A slew of mega infrastructure projects may have buoyed the local construction industry, but ACE Market-listed quarry machinery and equipment supplier SCH Group Bhd will have to wait for these contract awards to translate into orders for its products.

In the nine months ended May 31, 2016 (9MFY2016), SCH saw its net profit decline 72% to RM2.04 million from RM7.18 million a year ago. Revenue fell 41% to RM29.12 million from RM50.03 million a year earlier. The weaker performance was attributed to fewer orders.

This is in stark contrast to the bullish outlook for the construction sector, which is benefiting from ongoing projects such as Mass Rapid Transit 2, Light Rail Transit 3, Pan-Borneo Highway and West Coast Expressway, as well as upcoming projects that include the Kuala Lumpur-Singapore high-speed rail, Tun Razak Exchange and Bandar Malaysia.

Given its position almost at the bottom of the supply chain, SCH managing director and deputy chairman Lau Mong Ling acknowledges that the large-scale construction projects will not immediately generate income for the group. However, the overall demand for quarry industrial products is expected to improve as early as next year.

“[Next year] and 2018 will be very good years for us, as the downward cycle in the quarry industry is almost over and demand will pick up again soon. If these projects kick off next year, they will last until 2020,” he tells The Edge.

Lau explains that after a contract is awarded, it usually takes about eight months for jobs to flow to downstream players like SCH. Hence, he expects the company to perform better in the financial year ending Aug 31, 2017 (FY2017) than FY2016.

“No doubt the market is in a downward cycle, but we are not too worried because a lot of infrastructure projects are going on now. They have already announced these contracts, so surely they will have to keep the ball rolling and very soon our quarry machinery and equipment will be needed,” he says confidently.

Lau, 62, was appointed to the board of SCH in March 2012. He is the single largest shareholder with a 15.49% stake. His longtime business partners, Wong Sin Chin and Yeen Yoon Hin, both executive directors, own an 11.28% and 10.44% stake respectively.

Balakong-based SCH is a specialist supplier of quarry industrial products, machinery and equipment, with a local market share of about 18%. The home-grown company distributes its products to more than 500 domestic customers, mainly quarry operators.

SCH has a wide distribution network covering Penang, Pahang, Johor, Sabah, Sarawak and Singapore. The company has also received a few orders from Cambodian clients since it set up a new office in Phnom Penh in the second quarter of this year.

To Lau, Cambodia is the next big thing for SCH, which has a market capitalisation of RM96.9 million.

“Over the years, I kept saying Cambodia, Cambodia, Cambodia. I always wanted to use Cambodia as our Indochina hub to serve the neighbouring countries like Myanmar, Laos, Vietnam and Thailand,” he says.

The whole idea, says Lau, is to tap the Asean markets, as many countries in the region are planning to build highways, ports, airports and high-rise buildings.

SCH has been distributing and supplying products such as jaw crushers, cone crushers, hydraulic crawler drills, rock tools, conveyor belts and impact springs to the quarry industry for the last 25 years. The equipment is mainly imported from Japan, South Korea, China and India.

In fact, SCH is one of the few players, if not the only one, that supplies products used in various stages of the quarrying process, from the drilling and blasting stage to crushing and screening. Its main competitors are Sunway Marketing Sdn Bhd and Swedish firms Sandvik and Atlas Copco.

In 2008, SCH commenced distribution of Nakayama and Junjin CSM’s range of quarry machinery and equipment. Two years later, the group ventured into the reconditioned quarry machinery business segment.

Currently, SCH has seven new and five reconditioned South Korean-made Junjin hydraulic crawler drills. The company has supplied more than 150 new and 30 used hydraulic crawler drills, which are in use in the country.

“During the good times, we can sell more than 20 new units a year. Last year, when the market was not good, we still managed to sell 10 new units. As for the reconditioned units, we sell an average of four or five every year,” says Lau. 

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