The Edge, 13 June 2011 – Danny Tan unplugged

The Edge, 13 June 2011

Dijaya Corp founder and group CEO Tan Sri Danny Tan wants to see the company's market capitalisation increase to RM 2 billion to RM 3 billion from RM500 million now. It will not be easy, but with a slew of property projects lined up from Johor to the

Klang Valley to Perak, Tan's dream will likely come true sooner rather than later.

From the 12th floor of Dijaya Corp Bhd's headquarters in Petaling Jaya, founder and group CEO Tan Sri Danny Tan can see the sprawling Tropicana Golf and Country Resort in the distance. It is this single piece of development that launched his meteoric rise as a major property developer.

Over the last 21 years, Tan, the younger brother of the high-profile Tan Sri Vincent Tan of Berjaya Group, has gradually developed the Tropicana Land into a luxurious gated community that has seen its property value increase almost tenfold. When he first started the venture, there were not many takers as accessibility was poor.

The 650 acres were mostly secondary jungle but Tan recognised the land's potential value. Unlike other property developers, he kept his focus on this one project, which has paid off handsomely.

Apart from the 560 acres on which Tropicana Golf and Country Resort sits, Tan also acquired an adjoining 400 acres where he build the mixed use development Tropicana Indah. These more than 1,000 acres have kept his flagship company Dijaya Corp going over the last 21 years. There remain roughly 70 acres to be developed in the area.

Last week, marking its first major property venture outside the Tropicana area, Dijaya acquired 88.5 acres in Subang Jaya.

Describing the acquisition as a strategic buy, tan says the transaction was part of his move to transform Dijaya into a more vibrant listed company.

"I have a dream to see Dijaya have a market capitalisation of between RM2 billion and RM 3 billion," says Tan, who rarely gives interviews.

"We have been rather conservative all this while by not acquiring aggressively. It's only in the last few years that we have changed our philosophy and mindset. There are a lot of opportunities out there and if we don't take some risk, we will not be able to see our dream come

true," the 56-year old tells The Edge.

Dijaya has a market capitalisation of about RM500 million now. It will not be easy to raise its value to RM2 billion but considering Tan's perseverance, there is no doubt that his objective will be achieved.

Dijaya had bought the land on which Tropicana City Mall is situated for RM150 psf and kept it for 17 years

How it all started

Tan comes from a modest family in Batu Pahat, Johor, and moved to Kuala Lumpur in search of green pastures when he was only 20. Vincent was a bank clerk while he became an insurance and encyclopaedia sales man. The brothers then ventured into selling

reconditioned cars and subsequently went into property development.

Like many others with rags-to-riches stories, Tan attributes his rise to hardwork. " Work hard and work smart. That is the way...there is not short cut in life," he says with a smile.

Another piece of advice Tan offers is not to shy away from giving to charity."The more you give, the more you'll receive," he says.

In relation to giving away a portion of their wealth - prompted by their mother - both brothers have set up charity foundations.

Tan fondly recall his early days in Kuala Lumpur. Life was not easy for them, as they (the brother and he) were starting from scratch.

It was only in the late 1970s that the brothers got their first break in business - selling reconditioned cars.

"Besides selling reconditioned cars, we also dealt in heavy machinery such as Hino trucks. We became dealers for Toyota and Proton in the early 1980s," Tan says.

To win customers, he recalls having to ride his motorcycle to the Road Transport Department (JPJ) early in the morning to tender for special vehicle plates.

It was through some friends that the brothers got their first feel of the property sector. "Our first project was a condominium in Johor Baru called UPC Court," says Tan.

In Kuala Lumpur, their first project was in Old Klang Road.

Going it alone

For a long time the partnership was between Tan and Vincent. It was only when Tan bought the Tropicana land that he decided to go it alone.

"I bought the Tropicana Land in 1990 - about 652 acres. Subsequently, we bought another 400 acres [for Tropicana Indah] from PKNS. So altogether, we had some 1,100 acres."

Tan says he did a lot of research and groundwork before he actually bought the land.

"We also looked into the possiblity of changing the lease on the land from 30 years to 99 years and status from commercial to residential," he says. "We paid RM 60 million [for the 652 acres], which was considered quite a lot at the time."

