA Corporation is adopting a different approach to construction and property development. Being a traditional construction company is not taking us anywhere into the future, Mr Neo noted. So what we have done over the last two years or so is to re-allocate time for the restructuring of our business. We wanted to make construction leaner to reduce operating costs but we do not want to be out of this industry.

The group hence heeded the government's call for the use of productive construction technologies. Its pre-cast factory in Johor became operational in the fourth quarter of 2015 with a capacity of 36,000 cubic metres per annum. It is about 60 per cent utilised, supplying to a Korean client for the Changi Terminal 4 project and various construction companies in Singapore and Johor.

The group also inked an 80-20 joint venture with Kong Hwee Iron Works & Construction Pte Ltd in the design, development, manufacturing and distribution of PPVC modules earlier this month. This is targeted at Singapore developers, since PPVC is increasingly mandatory for sites bought from the government.

In this way, TA Corporation hopes to ride the wave of recovery in the sector without having to compete head-on with local and foreign developers in their intense bidding for land.

Outside of Singapore, TA Corporation still has undeveloped landbank of close to one million sq ft in Pathum Thani in Thailand and about 200,000 sq ft in Phnom Penh, Cambodia - both earmarked for mixed-use developments.

At a Cambodian mixed-use project, The Gateway, the group has sold 35 per cent of residential units, and 45 per cent of office units there. This project comprises 572 residential units, 299 strata office units and a two-storey retail component. Its third project in Thailand, De lyara Grande, has sold more than 70 per cent of its 72 residential units while the construction of two serviced apartment blocks is underway.

Shedding light on succession planning for the group, Mr Neo alluded to the possibility that the second-generation management team will be led by a woman. He has been grooming one of his nieces, now in her mid-30s and a former banker, for the past nine years.

The group - founded by Mr Neo's older brother and executive chairman under their father's tutelage - is currently helmed by four Neo brothers who collectively own 73.5 per cent of the company. Mr Neo said: When the current four of us will step down is a question of when the second-generation team is ready to take over.