EA Holdings expects profit guarantee-led turnaround in FY19

This article first appeared in The Edge Financial Daily, on September 7, 2018.
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KUALA LUMPUR: EA Holdings Bhd may reverse its loss-making position in its financial year 2019 (FY19) ending March 31, 2019, helped by profit guarantee from its packaged-food unit Sunland Volonte Agency Sdn Bhd, according to its chief executive officer  (CEO)Mohammad Sobri Saad.

“With Sunland’s profit guarantee, [for] FY19, we are likely to turn around. In terms of our IT businesses, they are still our core. I founded this company to do IT in the first place [and] we will continue to tender for more projects moving forward, while implementing some cost-cutting measures, mainly by cutting down our workforce.

“Salary is our biggest cost component in our cost structure — about 70% to 80%. A year ago, we had about 100 staff (employees), we are now down to 80 people,” Mohammad Sobri said at a press conference, after the group’s annual general meeting yesterday.

According to EA’s annual report, it incurred a net loss of RM7.9 million in FY18 versus a net profit of RM2.83 million in FY17, as revenue slumped 46% to RM20.83 million from RM38.38 million.

EA completed its RM78.75 million acquisition of a 90% stake in Sunland in April this year. The deal came with an aggregate profit guarantee of not less than RM14 million for FY19 and FY20 ending Jan 31.

The deal was satisfied via the issuance of 1.59 billion new EA shares at an issue price of four sen per share, and RM15 million cash. This resulted in Datuk Cheong Soo Han, previously the major shareholder of Sunland, emerging as the single largest shareholder of EA after the deal.

Sunland’s net profit for FY17 fell 10% to RM2.83 million from RM3.16 million in FY16, while revenue declined 4% to RM17.93 million from RM18.66 million.

Yesterday, Mohammad Sobri said EA’s current outstanding order book, excluding Sunland’s, stood at about RM30 million, of which about one-third is expected to be completed in FY19.

The group is now tendering for jobs worth some RM30 million. With an average tender success rate of about 15%, he expects the group to secure about RM5 million new orders for FY19. “We are still very much a project-based company, with only about 10% of our revenue from IT businesses being recurring ones,” he added.

Mohammad Sobri also said that at this juncture, the group has no plans to change the composition of its board of directors, despite Cheong’s entry. Cheong owned a 20.9% stake in EA as at July 2 this year, followed by Chong Mui Fun’s 13.7% and Mohammad Sobri’s 8.4%. Chong was the largest shareholder of EA before Cheong’s entry.

“They (Sunland) wanted to come in as passive shareholders, and did not request for any board representative,” Mohammad Sobri said.

 

‘I’m only an investor in Vivocom’

Mohammad Sobri also distanced himself from Vivocom Intl Holdings Bhd, a construction outfit that was previously seen as highly likely to secure jobs from China-based developers, until the departure of its former CEO Datuk Seri Dr Yeoh Seong Mok, who retired in June last year.

“I am only an investor there, and have nothing to do with whatever decision-making process in that company (Vivocom), I think I am left with very little shares there,” Mohammad Sobri said.

According to Vivocom’s annual report for the financial year ended Dec 31, 2017, Mohammad Sobri had a 1% stake in the group as at April 9 this year. Chong too held a 1.1% stake in Vivocom.

The two public-listed entities have been seen as linked not only due to some common shareholders, but also because they shared the same executive director, Choo Seng Choon, until last year. Less than a month before Yeoh’s departure in 2017, Choo resigned on May 5 from his position in EA, citing “other work commitments” as the reason.