Bina Puri Hopes to Sustain Momentum Despite Property Slump
Construction company Bina Puri Holdings Bhd is hoping to sustain last year's financial performance at the very least, given that the property market remains tepid, while drastic cost cuts by the new Pakatan Harapan government have derailed several key projects.
"The outcome of the [14th] general election (GE14) has certainly affected the sectors we are involved in" Bina Puri group executive director Datuk Matthew Tee Kai Woon told The Edge Financial Daily after the group's annual general meeting recently.
Tee was speaking in particular about the group's construction sector, which contributed a whopping 80% of its financial year 2017 (FY17) revenue.
Even so, the division performed poorly in FY17 as it registered a pre-tax loss of RM17.5 million, compared to a profit before tax of RM6.4 million for FY16, owing to a provision for impairment losses of RM25 million for trade receivables.
Because of the soft market, Tee said the construction division secured only RM155 million worth of projects last year â€” among the lowest in recent years.
For the full FY17, the company posted a net profit of RM3.15 million on a revenue of RM1.08 billion, against FY16's profit of RM1.07 million on a RM1.05 billion revenue.
For the first quarter ended March 31, 2018, group net profit increased 32% to RM829,000 from RM626,000 last year. However, revenue plunged 40% to RM166.57 million from RM279.03 million owing to lower construction orders.
At present, the group has ongoing projects valued at RM2.3 billion that will sustain the construction division for the next two to three years.
Among these projects are a package for the Pan Borneo Highway in Sarawak as well as a steam cracker complex in Petroliam Nasional Bhd's Refinery and Petrochemical Integrated Development Project.
"We are hoping that more projects materialise in 2018. As you know, everyone was expecting that after the general election, the [result] would be a boon to the construction sector as it is a major beneficiary. However, after GE14, these projects have then been revised, delayed or cancelled. So contractors are also feeling lost" Tee said.
Even though the construction sector remains the main revenue driver, he said, the company is trying to boost its other divisions, such as property development, power supply as well as quarry and ready-mix concrete.
"We have been working hard over the past few years to move away from relying on the construction sector. We are lucky we have other segments to sustain our operations. Some of our property projects are doing quite well too.â€
According to the group's FY17 annual report, the property division saw its revenue increase by 70% to RM152.9 million, compared with the RM90.1 million reported for the previous year, while profit before tax increased by 31% from RM24.1 million in FY16 to RM31.5 million in FY17.
It attributed the performance to encouraging sales of its development properties, namely Opus in Kuala Lumpur, Jesselton View and One Jesselton in Kota Kinabalu, Sabah, The Valley in Karak, Bentong, Pahang, plus the recurring retail rental income from the Main Place Mall in USJ 21, Subang Jaya, Selangor.
As at March 2018, the group had unbilled property sales of RM164 million.
The zero-rating of the goods and services tax is also a plus point as the group's Main Place Mall is expected to benefit.
"When consumers spend, the tenant would record better sales and we would subsequently benefit" Tee said, but acknowledged that the property market remains soft.
"With a new government, hopefully they will put in place some interventions to spur the property market further.â€
As for the group's power supply segment, Tee remains positive about its growth, but said developments will also depend on new policies. He cited a recent memorandum of understanding between the group's unit BP Energy Sdn Bhd and Sabah state investment arm Warisan Harta Sabah Sdn Bhd to collaborate on the proposed development of two small hydropower sites in Tuaran and Kota Belud, Sabah.
"The mandate given to Warisan Harta was by the previous chief minister, so now we have to see whether under the new leadership, they would want to maintain the mandate. So we will have to negotiate with the new state government on the two projects" he explained.
Bina Puri is trading at about 26 sen, having tumbled 37% over the last twelve months. Its market capitalisation is some RM75 million.