This article first appeared in The Edge Malaysia Weekly on October 31, 2022 - November 6, 2022

WILL the fortunes of loss-making diversified company Ahmad Zaki Resources Bhd (AZRB) change with the completion of the East Klang Valley Expressway (EKVE)?

After numerous delays, construction of the EKVE seems likely to be concluded at the end of this year and toll collection may begin in early 2023.

AZRB managing director Datuk Seri Wan Zakariah Wan Muda could not be contacted for comment as he was travelling.

AZRB via wholly-owned EKVE Sdn Bhd has a 50-year concession with the Ministry of Works for the design, construction, operation and maintenance of the expressway that was signed in mid-February 2013. The expressway was slated for completion in September 2019, but issues with land acquisition, rock blasting works, bridge designs and, more recently, the Covid-19 pandemic, which resulted in stringent movement control measures, further delayed its construction. At least five extensions have already been accorded to AZRB.

The RM1.55 billion EKVE, which spans 39km and links Ukay Perdana in Ampang to Bandar Sungai Long in Kajang, could contribute to AZRB’s bottom line, possibly nudging up the company’s languishing share price.

AZRB’s stock hit a 52-week low of 15 sen on July 13 this year, and is yet to recover. It closed at 16.5 sen last Friday, giving the company a market capitalisation of RM98.4 million.

A fund manager says he does not expect any change in AZRB’s share price as a result of EKVE commencing operations.

“The impact of EKVE on AZRB’s stock would have been accounted for when the concession was awarded sometime back (February 2013), so I don’t foresee any renewed interest … but to be honest, I have not looked at AZRB for a long time,” he concedes.

AZRB is an orphan stock, without any research coverage.

In its annual report for FY2021, AZRB says, “The group as a whole is eagerly anticipating the completion and opening of our maiden highway concession, the EKVE, which will take its place as the group’s primary strategic asset. With toll operations targeted to start soon after completion, the EKVE will be an additional source of revenue for the group. We expect that [it] will be a major income contributor to the group.”

While AZRB seems optimistic on the EKVE’s prospects, there are those who feel that its traffic volumes may be adversely impacted by the Sungai Besi-Ulu Kelang Expressway (SUKE), which connects Sri Petaling to Ulu Kelang, and links Cheras to Ampang as well. The MRT Putrajaya Line (previously known as the Sungai Buloh-Serdang-Putrajaya Line) could also eat into EKVE’s traffic.

SUKE commenced operations in September, while the MRT Putrajaya Line will be fully operational by the first half of 2023.

A RAM Rating Services Bhd media release at end-August indicated that AZRB was hard-pressed to meet its financial commitments related to EKVE’s RM1 billion issue of sukuk, and that efforts to secure a new shareholder were unsuccessful.

The release, however, said that “AZRB remains committed to financially backing the project, evident from a completion guarantee and letter of undertaking from AZRB to see the project through to completion”. RAM added, “AZRB’s weakened financial profile over the past few years, however, may limit its capacity to extend support or provide the required equity capital.”

For its financial year ended June 2022, AZRB suffered a net loss of RM58.15 million from RM722.49 million in revenue. In the preceding year, it made a net loss of RM68.64 million on the back of RM846.98 million in turnover.

It is noteworthy that FY2022 marks the third consecutive year that AZRB has suffered losses.

As at end-June, the company had cash and cash deposits of RM189.88 million, while on the other side of the balance sheet, it had long-term debt commitments of RM2.53 billion and short-term borrowings of RM464.61 million. AZRB’s finance expenses for the 12 months ended June were RM68.38 million. Its reserves stood at RM33.52 million.

At the same time, AZRB’s cash flow from operations was negative RM28.16 million, albeit lower than FY2021’s negative RM72.38 million.

On its prospects, AZRB says it has an outstanding order book of RM919 million as at end-June this year, which should keep it busy in FY2023.

It is also noteworthy that AZRB has other businesses under its belt, such as a 95% stake in Indonesian plantation outfit PT Ichtiar Gusti Pudi (PT IGP), which was acquired in December 2004 for IDR17 billion, or US$1.8 million. According to 2004 news reports, PT IGP had approvals to cultivate 20,500ha of plantation land. AZRB’s 2021 annual report stated that it has 6,763.89ha of plantation land in Kalimantan, Indonesia, with its concession expiring in about 10 years, or 2033. In AZRB’s annual report, PT IGP is pegged at a net book value of RM18.35 million.

AZRB also has a property development arm with slightly less than 15ha of development land in Kuantan, with a net book value of RM13.6 million; 1.88ha of land and a hotel building (Residence Inn) in Cherating in Pahang, valued at RM51.34 million; close to 27ha in Marang, Terengganu, pegged at a net book value of RM7.5 million; and a few other small parcels including a 0.27ha tract in Setapak Kuala Lumpur, with a net book value of RM9.03 million.

The company’s oil and gas business is via wholly-owned Inter-Century Sdn Bhd, which supplies marine fuel products and lubricants to offshore support vessels at Kemaman Supply Base in Terengganu.

AZRB’s 53%-controlled Matrix Reservoir Sdn Bhd is the owner of Tok Bali Supply Base, which is an offshore oil and gas supply base, offering companies fuel, water, mechanical handling and equipment, bonded warehouse, customs and immigration services and office space, among others.

AZRB also wholly owns Peninsular Medical Sdn Bhd, which has a 25-year build, lease, maintain and transfer concession for a 300-bed teaching hospital in Kuantan, from Sultan Ahmad Shah Medical Centre and the Ministry of Higher Education. The agreement was signed in September 2011.

Peninsular Medical also undertakes maintenance, cleaning, security and medical equipment maintenance at the medical centre.

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