This article first appeared in The Edge Financial Daily on February 18, 2019

KUALA LUMPUR: Loss-making Merge Energy Bhd, which recently saw a shake-up in its management after the close of an unconditional mandatory takeover offer last month that saw some key people linked to Matrix Concepts Holdings Bhd taking control of the group, is anticipating to make a fresh start come the beginning of its financial year ending March 31, 2020 (FY20).

Executive chairman Datuk Mohamad Haslah Mohamad Amin, who was one of three ultimate offerrors in the deal and now holds a 6.61% stake in the company, said the management is now in the process of cleaning up Merge Energy’s books and restructuring its businesses. Mohamad Haslah, who is also the non-executive chairman of Matrix Concepts, was redesignated to the current post in Merge Energy last November.

Merge Energy, listed on the Main Market of Bursa Malaysia in November 1998, is primarily involved in the construction and project management of water treatment plants. With a small paid-up capital of 67 million shares, the company has been in a weak financial position, said Mohamad Haslah, who also noted it has accumulated losses of some RM20 million.

But Merge Energy, despite being small, presents an opportunity for its shareholders to grow it, he said.

“While this is a small company, it does not have much baggage,” said Mohamad Haslah, adding that the company should see a clean slate by end-FY19.

Asked if Merge Energy will be parked under Matrix Concepts, he dismissed the notion and said it will be two separate entities.

As at Sept 30, 2018, Merge Energy is in a net debt position, with cash and bank balances of RM8.22 million, while total borrowings stood at RM9.09 million. The company is now looking for ways to rationalise its assets by disposing of some of its non-core assets which it expects to bring in up to some RM40 million. he said.

The company has also decided it will retain two of its existing businesses in which it sees potential. One is the water treatment plant construction business undertaken via its primary subsidiary Mewah Kota Sdn Bhd — a licensed water treatment plant contractor. The other is the provision of solution to all industrial water needs in the oil and gas industry that is undertaken by its subsidiary Iris Synergy Sdn Bhd.

“If these companies are still contributing sustainable earnings, why should we lose the track record and licenses,” he said. In the second half of FY19, Merge Energy’s cumulative revenue jumped 107% year-on-year to RM23.67 million, mainly due to contribution from Mewah Kota’s new water treatmet plant project — the Loji Rawatan Air Pagoh.

In the mean time, Merge Energy will also be reactivating two other businesses — its property development and construction business, said Mohamad Haslah.

Mohamad Haslah also said the new management is eyeing to turn the company around in FY20, but did not wish to elaborate, other than pointing to the new management’s expertise.

On Jan 30, Datuk Abdul Jalil Abdul Karim resigned as the company  chief executive officer (CEO) to pursue other interests. Abdul Jalil has been Merge Energy CEO since February 2011.

Also resigning on the same day were executive director Raizita Ahmad @ Harun, and independent and non-executive directors Datuk Tengku Rozanna Petri Tengku Mohamed Nasrun and Datuk Sheah Kok Fah.

In their stead, Datuk Lee Tian Hock and Czarina Alia Abdul Razak were appointed non-independent and non-executive directors. Tian Hock, who owns some 33.5% stake in the company and was an offeror in the recent takeover deal, is also the founder and executive deputy chairman of property developer Matrix Concepts. He is also the brother of Lee Tian Huat, who has an 8.06% stake in Merge Energy and is the second ultimate offeror in the takeover deal. The third is Datuk Tan Gee Swan @ Tan Suan Ching, the controlling shareholder and a director of Westiara Development, whose background is also in construction and property development.

Czarina, meanwhile, is a former Majlis Amanah Rakyat board member (2010 to 2011) and has over 20 years of experience in human capital consulting with Kelly Services (M) Sdn Bhd.

Registering net losses for six consecutive quarters, Merge Energy’s net loss stood at RM1.94 million for the six months ended Sept 30, 2018, versus a net loss of RM2.02 million previously. Though revenue grew 107% to RM23.67 million from RM11.41 million, the company was still in the red due to lower profit margin and higher administration operating costs.

While Mohamad Haslah also hinted at new potential businesses that Merge Energy may consider going into, given the challenging business environment for the construction industry now, a quick look at the three ultimate offerors’ background suggests that Merge Energy may not diverge too far from the property development and construction business.

In line with its less-than-encouraging past earnings, Merge Energy shares have been rather thinly traded. Over the past four years, the counter had largely remained 40 sen a share.  The counter closed at 86 sen last Friday — two sen lower than the 88 sen a share offered in the takeover deal — giving the company a market value of RM57.62 million.