NIBONG TEBAL: MWE Holdings Bhd expects profits to improve in a couple of years following the completion of 42 additional manufacturing lines in its garment plant in Vietnam. But it is hesitant to make any forecasts for the current year amid impairment losses on its investment in an associate.
In the previous year ended March 31, 2016 (FY16), the group suffered a net loss of RM62.1 million, its first loss in five years, on the back of an RM313.15 million revenue. This followed impairment losses amounting to RM59.4 million on investment in 11.04%-owned Kumpulan Europlus Bhd (KEB) and unquoted companies.
“Our group’s operational revenue and profit are sound,” its managing director Tang King Hua told The Edge Financial Daily after the group’s annual general meeting last Friday.
“But we have no control over fluctuations in KEB shares in the stock market. Therefore, we can’t say how we will perform in FY17,” he said.
KEB is involved in the construction of the RM6 billion West Coast Expressway from Banting, Selangor, to Taiping, Perak, said Tang, adding that its contribution to MWE will only kick in after 2020.
For the first quarter of FY17 ended June 30, 2016 (1QFY17), MWE’s net profit fell 46.6% to RM3.6 million from RM6.7 million in 1QFY16. Revenue grew 9% to RM90.6 million from RM83.1 million.
MWE’s garment manufacturing business falls under its wholly-owned subsidiary United Sweethearts Garment Sdn Bhd (USG). “We expect around US$30 million contribution from the additional [garment] lines to USG’s revenue in FY19,” said Tang.
“The building [in Vietnam] will be completed in December this year. It takes two years for the factory and machinery to be set up, and training of 2,000 additional workers,” he said.
Tang said that USG will continue to upgrade automation in Malaysia to reduce its dependence on labour, and increase quality and efficiency.
The garment segment contributes 80% of the group’s bottom line and 65% of sales turnover, making it its core business, with manufacturing in Malaysia and Vietnam generating an equal amount of revenue.
In FY16, USG in Malaysia and Vietnam generated a turnover of US$56 million (RM227.92 million), he said, adding that Vietnam’s contribution to MWE is expected to rise to 70% from FY19.
In order to increase its customer base and knitwear orders to mitigate business uncertainties, USG is engaged in talks with potential customers in the US and Europe, where all of its textile is exported to.
“We have aggressively tried to increase knit apparel orders [since] two years ago from existing customers in the US and Europe because we do not want to be impacted badly if there is a slowdown in one sector.
“The pickup is slow due to sluggish US and European markets, but at the same time, we are also talking to new customers, which would justify the growth in lines in Vietnam,” also said Tang, pointing out that USG manufactures for Nike, Lacoste, Oshkosh and Izod.
MWE, he said, will continue to focus on its garment and telecommunications businesses, as well as its investment in highway construction via KEB, but is slowly exiting the property sector.
On May 5, MWE announced the disposal of nine pieces of leasehold land in Selangor’s Petaling district, along with its 100% stake in MWE Golf & Country Club Bhd (MWEGC) to Newfields Land Sdn Bhd.
“We want to dispose of non-core businesses and loss-making companies; that can reduce our bank borrowings, which are about RM190 million to RM200 million. Those assets are not generating income.
“MWEGC had been passive for the last two years. We want to eventually divest our property segment,” added Tang.