This article first appeared in The Edge Financial Daily on June 22, 2017
KUALA LUMPUR: Silk Holdings Bhd, which saw its first-quarter net loss more than double to RM16.07 million, said it is hard to indicate when it can return to profitability but foresees 2017 to be a better year.
Executive chairman Datuk Mohd Azlan Hashim said the outlook for its marine logistics business is more favourable now, while there will be minimal impact from the operations of the Kajang Traffic Dispersal Ring Road (SILK Highway) following its disposal to Permodalan Nasional Bhd for RM380 million in April.
Speaking to reporters after the group’s annual and extraordinary general meetings yesterday, Mohd Azlan said the upstream marine logistics business “is not worse off” now compared with the financial year ended Dec 31, 2016 (FY16). The business includes the provision of vessel charter services in the upstream oil and gas (O&G) industry via AQL Aman Sdn Bhd, the holding company of the group’s 70%-owned Jasa Merin (M) Sdn Bhd.
Mohd Azlan said the overall utilisation rate of its fleet of 21 vessels has stabilised to 50% currently from a level that was lower some time in FY16, further noting that “tenders for activities in the upstream sector and which Silk Holdings is participating in are increasing”.
As for the downstream division, which the group began operating in the second quarter of FY16, the full-year financial contribution from this sector, particularly from the deployment of all of its three tankers, will finally be reflected, said Mohd Azlan.
“Also, we are not that impacted by the operations of the [SILK] highway. We were affected for the entire 12 months in FY16 but as we have completed the disposal exercise in April this year, the impact will only be reflected for the first four months of this year,” he said.
In FY16, the highway division incurred depreciation and amortisation costs of RM23.8 million versus the RM17.7 million recorded in FY15, leading to a pre-tax loss of RM6.16 million.
The group, however, said in its 2016 annual report that this was not unusual given the accounting treatment for assets of highway concession entities, and the division remained cash-flow positive.
Of the gross proceeds from the disposal, RM70 million will be disbursed as special dividends, RM200 million will be used to strengthen its marine logistics division and the remaining RM110 million for working capital and other uses.
Asked to elaborate further on its future plans considering the cash it has in hand, Mohd Azlan said any initiative taken going forward will be done “patiently and conservatively due to the uncertainty of the times”.
“Yes, the amount sounds like a lot and we may be overly conservative but it’s really due to the uncertainty of the times. We’ll see how it goes. Of course, if we have cash [to spare], we’ll set it aside for future investments or give it back to our shareholders,” he said.
“Let’s be clear, we’re not likely to go into things that are so far out where we don’t have expertise in. Even in terms of buying an existing business, if we can manage it well and earn recurring income from it, then by all means,” he added.
On the possibility of consolidating with other O&G players, Mohd Azlan said such a move should be thought of from a “practical perspective rather than theoretical” to generate the expected synergy, whereby players can work together and match not just their respective physical assets but work practices.
“The key [to consolidating] is by getting along well, otherwise, you will end up with lousy marriages. For the group, if we see the benefits that can be gained [through mergers and acquisitions], then we would be open to it,” he said.
Silk Holdings shares closed 5% or two sen lower at 48 sen yesterday, giving the group a market value of RM343.75 million.