This article first appeared in The Edge Financial Daily on January 28, 2019
KUALA LUMPUR: Fitters Diversified Bhd is looking to hit the ball out of the park with its Oriented PVC (PVC-O) pipe manufacturing and distribution business under the HYPRO brand name.
Its pipe business under its 72.27%-owned unit Molecor (SEA) Sdn Bhd posted a RM2.99 million pre-tax loss for the nine months ended Sept 30, 2018 (9MFY18) on RM8.14 million revenue.
However, Fitters managing director Datuk Richard Wong Swee Yee is sanguine about prospects for the pipe business.
“The milestone for us in 2019 is Pengurusan Air Selangor Sdn Bhd (Air Selangor) giving us the full approval for the usage of our pipes. Selangor was the last state to give us its approval despite our pipes [were] already approved by the National Water Services Commission,” he told The Edge Financial Daily in an interview. “With that, we feel optimistic that we will be part of the Selangor’s non-revenue water (NRW) solution,” he added.
NRW refers to treated water that has not been billed due to theft or water that fails to reach paying customers because of leaky pipes. It has been a persistent problem in Selangor as about a third of its treated water goes to waste.
Earlier this month, Air Selangor completed the takeover of four concessionaires and so will operate as the sole water supplier in Selangor, Kuala Lumpur and Putrajaya from April. Selangor is the final puzzle piece for Fitters’ HYPRO pipes to get nationwide approval.
To put things in perspective, Molecor in October last year won a central purchase deal from Pengurusan Aset Air Bhd (PAAB), which is the custodian of national water assets, for the supply of its PVC-O water pipes from 2018 to 2020.
PAAB is the owner of water assets in seven states, namely Johor, Melaka, Negeri Sembilan, Kelantan, Penang, Perak and Perlis.
To kick off the contract, PVC-O pipes will be utilised to replace ageing asbestos cement pipes in Kelantan and Johor, and will be expanded to other states in Peninsular Malaysia in the near future.
“We are very encouraged by the PAAB contract, with orders starting to come in. We’ve already kicked off two projects in Kelantan where we saw a surge in delivery. Moving forward, we believe there will be more project implementation in the quarters to come,” said Wong.
He said the group also had big plans for Sarawak, where the state government is allocating RM2.8 billion to implement the Sarawak Water Supply Grid Programme for Stressed Areas to resolve water supply issues affecting the rural population within the next two years.
“On top of that, there have been a lot of discussions on pipe replacement projects in Sarawak. We are very optimistic we will be involved in some of these projects,” said Wong.
Wong’s optimism is not unfounded, given that the company is the sole manufacturer of HYPRO pipes in Malaysia.
“Our PVC-O pipes weigh less than the conventional PVC as well as ductile iron pipes, and can be lifted without machinery assistance. The pipes are also fast to connect as there is no need for welded unions. Our pipes also come with a design life of up to 50 years,” he said.
Molecor’s plant in Gebeng, Kuantan currently operates three manufacturing lines for its PVC-O pipes, which can produce up to RM150 million worth of pipes. However, Wong said the group still had a long way to go to hit the maximum capacity.
“We believe the business will do better in FY18 and FY19. We need [to make] at least RM40 million to RM50 million in revenue per year in order for our pipe business to break even, and we are on track to achieve that,” said Wong.
Last December, the group appointed Syarikat Logam Unitrade Sdn Bhd as the master stockist and distributor of its pipes. Under the appointment, Unitrade has undertaken to maintain the PVC-O pipes of various sizes in their stock for the purpose of supplying to water and sewerage projects in Malaysia, and has committed to sales amounting to RM50 million in year 2019.
“Unitrade is one of the largest stockists and distributors for valve and piping facilities, and after deliberating with them over the past two quarters, they felt we were ready to go to the market with [nationwide] approvals in hand,” said Wong.
The group’s pipes have also gotten approvals in Indonesia, but Wong said the group will focus on strengthening its foothold in Malaysia first before expanding overseas.
Apart from its pipe business, Fitters operates three other businesses: its bread-and-butter business of fire services, which manufactures fire safety and protection equipment; renewable energy; and property development and construction.
For 9MFY18, the group reported a net profit of RM8.18 million, a more-than-fivefold jump from RM1.54 million in 9MFY17, thanks to higher work progress recognised from its property development and construction division. Revenue grew 17.2% to RM250.36 million.
Wong and his wife Datin Goh Hooi Yin are the largest shareholders of Fitters with an almost 32% stake. Since hitting a record high of 96.3 sen on Sept 9, 2014, Fitters’ share price has been sluggish over the past five years, averaging at 50.1 sen.
Last Friday, its share price closed up 0.5 sen or 1.25% at 40.5 sen, with a market capitalisation of RM190 million.