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

ACE Market-listed Cosmos Technology International Bhd (KL:COSMOS) is looking to leverage the potential of non-water revenue (NRW) solutions following the water tariff hike in February.

The tariff increase, after decades of unchanged rates, is expected to result in improved revenue for water operators. This could spur them to enhance their infrastructure, which lags in terms of digitalisation, with most of them needing a major upgrade.

In an interview with The Edge, Cosmos managing director Datuk Chong Toh Wee says he expects water companies to ramp up their investment in infrastructure upgrades with a focus on lowering NRW levels.

“We are already getting an encouraging amount of queries from water companies with regard to upgrading their water infrastructure. The tariff hike is expected to see higher capital expenditure to replace ageing pipes, change water meters, and construct and upgrade water treatment plants to lower the national NRW level,” he adds.

Chong aims to make Cosmos — which was previously listed on Bursa Malaysia’s LEAP Market — a complete integrated water solutions provider. The group has been working with Germany-based Siemens as a solution partner to distribute and service the company’s electronic flow meters for the commercial sector. Cosmos also offers Lacroix Sofrel data loggers that integrate with Siemens’ meters to record and store water flow data.

“It will be an expensive exercise if all the water pipes are to be replaced. This is where technology comes into play. At Cosmos, we provide a comprehensive suite of solutions for the water industry through the Siemens SIWA Leak Finder platform that can help monitor and locate burst pipes and detect leaks in real time with the installation of ‘noise loggers’. This helps to control and reduce NRW and optimise the cost of the pump monitoring operation,” he explains.

According to news reports, the national NRW level amounted to 37.2% in 2022. This translates into 7.08 million litres of treated water wasted daily and a loss of about RM2 billion a year.

Johor and Penang have the lowest NRW level at 26.3%, followed by Selangor at 27.8%. States with more appalling levels are Perak (30.3%), Melaka (33.2%), Negeri Sembilan (35.1%), Terengganu (38.7%), Sarawak (46.1%) and Pahang (47.7%).

If that was not bad enough, four states even waste more than half of the water supplied — Kedah (51.5%), Kelantan (53.7%), Sabah (55%) and Perlis (61.5%) — according to data by the National Water Services Commission (SPAN).

SPAN chairman Charles Santiago estimates that the country’s water sector will require RM10 billion of investment annually to protect water sources and upgrade infrastructure, which has to be undertaken over the next three to four years. However, this is still at the proposal stage.

Chong says Cosmos is positioning itself to introduce the advanced leakage management system to improve on NRW loss and the efficiency and productivity of water treatment plants in the country. Citing China-based Shaoxing Water — which has had a leakage rate of less than 5% for a decade — as an example, he emphasises the importance of adopting advanced NRW management technologies.

“Shaoxing Water, which runs a pipeline of about 3,900km and supplies about 400,000 households in China, has kept its leakage rate at less than 5% for 10 years. The impressive number came after the group worked with Zhejiang Heda Technology Co Ltd in 2007. The latter provides NRW solutions, including smart water supply platforms, online monitoring systems, Internet of Things devices and advanced metering systems,” says Chong.

Malaysia could use this example to improve its NRW levels, he adds.

Cosmos is looking at ways to diversify its revenue from potential NRW solutions including venturing into smart water metering for households, as Air Selangor — Malaysia’s largest water operator — had installed 50,000 smart water meters in 2023. The group is currently in talks with a China-based entity and a Europe-based company to bring smart water metering for households to the country.

“We aim to close the deal by end-September. The potential of this segment is huge. In Selangor alone, there are about 2.6 million registered water users. In Peninsular Malaysia, it is estimated to be close to eight million users,” he says.

“We expect the installation of smart water meters to continue and other states to follow suit as part of the water infrastructure upgrade in Malaysia and to reduce leakages.”

Chong has more than 30 years of experience in the water and wastewater industries. He started as a technical assistant at Salcon Engineering Sdn Bhd, where he was involved in several water treatment plant projects in several states as well as overseas in China and Vietnam.

He founded Cosmos in 2004 to distribute fluid control products for the water and wastewater industries. The company made its debut on the LEAP Market in March 2020 and voluntarily withdrew its listing in November 2021 to facilitate its listing on the ACE Market in 2022.

The recent tariff hike has had investors looking at water-related counters, which have gained momentum since the beginning of the year, boosted by growing investments in data centres and their anticipated demand for water.

Pipe manufacturer Engtex Group Bhd’s (KL:ENGTEX) share price has gained almost 48% since the beginning of the year, valuing the company at a historical price-earnings ratio (PER) of 31 times. Water and wastewater plant engineering company Salcon Bhd’s (KL:SALCON) share price has surged 45% this year and Johor-based water operator Ranhill Utilities Bhd’s (KL:RANHILL) stock is up 75%.

It is worth noting that Ranhill is in the midst of a takeover by YTL Power International Bhd’s (KL:YTLPOWR) 70%-owned unit SIPP Power Sdn Bhd, while Salcon saw Berjaya Corp Bhd (KL:BJCORP) emerge as a substantial shareholder last November.

Cosmos’ share price had risen more than 11% this year to close at 43.5 sen last Thursday, giving the company a market capitalisation of RM111.6 million. At that price, the shares were trading at a historical PER of 48.88 times.

Cosmos is mainly involved in water treatment plants. The group has secured jobs for the electromagnetic flow meter package for stages two and three of the Rasau Water Supply Scheme in Selangor from the main contractor Taliworks Corp Bhd (KL:TALIWRK).

According to Chong, Cosmos had also bid for the instrumentation package for stage one of the Rasau Water Supply Scheme, which was awarded to the main contractor Gamuda Bhd (KL:GAMUDA) in 2022.

Cosmos’ other business division manufactures fabricated metal products for industrial applications used in the oil and gas (O&G) industry. These products are mainly exported to the US. But intense competition and a slowdown in drilling activities has prompted the company to consider other sectors.

“We are looking to expand our expertise in related fluid control products in oleochemicals, paper mills and infrastructure-related industries, as well as heating, ventilation and air conditioning (HVAC). Manufacturing of smart water metering for households is also something we are looking at, but it is still at an early stage,” says Chong.

Cosmos, which currently has a tender book of RM95 million, has been approached by data centres over the past months for its fluid control products and HVAC expertise. “We have already put in bids for three to four data centres to provide the related fluid control products for the cooling system in the infrastructure, working with the main contractor,” he says.

For its fourth quarter ended April 30 (FY2024), Cosmos posted a net profit of RM2.3 million, 37% lower than the RM3.67 million in 4QFY2023. In FY2024, it recorded revenue of RM35.81 million, a 38% decline from RM58.27 million in FY2023 due to lower demand from the O&G sector.

Cosmos is a net cash company, with total cash of RM13.2 million and borrowings of RM5.17 million as at April 30.

Chong is the single largest shareholder of the company with a 36.89% stake, while Singapore-listed MSM International Ltd holds 27%. 

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