Second Chance Properties finds new lease of life in securities investing

A few of his recent bets have paid off nicely, as he happily notes in an interview with The Edge Singapore. For example, Second Chance Properties made $5.2 million and $6.4 million from the privatisation of Chip Eng Seng Corp and Singapore Press Holdings, respectively. In 2021, when the Hong Kong-based Jardine group streamlined its structure, he made $3 million from the privatisation of Jardine Strategic Holdings by Jardine Matheson Holdings.

Mohamed Salleh now plans to focus on the securities investments business in a more structured way by expanding its current four-member investment committee and bringing in new independent directors with relevant experience.

Meanwhile, the 74-year-old is also grooming his only son Amal Marican, 36, to take over the business. Amal joined the company in 2008 and is currently the executive director of Second Chance’s apparel business in Malaysia. Mohamad Salleh describes Amal as driven, passionate, and detail-oriented when it comes to analysing investment fundamentals. Besides investing in shares, Amal also earns his trading chops in the cryptocurrency market.

That does not mean Mohamed Salleh is looking to let go of the helm anytime soon — he wants to double the company’s securities portfolio from $255 million as of Feb 28 to $500 million within the “next few years”. If this portfolio can yield him the 7% he aspires to, that will give the company $35 million in recurring income a year, he adds.

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“Recurring income is the best business — it’s like collecting rent. And since we are buying solid companies, the recurring income should increase as the companies grow. As a person who never wants to retire, I feel like this is the best business I can be in,” says Mohamed Salleh.

Scaling up

With his decades in business, Mohamed Salleh is used to its ebb and flow. In 1974, his first venture was a men’s tailoring business M Salleh Enterprise at Peninsula Shopping Centre. That failed, and he sold it for $15,000, losing half his capital. Yet, five months later, he bought it back for $8,000 after the previous buyer failed. This time, it was a success and gave birth to the “Second Chance” brand.

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The following year, Mohamed Salleh opened two more men’s tailoring outlets at the Far East Shopping Centre and Queensway Shopping Centre. However, he had to eventually close both outlets as he could not keep his employees in line. “Back then, I was young and inexperienced. If I faced those problems today, I would not have been overwhelmed and could handle it seamlessly,” he recalls.

In 1978, he started a men’s ready-to-wear (RTW) business, selling pants and shirts at half the price of those sold at department stores. Leveraging television advertising using Caucasian models, he had expanded to 25 shops across Singapore and Malaysia by 1998.

Unfortunately, due to fierce competition, he cut losses again and closed 21 shops between 1989 and 1992, severely demoralising his staff. “That was the worst three years of my career,” he recalls.

Always sniffing new opportunities, he started a women’s RTW brand First Lady. At the time, most Malay women would need to go through the tedious process of first buying four metres of cloth and sending them to their tailors to make their baju kurung. There were always uncertainties that their clothes would not be done on time, on top of the hassle of having to go back and forth for fittings.

Due to the convenience and easy access, even on the eve of Eid, First Lady was an instant success. The single outlet managed to gain $1 million in sales within a year — something none of the other menswear outlets has achieved.

Gold and property next

With this, Mohamed Salleh opened a gold retailing shop Golden Chance, which he set up right next to the First Lady outlet. At first, the gold business struggled as customers assumed it was selling imitation goods. To fix this problem, Mohamed Salleh paid for six segments on television variety shows advocating the brand, which benefitted the business.

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Buoyed by the apparel and jewellery business earnings, Mohamed Salleh listed Second Chance on the SGX in 1997 to raise proceeds to help fund his next growth area: Property. The timing was fortuitous, as property prices corrected significantly as the Asian Financial Crisis raged on, and he could amass a growing portfolio of properties, largely strata-titled retail shops within suburban malls. The value of the properties grew steadily from $15 million to $250 million in around a decade.

This was also when Second Chance aggressively grew its First Lady brand in Malaysia, opening 48 shops nationwide with a presence in every state. However, it started to lose traction in the mid-2010s when competition from other retailers grew. Enticed by more social media and online-savvy sellers, First Lady started losing customers, forcing the company to exit this business slowly. Currently, two First Lady outlets are left — one in Tanjong Katong Complex and another at Kuala Lumpur’s Jalan Tuanku Abdul Rahman, a company-owned building.

