Muhibbah eyeing the region in diversification move

MUHIBBAH Engineering (M) Sdn Bhd has been looking to diversify its income streams.

The company has been aggressively pursuing new contracts in the region, particularly in Indonesia, Myanmar and the Philippines, having already set up offices and partnered with local players in these countries.

Deputy CEO Mac Chung Jin tells Starbizweek that the group is pursuing jobs in the oil and gas and infrastructure sectors of these countries, as well as potential airport expansions works.

“In Indonesia, there is a lot of talk about airport expansions, and we are also looking at the oil and gas sector. In the Philippines, we are mostly looking at the infrastructure sector,” he says.

The group is already working on its first job in Myanmar, which was awarded through Petroliam Nasional Bhd at the end of last year.

The engineering, procurement, construction, installation and commissioning (EPCIC) contract, which is slated for completion in the second quarter of 2020, is for the country’s Yetagun Acid Gas Removal Unit project.

However, to ensure steady, long-term recurring income, he says, the group is particularly looking out for build, operate and transfer (BOT) contracts in the region - similar to its existing airports concession in Cambodia.

“We are on the lookout for more contracts like these, domestically as well as across the Asean region. Other than airports concessions, we are also pursuing BOT contracts in the shipbuilding industry,” he says.

The group, he says, has been looking to diversify its income streams given the increasing uncertainties in the global economy, and the cyclical nature of its core construction business.

Muhibbah’s construction and cranes businesses each contribute about 40% to its revenue, while the other 20% comes from its other manufacturing businesses including its airports concessions and shipbuilding segments.

In Cambodia, Muhibbah has a BOT concession for the development and management of the country’s three international airports – the Phnom Penh International Airport, Siem Reap International Airport and Sihanoukville International Airport.

It holds a 30% stake in the joint venture business, while the balance is held by its French partner.

It had signed a concession agreement with the Cambodian government back in September 1995, for the privatisation of the Phnom Penh International airport – then known as the Pochentong International Airport – as part of the consortium which would operate and manage the airport for 25 years.

The joint venture later over the management of the Siem Reap and Sihanoukville airports as well.

In 2016, the concession period for the airports was extended by another 20 years to 2040 by the Cambodian government.

The outlook for the Cambodian airport business, Mac says, continues to be strong, given the steady growth in passenger arrivals over the years.

“For the foreseeable future, we see passenger arrivals continuing to increase. This will continue to be a major a major contributing income stream for the group,” he says.

In Malaysia, meanwhile, there are several domestic as well as international airports which may be embarking on expansions in the near future – developments which Muhibbah is eyeing very closely.

It was reported earlier this year that Muhibbah was among at least six companies looking to be part of the Penang International Airport’s Rm1.2bil planned expansion.

Last month, the Penang state goverment said it would issue a request for proposal for research on the future needs of the airport facilities.

Chief Minister Chow Kon Yeow said the expansion project was a priority for the state as passenger arrivals had increased to 7.8 million last year, more than its designated capacity of 6.5 million per annum.

Another potential airport expansion project in the pipeline, is for the Kulim International airport.

Mac says the group will be bidding for the jobs, as well as any other airport expansion works that come up.

“There are a number of domestic airports in Malaysia that are also embarking on expansions plans, and we will be bidding for those contracts as well,” he says.

As for the group’s core construction business, Mac says the year ahead could see slight improvement, depending on the movement of crude oil prices.

“When oil prices go up, the number of projects go up. But it takes time for the contracts to start flowing,” he says.

The group’s construction business has a strong focus on the oil and gas sector, with the group providing services including construction of petroleum hub and bunkering facilities, oil and gas terminals, liquefied natural gas jetty works and marine ports.

Its recent contract win in the construction business is a Rm150mil job for the provision of engineering, procurement, construction and installation of a Wellhead Platform for the East Cendor Field Development, from Petrofac (Malaysia-pm304) Ltd.

In announcing the new contract at the end of last month, the group said works would commence immediately and be completed within 11 months

The group, Mac says, will begin to recognise revenue from the project in the next few months, with the bulk of the recognition to come in next year.

As at Aug 29, Muhibbah’s total outstanding secured order book in hand for the construction and cranes division stood at Rm1.7bil.

The other major revenue contributor to the group, is Muhibbah’s cranes business from its 59.2% owned listed entity, Favelle Favco Bhd.

In recent years, Mac says, there has been a growing demand for crane rentals, although the sales of cranes still make up the bulk of its business.

“Most of the income from the division comes from the sales of crane, but there is definitely a growing trend towards rentals.

“In order to also expand in the rental market, we are currently expanding our fleet of cranes,” he says.

Favelle Favco had an outstanding order book of about Rm562mil as at Aug 21, from the global oil and gas, shipyard, construction, wind turbine and intelligent automation industries.

For the second quarter ended June 30, the crane specialist’s net profit had more than doubled to Rm16.47mil from Rm7.2mil a year ago, on the back of higher sales.

Mac says about 70% of Favelle Favco’s crane sales come from the oil and gas sector which means this business is also dependent on the movement of crude oil.

“With oil in recovery mode, the outlook is still stable and we do see a slight uptrend, going forward but of course, there are many other external factors that can affect this,” he says.