PROPERTY developer and facilities management player Damansara Realty Bhd’s target is for its integrated facilities management (IFM) division to contribute 50% of its earnings in “the near future”.

According to DRealty CEO Brian Iskandar Zulkarim, the IFM business is highly diversified — from facilities management services to maintenance and operations and car park solutions.

“Our potential in this sector is huge. This is why IFM is the linchpin of our strategic restructuring plan. We are focusing on synergising our speciality in project management consultancy and IFM in order to deliver a great value proposition to our clients,” Brian says in an email response to The Edge.

The IFM division’s subsidiaries include Metro Parking (M) Sdn Bhd, HC Duraclean Sdn Bhd (HCD) and TMR Urusharta (M) Sdn Bhd.

Apart from these three areas, DRealty plans to venture into other segments of the industry, including security, cabin management, waste management and food and beverage management, says Brian.

“The integration of our facilities management subsidiaries allowed us to become a one-stop solutions provider to our clients and has generated new opportunities for us to [enter] new business sectors under the IFM umbrella.

“Today, we are able to provide a great value proposition to our clients, with services encompassing all related areas of facilities management — from planning and development to maintenance and operations, car park solutions and management of assets,” he says.

Brian was appointed group CEO of DRealty in September last year. He was previously the general manager of Malaysia Airports Holdings Bhd’s (MAHB) transformation management office.

At MAHB, he helped to turn around its facilities management subsidiary, Urusan Teknologi Wawasan Sdn Bhd, where he was CEO.

“The contribution from property projects varies over time, depending on progress billing and completion rate, while IFM brings in a stable recurring income. So, the strong growth in IFM will drive DRealty’s performance,” he says.

DRealty’s IFM division has performed significantly better than last year, with earnings before interest, taxes, depreciation and amortisation (Ebitda) growing more than 30%, he says.

However, DRealty’s accounts show that the segment, while profitable, may not have the heft to change the group’s fortunes.

For the six months to June 30 (1HFY2017), the IFM division recorded a profit of RM988,000, compared with RM1.88 million a year ago, despite revenue rising 20.7% to RM99.1 million. This compares with the property segment’s profit of RM6.05 million and the group’s consolidated profit of RM4.762 million. As at June 30, DRealty had a debt ratio of 0.73 times.

The decrease in profit, despite higher revenue, is due to high initial operating costs, mainly manpower, DRealty says in its financial statement for the second quarter of financial year 2017 (2QFY2017).

“We registered a lower profit in the first half of the year compared with the [previous] corresponding period due to the nature of most IFM projects. The initial cost of operations outlay during the early stages is high, along with thinner profit margins,” says Brian.

In 1QFY2017 ended March 31, the property services and parking divisions made a combined profit of RM119,000, compared with a combined profit of RM2.27 million in the previous corresponding quarter.

In 1HFY2017, the IFM division’s revenue was lifted by a 92.1% increase in contribution from engineering and maintenance services, due primarily to a contract at Petronas’ Refinery and Petrochemical Integrated Development (RAPID) in Pengerang, Johor.

To recap, in September last year, TMR LC Services Sdn Bhd, a 70:30 joint venture between TMR and LC Catering Sdn Bhd, received a contract from Petronas Refinery and Petrochemical Corporation Sdn Bhd, for the operation and maintenance of RAPID’s temporary executive village and temporary management office facilities and infrastructure worth RM124 million.

In July this year, Petronas’ subsidiary, PRPC Utilities and Facilities Sdn Bhd, awarded a contract to provide security management services for RAPID to a consortium of which TMR is a member. The contract is worth RM26.2 million and can be extended to include additional services worth RM9.77 million.

Last month, TMR, in a joint venture with KPJ Healthcare Bhd’s Kumpulan Perubatan (Johor) Sdn Bhd, was awarded a contract to manage a small medical facility in RAPID for 39 months by PRPC Utilities and Facilities for RM27.6 million. The contract includes an optional services contract worth RM7.8 million.

Meanwhile, in July, Metro Parking (S) Pte Ltd, 70%-owned by Metro Parking, received a five-year contract to operate and manage car parks at the Singapore Sport Council’s sport centres, worth RM56.6 million.

“TMR and HCD manage over 10 million sq ft of property and assets for clients, including the government and government-linked companies, throughout Malaysia. In the coming years, IFM will provide the impetus to DRealty’s growth,” says Brian.

The facilities management market in Malaysia has been experiencing strong growth, driven by rapid urbanisation. From 2011 to 2015, the market grew more than 8% annually to an industry value of over RM4 billion, he says.

The facilities management industry will grow more than 8% per year over the next three years, he adds.

On the surface, there is huge opportunity in the country for IFM companies, due to the large number of commercial properties, healthcare facilities and infrastructure being developed. However, the type facilities management contracts the companies secure determines their profitability.

Apart from DRealty, there are at least three other Bursa Malaysia-listed companies involved in the IFM industry. These include UEM Edgenta Bhd, AWC Bhd and GFM Services Bhd. All of these companies were profitable as at end-June this year.

UEM Edgenta is the biggest of the four. In 2QFY2017, the group’s IFM segments — consisting of healthcare, infrastructure and real estate services — made a combined profit before tax (PBT) of RM48.5 million, from a combined revenue of RM469.3 million.

AWC’s facilities division made a profit of RM14.3 million during the quarter on the back of RM135.2 million in revenue. GFM, which debuted on Bursa Malaysia last December, made a PBT of RM3.45 million in 2QFY2017, on RM26 million in revenue.

Past and current projects for DRealty’s property business include Taman Damansara Aliff in Johor and Damansara Hills in Kuantan. DRealty is also partnering Country Garden Real Estate Sdn Bhd (CGRE), a unit of China-based Country Garden Holdings Company Ltd, to develop an integrated township on a 53-acre tract in Tebrau, Johor, with a gross development value of RM3.5 billion.

The project, called Central Park, will eventually comprise 10,000 residential units, commercial units and amenities, to be developed over several phases in six to eight years. Phase 1 of the project was launched in March.

According to Brian, the construction of Phase 1 is ongoing and on schedule. The project, in which DRealty owns a 30% stake in the joint venture with CGRE, is expected to start contributing to the group’s earnings next year, he says.

“Our priority is to identify those projects that improve our margins and contribute to our cash flow and bottom line. In tandem, we are expanding our project management and consultancy capability to support the group’s property development projects.

“Going forward, the momentum from our property segment should continue. We have identified catalyst projects that will play important roles in further improving our cash flow and profitability,” says Brian.

DRealty closed at 54.5 sen last Thursday, giving the group a market capitalisation of RM168.6 million. Thursday’s share price was 3.8% higher than at the start of the year, although the stock reached a 52-week high of 92.5 sen on March 10.

DRealty’s largest shareholder is Datuk Daing A Malek Daing A Rahaman via a 51% interest in Seaview Holdings Bhd. He is a member of the Johor Council of the Royal Court.