Nestcon upbeat on construction

Company ready to capitalise on opportunities in industry

ACE Market-bound Nestcon Bhd is optimistic about the outlook of the construction industry, as it believes that government-led initiatives will speed up recovery within the sector.

Group managing director Datuk Lim Jee Gin says the Covid-19 pandemic has had an adverse impact on the construction industry.

“Last year was an unprecedented year for the construction sector. But on a long-term basis, we are positive on the industry,” he tells Starbizweek.

“We are expecting a gradual recovery thanks to the various stimulus packages. With growth expected to come from government-led initiatives, Nestcon will be ready to capitalise on these opportunities.”

Citing the Department of Statistics Malaysia and Protege Associates, Lim points out that the Malaysian construction industry is projected to grow 7% year-on-year in 2021.

He says potential growth drivers include the continuation of various infrastructure projects, such as the East Coast Rail Link and Mass Rapid Transit 2.

Lim says the extension of the Home Ownership Campaign will also help spur the property industry, which in turn would bode well for the local construction sector.

A building and infrastructure construction services provider, Nestcon has been in operations since 2010 and specialises in building construction, as well as civil engineering and infrastructure works.

The group has an extensive portfolio of 29 completed contracts totalling Rm981.6mil from both segments.

Nestcon plans to raise Rm45.1mil from its initial public offering (IPO) exercise, with the bulk of the proceeds being used to set up an industrialised building system (IBS) facility and to acquire machinery and equipment.

“The machinery we’re using for our projects at the moment is being rented from third parties.

“By investing in new equipment, it will further enhance our cost efficiency.”

Lim says Nestcon will be allocating Rm6.6mil (or 14.7% of the IPO proceeds) for the acquisition of machinery and equipment for business expansion in its civil engineering and infrastructure division.

Additionally, he says Nestcon will be allocating around Rm6mil (or 13% of the IPO proceeds) to set up the IBS facility.

The company will be allocating Rm1mil for the upgrading of software and systems; Rm16.5mil for the repayment of bank borrowings; Rm11mil for working capital; and the remaining Rm4mil to defray listing expenses.

Nestcon currently has a total of 22 on-going contracts worth approximately Rm1.9bil, of which Rm1.2bil remains unbilled, representing 4.13-times its four-year average revenue of Rm293.97mil.

Lim says the unbilled portion is expected to continue contributing positively to Nestcon’s financial performance until 2023.

“We have a substantial orderbook and have a success rate of between 15% and 20% when tendering for projects.

“I’m convinced that we will secure some sizable projects within the next six-to-12 months,’’ he says.

Some of Nestcon’s notable on-going projects include Scarletz Suites, Mossaz and Paxtonz by Exsim Group, Panorama Residences by LLC Bhd, Embayu @ Damansara West by Premier Baycity Sdn Bhd, Kuchai Sentral by Menta Land Sdn Bhd, one identified section of the East Coast Rail Link Project, as well as three identified sections of a railway project in Johor.

Lim says that while Nestcon’s revenue last year was marginally affected by the movement control order (MCO), he adds that the group’s earnings remained intact, with net profit and non-controlling interests margin improving from 3.5% in 2019 to 4.2% in 2020.

“Our cash flow from operating activities was also positive as at Dec 31, 2020. We believe the results speak volumes of the capabilities of our management team in manoeuvring through tough times.”

After a year of muted growth, Lim says it is indeed encouraging to witness the upward trajectory in domestic economic activities and recovery momentum in the construction sector.

“We are seeing project tenders increasing, albeit at a slower pace. Our tender sum has grown to about Rm2.8bil, with a good balance of tenders from both building and infrastructure segments.

“Despite the robust prospective project pipeline, we do not intend to rest on our laurels,” he says.

He says it’s still too early to determine what kind of an impact the recently implemented full MCO will have on the company’s earnings.

For now, Lim says Nestcon will be focusing on growing its presence in Malaysia and has no immediate plans to expand overseas.

Nestcon is scheduled to be listed on the ACE Market of Bursa Securities on June 29.

Upon listing, Nestcon will have a market capitalisation of Rm180.27mil, based on the issue price of 28 sen and its enlarged total number of issued shares of 643.82 million.

Nestcon’s IPO entails 161 million new shares, of which 32.2 million new shares will be offered to the public and another 32.2 million new shares will be available for the eligible directors, employees and persons who have contributed to the success of its group.

Additionally, 80.5 million new shares would be placed out to approved bumiputera investors and 16.1 million new shares placed out to selected investors.

As part of the listing exercise, it is also offering for sale 32.2 million existing shares by way of private placement to selected investors.

“I’m convinced that we will secure some sizable projects within the next six to 12 months.” Datuk Lim Jee Gin