KUALA LUMPUR (June 15): KNM Group Bhd, which saw its share price hit an all-time low of 27 sen last week, said it will finally see the first contribution from its maiden renewal energy foray in Thailand by July this year.
With KNM expecting 5% of group top line to come from the Thailand operation by end-FY17, group chief executive officer Lee Swee Eng said the company is on track to diversify into renewable energy as a core business by end-2019.
"We have commissioned phase one of the Thai ethanol plant, capable of producing 200,000 barrels per day (bpd). And now, our permit for application to sell the product in Thailand is currently in the audit stage. By July, we should be able to start selling," Lee told the press after its annual general meeting here today.
Lee said the shift is also in line with its strategy to move from short-term contract-based to long-term recurring income. The company saw fewer new work orders and projects completed in its first quarter of the financial year ending Dec 31, 2017 (1QFY17).
"It's a two-prong strategy — renewable energy and recurring income — so the [fewer] orders [are] reflected from our shift towards internal projects, such as in Thailand and the UK. There [are] also [fewer] work orders in the oil and gas, and petrochemical industries.
"We have not shown the profit [from renewable energy venture] that they (shareholders) have been looking for. It takes time to shift from one sector to another. With the display of our Thai operations, today shareholders are more understanding," he added.
The Thai ethanol project, said Lee, will contribute up to 15% group revenue in FY18. "On May 11, we have started works on phase two. That will allow us to produce an additional 300,000 bpd," said Lee, adding that the second phase will be commissioned in two years' time.
KNM issued a RM333.9 million bond last year to fund the second phase development, shifting the company's gearing to 0.6 times, above the target of 0.5 times set by Lee earlier.
Lee said the increased gearing is again reflective of the company's expansion towards internal projects to build up its recurring income portfolio. "We are still very comfortable with anything below one," he said, adding that the bond yield of 3% is "relatively low".
KNM, which closed a loss-making FY16 — its first since FY11, said it will not incur the same results this year. "The [RM330 million] losses in the fourth quarter last year is a one-time thing," Lee said.
"We had an unexpected logistic cost incurred in central Asia due to re-routing — that is resolved. And we had to rework our products from the Kuantan operation because of bauxite contamination. Ultimately, we shut down the Kuantan plant and also incurred some impairment losses from that decision," added Lee.
Additionally, Lee said KNM is waiting for the right time to re-initiate its Canada oil sands operations, which it scaled down last year, meaning a turnaround will be later than expected. "We are just keeping the overhead costs low.
"When the oil price recovers to a profitable level, we will initiate. For now, we cannot predict the industry's outlook," he added.
Year to date, shares of KNM has lost 17.65%. At today's noon market break, the counter traded unchanged at 28 sen with 5.37 million shares done, giving it a market capitalisation of RM597.18 million.