This article first appeared in The Edge Financial Daily on March 26, 2019

KUALA LUMPUR: Fajarbaru Builder Group Bhd announced that it has estimated an impairment of trade receivables of RM20.37 million and contract assets of RM8.15 million for the financial year 2019 (FY19) ending June 30, 2019, as a result of the winding-up order on one of its clients — TYL Land & Development Sdn Bhd.

The impairment is likely to wipe out a bulk of Fajarbaru’s earnings based on its financial results for the first half of FY19 (1HFY19) ended Dec 31, 2018.

The construction outfit posted a net profit of RM14.81 million for 1HFY19, down sharply from RM27.48 million a year ago. Revenue declined nearly 30% to RM167.57 million against RM238.19 million.

In July 2017, Fajarbaru secured a RM101.3 million contract to complete the remaining building works of a commercial development for TYL in Semenyih.

TYL is the developer of L’Marq, a mixed development in Semenyih that sits on 2.7 acres (1.09ha) and includes residential units. This is the developer’s maiden project.

In the latest filing with Bursa Malaysia, Fajarbaru said it has taken steps to relocate resources to other projects to reduce the impact on operations.

“The board will take all possible actions to mitigate the financial and operational impacts,” it added.

To recap, Fajarbaru last Thursday received the winding-up order from the Kuala Lumpur High Court and said that it was seeking legal advice on the options that were available to the group.

As at Dec 31, 2018, the total certified sum for works done owing by TYL to Fajarbaru’s subsidiary Fajarbaru Builder Sdn Bhd (FBSB) was RM20.37 million, with a further estimated uncertified amount of RM8.15 million, it said.

It also noted that FBSB is ascertaining any additional loss and damage claimable against TYL in relation to the contract arising from the winding-up.

Fajarbaru previously expected the contract, which had a tenure of 27 months, to contribute positively towards the group’s earnings and net assets for its FY18 to FY20.

Specifically, the project entailed building and related external works of two towers (26 and 15 storeys), two storeys of shops housing 48 units, two storeys of offices housing 24 units and a five-storey elevated car park.