Sarawak Consolidated Industries goes global, eyes RM1 bil market cap in two years

This article first appeared in The Edge Malaysia Weekly, on March 2, 2020 - March 08, 2020.

Abdul Karim: FY2020’s financial performance will serve as a benchmark for the group … our target will be gross growth of 15% to 20% per year

Photo by Suhaimi Yusuf/The Edge

Rosland: We need to broaden our horizons beyond Sarawak. We hope that our manufacturing base will grow as we expand our customer base to other regions.

Photo by Suhaimi Yusuf/The Edge

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LAST Thursday, Sarawak Consolidated Industries Bhd (SCIB) reported earnings for its just-ended financial year: Not only did the company revert to profitability, it also posted a record RM85.79 million in revenue. The turnaround comes nine months after its new chairman Datuk Dr Mohd Abdul Karim Abdullah, the billionaire behind Serba Dinamik Holdings Bhd, emerged as a new major shareholder. This was followed by changes to its management team and board of directors.

SCIB reported a net profit of RM3.06 million for the year ended Dec 31, 2019 (FY2019), a reversal from the RM9.79 million net loss racked up the previous year, as the largest maker of precast concrete products in Sarawak gained traction with its focused growth strategy in engineering, procurement, construction and commissioning (EPCC) contracts in Malaysia and overseas. Revenue was up 13% year on year to RM85.79 million.

At the same time, SCIB has been progressing new opportunities with the support of Serba Dinamik and expects them to underpin strong order book growth in the short to medium term.

Some analysts have forecast SCIB’s revenue could cross the RM760 million mark in two years, underpinned by its RM175 million construction order book that is set to grow to RM1.5 billion by year-end.

Abdul Karim, SCIB’s largest shareholder with a 47.53% stake, believes the RM1.5 billion target is achievable with the support of Serba Dinamik, of which he is group managing director and CEO and a controlling shareholder with a 20.81% stake.

The company plans to seek shareholders’ approval to enter into recurrent related-party transactions with Serba Dinamik, paving the way for it to secure several overseas and local projects — involving the construction of civil works and supply of precast concrete products and construction materials — to be awarded by the latter over the next three years.

SCIB also hopes to double its manufacturing order book from the current RM40 million to RM80 million this year.

According to Abdul Karim, the company’s tender book stands at RM4.5 billion and comprises projects in Malaysia, Indonesia, Qatar and Oman.

SCIB’s share price has risen 245% since the emergence of Abdul Karim as a new major shareholder in May last year, pushing its market value to RM237.04 million. It touched a record high of RM3.31 on Feb 14 and closed at RM2.76 last Thursday. Naturally, some investors wonder if it has moved too far too fast.

Scepticism of SCIB’s immediate prospects amid a weak construction market persists. The 54-year-old Abdul Karim concedes that there is still a lot to do at SCIB to allay those fears.

This year, the company aims to strengthen its underlying fundamentals, notably its resources and financial position.

“FY2020’s financial performance will serve as a benchmark for the group. There are certain targets we want to achieve. From there on, our target will be gross growth of 15% to 20% per year,” Abdul Karim tells The Edge in an interview.

“The company has been in the market for 45 years. We need to strengthen it further from a technological perspective. We are looking at state-of-the-art technological solutions within the scope of civil construction such as 3D printing, which facilitates faster construction work than conventional methods. We are in the process of engaging with the Construction Industry Development Board for approval.

“The new management also believes SCIB’s business has very much been focused on Sarawak over the past few years. We hope to expand our market outside of our home ground of Sarawak to Peninsular Malaysia, Qatar, Oman and Indonesia through engagement with local partners, as well as the business of manufacturing of precast concrete products into a more sophisticated EPCC company. This will help boost revenue in the coming years,” he adds.

To this end, SCIB plans to raise funds through a private placement or a rights issue for ongoing projects and working capital. Recently, the group announced that it had secured a combined RM175.4 million worth of EPCC contracts in Malaysia, Indonesia, Qatar and Oman.

Rosland Othman, who assumed the post of group managing director and CEO of SCIB in September last year, expects gearing to increase as it undertakes fundraising and debt restructuring in the second quarter of this year to finance its ongoing projects and for working capital. SCIB’s gearing stood at 0.58 times as at Sept 30, 2019.

“A gearing of 1.25 times would be a comfortable number,” says the 46-year-old Rosland, who was a senior vice-president of Serba Dinamik from June 2016 to September 2019.

As at Dec 31, 2019, SCIB’s cash and bank balances stood at RM9.04 million while borrowings totalled RM37.43 million.

Currently, SCIB operates three factories in Kuching, Sarawak — one in Pending Industrial Estate and two in Demak Laut Industrial Park. While the Pending factory, which is involved in the manufacturing of precast concrete products, is operating at a high utilisation rate thanks to the Pan Borneo Highway project, the same cannot be said for the Industrialised Building System factory in Demak Laut, which is running at below 50% capacity, says Rosland. “That’s why we need to broaden our horizons beyond Sarawak. We hope that our manufacturing base will grow as we expand our customer base to other regions.”

The company also hopes to obtain a licence from Petroliam Nasional Bhd, which would allow SCIB to benefit from the civil portion of Serba Dinamik’s EPCC construction works in Malaysia’s oil and gas industry.

In this regard, Abdul Karim says SCIB is looking at acquiring companies that have these licences from Petronas but have no financial stamina to undertake the works. He believes a transaction could materialise as early as this year.

At the same time, the company is preparing the necessary documentation to obtain a licence from Petronas directly. “The prospects for civil construction works within the O&G industry is big, although we have not factored its potential in our forecasts,” he notes.

Abdul Karim’s plans for SCIB do not stop there. He also wants to make it enticing for institutional investors to buy into the stock, which means it has to have a market capitalisation of more than RM1 billion, which he hopes to achieve in two years. “Take, for example, Gamuda Bhd. Its market capitalisation stands at RM8.98 billion,” he says.

On political uncertainty in the country amid an economy that is already reeling from a slowdown, Abdul Karim says: “In all our business plans, we have taken into account all these [unexpected] situations. For example, the political volatility at the moment is only in Malaysia, which is just one of the markets for SCIB. We are now strengthening our position in Indonesia, Qatar and Oman as we transform SCIB into a global company. It is no more a Sarawak-based company.”

“We believe the political volatility is only temporary. Also, SCIB is not a political entity. We are a business entity and we are building up the fundamentals of the company in what it is good at. The existing shareholders and the executive management team are non-political and we will report to the government of the day.”

 

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