The apparel business is one of many affected by online commerce. The property business was impacted, too, as Second Chance’s tenants see less footfall. Realising that the outlook for this business has turned cloudy, Mohamed Salleh started selling the properties seven years ago. “It got even worse during the pandemic when we had to give our tenants 50% discounts to survive,” he recalls.

As a result of the gradual disposal, Second Chance’s property portfolio value has dropped from more than $250 million at the peak to $121.64 million at the end of FY2022, which ended Aug 31, 2022. With fewer properties for rent and lower rental rates collected, rental revenue for 1HFY2023 was $1.54 million, down 29.36% y-oy from $2.18 million collected in 1HFY2022. Meanwhile, revenue from the securities segment was up 10.46% to $3.38 million over the same period.

On March 29, the company reported that earnings for its 1HFY2023 doubled to $4.61 million over 1HFY2022, boosted by a gain from selling investment properties. Year to date, the company’s share price has declined 2.08% to close at 23.5 cents as of April 12, below its net asset value of 31.94 cents as of Feb 28, a slight increase from 30.59 cents as of Aug 31 2022.

Identifying strong companies

Second Chance can recycle its proceeds into high dividend-yielding companies with strong fundamentals by consolidating its business and gradually selling its properties. At the start of the pivot, Mohamed Salleh acknowledges that some of his shareholders have expressed concerns about this new business. He has been showing that his stock picks are based on sound reasoning.

One gauge he used was to look for fundamentally strong and profitable companies, such as those in financial services and telecommunications, but yet, whose share prices dropped by at least half from before the pandemic. Many of these companies could be found in China, which suffered from selldown by international investors after former US president Donald Trump’s executive order prohibiting US investments in Chinese companies deemed to be either owned or controlled by the Chinese military. Similarly, he has also been hunting for such bargains in Hong Kong, as companies operating there have suffered from multiple waves of turmoil and volatility since 2019.

In an update to SGX on April 10, the company’s top 10 holdings, based on fair value as at Feb 28, are Citic, China Mobile, China Unicom, China Citic Bank, Agricultural Bank of China, Chongqing Rural Commercial Bank, Starhill Global REIT, China Construction Bank, CapitaLand India Trust and Singapore Telecommunications.

Outside the top ten, other Singapore-listed stocks which Second Chance holds include Hongkong Land, Golden Agri-Resources, Yangzijiang Financial Holding, Keppel Corp, Sats, and SIA Engineering, says Mohammed Salleh in the interview. Second Chance’s portfolio spans 102 companies, of which 56% are listed in Greater China, 40% in Singapore and the remaining 4% in Australia.

The company has been funding these investments from a mix of proceeds from its business plus bank loans. Mohamed Salleh tries to balance keeping the gearing low and looking out for new buying opportunities. “As of now, we are at 0.36. We will try and maintain it below 0.4. We are slowing down but still looking to capture opportunities,” says Mohamed Salleh.

One counter which caught his eye recently was Link REIT. On Feb 13, Hong Kong-listed REIT announced a one-for-five rights issue to raise US$2.5 billion ($3.33 billion). Offered at HK$44.20 ($7.50), the exercise received strong demand from investors, but its share price dropped from the year’s high of HK$62.83 as of Feb 3. At around HK$51 as of April 11, the REIT, the largest in Asia, yields nearly 6%.

Mohamed Salleh acknowledges that in the current post-pandemic world, it is not easy to find similar buying opportunities. But the company is willing to study more markets like Indonesia and Malaysia to expand and further diversify its portfolio, allowing higher dividend income.

One example he gave is Top Glove, which has seen its share price surge and drop with the worst of the pandemic behind. Nonetheless, Mohamed Salleh likes the strong fundamentals of this company, the world’s largest glove maker. “These are the types of companies we will be looking for. But it would require extensive research, capability and commitment to keep our investment holdings should we need to do so,” he says.