KUALA LUMPUR (Sept 14): Engineering services group AWC Bhd is said to be acquiring the remaining 49% stake in its automated waste collection system subsidiary Stream Group Sdn Bhd.
Stream Group is involved in the provision of automated waste collection and bed linen systems, catering to residential and commercial properties including medical centres and hospitals. According to a company search on Stream Group, the 49% stake is held by Premium NXL Sdn Bhd.
Stream Group has been a profitable investment for AWC, following a 51% stake acquisition back in 2004, when it was known as Nexaldes Sdn Bhd. It has since expanded into the Middle East and parts of Asean, with recent contract wins including the Sky Sanctuary in Malaysia, North Gaia and West Plains in Singapore, and Al-Diyar in Abu Dhabi, according to AWC's annual report.
A search on Stream Group showed that in the financial year ended Dec 31, 2022 (FY2022), the unit recorded a net profit of RM23.42 million — more than AWC’s reported net profit of RM21.53 million in the period — on revenue of RM81.9 million.
A full consolidation of the remaining 49% in Stream’s earnings would raise AWC’s FY2022 profit by RM11.48 million or 53% to RM33 million.
The unit had net assets of RM108.9 million as at end-FY2022, with retained earnings of RM101.76 million — up from RM79.19 million at end-FY2019.
It had paid out a total of RM37 million in the five years from FY2018 to FY2022, the document showed. Notably, the company’s bottom line has grown by an average of 25.29% per annum in the last three years since FY2019.
Stream Group’s contribution, reported under AWC’s environment division, broke the RM100 million revenue threshold in FY2023, according to AWC's unaudited financial statement. Its top line ranged between RM58 million and RM81 million in the last five years prior.
The acquisition is the latest by AWC, whose last expansion was into the rail business where it acquired 60% in Trackwork & Supplies Sdn Bhd for RM43.5 million in a cash and share deal in 2018.
At the time, the acquisition of Trackwork, which is involved in rail track maintenance supply of rolling stock, included a profit guarantee of RM8 million in the first year, which translated to a price-to-earnings (PE) valuation of 9.06 times on the company.
Comparatively, AWC’s RM9.18 million acquisition of the 51% stake in Nexaldes back in 2004 valued the company at a PE valuation of 7.8 times, based on its first-year profit guarantee of RM2.3 million.
Based on AWC’s past valuation methods, the remaining 49% stake in Stream could be valued anywhere between RM90 million to RM104 million, a back-of-the-envelope calculation showed.
As at end-FY2023, AWC was in net cash position of RM98.99 million, based on cash and cash equivalents of RM119.41 million, against short-term borrowings of RM11.7 million and long-term borrowings of RM8.72 million.
Aside from its environment and rail divisions, AWC operates facilities management including concessions with the government and the private sector. It also undertakes industrial engineering services, which include building automation systems, heating, ventilation and air conditioning, rainwater harvesting and sanitary plumbing, among others.
AWC’s FY2023 results came below expectations at RM2.13 million, down 90% from RM21.76 million the year before, despite revenue rising 6.7% to RM378.99 million, from RM355.19 million.
The weaker performance came as it booked a net loss of RM13.38 million in the latest quarter ended June, due to weaker facilities segment and impairment losses, AWC’s filing in August showed.
At the time, AWC said its facilities division management had reviewed its operating cost structures and was actively renegotiating with vendors and contractors.
"These actions are expected to translate to a turn-around of the facilities division in the new financial year ahead," it said, adding that the group's orderbook of over RM800 million will continue to drive its performance this year.
Shares of AWC settled half a sen or 1.09% higher at 46.5 sen on Wednesday, valuing the group at RM148.41 million.