This article first appeared in The Edge Malaysia Weekly on August 5, 2024 - August 11, 2024

The Malaysian construction sector had been in the doldrums for some time. Pandemic restrictions, labour shortages and increasing building material costs have posed challenges for the sector. Yet, Southern Score Builders Bhd (KL:SSB8) stood out as it underwent a reverse takeover (RTO) exercise that saw it transform from an IT company to a construction player, specialising in high-rise residential construction management.

The transformation has generated considerable investor interest as its adjusted share price rose steadily from 14.3 sen on March 31, 2021, to 34.5 sen on March 31, 2024. This translates to a three-year compound annual growth rate (CAGR) shareholder returns of 6.82%, making Southern Score Builders the winner of the Highest Returns to Shareholders over Three Years award at The Edge Malaysia Centurion Club Corporate Awards 2024.

The Highest Returns to Shareholders award is based on total returns, consisting of share price gains and dividends over a three-year period subject to a share price multiplier.

The completion of the RTO of G Neptune Bhd by Southern Score Sdn Bhd in November 2022 marked the final step in the company’s long journey to restructure and regularise itself. G Neptune had fallen into the Guidance Note 3 category of the ACE Market Listing Requirements on Nov 30, 2017.

These efforts appear to have paid off.

Southern Score Builders reported a net profit of RM25.31 million for the financial period ended June 30, 2023 (FPE2023) on revenue of RM97.93 million.

The six-month report followed a change in the financial year end of the subsidiary acquired — Southern Score Sdn Bhd — following the completion of the regularisation plan on Nov 9, 2022.

For FPE2023, Southern Score Builders paid an interim dividend of 1 sen per ordinary share or RM22.73 million in total. This represents a payout ratio of 90%.

For the first nine months of its financial year ending June 30, 2024 (9MFY2024), the company posted a 10.4% increase in net profit to RM18.56 million from RM16.62 million a year earlier, despite a 40% drop in revenue to RM107.13 million from RM177.77 million previously.

The decrease in revenue in 9MFY24 was mainly due to lower revenue from its main construction services segment following the completion of several projects. Meanwhile, its net profit was lifted by lower tax expenses for 9MFY2024 compared with the previous corresponding period.

On April 3, its board declared an interim dividend of 1.0 sen per ordinary share amounting to RM22.73 million for FY2024.

Southern Score Builders’ share price reached its intra-day 52-week high of 72 sen on June 6 but has since consolidated to close at 63.5 sen per share on July 12, giving it a market capitalisation of RM1.44 billion.

Its change in business direction could have contributed to investors’ interest in the company, propelling its share price movement. At 63.5 sen, Southern Score was trading at a trailing 12-month price-to-earnings ratio (PER) of 49 times.

Nonetheless, in May this year, Southern Score Builders received an unusual market activity (UMA) query from Bursa Malaysia due to the sharp rise in its share price within a few days, rising 21.5 sen or 46.24% from May 21’s close of 46.5 sen to 68 sen on May 27.

In response to the query, Southern Score Builders said it was not aware of any corporate development, rumour or report as well as any possible explanation that may account for the trading activity.

Southern Score Builders’ success hinges on agility. It quickly adapted its operations after the pandemic’s onset, implementing strict cost control measures and managing to build a strong balance sheet with ample liquidity to buffer against uncertainties in the construction sector. As at March 31, 2024, it had cash and bank deposits of RM48.5 million compared to bank overdraft of RM15 million.

The group is also not resting on its laurels. On May 13, it announced the acquisition of a 51% stake in electrical contractor SJEE Engineering Sdn Bhd for RM22.95 million in cash to tap into new market segments within the construction value chain and expand its income stream. It pointed out that SJEE possesses expertise in electrical engineering works for turnkey projects with a track record of more than 30 years.

“Not only will this broaden the group’s presence in the construction value chain [but] by undertaking some electrical works in-house, the group is expected to benefit from cost efficiencies and reduce reliance on subcontractors for the mechanical and electrical works of its construction projects,” Southern Score Builders said when announcing the acquisition.

However, challenges remain. Rising inflation and interest rates, supply chain disruptions and labour shortages continue to cast a shadow on the construction sector.

Southern Score Builders acknowledges these hurdles but remains optimistic. The company points to its recent contract wins, including an RM618.25 million project to construct apartment suites in Setapak, Kuala Lumpur, and a RM315 million project for a residential development, bringing the total contracts secured in 2024 to RM933.2 million. These projects are expected to contribute positively to its earnings in the coming years until 2028.

“Meanwhile, our tender book continues to be healthy as our team remains busy working on more tenders as we anticipate more construction projects to be rolled out in the coming months, both in the public and private sectors,” director and major shareholder Tan Sri Gan Yu Chai said during its latest quarterly result announcement.

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