‘Cost overruns at HG Power recoverable’

> Rohas Tecnic says its priority is to complete projects, hopes to penetrate more foreign markets with acquisition

KUALA LUMPUR: Rohas Tecnic Bhd (RTB), whose shareholders approved its acquisition of a 75% stake in HG Power Transmission Sdn Bhd (HGPT) for RM91.66 million, is not overly concerned about cost overruns at HGPT.

“I’m not overly concerned because some of the cost overruns are mainly to satisfy the project that they are doing right now. For example if TNB (Tenaga Nasional Bhd) says try not to pass through this ‘kampung’, if you try to take a detour, then there’s additional cost... those are the things that we can reasonably recover from TNB. As far as we are concerned, the priority is to complete the project. That’s critical,” RTB CEO Leong Wai Yuan ( pix) told reporters at its EGM yesterday.

According to a circular dated Sept 29, 2017, HGPT’s pre-tax profit for the six months ended June 30, 2017 fell to RM1.1 million from RM4.3 million a year ago, due to cost overruns recognised for a project in Malaysia arising from additional works requested by a customer, for which it is in the midst of negotiating for a variation order.

“At the moment they are contributing between RM7 million and RM10 million a year (profit). I suppose they should do no less and with the extension of our management in there, I think they can do a lot more. Most of the penetration will be in regional markets like Bangladesh and Indonesia, which are significantly larger by size compared with Malaysia. As you see in terms of population alone we are quite capped. In Bangladesh and all that, there are big opportunities there,” said Leong.

HGPT is principally involved in engineering, procurement, construction and commissioning activities and provides turnkey solutions for high voltage transmission lines and substations in Malaysia, Papua New Guinea, Indonesia and Bangladesh.

With the overseas exposure, the group is expected to have 50% profit contribution from overseas projects post-acquisition in the near future, depending on how quickly RTB and HGPT are able to complete the integration process.

Recall that RTB signed a conditional share sale agreement with shareholders of HGPT to buy a 75% stake in the company for RM91.66 million in July, which is a lower price tag compared with the RM101.67 million purchase consideration in the heads of agreement signed earlier in April.

RTB will buy the entire 50.1% stake held by PT Safe Tower Systems Sdn Bhd in HGPT by issuing 72.8 million new shares representing 15.4% of RTB’s enlarged share capital at 95 sen per share for a value of RM69.16 million. It will also buy a 24.9% stake from Kemuncak Agresif (M) Sdn Bhd for RM22.5 million.

RTB shareholders approved the acquisition at the EGM yesterday. The exercise is expected to be completed by mid-November.

RTB’s current orderbook stands at RM500 million, or RM800 million including HGPT. Its tenderbook is about RM1 billion including HGPT, predominantly comprising overseas projects.

“As a country progresses, you need a grid system to be in place. On that note, we are confident that the country is growing. TNB, Sarawak Energy are all going to roll out significant grid transmission projects and hopefully we can be part of that. That will fuel growth,” said Leong.

RTB’s share price rose 2.31% to close at RM1.33 with a total of 77,300 shares traded. Its market capitalisation stood at RM523.81 million.