The core and new businesses are expected to contribute more than 25% to the group’s net profits

by SHAHEERA AZNAM SHAH / pic by MUHD AMIN NAHARUL

TAFI Industries Bhd is planning to diversify its existing core business into property development and construction to alleviate its lacklustre earnings from the manufacturing sector.

The group said the two sectors are expected to contribute more than 25% to its net profits or divert more than 25% of the group’s net assets moving forward.

“It is the company’s intention to diversify its core business into the property and construction-related business after taking into consideration the challenges faced, as well as the lacklustre financial performance of its existing furniture business,” it said in a filing to Bursa Malaysia yesterday.

The move comes as it announced plans to undertake property development in Cameron Highlands, Pahang.

Its wholly owned subsidiary, Tafi Development Sdn Bhd, signed a conditional joint development agreement with E Prompt Sdn Bhd to develop a 33-acre (13.4ha) freehold land in Cameron Highland into a mixed development.

The project will consist of townhouses, apartments and commercial shops with a gross development value and gross development cost of RM390 million and RM260 million respectively.

Tafi said subject to market conditions and the relevant approvals, the project proposed is expected to commence in the first half of 2021 and to be developed over an estimated period of five years.

According to the agreement, E Prompt will be entitled to 16% to 25% of the apartment units and townhouses built, and 35% of the shop lot units, while Tafi Development will hold the rights to the remaining units of the project.

The project will be funded through a combination of internally generated funds. The mix of the funding will be decided later based on the group’s gearing level.

Tafi’s decision to move into the development business takes into account shareholders’ plan to expand the property and construction-related business by leveraging their expertise, experience and business network in the industry.

Currently, the group is focused on manufacturing and marketing of furniture products.

It has been reporting a continuous net loss since 2016 with its recent audited financial year 2019 recorded at RM3.81 million despite making a RM27.1 million revenue.

Tafi said the proposed diversification will be spearheaded by Datuk Seri Wong Sze Chien and Datuk Seri Azlan Azmi, who together with Datuk Seri Andrew Lim Eng Guan, have emerged as the group’s new controlling shareholders.

The group’s proposed diversification is expected to reduce the overdependence risk on its core business following the additional revenue and earnings stream anticipated from the two new sectors.

“The proposed diversification is expected to expand Tafi’s revenue stream and earnings, which in turn is envisaged to contribute positively to the group and its subsidiaries’ earnings and strengthen their financial position in the longer term,” it said.

Tafi added that it will continue to identify viable landbanks for property development or tender biddings to secure new construction projects.

Tafi’s share price dropped seven sen or 10.61% to 59 sen yesterday on the news, giving it a market capitalisation of RM47.2 million.