KUALA LUMPUR: Melati Ehsan Holdings Bhd is banking on the 15.8-acre (6.39ha) Sports City project in Kelana Jaya, Selangor, estimated to carry a gross development value (GDV) of about RM2 billion, to boost its financial year ending Aug 31, 2015 (FY15) earnings.
“We have submitted the DO [development order] to PKNS [Selangor State Development Corp], and we expect them to conclude it by the second quarter of 2015,” the turnkey contractor’s managing director Tan Sri Yap Suan Chee told pressmen after its annual general meeting yesterday.
Sports City is a joint-venture (JV) project with PKNS, to redevelop the PKNS Sports Complex in Kelana Jaya.
“We are still working on the numbers now, but the land value there has been appreciating. The last time we valued it the price was about RM420 per sq ft. Now, it has probably gone up to RM600 per sq ft,” he said.
Yap also said the group is eyeing some flood mitigation projects in the East Coast, saying that these works could worth at least RM100 million.
“ECER [East Coast Economic Region] is one of the main areas we are looking at now. We have a good track record in flood mitigation works, like our Kepala Batas (Penang) flood mitigation project, so I hope that will give confidence to the authority to award us the contract,” Yap said.
Asked if Melati Ehsan (fundamental: 1.8; valuation: 2.4) was interested to bid for private sector jobs, he said the possibility is low at the moment — unless the deal is to be undertaken by JV.
“At this juncture, we will still focus on PFI (private finance initiatives) projects, because the government is a good paymaster and contracts awarded from the government are bankable,” he said.
Moving forward, Yap foresees that the group’s ongoing works such as the “Program Perumahan Rakyat” (PPR), Medini Iskandar, and road works in ECER to remain Melati Ehsan’s main profitability drivers.
However, he declined to comment on FY15 earnings growth figures as he was uncertain whether the group’s job bids would be successful or not.
Based on Melati Ehsan’s latest quarterly financial report to Bursa Malaysia, its first quarter ended November 2014 (1QFY15) showed that net profit fell 34.55% to RM3.26 million from RM4.98 million a year ago, due to lower margins.
On this, Yap said for FY15 as a whole, the group is still expected to maintain a 6% net profit margin.
“Based on our historical numbers, profit after tax was usually around 6%; we are expecting this to be maintained for FY15,” he said.
There is speculation that building material costs would rise further in 2015, but Yap said Melati Ehsan has an offsetting advantage to counter this — it could charge a higher rate based on its material costs, as provided for in its contracts with the government.
“Nonetheless, we still cannot firm up what would be the ultimate impact [from external factors] to Melati Ehsan yet,” he said.
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This article first appeared in The Edge Financial Daily, on February 17, 2015.