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This article first appeared in The Edge Malaysia Weekly on January 22, 2024 - January 28, 2024

VARIA Bhd managing director Datuk Benson Lau Beng Sin and his older brother Datuk Jason Lau Beng Wei, who serves as executive deputy chairman, have big plans for the construction company. Their first order of business is to increase Varia’s market value to RM1 billion in three years from about RM400 million currently.

Beng Sin and Beng Wei are the two largest shareholders of Varia, with a direct holding of 23% and 31.42% respectively. They also collectively hold an indirect stake of 6.98% through Varia Engineering & Services Sdn Bhd.

Both of them are directors of privately run Pembinaan Teguh Maju Sdn Bhd (PTM), which recently made its way into the Main Market of Bursa Malaysia through a backdoor listing.

In November last year, Stella Holdings Bhd changed its name to Varia after acquiring PTM for RM380 million through a cash and equity swap deal that gave PTM access to public capital markets to raise capital in order to expand its business into new markets or locations. PTM is now a wholly-owned subsidiary of Varia.

The corporate exercise also saw Marc Teo Boon Hing, CEO of PTM, emerge as a substantial shareholder of Varia, with a 6.71% stake.

“Teo will be actively involved in the operations of the group. We have appointed him as an executive committee member of Varia, responsible for ensuring that PTM meets its financial commitment,” says Beng Sin.

The reverse takeover involved Varia acquiring PTM from the sellers — Beng Sin, Beng Wei, Teo, Datuk Shanmuga Indran, Pang Fong Mui, Lee Chee Kiang, Datuk Ang Hung Teck and Loh Khoon Chiang — who provided a profit guarantee of RM120 million for the 15-month financial period ending June 30, 2024 (FP2024), and 12-month financial years 2025 (FY2025) and FY2026 on an aggregate basis to Varia — or, if divided over a period of three financial years, averages a RM40 million profit guarantee per year.

Last November, the group changed its financial year end to June 30 from March 31. The current audited financial statement covers a period of 15 months, from April 1, 2023 to June 30, 2024 (FP2024). The change in the financial year end is to be consistent with PTM’s financial period.

Except for Beng Sin, Beng Wei and Teo, the other former shareholders of PTM only hold minority stakes in Varia and are passive investors. According to Beng Sin, there are no plans to appoint them to the board of Varia.

In an interview with The Edge, Beng Sin says PTM is confident of meeting its FY2024 profit guarantee of RM40 million as it will be recognising construction profits from four projects. These projects have been completed and handed over in the second half of 2023.

“At PTM level, we have completed about RM40 million to RM50 million worth of jobs. We are quite confident of achieving the profit guarantee (for the three financial years) because our target is to achieve a net profit of about RM10 million per quarter or RM40 million per year,” he adds.

Additionally, PTM has an outstanding order book of RM1.19 billion comprising roadworks, building construction, maintenance projects as well as mechanical and electrical works, which are expected to generate earnings for PTM over the next three financial years.

On top of this, PTM has tendered and/or submitted quotations and is also in talks for projects comprising, among others, residential and commercial building works, infrastructure works, water-related construction projects and civil engineering works with an aggregate contract value of some RM1.13 billion, says Beng Sin.

“Based on PTM’s track record for the last three years, we have managed to secure new projects of about RM300 million to RM500 million each year. So, we are confident of securing new orders of that amount in FY2024,” he adds.

According to accounts filed by PTM with the Companies Commission of Malaysia, it recorded a net profit of RM5.37 million on revenue of RM68.39 million for the financial year ended June 30, 2022.

In the event that PTM does not achieve the profit guarantee at the end of FY2026, the sellers will pay an amount equivalent to the difference between the profit guarantee and the actual aggregate net profit achieved by PTM during the guaranteed period to Varia in cash.

Starting FP2024 with a clean slate

In the six months ended Sept 30, 2023, Varia managed to return to the black with a net profit of RM797,000, compared with a net loss of RM4.75 million a year earlier. Revenue improved 124% to RM40.42 million from RM18.01 million during the same period.

Prior to the backdoor listing by PTM, the performance of Stella Holdings (as it was then known) had been worsening since the financial year ended March 31, 2021 (FY2021), with net profit falling for two straight years from RM3.01 million to RM2.69 million in FY2022. It had slipped into the red with a net loss of RM16.45 million in FY2023. The decline in earnings was largely due to the multiple Covid-19 lockdowns, which not only affected the progress of its projects and billings but also posed a considerable challenge for the group to replenish its order book.

Stella Holdings’ construction segment was also impacted by the increase in the price of construction materials, foreign currency and labour costs.

In a leadership change, Beng Sin, 52, was appointed to his current role in November 2022, taking over the helm at Stella Holdings from group CEO Ng Jun Lip who had resigned, while Beng Wei, 57, assumed the post of executive deputy chairman of Stella Holdings in January 2023.

