This article first appeared in The Edge Malaysia Weekly on January 15, 2018 - January 21, 2018

IN a move to improve its cash flow, Hong Kong-listed BGMC International Ltd plans to expand its concession business by undertaking more public-private partnership (PPP) projects in Malaysia and abroad, especially in the Asean region.

According to CEO Datuk Michael Teh, the listing of the home-grown construction company last August has strengthened its financial capability to capture bigger PPP projects under private finance initiative (PFI) programmes.

“The concession business is rather capital intensive. But today, with our fundraising capabilities, we have the financial muscle to grab opportunities not only in the home market, but also regionalise our businesses and participate in larger-scale projects,” he tells The Edge in an interview.

Founded in 1996, BGMC provides a wide range of construction services and has the capability to undertake PPP projects based on the build, lease, maintain and transfer (BLMT) model, which will allow it to generate long-term recurring cash flow.

Other areas the group is involved in are mechanical and electrical, energy transmission and distribution, building and structures, as well as earthworks and infrastructure. Prominent customers include Sime Darby Group, Tenaga Nasional Bhd (TNB) and Malaysian Resources Corp Bhd.

Last August, BGMC became the first Malaysian construction firm to list on the Main Board of the Stock Exchange of Hong Kong.

Teh says Southeast Asia is anticipated to be a big market for the group in the next couple of years because of the “humongous” appetite for infrastructure investments.

Asean has 650 million people, or roughly 9% of the global population, he points out. “If we can find some projects that suit our profile, we will definitely grab the opportunity to venture overseas.”

He says BGMC intends to replicate its existing BLMT or PPP concession model overseas. “It could be anything — energy, school, hospital. We have the track record in building a campus on the BLMT model. This will give us a competitive edge in convincing governments in other countries that we have the ability to deliver,” he says confidently.

BGMC clinched a BLMT project for the Universiti Teknologi MARA (UiTM) Dengkil campus, with a 23-year deal — three years for the construction and 20 years for asset management services.

The concession was signed in 2012 and the campus, which can accommodate 5,000 students, was successfully delivered in the final quarter of 2015.

Teh says Dengkil is the smallest of UiTM’s campuses in terms of land size at only 47 acres. “It is a very comprehensive and compact campus with all the necessary facilities for the benefit of students. Upon expiry, we will transfer it back to the university at no cost as it [the project] would have been paid off within the concession period,” he says.

It is learnt that the construction cost for the campus is about RM290 million. BGMC will receive a total concession fee of more than RM58 million yearly — RM48 million as fixed or availability charges, and RM10.1 million for maintenance.

Kuala Muda solar plant

The UiTM Dengkil campus is currently the only concession project the group has. But it has another in the pipeline — a 30mw solar power plant in Kuala Muda, Kedah.

Last December, BGMC received a bid acceptance letter from the Energy Commission of Malaysia to construct and develop the large-scale AC solar photovoltaic (PV) plant.

According to the EC’s official announcement, BGMC submitted the bid with its joint-venture partner Bras Venture Bhd. The parties involved are in the midst of negotiations on the power purchase agreement (PPA) with the off-taker, TNB.

Teh points out that over the years, BGMC has been involved in energy transmission and distribution — one of its bread-and-butter businesses — building infrastructure for the power industry, including substations and underground cables.

“We are quite confident of delivering the project because we have the experience in the energy business. Bras Venture, who is our existing client, is also a power specialist, so we choose them as a partner to cut short our learning curve,” he says.

He estimates the Kuala Muda project will have a shorter gestation period of two years, but a slightly longer concession period of 21 years.

“At the moment, we can’t reveal the estimated construction cost and concession fee but I can say that this project is smaller than UiTM Dengkil Campus in size.”

BGMC is named after its founding chairman and executive director Tan Sri Barry Goh Ming Choon, a farmer’s son from a small village in Sitiawan, Perak, who owns a 48% stake.

He is better known as the co-founder of property firm MCT Bhd, which recently received a mandatory general offer from Philippine property conglomerate Ayala Land Inc.

Goh was once the second-largest shareholder of MCT with a 27.24% stake and was previously the executive deputy chairman before he was redesignated as non-executive director in November 2016.

Early this month, he sold his 17.24% stake in MCT to Ayala Land for RM202.5 million, but remains a substantial shareholder with a 10% stake.

While Teh acknowledges that Goh is a common shareholder of BGMC and MCT, he stresses that for the time being, the former does not get any job from the latter.

“We do not ask Tan Sri (Goh) about his personal interests in other listed companies,” he says.

Going back to BGMC, for the financial year ended Sept 30, 2017 (FY2017), the group saw its gross profit grow 23% year on year to RM128.1 million as revenue grew 34% to RM694.9 million.

It is worth noting that while BGMC’s net profit declined 13% y-o-y to RM54.8 million in FY2017, its pro forma net profit rose 8% y-o-y to RM70.6 million, excluding listing expenses.

The concessions and maintenance segment contributed RM10.5 million to overall revenue, and imputed interest income amounted to RM43.7 million in FY2017.

To recap, BGMC offered a total of 450 million shares at an offer price of 70 HK cents  to raise RM143 million. Year to date, the counter has declined 3% to close at 57 HK cents last Thursday, giving it a market capitalisation of HK$1.03 billion.

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