This article first appeared in The Edge Malaysia Weekly on December 12, 2022 - December 18, 2022

HAVING turned to construction for a new lease of life, loss-making bus operator Konsortium Transnasional Bhd (KTB) is looking to strengthen its budding stable of affordable housing jobs as well as clinch industrial construction projects, especially those in the RM50 million to RM100 million range. The company is even projected to turn profitable next year once its long loss-making express bus business is hived off.

A Practice Note 17 (PN17) status company since April 2020 — after KTB’s auditors highlighted a material uncertainty in the group’s ability to continue as a going concern in its audited financial statements for the financial year ended Dec 31, 2018 (FY2018) — the group has few financing options for now, which narrows down the size of construction jobs it is able to take on in the near term.

“Our PN17 status puts us in a chicken and egg situation. With limited funding options, we are targeting contract sizes around RM50 million to RM100 million. We will be reaching out to landowners and small local developers. When Bursa approves our regularisation plan — hopefully by the first quarter of next year — and lifts the PN17 status by the second half, we will have more funding options then,” group CEO Clement Valentine Toh Shu Yen tells The Edge.

Toh came on board in July, nine months after the retirement last September of former chairman and managing director Tan Sri Dr Mohd Nadzmi Mohd Salleh, who had been at the helm of the business for 16 years.

Debuting on the Main Board of Bursa Malaysia in June 2007, KTB operated express bus services under the Plusliner and Nice brands as well as the Transnational and Cityliner stage buses. The group has now proposed to dispose of its express bus business as part of plans to regularise its financial condition to address its PN17 status. Its profitable stage bus operations will be maintained. KTB has 92 stage buses covering 27 routes in Seremban.

Toh explains that KTB had been mired in losses in the last 10 years as it could not keep up with the rising costs while bus fares, which are regulated by the Land Public Transport Agency, remained stagnant.

“The situation was exacerbated by the pandemic, where movement restrictions and interstate travel bans brought KTB’s business to a halt. Even with the eventual lifting of movement curbs, our express bus business had not recovered. Given the significant expenditure for major overhauls and repairs, despite the circumstances, we decided to exit the express bus business,” Toh explains.

He says KTB’s diversification into construction was the outcome of Mohd Nadzmi and former Lagenda Properties Bhd chairman Datuk Doh Tee Leong putting their heads together for rescue options to revive the ailing bus company.

Doh emerged as a substantial shareholder of KTB after acquiring 67 million shares, or a 14.26% stake, through a private placement exercise in December 2021. The following month, he was appointed to the board as executive director and took control of the company with a direct stake of 2.17% and an indirect stake of 14.26% via Doh Properties Sdn Bhd.

As part of KTB’s regularisation plan, which was announced to Bursa in September, the company is to dispose of its wholly-owned Park May Bhd to Nadicorp Holdings Sdn Bhd — a company with interests in transport, manufacturing, agro-business and property — for a nominal sum of RM1, given the express bus business’ uncertain future.

The parties also agreed that a sum of RM51.46 million owed by KTB and its unit Citiliner Sdn Bhd to Nadicorp and Park May be waived as part of the deal.

As of August, Lengkap Suci Sdn Bhd, which is controlled by Mohd Nadzmi, is the second largest shareholder of KTB with 8% equity interest.

Toh says landed residential projects are of particular interest to KTB for a number of reasons.

“Going forward, KTB will be focusing on landed residential projects. There are many construction players in the market who are good at high-rise projects, but when it comes to affordable housing, their costs are not justified. This is an opportunity for us,” he says.

“Affordable housing is usually deemed to be less profitable because contractors mostly depend on drawings or billing plans provided by the developer; therefore, the ensuing costs tend to be very high.”

Toh shares that what KTB intends to do differently is to get directly involved with the infrastructural, layout and other elements of design to reduce the duration and cost of construction for its clients, which is hoped will result in better margins for the developer.

“By value engineering the entire project, we can provide developers with a better costing alternative. There are numerous affordable housing projects that are not progressing due to costing issues. If we provide such a value proposition to developers, they will be more than willing to [kick]-start their projects.”

He adds that KTB also hopes to tap the industrial segment given the growth of online businesses during the pandemic, which has accelerated the need for warehousing.

Within KTB’s current order book are RM485.38 million worth of housing projects as well as a shoplot job,  all which have been secured since October 2021. Its biggest development clinched so far, worth RM139.88 million, is Kerayong Indah LOA 2 in Selangor, comprising 553 units of single-storey bungalows, two units of single-storey semidees, 100 single-storey terraced houses and 40 single-storey shops.

“With the accessibility of the Central Spine Road, many more projects will be emerging in Pahang. We have a few potential [jobs] there,” Toh shares.

Currently, KTB’s Pahang projects include Cameron LOA 1, entailing the first phase of major infrastructure on a 28-acre agricultural tract at Ringlet, Cameron Highlands, as well as PR1MA Kuala Lipis, a mixed-use development project comprising 162 single-storey semi-detached houses, 103 single-storey terraced houses and 11 double-storey shophouses. The projects are slated for completion this month and November 2024 respectively.

“The current order book can last us another three years. We are striving to achieve another 50% of the order book next year,” Toh says, adding that post-regularisation, it is targeting for KTB’s construction arm to contribute 80% to the group’s revenue and 20% from stage bus operations.

“The development of our construction arm may not be totally organic as we will also be exploring potential mergers and acquisitions to accelerate growth and improve the group’s margins,” Toh says.

For the first nine months of FY2022, KTB posted a wider net loss of RM12.78 million compared with a net loss of RM7.6 million last year. Revenue, however, was higher at RM58.87 million against RM11.5 million last year.

Toh believes revenue from KTB’s construction division can hit RM50 million for FY2022, and RM100 million in FY2023.

KTB’s regularisation plan also includes a private placement of 125 million new shares, representing 26.61% of its existing shares, to independent third parties at an issue price of 16 sen per share.

Based on the issue price of 16 sen per placement share, KTB is expected to raise gross proceeds of RM20 million, which will be used for working capital of the group’s construction business.

Toh concedes that dilution of shares is inevitable, but urges shareholders to consider what the RM20 million “will create for the group”.

“KTB will surely be profitable next year once our express bus business has been disposed of,” he reasons.

Shares in KTB have risen sixfold to hover at the 18 sen level from a record low of three sen when the pandemic hit in March 2020. The company is currently valued at RM86.91 million.

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