PLUS not well run, says Abu Sahid

This article first appeared in The Edge Malaysia Weekly, on October 9, 2017 - October 15, 2017.
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TAN Sri Abu Sahid Mohamed, who helms Maju Holdings Sdn Bhd, says the current management of highway operator PLUS Malaysia Bhd, pays three times more than other toll road operators to resurface its roads.

“I pay RM18 to resurface one square metre of my highway (Maju Expressway), everyone pays about that, (but) they (PLUS) pay about three times more,” he tells The Edge.

PLUS pays RM58 for resurfacing one square metre, according to Abu Sahid.

He cites this as an example of leakages at PLUS that could be plugged. The savings, he says, would mean a freeze on toll hikes.

Last month, the businessman made an offer to take over PLUS, valuing the highway concessionaire at an enterprise value of RM36 billion.

Among the salient features of his proposal is the freezing of toll rates for the next 20 years as opposed to PLUS’ agreement with the government for a hike every three years. Abu Sahid also seeks to forfeit the government’s compensation of about RM900 million owed to the toll road operator, which arose as a result of toll hikes not being implemented.

UEM Group Bhd, a wholly-owned subsidiary of Khazanah Nasional Bhd, controls 51% of the highway operator while the Employees Provident Fund (EPF) holds the remaining 49%.

Directly and via Maju Holdings, Abu Sahid holds 31.23% equity interest in Ipmuda Bhd, which supplies building materials and finishing products to the construction industry, and wholly owns highway operator Maju Expressways Sdn Bhd, which currently links Kuala Lumpur to Cyberjaya and Putrajaya, and will eventually be connected to the Kuala Lumpur International Airport and klia2.

“We have 12,000 customers (via Ipmuda) who are contractors — those who do roadworks, carpenters, masons, you name it. They are our customers throughout the country — not just in Kuala Lumpur but throughout Malaysia, from Bukit Kayu Hitam to Johor Baru …We talk to them, [so] when we look at PLUS’ pricing, it’s far, far above market price.

“Why do they pay that [high] price? Not because they are stupid but because they have layers and layers and layers, from PLUS, they give it to Propel (Projek Penyelenggaraan Lebuhraya Bhd), then to UEM Edgenta (Bhd), so many other companies (all within the UEM and Khazanah stable). By the time it goes to the guy who really does the job, there is just skin,” Abu Sahid says.

“PLUS’ contractors are the same ones that DUKE (Duta-Ulu Kelang Expressway) uses, the same ones that we (MEX) use, it’s the same people that do the job, be it the slopes, roadworks, landscaping … it’s the same people,” he adds, explaining how he knows what goes on at PLUS.

Several attempts were made to reach UEM for comments for this article but the company declined to comment.

Abu Sahid had previously told other media that PLUS’ operating expenditure (opex) of 42% — although PLUS published its opex as 35% — was irrationally high.

“The best thing for them (UEM and EPF) to do is to sell PLUS … I’m [offering to] pay them RM4 billion in hard cash, and you have taken back whatever you invested, so it’s already free, their IRR (internal rate of return) is 20% [if they accept my offer] ... If they say it’s not enough, how much do they want? Show me how much they make on their investments,” he says.

Abu Sahid believes the professional managers at PLUS and UEM are not doing much to improve the highway or unlock the value of the surrounding land bank. Admitting that he owns pieces of land scattered along the PLUS highway, he says by owning the highway, he could develop the parcels.

PLUS has five concessions in its stable. The North-South Expressway, the New Klang Valley Expressway, the Federal Highway Route 2 and the Seremban-Port Dickson Highway come under Projek Lebuhraya Utara-Selatan Bhd while the North-South Expressway Central Link comes under Expressway Lingkaran Tengah Sdn Bhd.

The Malaysia-Singapore Second Crossing falls under Linkedua (M) Bhd; the Butterworth-Kulim Expressway under Konsortium Lebuh Raya Butterworth-Kulim Sdn Bhd; and lastly, the first Penang Bridge under Penang Bridge Sdn Bhd.

All of PLUS Malaysia’s concessions end in December 2038.

While little is known about Abu Sahid’s property forays as most of his companies are privately held, Maju Holdings owns a subsidiary — Maju Assets Sdn Bhd — that has strategic land banks in Johor and Melaka with a total gross development value in excess of RM4 billion. In Ulu Tiram, Johor, Maju Holdings has a 1,000-acre development that includes an international standard, 18-hole golf course designed by Greg Norman.

Another unit — ASM Development Sdn Bhd — has commenced the development of an integrated township on 200 acres in Kemaman, Terengganu, that is known as Bandar Baru Bukit Mentok. It is also building medium-cost apartments in Bukit Saujana, Johor. Also under the Maju Holdings banner is ASM Green Sdn Bhd, which operates the Sungai Layang Estate, a 481.04ha oil palm plantation.

“If I didn’t have land [in these places], I wouldn’t buy the highway. In Johor alone, I have more than 1,000 acres. I have lots of land, in many places … Even with a few parcels, we can build a township … you can do a lot of things; you can add value, the country will prosper, you can build haulage warehousing facilities.

“UEM has not done this. Why haven’t they? You have 1,000km, you can build a haulage warehouse in the middle, you can build a distribution network, but they (UEM and EPF) don’t think like businessmen; they are professionals … There’s a lot that can be done with this highway. You can build so many things. These people don’t even have an idea of how to do it.

“When the government asks you to build a highway, you don’t just build a highway, you have to develop all the property around it. Look at Australia, look at America.

“You need a distribution network, you need a highway to move things [around]. You can coordinate with developers to build property, there’s so many things you can do,” says Abu Sahid.

In short, the businessman feels UEM and EPF have not exploited PLUS’ true potential. And he could, once he takes over.

In November 2011, PLUS became the holding company for the five highway concessions after UEM and EPF forked out RM23 billion and privatised the company, taking it off the local bourse.

A filing with the Companies Commission of Malaysia reveals that in its financial year ended Dec 31, 2015, PLUS registered an after-tax profit of RM23.12 million on revenue of RM4.17 billion. It paid out RM815 million to its parent Khazanah that year.

In FY2015, PLUS had non-current assets of RM30.22 billion and current assets of RM3.26 billion. On the other side of the balance sheet, it had non-current liabilities of RM31.27 billion and current liabilities of RM1.56 billion.

Over the past five years, other than an after-tax loss of almost RM6 million in FY2012, PLUS’ after-tax profit has ranged from RM21.35 million (FY2011) to RM62.39 million (FY2013).

It paid its shareholders, UEM and EPF, some RM2.85 billion in dividends during the period.

For comparison, Lingkaran Trans Kota Bhd (Litrak) posted a net profit of RM221 million in its financial year ended March 31, 2017 (FY2017) compared with RM174.1 million the year before. Its revenue came in higher at RM534 million in FY2017 compared with RM416.2 million previously.

Litrak wholly owns Lingkaran Trans Kota Sdn Bhd, the concessionaire for the 40km Damansara-Puchong Highway, and a 50% stake in Sistem Penyuraian Trafik KL Barat Sdn Bhd, which is the concessionaire for the 26.5km Western Kuala Lumpur Traffic Dispersal Scheme (SPRINT highway).

Some quarters may not find this a fair comparison because Litrak’s toll roads are in the city, which means traffic volume would be higher. But it cannot be denied that the PLUS highway and the Penang Bridge see significant interstate traffic.