Acquiring the land, it seems was the easier task."Selling it with a unique proposal was a more difficult challenge," says Tan who was only 35 then." One of the biggest problems I was worried about was the repayment of the bak loan."

The venture was partly self financed and partly through bank borrowings. But Tan's worries quickly evaporated following overwhelming response to the development.

"It was so successful that we could settle our bank loan with Public Bank ahead of the actual due date."

Pioneer of gated communities

Nonetheless, Tan confesses it was not plain sailing in the initial stage of the launch. In fact Dijaya had to go on a publicity blitz with the press offered frequent visits.

But Tropicana Golf and Country Resort had a major selling point - it offered a gated community and resort-style living overlooking a golf course. This was a new concept then which eventually caught on.

"People could not imagine living around a golf course then,"Tan says.

"Sales were initially a bit slow, but when we actually did the first nine holes, buyers started to see the landscape coming up. They could visualise how their houses would look like and from then on, the sales went all the way up."

In fact, Tan initiated free helicopter rides as a way for potential buyers to see the locations of the units they were interested in.

"People still talk about it," he says.

"With over 600 acres, it was a bit too far to ask customers to go around. From the helicopter view, they could visualise the things quite clearly. They could imagine the future golf course and how it was going to be when it was completed."

Tan says most of his friends were quite skeptical about investing in Tropicana Golf and Country Resort in the first place, but those who put their money in the early stage would have reaped ample returns.

The bungalow lots were priced at RM32 to RM33 psf when Tropicana Golf and Country Resort was launched in the middle of 1991. They are now valued at about RM380psf, according to Tan.

He says Dijaya spent up to RM100 million on building the 36-hole golf course and the 450,000 sq ft clubhouse then.

"I was very bullish and confident in those days," says Tan. "We made the right move. When we launched our golf membership drive, we started with a fee of RM45,000 to make it affordable for people to join. Today, there are about 5,000 members."

Property Veteran

The iconic Tropicana Golf and Country Resort is just a part of Tan's successful property venture. Between Vincent and himself, Tan is more the property man.

The younger Tan is credited with helping Vincent, who is three years older at 59, in negotiating the purchase of the prime land that eventually became Berjaya Times Square in Kuala Lumpur in 1995.

The deal was first a 50:50 venture between the brothers but Vincent then bought out Tan's shares in Matrix International Bhd, which owns Berjaya Times Square.

Despite having only 1.41% equity interest in Berjaya Corp, Tan is credited with running Berjaya Corp successfully with his brother in the mid-1980s.

To Tan, property is all about location. " As long as the location is good, nothing can go wrong," he says.

"Unless the country is in civil war or whatever, the price will keep going up."

The new Dijaya

After the successful development of Tropicana City Mall - on land that Tan had bought for RM150 psf and kept for 17 years - Dijaya is now poised to chart a new growth path under a different business philosophy.

The property developer plans to launch a slew of projects totalling RM3.5 billion in gross development value (GDV) over the next two years to drive growth.

In the pipeline are serviced apartments in Tropicana Danga Bay in Iskandar Malaysia, the Tropicana Gardens commercial centre in Petaling Jaya and the Tropicana Bayou mixed-use development in Balakong, Selangor.

Dijaya recently acquired 88.5 acres of freehold land in Subang Hi-Tech Industrial Park, Selangor, from Taiwan's Chunghwa Picture Tubes (Malaysia) Sdn Bhd (CPT) for RM 385.5 million.

"When I discovered that the land was up for sale. I flew my private jet to Taipei to meet the owners," says Tan. "They were comfortable with us during the visit which helped seal the deal."

He says Dijaya plans to build a residential-cum-commercial development with an expected GDV of RM2.5 billion on the tract which borders Subang Jaya and Shah Alam. he is also getting GDP Architects to design the project.

According to analysts, assuming Dijaya gets a margin of about 20% from the Subang project, its profit would be about RM500 million over the duration of the project, which would contribute significantly to the company's bottom line.

Apart from the land in Subang, Dijaya also acquired 12.9 acres in Kampar for RM5.6 million from CPT and Makolin Electronics (M) Sdn Bhd, a company owned by Chung Hwa Picture Tubes (Bermuda) Ltd. The land in Kampar is to be converted into a mixed-use

development featuring five-storey apartments and four-storey shopoffices. The estimated GDV for this project is RM123.7 million.

