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Second Chance – A Billion Dollar Company?
Corporate Digest | 17 February 2012
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By: Xavier Lim
Articles (51) Profile

When Mohamed Salleh, founder cum chief executive officer of Second Chance Properties Ltd started the business of tailoring men’s garment in 1975, never did anyone expect he will be able to grow his private tailoring shop into a multi-million company it is today.

Again, Second Chance whose business involves three core business pillars – property investment, retailing of modern Islamic apparel and retailing of gold jewellery, does not ring a bell for many investors as evident from the company’s perennially thin trading volume.

However, it is noteworthy to investors that the group’s earnings have been consistently growing at a stable compound annual growth rate of 13.1 percent for the period FY07 to FY11. In addition, Second Chance has been distributing increasingly higher dividends over the years and for FY11, the group declared a tax-exempt dividend of 3.2 cents after a 1 bonus share for every 4 shares held by shareholders.

Financial Highlights
* Dividend is 4.0 cents if computed pre bonus issue.

The release of its latest quarterly results saw no deviation from its profitability run as its performance surpassed its previous corresponding period. For 2Q12, Second Chance reported a 20.4 percent surge in earnings despite revenue dipping 2.1 percent to $9.5 million while its net cash flow from operating activities soared 44.3 percent year-on-year. With cash and cash equivalents amounting to $1 million, it had a negative working capital position. Nonetheless, Salleh assured that there is no cause for concern as the company utilised short-term bank facilities in order to benefit from lower interest rates during the period.

Meanwhile, Salleh has laid out promising business strategies for Second Chance in a bid to achieve its vision of being a billion dollar company based on market capitalisation by 2022.

A Big Vision
Shares Investment (Singapore) had a chance to talk to Salleh about his big vision for Second Chance, unearthing the plans he has to take the group to become a $1 billion company based on market capitalisation 10 years from now.

“Second Chance will focus on real estate activities to grow our business and achieve our vision,” said Salleh. He added that the group does not have any specific property investment in focus but rather, it is open to any property development via joint ventures, commercial, industrial, warehouse properties investment or picking up distressed properties.

Salleh explained to us by taking the recent Subprime Financial Crisis as an example that not all properties prices fell at the same rate during that period. He said that for instance, private home and office prices fell 25 to 30 percent but retail properties prices only fell by 5 percent. “When this situation happens, we might sell our retail properties and buy up those distressed properties. This is our strategy,” he exclaimed. In fact, Salleh told us that he believes that the residential properties prices will come down around 10 percent to 15 percent in the near term and expects prices to fall further if the Eurozone crisis worsens.

At the meantime, Second Chance will concentrate its energy to grow the apparel business which is expected to remain profitable. Salleh highlighted that an important part of its strategies is to strengthen the group’s balance sheet first. “As we have a stable income from our apparel and gold businesses as well as recurrent source of rental income, lowering our debt level to zero in two years time is achievable. Besides, we are holding back on buying property for the time being unless the group is purchasing for own use,” said Salleh confidently.

In an effort to reward its shareholders and build a strong balance sheet in the next few years, the group recently announced an undertaking of a bonus issue of warrants on the basis of one bonus warrant for every one share held, at an exercise price of $0.40 per warrant. Second Chance expects that gross proceeds arising from the full exercise of the bonus warrants to be approximately $220 million under the minimum scenario.

“With the proceeds raised, we will be in a strong financial position to seize any opportunities in the coming years,” Salleh remarked.

Notably, if all Second Chance’s existing warrants and bonus warrants are exercised, the number of issued and paid-up share capital of the group would increase approximately to 1.4 billion shares, and hence this would improve the group’s trading liquidity.

The Man Whose Flexibility Took His Business To New Heights
Looking back to 1979, Salleh had the foresight to realise that expanding his tailoring business was a challenge and without much hesitation, Salleh instituted a bold change in direction. He switched his tailoring business to retailing of men’s ready-to-wear fashion clothing. It was a phenomenal success, and the company started granting franchises in Singapore and Malaysia.

However after 10 years of success, Second Chance found itself struggling to find a consistently profitable source of revenue. Salleh was once again quick enough to identify the problem and made a bold decision to shift the company business to traditional Malay ladies fashion wear retailing under ‘First Lady’ and dominated the Malay market. One year later, Golden Chance, a goldsmith store was opened and contributed to the success of Second Chance. Then in January 1997, the group went public and listed on the SGX junior board, and made its bow on the Mainboard seven years later.

While everyone was still reluctant to invest in property after the Asian Financial Crisis, Salleh ventured into retail properties investment in 1999. Today, the retail properties investment segment is the group’s biggest contributors to its bottomline.  

It is certainly rare for an entrepreneur to change his business model again and again but still managed to achieve a great success. And only a handful has done it thrice. Well, Salleh did it!

Given Salleh’s track record, the goal of being a billion company based on market capitalisation by 2022 does not seem impossible to achieve. So wouldn’t it be good for investors to consider one of investment guru, Warren Buffett’s investment criteria; ‘Find CEO’s who have a good and long track record’?

Meanwhile, DMG & Partners Research (DMG) in its recent research report said that Second Chance’s business is expected to continue generating stable operating cash flows in which would help sustain the research firm’s FY12 forecast dividend yield of 8.2 percent.

DMG also believes that as Second Chance is serving a niche market, therefore, its core retail operations would remain healthy even though global economic uncertainties are casting shadows over consumer sentiment. DMG maintained ‘Buy’ for Second Chance on the back of good dividend yield and issue a dividend discount model based target price of $0.53.

Armed with an arsenal of investment knowledge, Xavier is the Senior Research Editor at Shares Investment.

Please click here for more information about this author.

Second Chance Properties  0.210 -- --   
Business: Co is involved in the property rental, clothing & jewellery businesses. [FY18 Turnover] Gold (47.9%), apparel (17.1%), ppties (20.8%), securities (14.2%).

Insight: Mar-19, 1H19 revenue inched up 4.3% to $13.5m larg... Read More

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