KUALA LUMPUR: SYF Resources Bhd, which saw the property development segment contribute more than half of the group’s revenue in the first financial quarter ended Oct 31, 2016 (1QFY17), expects the manufacturing of medium-density fibreboard (MDF) and rubberwood furniture to remain as its core business.

“SYF [Resources] was never a property counter to start with. We are always in manufacturing and sales of consumer products. But back in 2011 when we were undertaking a restructuring exercise, we thought the company needed to add another income stream to cater for future growth,” its executive director Datuk Seri Chee Hong Leong told The Edge Financial Daily in an interview.

SYF Resources’ net profit grew 8.1% to RM11.7 million in 1QFY17, from RM10.83 million a year ago, while revenue rose 56.7% to RM148.71 million from RM94.92 million in 1QFY16.

Out of the group’s revenue, the property development segment accounted for 51.4% (RM76.46 million) while the manufacturing of rubberwood furniture and MDF contributed the remaining 48.6% (RM72.23 million).

Chee said as earnings and revenue from the manufacturing business take time to come in, the property development segment will help support the group.

“When we first started [in the property development business], everybody thought we didn’t know what we were doing. But along the way, [our] property [division] has become a big revenue contributor,” he explained.

Chee believes that the property development business will provide a secure income for the group over the next five to seven years.

“While the property market has slowed down, our properties are located in niche areas in Selangor. We are unlike some property developers that have projects everywhere [which expose them to greater risks],” he said, adding that the group’s ongoing projects, Kiara Plaza in Semenyih and Lavender Residence Block A in Sungai Long, have achieved satisfactory sales.

“These two locations, where there are universities and big [property] players coming in, will further enhance the value there.

“Additionally, we are selling affordable homes, not to mention potential access to the mass rapid transit system,” he added.

This year, SYF Resources is targeting two new launches in Sungai Long with a combined gross development value of RM500 million.

Chee also said the tight lending guidelines by Bank Negara Malaysia have affected the group’s property sales.

“The sales will be there, but it [will] take a longer time to convert due to the end-financing issue. However, we are not the only property developer affected by this,” he said.

Meanwhile, Chee expects revenue from the MDF manufacturing segment to grow by 20% to 30% in the current financial year ending July 31, 2017 (FY17), as its new manufacturing plant in Simpang Pertang, Negeri Sembilan, will be fully commissioned by the end of FY17.

“Our existing plant in Gemas (Negeri Sembilan) is already running at full capacity. Apart from Simpang Pertang, we are also setting up another plant in Rompin, which will be fully commissioned in FY18. In fact, we are finalising [machinery] installation in the next few months,” he said.

“The demand [for MDF] is there. It is just how to ramp up our capacity,” he added.

Earlier this month, SYF Resources announced that it is buying an 8.68ha piece of land in Gerik, Perak, for RM15.5 million from Leweko Resources Bhd. The group told Bursa Malaysia that the land will provide additional space for future expansion of its timber processing and MDF board manufacturing business.

Chee is unfazed by the shortage of foreign workers in the manufacturing industry. On its part, SYF Resources has reduced its dependency on foreign labour by focusing more on the manufacturing of MDF, which is less labour-intensive.

The group has also started hiring more locals to ease its dependency on foreign labour. Currently, more than 70% of its workers are foreigners.

SYF Resources executive chairman and chief executive officer Datuk Seri Ng Ah Chai said labour cost constitutes 5% to 6% of its MDF manufacturing segment’s total operating costs, while that of the manufacturing rubberwood furniture segment is about 12% to 13%.

Ng, who is the group’s largest shareholder, with a 51.49% stake as at Oct 31 last year, explained that an industry is deemed labour-intensive if its labour cost accounts for more than 13% of its total production costs.

Earlier this month, the government decided to postpone a move to make employers pay the levy for foreign workers instead of deducting it from the wages of their employees until 2018, following strong protests from manufacturers and employer groups.

“We need time to adjust to new policies that the government is going to implement so that we can plan our sales, costing and expansion. We need certainty in labour supply,” said Chee.

Meanwhile, Ng, who also owns a 56.8% stake in Mieco Chipboard Bhd, said it is too early to discuss synergistic collaboration between SYF Resources and Mieco.

SYF Resources shares closed one sen or 1.7% higher at 60 sen last Friday, with a market capitalisation of RM358.73 million. SYF Resources’ share price has risen by 13.2% from 53 sen on Dec 30 last year. The stock has been trading in a 52-week range of 50 sen to 68 sen.