The acquisition of the Subang land is particularly significant to the mid-sized developer as it marks a strategic move to gain a bigger foothold in the Klang Valley.

The proposed transaction price of RM385.5 million translates into about RM100 psf, which more or less reflects the market value as parcels closer to Shah Alam have been transacted at about RM80psf.

"Hopefully, we can start developing it next year," says Tan.

Notwitstanding that, Dijaya is set to launch freehold townships in Cheras and Balakong or Kajang this year, with a combined GDV of over RM500 million.

Its new projects are a strong catalyst for the group's future growth and investors can look forward to good margins as the landbank in Kajang and Cheras was acquired at low prices, says a property analyst.

The new landbank of about 66 acres in Kajang and 28 acres in Cheras was acquired at RM16 to RM17 psf in late late 2007 and early 2008 and is strategically located within or near established areas, the analyst adds. The agricultural land was bought cheap and converted

for residential use.

Dijaya has developed all but 20 acres of its 625-acre landbank in Tropicana Golf and Country Resort and still has about 50 acres in the adjoining Tropicana Indah Resort Homes.

Not withstanding that, Dijaya recently announced its first foray into the hospitality business by teaming up with US-based Starwood Hotels and Resorts Worldwide Inc to develop a W Hotel in Jalan Ampang, near the iconic KLCC Petronas Twin Towers.

The signing of an agreement in early April between Dijaya and Starwood Hotels & Resorts Worldwide to develop the luxurious hotel also paved the way for the development of Dijaya's 55,929 sq ft plot in Jalan Ampang, Kuala Lumpur.

Dijaya had acquired the land for RM123 million or about RM2,200 psf in late 2009, which some observers at the time said was too high. Sunrise Bhds paid RM2,588 psf for Wisma Angkasa Raya next door with direct frontage to the Twin Towers while Magna Prima Bhd

acquired the Lai Meng School opposite for about RM1,500 psf in a land-swap deal.

Nonetheless, subsequent transactions around the KLCC area, notably those near Jalan Kia Peng, have been above RM2,000 psf.

"We are also looking at Langkawi," says Tan. "It is the only place in Peninsular Malaysia that is not affected by the monsoon season, where hotels and resorts can operate all year long. Besides that, we are also looking to develop a hotel in Sabah because of its attraction as

a tourist destination."

Deeply undervalued

Analysts say Dijaya's stock appears to be deeply undervalued, trading at a trailing price-earnings ratio of 8.43 times and 42.6% below its net assets per share of RM2.02 as at March 31.

Last Friday, it dropped four sen or 3.3% to close at at RM1.16 on thin volume of 15,000 shares.

The company had net cash and cash equivalents of RM36 million as at March 31 and a large landbank as well as investment properties that include The Tropicana City Mall in Petaling Jaya.

The analyst notes that the prime land that houses Tropicana Golf and Country Resort and Damansara Indah Resort Homes was reflected at very low prices in Dijaya's books.

According to its 2009 annual report, Dijaya has 259.56 acres in Tropicana Golf and Country Resort, including the golf course, valued at RM118.27 million or RM10.46 psf. However, it is believed that the area yet to be developed is around 20 acres.

In Tropicana Indah Resort Homes, Dijaya has 50.78 acres with a book value of RM11.24 million or just RM5.08 psf.

A check with property listings shows that the bungalow land in Tropicana Golf and Country Resort has asking prices of around RM320 to RM380 psf while in Tropicana Indah, it is going for RM280 to RM300 psf.

The property analyst estimates that if the total 70 acres of Tropicana landbank is valued at RM200 psf, it could be worth RM609.8 million compared with an estimated book cost of about RM20.3 million.

With 455 million shares issued, the analyst estimates that the potential revaluation gains of RM589.5 million are worth RM1.30 per share on top of Dijaya's current book value of RM2.02.

With the sleeping property giant now awakened by a slew of new projects, it will be interesting to see if Dijaya is able to realise its founder's dream of reaching a market capitalisation of RM2 billion to RM3 billion in the future.