This article first appeared in The Edge Malaysia Weekly on April 8, 2024 - April 14, 2024

IF all goes as planned, facilities and waste management services company AWC Bhd could be a very different animal in a few short years.

The company’s group CEO and president Datuk Ahmad Kabeer Mohamed Nagoor is in high spirits when we meet at his office in Subang Jaya, Selangor. He says AWC is at a tipping point, as a few key decisions made by the management have become significant enough to result in a boost to its earnings and prospects.

All four of AWC’s business divisions — facilities management, environment or waste disposal, rail maintenance and engineering — are looking at major contracts.

The environment division, spearheaded by wholly owned Stream Group Sdn Bhd, which is looking to secure contracts in Indonesia and Saudi Arabia, could prove to be a game changer.

“We are in the midst of incorporating or setting up subsidiaries in Saudi Arabia and Indonesia … In order to undertake projects in these countries, we need a presence. In Indonesia, we have a partner but in Saudi Arabia, we are going at it alone,” Ahmad Kabeer says.

Other than Malaysia, Stream has a presence in Singapore, China, Taiwan, Hong Kong and India.

In Saudi Arabia, AWC has set its sights on bagging contracts at Neom, the US$500 billion development of a hyper-modern city in the Tabuk desert — 30 times the size of New York and dubbed the “Dream in the Desert”.

In Indonesia, AWC via Stream hopes to participate in the gargantuan US$32 billion (RM151 billion) Nusantara development — the new capital city of Indonesia spanning some 260,000ha.

On the two separate plans in Indonesia and Saudi Arabia, Ahmad Kabeer says, “Neom is kicking off with the Asian Winter Games [in 2029], then the FIFA World Cup [in 2034]. For Indonesia, it’s the new capital … so these projects cannot fail.”

Stream — which undertakes waste management by having garbage pumped via chutes into bins or a collection centre located a distance away, ensuring better hygiene — already has a presence in the Middle East as it was involved in the Al Raha Beach Development in Abu Dhabi. AWC was awarded a RM177.4 million contract by property developer Aldar Properties PJSC in 2009.

“There are a lot of projects in Saudi Arabia. We have to come up with value propositions, a public-private partnership model structure … Maybe to put it into context, our previous involvement in the Middle East was Al Raha, at AED200 million … If you look at Neom, it’s going to be significantly bigger,” says Ahmad Kabeer.

To put things in perspective, the Al Raha Beach development has a total area of more than 5.8 million sq m and is along 11km of coastline, while Neom stretches 170km across, from mountains to desert valleys to the Red Sea.

AWC’s traditional competitors include Envac of Sweden and MariMatic of Finland. The local company’s ace up its sleeve is its chute system and its expertise in dealing with wet waste, as opposed to dry, which is more common in Europe.

“Even if for risk purposes they don’t just give it to one player, there is still plenty to go around for everyone, us and the likes of Envac and MariMatic … So, there is plenty of room and opportunities in Saudi Arabia,” says Ahmad Kabeer.

As for Nusantara, AWC is looking to participate in a pilot programme, with the winners of the bid likely to be announced soon.

While the two developments in Saudi Arabia and Indonesia are significant, they are not reflected in AWC’s order book of RM767 million or its tender book of RM1.2 billion.

“It’s a bit early still,” says Ahmad Kabeer. “[Including Saudi Arabia and Indonesia] the numbers will be much larger … easily double,” he adds, on the potential growth of AWC’s tender book.

AWC’s hit rate from tenders is a conservative 10%. But in the last financial year ended June 30, 2023 (FY2023), its order book replenishment was RM455 million from RM1.5 billion in tenders, which is about 30%.

Nevertheless, AWC’s share price hit a multiyear high of 83.5 sen in intra-day trading on April 3, having gained about 50% since end-January. Last Thursday, the stock closed at 80 sen, giving the company a market capitalisation of RM262.6 million.

The interest in AWC’s shares could have been spurred by analysts’ reports. One from RHB Investment Bank Bhd had pegged a fair value of RM1.06 despite the company being unrated, while one in mid-March from Inter-Pacific Research Sdn Bhd upgraded the counter to a “trading buy” with a target price of 67 sen, which was a 10.7% premium to its share price at the time of 60.5 sen.

RHB says in its report, “With an order book at double its FY2023 revenue, AWC ensures steady earnings amid global mega development and dynamic construction projects, and its services to local healthcare facilities. Its commitment to sustainability via Stream makes it a compelling investment, with an attractive FY2025F ex-cash price-earnings (PE) of five times.”

