This article first appeared in The Edge Financial Daily, on June 7, 2016.

KUALA LUMPUR: Muhibbah Engineering (M) Bhd expects its marine business revenue to double after its RM2 billion Kuantan Maritime Hub commences operations at end-2019. The group is in discussions with its existing foreign partners to invite new investors to participate in the project.

Muhibbah co-founder and managing director Mac Ngan Boon said the group’s present facilities in Port Klang contributed RM500 million to its shipyard revenue during a good year, and the amount should easily double once the new facilities in Kuantan start contributing.

“The revenue and earnings should start contributing very soon after going operational. By the time we go operational, the O&G (oil and gas) sector should be stabilising on an uptrend,” he told The Edge Financial daily.

The Kuantan Maritime Hub is expected to start contributing to the group by end-2019 when the first phase of the project takes off, said Mac.

“There are effectively two main phases, with the first to commence immediately with desk studies such as [an] environment impact assessment. We therefore hope that the first phase will be operational in about two to three years from now,” he said.

Muhibbah announced in a Bursa Malaysia filing yesterday that it has entered into an agreement with the Pahang State Secretary Corp to acquire 500 acres (202ha) of land in Kuantan for RM26.45 million cash. The land will be developed into the Kuantan Maritime Hub over a period of 10 years.

The group said the deal provides an opportunity for it to develop industrial activities for ship building, ship repairs and major fabrication of offshore structure, which would enlarge the group’s maritime and fabrication capacity to cater for future business growth in the defence, commercial and fabrication sectors.

“The main focus for the project is maritime, which fits our expertise. It is expected to support our regional business. Hopefully, we are able to get more involved in the defence industry in the future as well,” Mac said, adding that its facility in Port Klang is not sufficient to cater for the regional demand.

While the land acquisition will be funded by internal funds, Mac revealed that the group may undertake a rights issues again, or other funding facilities such as a soft loan from the government, to develop the Kuantan Maritime Hub.

“At the moment, we will undertake the development by ourselves. As the construction is within our expertise, we will look at the best approach to undertake it in the most economical way,” he said.

However, he does not see the funding as an issue as the project is divided into phases of 10 years.

As at March 31, the group’s cash balance stood at RM631.41 million, versus its loans of RM511.97 million.

Earlier in April, the group proposed a private placement of up to 10% of its issued share capital to third-party investors to raise gross proceeds of up to RM111.93 million.

It is also worth noting that the group is in talks with several foreign partners, including its existing Japanese, Korean, Chinese and Italian partners, to explore opportunities for the project. This may in turn lower the group’s investment costs in the project.

Asked about the difficulties in seeking partners amid the economic downturn, Mac said he is confident of securing investors. “The timing is critical in a sense that we expect phase one only to be ready in three years, when we expect the recovery to happen. The investors are still cautious, but given the timing and also the opportunity in the Malaysian market, we think we are able to find [the investors],” Mac said.

Mac said the joint ventures with partners could be for shipbuilding or other land developments that can add value to the hub. “We have started talking to them to see how they can participate in the project. We believe Kuantan’s accessibility to the port will make it an ideal location for industrial development,” he added.

According to the group’s announcement, the land is strategically located about 20km north of Kuantan, and is a waterfront parcel located along the main road of Jalan Tanjung Gelang, off Jalan Kuantan, heading to Kuantan Port.

Muhibbah’s shares closed yesterday one sen higher at RM2.26. The counter has been flat since the beginning of this year, with a year-to-date growth of only 2.26%

It fell from its 52-week high of RM2.52 on March 22 despite fund managers and analysts turning positive on the stock.