CHINESE investors are understood to be keen on Scomi Engineering Bhd’s monorail manufacturing operation. They may either buy a stake in the listed entity or acquire a direct holding in its wholly-owned subsidiary Scomi Rail Bhd, sources familiar with the matter tell The Edge.

It is learnt that executives from a few Chinese companies — eyeing stakes in Scomi Engineering or Scomi Rail — have been in talks with their counterparts in Scomi Group Bhd, which controls a 72.33% stake in Scomi Engineering.

“Many Chinese companies have come forward but nothing has been signed yet. But these parties have shown genuine interest. Over the last six months, serious overtures have been made,” a source familiar with the negotiations says.

Scomi Group CEO-cum-executive director Shah Hakim @ Shahzanim Zain, who doubles as a non-independent non-executive director and the CEO of Scomi Engineering, was not available for comment at press time.

Shah Hakim owns 9.34% equity interest in Scomi Group, making him its second largest shareholder after construction giant IJM Corp Bhd, with a 24.59% stake.

Some sources say IJM has also been approached to sell its stake in Scomi Group but it is not known what IJM’s plan for the strategic stake is. Until a year ago, IJM only had 7.66% equity interest before it converted Scomi Group’s convertible redeemable secured bonds with an aggregate nominal value of RM110 million or share price of 36.5 sen, which was slightly more than double the market price at the time.

But even before IJM converted the debt paper in February last year, there was talk of the construction company being unhappy about Scomi Group’s weak financials.

For the six months ended Sept 30, 2016, Scomi Group suffered a net loss of RM33.37 million on revenue of RM413.61 million.

Its oilfield service, monorail and oil and gas marine support service segments have not fared well. The results were dragged down by drilling activities, unrealised foreign exchange losses arising from the translation of accrued receivables for the group’s Mumbai monorail project and low utilisation of offshore vessels.

Similarly, Scomi Engineering suffered a net loss of RM2.63 million on revenue of RM63.54 million for the six months ended Sept 30, 2016. The losses were attributed to lower revenue and reduced unrealised foreign exchange gains.

The shares of both Scomi Group and Scomi Engineering are trading below 50 sen at present, having trended downwards in the past two years because of the companies’ weak financial performance.

Nonetheless, Scomi Engineering’s share price has nearly doubled since the start of the year, although trading volume has not been significant. The stock closed at 31.5 sen last Friday, giving the company a market capitalisation of RM107.7 million. Scomi Group, which has also been on an upward trend, has gained 29% since the start of the year. It closed at 15.5 sen last Friday, giving the company a market capitalisation of RM295 million.

Apart from Malaysia, Scomi Engineering also has a presence in Brazil and India, among others, and is said to be looking for monorail opportunities in several parts of the world.

In Brazil, it won a RM2.6 billion contract for Line 17 Gold and also bagged the Manaus and Line 18 Bronze lines. In India, it clinched the 19.68km, RM1.7 billion Mumbai monorail project in late 2008 in partnership with Indian outfit Larsen & Toubro Ltd.

The monorail’s first phase of almost 9km started operating in February 2014 while Phase 2 — between Jacob Circle and Wadala — is nearing completion. This 10.76km section has a potentially higher ridership.

Two of Scomi Engineering’s ongoing tenders are understood to be for the Istanbul and Bangkok monorails but little information is available about them.

Although the company has won multimillion-ringgit contracts in India and Brazil, it has had a hard time in turning in profits.

Meanwhile, China is expanding its rail network aggressively. It announced a plan in May last year to invest US$724 billion in public transport over the next three years with an emphasis on developing urban light-rail systems, such as the maglev, subway and monorail.

But even in China, the competition is bound to be stiff for Scomi Engineering and its Chinese partner.

For instance, BYD Co, a Chinese battery and electric car manufacturer, set up a monorail division in March last year while Japan’s Hitachi Ltd and Canada’s Bombardier Inc are two of Scomi Engineering’s main rivals.

Bombardier set up a joint venture with China South Railway Corp in September 2014, which later morphed into China Railway Rolling Stock Group, which promotes monorail projects in China.

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