It is worth noting that Datuk Seri Lee Tian Hock, who is the founder and currently holds the position of group executive deputy chairman of property developer Matrix Concepts Holdings Bhd, was previously the largest shareholder in Stella Holdings, with a 1.49% direct stake and a 26.8% indirect stake through Cerdik Cempaka Sdn Bhd at one time. The other shareholders of Cerdik Cempaka were Abdul Jalil Mohd Abd Ghani and Mohd Sufian Abd Murad. In September last year, the trio ceased to be substantial shareholders of Stella Holdings.

According to Beng Sin, Varia, which is in the middle of a turnaround under new management, reported a huge loss in FY2023 due partly to its kitchen-sinking exercise. It made a provision for onerous contracts amounting to RM2.57 million. Varia’s Annual Report 2023 shows that the provision was for the construction of an elevated water tank where the cost of construction materials and costs to complete were higher than the prices fixed when initially entering into the contracts.

Group eyes big-ticket projects

For PTM, the listing is of vital importance to its long-held dream of competing for large-scale construction projects.

“In those days, we could only participate in large projects as a subcontractor. The maximum project amount that we would go for was about RM300 million to RM400 million. Now, with publicly-listed Varia, we can bid for projects worth RM1 billion,” says Beng Sin.

“Over the years, Stella Holdings, through its construction arm Mewah Kota Sdn Bhd, has created a name known for undertaking water-related construction contracts. As for PTM, we have experience in commercial buildings, schools, road construction and government building projects within Malaysia. The acquisition (of PTM) has enabled Varia to diversify and become a more comprehensive construction company, ultimately improving financial performance and shareholder value.

Varia’s key management includes a team of experienced and hands-on leaders. Beng Sin has more than 27 years of experience in civil engineering in the construction industry while Beng Wei, who has more than 33 years of work experience, started his career with Tenaga Nasional Bhd where he held various positions within the national utility company from 1990 to 2003. Beng Wei served as an independent non-executive director of Tenaga from December 2021 to March 2023.

The duo were also directors and shareholders of construction firm Synergy Goldtree Sdn Bhd, which had completed over RM1 billion worth of projects in Malaysia.

As at end-June 2023, Varia and PTM had a combined outstanding order book of RM1.37 billion from 19 ongoing construction projects.

Varia also plans to expand its property development business under Paramount Ventures Sdn Bhd.

“Currently, the construction business contributes the bulk of the group’s revenue. Eventually, our target is for construction to contribute 70% and property development the remaining 30%. To me, as long as the population is still growing, people will need a place to stay. There will be demand, but it is how you want to sell the homes cheaper, and make them more attractive and affordable,” says Beng Sin.

Paramount Ventures has since entered into a few joint ventures for residential and mixed-development projects in Port Dickson, Negeri Sembilan and Kuala Selangor, Selangor.

“As for our property development segment, we are currently focused on the ongoing Taman Arowana Phase 1 project in Kuala Selangor, which features 106 one-storey units and 142 two-storey units. The single-storey units are currently for sale, while the soft launch for the double-storey units is expected in May,” he notes.

Varia expects Taman Arowana Phase 1 to start recognising revenue from the third quarter of FP2024. 

It is also planning to raise RM40 million through a private placement of up to 11.99% of its enlarged issued shares.

“We are talking to a few institutional investors and private investors. Some of our friends who are confident in us want to subscribe for the placement shares. We have a deadline of six months from Nov 17, 2023 (to complete the placement),” Beng Sin says, adding that the proceeds will be used to fund new construction projects and pay its subcontractors.

Filings with Bursa Malaysia show that Varia’s net gearing ratio will drop to 0.17 times after adjustments for the acquisition and proposed private placement from 0.19 times as at March 31, 2023, as its cash and bank balances will increase to RM56.31 million from RM8.3 million. Total borrowings will also grow to RM115.58 million from RM15.38 million at end-March last year.

On the outlook for both the construction and property sectors this year, Beng Sin is optimistic that it will be better than last year as projects that were delayed due to the change in government in recent years come onstream.

“Specifically, it is believed that the biggest winner is the construction sector on higher development allocations and new projects such as the Klang Valley light rail transit’s five new stations worth RM4.7 billion, the RM11.8 billion nationwide flood mitigation programme and Penang’s first LRT project worth RM10 billion.

“With accelerating infrastructure projects and increasing private investments, demand for both commercial and residential buildings is on the rise. This positive industry momentum aligns with Varia’s growth prospects, positioning the group favourably for upcoming opportunities,” he says.

It remains to be seen how its new management will take Varia to the next level, but like other players in the construction industry, it still faces rising raw material and labour costs that may have an impact on the profit margins of ongoing and future projects. Still, Beng Sin says the group’s near-term priority is to meet its profit guarantee. 


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