This article first appeared in The Edge Malaysia Weekly on August 7, 2023 - August 13, 2023
META Bright Group Bhd (MBGB) — formerly known as Eastland Equity Bhd — is a Main Market-listed diversified group that was loss-making from 2016 to 2021.
Given its large exposure to the property and hospitality businesses, MBGB experienced significant adverse effects from the Covid-19 pandemic. The group’s hotel occupancy and room rates, along with occupancy rates at its shopping mall, were severely impacted by the lockdowns.
Following a series of fundraising exercises to strengthen its financials, as well as business diversifications and expansions to improve its earnings capabilities, MBGB finally returned to the black in the financial year ended June 30, 2022 (FY2022).
Executive director Derek Phang Kiew Lim highlights that moving forward, the group will be focusing on growing its renewable energy (RE), energy efficiency (EE) and equipment leasing businesses.
“We have a direct participation in the local energy transition market after securing 15 RE contracts and two EE contracts. We are also indirectly tapping into the global markets via our new leasing business to the copper mining industry in Australia that was announced in June,” he tells The Edge in an interview.
Phang, 41, joined the board in February 2020. He was formerly a corporate finance senior manager at a local independent power producer, which has a diversified energy-related investment portfolio in Southeast Asia.
According to him, MBGB started venturing into the energy solutions and RE sector early last year. Today, the group has 15 local clients, whose premises include mosques and industrial properties (see pie chart).
Being a registered solar photovoltaic investor (RPVI) licensed by the Sustainable Energy Development Authority (SEDA), MBGB is able to appoint external contractors to erect, construct and install solar plants on its clients’ premises.
Under this business model, MBGB will get recurring income for up to 21 years while its clients can purchase all the generated electricity at a discount to Tenaga Nasional Bhd’s prevailing rate. Furthermore, zero cost is required to set up the plant.
“Currently, our order book stands at 1.5mw and we are aiming to hit a 4mw minimum target by the end of the year, based on our existing projects pipeline that includes an MoU (memorandum of understanding) with Koperasi Kakitangan Istana Pahang Bhd,” says Phang.
He reveals that MBGB is also exploring potential partnerships for an up to 4mw-solar facility with battery storage for a mining company in Peninsular Malaysia.
As for the EE business, MBGB has secured a contract from a financial institution to provide monitoring services for the purpose of achieving energy cost reduction within the latter’s office tower in KL. The group also clinched a contract to install equipment for, as well as to supply and deliver chilled water to, a grocery mart operator in Melaka.
“We feel that this is a significant market opportunity, especially for those potential customers where installation of solar PV is not feasible, such as office blocks, towers, and other buildings with limited PV potential,” says Phang.
At its equipment leasing business, MBGB had in June secured an agreement with an Australian lessee involved in copper mining, representing the group’s first foray into international markets.
“Our leasing product in Australia is similarly tailored to the copper mining requirements. Geographically, our potential new customers are in close proximity within Queensland, making it easy to [obtain] leasing operations and new sign-ups,” says Phang.
MBGB currently has five main business segments: energy; leasing and financing; hospitality; property investment; and property development. The first two are new business ventures and diversifications while the remaining three are legacy businesses.
MBGB operates The Grand Renai Hotel, a 298-room four-star hotel in Kota Baru, Kelantan. The hospitality division, which generated a profit of RM4 million on revenue of RM19.1 million in the first nine months ended March 31, 2023 (9MFY2023), is currently the group’s main earnings contributor.
Under its property investment division, MBGB owns Bandar Tun Razak Business Park in Jengka, Pahang, and Kota Sri Mutiara shopping complex in Kota Baru.
Under its property development division, the group is focusing on its commercial property project in Kota Kinabalu, Sabah, called Damai Suites, which has a gross development value (GDV) of RM117 million and is slated for completion in 2025.
Emergence of new shareholder
MBGB managing director Lee Chee Kiang points out that the legacy property-related businesses currently contribute almost 99% of MBGB’s turnover, with the hotel business alone contributing about 75% of its revenue. “While we hope to unlock the value of our hotel business, I foresee our RE, EE and equipment leasing businesses as the keys to the group’s transformation, as they could provide long-term, recurring income.”
Chee Kiang was appointed as CEO in January 2018 before he was redesignated to his current position about six months later. The 49-year-old has a stake of about 3.99% in the company.
His long-time business partner Datuk Kelvin Lee Wai Mun is the executive director and major shareholder of MBGB with a controlling stake of 54.82%. The 50-year-old has been mainly involved in the mining business in Australia and Malaysia.
Wai Mun bought his first block of MBGB shares by taking up 14.04 million placement shares in November 2019. He then surfaced as a substantial shareholder with a 15.5% stake in February 2022, after subscribing for 229.89 million rights shares at seven sen apiece. The 19-for-7 rights issue exercise raised RM80.1 million for the company.
Wai Mun’s shareholding increased to 32.12% on Aug 8, 2022, following the injection of his personal asset — Bandar Tun Razak Business Park — into MBGB.
Pursuant to the RM24.8 million all-cash deal, which involved the issuance of 381.5 million shares at 6.5 sen apiece, Wai Mun is obliged to guarantee a fixed rate of 5% return to MBGB over a five-year period commencing August last year.
Subsequently, he mopped up MBGB shares, taking his stake up to 51.07% on Aug 30, triggering a mandatory general offer (MGO), but with no actual intention of taking the company private.
As expected, the MGO received a poor response, as independent adviser UOB Kay Hian Securities (M) Sdn Bhd deemed the offer price of seven sen “not fair and unreasonable”.
Over the past 12 months, shares of MBGB have gained by 150%, settling at 17.5 sen last Wednesday, giving it a market capitalisation of RM410.69 million. The counter is currently trading at a historical price-earnings ratio (PER) of 42.8 times, against its aggregate profits of RM9.589 million in the last four quarters.
MBGB generated a net profit of RM4.48 million in FY2022, on revenue of RM25.75 million. The company continued to report cumulative earnings of RM2.77 million for 9MFY2023, with a turnover of RM25.19 million.
At its worst, MBGB recorded a net loss of RM100.4 million in FY2021, while its gearing level was as high as 0.79 times. The company turned in a net cash position of RM9.72 million in FY2022, before further improving to RM28.88 million as at 9MFY2023, following the repayment of borrowings through the utilisation of proceeds raised via fundraising exercises.
Chee Kiang says MBGB’s future earnings have yet to be reflected on its stock valuation. “Our PER is lower than that of pure-play listed RE companies. This is certainly fair as we acknowledge the conglomerate discount and the fact that earnings have yet to materialise from our new businesses.
“Any PER movement will be based on our own merits such as future project wins and earnings announcements. Going forward, as these new businesses mature, we hope to sustainably grow at a rate that justifies our valuation on a price/earnings-to-growth (PEG) basis,” he says.
Conservatively, Chee Kiang believes an annual profit growth of 30% to 35% should be “consistently achievable over the longer term”.
“At the outset, we could potentially grow much higher given our low starting base. Our RE, EE and equipment leasing will drive the group’s top line and bottom line in the future,” he reiterates.