Saturday October 6, 2012
Gadang accepts Petronas LOA
By YVONNE TAN
PETALING JAYA: Engineering and construction firm Gadang Holdings Bhd has accepted a letter of award (LOA) from Petroliam Nasional Bhd (Petronas) to conduct site preparation works for Phase 1 of Petronas' proposed Refinery and Petrochemical Integrated Development project located in Pengerang, Johor.
It told Bursa Malaysia that the contract would commence from the date of the LOA, which was Thursday, and was expected to be completed by Dec 31, 2013.
Although there was no value attached to the contract, sources said it was valued at some RM330mil.
This contract comes on the heels of the RM863.39mil contract from Mass Rapid Transit Corp Sdn Bhd (MRT Corp) for Gadang to construct a viaduct guideway and other associated works under the Projek Mass Rapid Transit Lembah Kelang.
Gadang managing director and chief executive officer Tan Sri Kok Onn said the group was looking towards “better performances” in the coming quarters, as a result of the inflow of jobs.
Having turned in a profit of RM14.8mil in its latest financial year ended May 31 compared to a net loss of RM4.4mil a year ago, Kok said Gadang, a smallish company with a market capitalisation of about RM125mil, had submitted billions of ringgit worth of tenders, from which it hoped to secure some jobs in the year ahead.
He is quick to point out that the engineering and construction industry as a whole has been seeing a dent in profit margins in recent times.
“There is severe competition in the industry these days which is causing margins to decline,” Kok told StarBizWeek via email.
Declining to disclose how much the company could make in general from its contracts, Kok said Gadang had “ongoing initiatives” that were being directed at lowering and optimising cost structures in order to manage the declining margins for all of its works.
Normally contract margins in the engineering and construction industry, specifically for jobs obtained from competitive bidding, yield single-digit margins, according to industry players.
Currently Gadang's profits come mostly from its engineering and construction unit.
However it does have other business segments such as plantation, property development and utilities.
Kok said its core division of engineering and construction currently had on-going contracts in hand of about RM1.7bil which will last for another two to three years.
“And we are actively participating in tenders of more than RM5bil,” he said.
Among the jobs that it is working on right now include the RM291mil earthworks package for the proposed development of new LCC Terminal and associated works at KLIA, the construction and completion of Shah Alam Hospital with contract sum of RM410mil and the RM863mil MRT Corp job.
As for its property division, the group's current and upcoming projects have a combined gross development value of approximately RM894mil.
The division will focus on these projects, which are a mix of commercial and residential, while sourcing for feasible acquisition to beef up its land bank both within and outside Klang Valley, Kok said.
“We are also looking to pursue the approach of developing projects through joint venture with land owners,” Kok added but did not divulge more on this.
Investors may not be familiar with this but Gadang is also actively involved in the Indonesian water supply sector.
“There is a huge demand for clean water in Indonesia and other developing economies of East Asia which will underpin rapid business growth in the coming years,” Kok said.
Over the past five years, Gadang, through its wholly owned subsidiary, Asian Utilities Pte Ltd has acquired controlling stakes in five Indonesian water supply companies.
This has proven fruitful for it with the water supply division contributing about 13% to the group's pre-tax profit in the latest fiscal year.
Currently, Gadang is actively exploring investment opportunities in other utility segments and could partner with parties to work on projects to build and manage mini-hydro power plants in Indonesia, said Kok.
“We believe that our current presence in Indonesia and our track record will create opportunities for us to be a partner for local utility activities,” he said.
Gadang made inroads into the plantation sector about three years ago after joining forces with landowners to develop two parcels of land. The land, measuring 5,181 acres and located near Ranau, Sabah will be turned into an oil palm plantation.
The planting works for the entire 5,181 acres of land is scheduled to be completed by the end of this year.
Kok estimates that the planting on the land will be able to generate a yearly turnover of more than RM20mil upon full maturity, possibly in five year's time.
As the group is aiming to develop oil palm activities into being one of the group's core activities, Gadang will continuously explore plans to expand this division, said Kok. Gadang shares have been on an uptrend this week, finishing at 63.5 sen, up 1 sen.