This article first appeared in The Edge Financial Daily on January 7, 2019

KUALA LUMPUR: Handal Resources Bhd, which has been posting yearly losses since the financial year ended Dec 31, 2016 (FY16), is working hard to regain its lost glory as one of the country’s leading offshore crane service providers.

Its group managing director (group MD) Sunildeep Singh Dhaliwal believes that the worst is over for the group in terms of operational loss and it remains on track to return to profit in financial year 2020 (FY20).

Its net loss widened 2.7 times to RM6.36 million for the nine months ended Sept 30, 2018 (9MFY18) from RM2.38 million a year ago, while revenue rose 4.4% to RM40.6 million from RM38.87 million in 9MFY17.

Sunildeep blamed the deeper net loss on compensation expense for a retrenchment exercise Handal carried out in September last year as part of cost-cutting measures, as well as losses incurred from its 51%-owned unit Handal Simflexi Sdn Bhd.

“With the retrenchment and cost-cutting exercises out of the way, we expect the operational loss to decrease but we won’t be seeing a profit in 4QFY18 or FY18,” he told The Edge Financial Daily in an interview.

“But we hope to break even this year (FY19). The target is to secure at least RM20 million to RM30 million worth of new contracts in 2019 [in order to reach the break-even point],” he added.

Handal had laid off about 25 to 30 workers, as well as closed down the Melaka facility of its subsidiary Handal Engineering Sdn Bhd, which had been losing RM1 million a year for the last five years.

“I found that what they were trying to do was not profitable. So we had to retrench everybody from the company and shut down its facility in Melaka. We took all the equipment back to [our other operations site in] Kemaman, Terengganu where we will set up Handal Fabrication. We will build on our crane manufacturing expertise to go into other forms of fabrication.

“We also plan to reposition Handal Engineering to be an engineering, procurement and construction (EPC) company,” said Sunildeep.

Sunildeep took over as group MD of Handal in August last year — replacing Mallek Rizal Mohsin who remains on the group’s board as executive vice-chairman — after taking a 7.357% stake via Borneo Seaoffshore Sdn Bhd. As at Dec 20, 2018, Sunildeep’s stake in Handal stood at 14.71%.

Following his entry, he had initiated a review of the group’s businesses at the end of which it had carried out a restructuring exercise that ran for three months, as well as set a clear business direction for Handal.

“The key to driving this business is to secure more contracts, which is about managing cost and identifying areas where we can grow our [profit] margins.

“We will focus on two key areas — one is to get new contracts for the integrated crane services and crane fabrication business be it in Malaysia or other markets like Brunei, Myanmar and Thailand, and two is to get workover project lifting solutions jobs or EPC jobs such as constuction of industrial equipments and tank systems for the oil and gas (O&G) industry,” said Sunildeep.

“Basically, we bank on our core competencies in offshore cranes but we are expanding to other regions now,” said Mallek Rizal, who is the son of Handal founder Datuk Mohsin Abdul Halim. Mohsin retired as executive chairman of the group on Dec 31, 2018, but still holds a 16.13% stake.

As at Sept 30, 2018, the group has an outstanding order book of RM82.11 million, which will keep it busy until 2020.

Another aspect to Handal’s turnaround plan involves making the group more efficient and process-driven, said Sunildeep.

Taking a leaf from Borneo Seaoffshore where Sunildeep was co-founder and former managing director, Handal has been hiring experienced professionals in the O&G industry to train its workers to work in line with Petroliam Nasional Bhd’s (Petronas) contracting strategy and its expectations of service providers like Handal.

“We in the past at Borneo Seaoffshore had done that. The company’s co-founder and executive chairman Mohamad Ismail was formerly with Petronas for 30 years and so, we had worked according to Petronas’ requirements of service providers. Likewise, Handal Offshore Services Sdn Bhd’s newly appointed chief executive officer Zaini Yunus will bring that to the company,” he added.

After losing out on a lucrative Petronas Carigali Sdn Bhd contract previously, Handal has also learned the lesson. “At the time, we were performing several integrated crane services contracts awarded by ExxonMobil Exploration And Production Malaysia Inc and Petronas Carigali. But not too much attention was given to Petronas when we executed certain contracts. It was serious operational issues and so, our performance came under scrutiny and when it did the audit, we didn’t make the cut,” recalled Mallek Rizal.

Handal aims for a market cap of RM500 million by 2022

Describing the group’s turnaround plan as “ambitious”, Sunildeep said Handal is targeting to reach a market capitalisation of at least RM500 million by 2022, over nine times more than its market value of RM52.66 million last Friday.

To achieve its goal, Handal would need to make a net profit of at least RM25 to RM30 million by then, he added.

The group is currently bidding for various contracts totalling RM67 million in Malaysia and Thailand.

“The outlook for 2019 looks good with several new tenders coming up,” said Sunildeep.

For one, Handal is looking to participate in an upcoming tender process for crane maintenance and rental services in Terengganu, Sabah and Sarawak from Petronas Carigali.

It will also bid for a five-year crane maintenance services contract worth RM30 to RM50 million per year from Brunei Shell Petroleum Co Sdn Bhd in the first quarter of this year.

“Looking at the list of crane manufacturers Brunei Shell currently owns including American Aero, we are familiar with these brands and diesel engines. We believe we have a good chance of winning this contract,” said Sunildeep.

He also expects more contracts coming up for the provision of hydraulic workover units (HWUs) this year.

“We are looking at either partnering an international company or investing in part with the international company to provide HWU services in this region. We are in talks with a company that has a lot of HWU activities in Australia and I am going to the US to meet a few companies there this month [about potential partnerships],” he added.

Still, revenue from integrated crane services and crane fabrication will account for about 85% of the group’s revenue in FY18, with the rest coming from crane rental services.