Sunday 21 Jul 2024
main news image

This article first appeared in The Edge Financial Daily on October 21, 2019

SHAH ALAM: Merge Energy Bhd has completed its cleaning-up exercise, putting the group on a steadier footing and on track to return to the black by the end of the financial year ending March 31, 2020 (FY20).

Its shareholders last Thursday gave their nod for several proposals including a capital reduction exercise to offset against the company’s accumulated losses, the disposal of non-core assets, as well as a change of name to Stella Holdings Bhd, giving it a clean slate for further expansion.

“We have completed the cleaning-up of the company over the past 10 months since the new board took over,” said Merge Energy executive chairman Datuk Mohamad Haslah Mohamad Amin. “We have basically wiped out all the losses with the capital reduction exercise, which will put the company on a very sound financial footing.”

“We also have got some cash from the disposal of non-core assets and now we are looking at how we can grow the business. I’m very confident that by this financial year (FY20), the company should be in the black and we will further grow the business from there,” Mohamad Haslah told The Edge Financial Daily.

He explained that the group’s income will be mostly supported by its oil and gas (O&G) support services segment, in which Merge Energy provides water desalination services to cater to the needs of oil rigs and petrochemical plants.

The company is currently more involved in the upstream segment, with Mohamad Haslah hinting that it is looking to further expand its services for the downstream segment, as well as other opportunities that may arise.

“We are looking at further expanding the O&G business wherever there is an opportunity — Malaysia or overseas.

“It is still too early to talk about this but we are working on it. I cannot be disclosing too much but it is sufficient to say that this is an area where we are focusing on that we hope would put the company in a better position,” he explained.

Besides water treatment services for the O&G industry, the company is also involved in water infrastructure.

Merge Energy currently has three ongoing jobs under this segment, comprising works for a treatment plant in Pagoh, Johor and for a waste treatment plant in Puchong, Selangor, as well as pipe laying works for Langat 2.

While the new shareholders decided to do away with the landscaping and pest control businesses, they decided to keep the O&G services and water infrastructure segment as these two businesses are generating income for the business.

Merge Energy also has a construction business, which is currently inactive. Mohamad Haslah said the company could see a revival of the construction business going forward, which could be synergistic with its venture into property development.

At this juncture, however, he pointed out that the construction business is challenging, amid stiff competition and high costs, which has translated into thin margins.

“Profits from construction would be very small. I believe that developments would give better returns, which is why we are going into property. We are also taking it slow [with property development] but it has the potential to become one of the bigger contributors to the company over time,” he said.

The company has two affordable housing projects in the pipeline currently — one in Pasir Panjang, Negeri Sembilan, worth RM70 million in gross development value (GDV) and one in Kuantan, Pahang, with GDV of RM40 million.

Both projects will be done on a joint-venture (JV) basis, as the company does not have the financial muscle to take on a development project on its own.

“We cannot do big projects simply because we do not have the capital, which is why we are proceeding on a JV basis. We are also sticking to affordable housing — houses priced below RM300,000 — to cater to the mass market,” he said.

For the Pasir Panjang project, Merge Energy will be working with Mega 3 Housing Sdn Bhd, which is linked to Datuk Tan Gee Swan and Tan Yu Jian, both of whom are major shareholders of Merge Energy via Westiara Development Sdn Bhd.

Westiara Development, which is involved in construction and property, was one of the ultimate offerors in the taking over of Merge Energy, along with Matrix Concepts Holdings Bhd founder and executive deputy chairman Datuk Lee Tian Hock and his brother Lee Tian Huat.

However, Mohamad Haslah said the company will only begin seeing contributions from the property development business in another 1½ to two years.

“There will be some revenue contribution in FY21, but we might only see profits from the property business in FY22.

“The O&G and water businesses will still be the main drivers for the time being,” he said.

      Text Size