Much of the optimism also hinges on AWC acquiring the remaining 49% of Stream from Premium NXL Sdn Bhd for RM110 million, with the deal concluded in late December last year.

Stream’s business has a healthy net margin of 20% to 25%. This is in stark contrast to AWC’s traditional facilities management business where the margins are razor thin at between 2% and 3%.

A check on its Companies Commission of Malaysia (SSM) filing via CTOS reveals that Stream chalked up a profit after tax (PAT) of RM23.42 million from RM81.9 million in revenue in its financial year ended June 30, 2022. In FY2021, Stream registered a PAT of RM24.31 million from RM81.88 million in revenue.

At end-June 2022, Stream had total assets of RM129.5 million. On the other side of the balance sheet, it had total liabilities of RM20.6 million. There is no breakdown of the liabilities in the CTOS report, hence its borrowings are not disclosed. Nevertheless, its gearing ratio stood at a prudent 0.19 times, according to the report. It also had retained earnings of RM101.76 million.

“Stream was acquired for RM110 million for 49%, so you can value Stream at RM220 million. But it had RM70 million in cold hard cash, so the acquisition was valued at about seven times, which is okay,” says Ahmad Kabeer.

Stream is expected to have a significant impact on AWC’s bottom line.

“For AWC, FY2021 was our best year ever with RM26 million profit attributable to shareholders. Stream’s earnings over the years has also increased steadily and last year, revenue breached the century mark for the first time, and we are hopeful that this will be sustainable. With a net margin of 20% to 25%, so taking a conservative baseline approach, you are looking at around RM20 million to RM25 million in profit contribution alone from Stream,” he says.

For the six months ended Dec 31, 2023, AWC registered a net profit of RM6.31 million on the back of RM205.63 million in revenue. For the previous corresponding period, it managed to make a net profit of RM10.96 million from RM192.58 million in revenue.

At end-2023, AWC had deposits with licensed banks, cash and bank balances of RM157.92 million and short-term investments of RM44.43 million while its long- and short-term debt commitments were pegged at RM66.59 million and RM58.08 million respectively. Its retained profits stood at RM60.02 million.

AWC’s net cash from operating activities for its second quarter ended Dec 31, 2023, came to RM81.98 million.

Interestingly, RHB said in a report last week that it sees AWC making a net profit of RM20 million from RM396 million in revenue in FY2024. For FY2025, it forecasts a net profit of RM30 million on RM410 million in revenue.

AWC has under its belt a number of hospital maintenance contracts, such as for Hospital Rehabilitasi Cheras, Institut Kanser Negara and government clinics in Johor, among others, which are set to expire in the middle of next year. Its peers in this space include Pantai Medivest Sdn Bhd, UEM Edgenta Bhd and Radicare (M) Sdn Bhd, as well as players in Sabah and Sarawak.

“These contracts are worth RM1.5 billion per annum, but we are not sure about the model the government will take — break it into smaller packages, or are they going to break it down by states, or by the scope of services, or if the model remains the same … There are 150 public hospitals altogether [all over Malaysia]. Each hospital can give us a revenue of RM10 million on average. So, even if we get 10% of the total RM1.5 billion, which is RM150 million, over a 10-year concession, it is RM1.5 billion … that is with only 10%,” Ahmad Kabeer explains.

He is hopeful that the Ministry of Health will look into implementing AWC’s Stream in more hospitals. In Singapore, Stream is in the process of being deployed in eight hospitals, while in China, AWC, together with a partner, has secured three hospitals.

“The Ministry of Health has seen our system in action in Singapore ... Hopefully, it’s only a matter of time before it is implemented here,” he says.

In Singapore, AWC’s Stream is also being utilised by Housing & Development Board (HDB) flats in West Plains @ Bukit Batok, as well as a number of other entities, such as Singapore General Hospital, Changi General Hospital, and Changi Airport Terminal 3 and Terminal 4.

AWC and Sweden-based Envac control about 50% of the Singapore market for automated waste collection systems.

“In Malaysia, once it becomes a policy that automated waste collection is implemented, then AWC and the other players can benefit. In Singapore public housing, it is mandatory. In any private development exceeding 500 units, it becomes mandatory. In Malaysia, there is no such regulation yet but you see a lot of the private developers here using our system. But of course, we are hopeful, especially with affordable housing being such a priority,” says Ahmad Kabeer. 

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