This article first appeared in The Edge Malaysia Weekly on February 3, 2025 - February 9, 2025

AFTER two years of making losses and struggling with surging material costs, building construction company Tuju Setia Bhd (KL:TJSETIA) is aiming for a better portfolio mix to keep it on the path of profitability.

Currently, Tuju Setia is tendering for RM3.3 billion of jobs, comprising high-rise development buildings (63%), hospital and healthcare facilities (25%) and industrial buildings (12%).

“We want to have a better mix of industrial buildings and hospital projects,” Tuju Setia co-founder and managing director Wee Eng Kong tells The Edge in an interview.

“We expect to see a lot of opportunities in hospital projects this year and next, especially in Selangor, Melaka and Johor.”

The company is aiming for a revenue contribution of between 20% and 30% from the hospital segment going forward, from less than 10% this year.

“We foresee that in 2025 and beyond, the hospital project segment will be more active for us,” Wee predicts.

As market demand for warehouses has been on the rise after the Covid-19 pandemic, the company is also looking to diversify into the industrial building segment, which typically has a gross margin of more than 10% compared with 5% to 8% in the high-rise building segment.

According to Wee, the hospital segment offers the highest gross margin of 10% to 15%, and could potentially exceed 15% if it involves the installation and procurement of hospital equipment.

Tuju Setia’s financial condition has started to improve after two years of being in the red.

It reported a net profit of RM3.72 million for the first three quarters of 2024 (9MFY2024) after posting a net loss of RM9.5 million in FY2023 and RM33.5 million in FY2022 because of higher building material costs and prolongation costs during the pandemic.

Revenue for 9MFY2024 came in at RM392.2 million compared with RM586 million for FY2023.

“In the last two years, we suffered losses because we did about RM1.1 billion worth of work where the material prices were higher than the contract prices, hence, the losses,” Wee explains.

Even though Tuju Setia has yet to return to its glory days of FY2020, when its net profit stood at RM16.3 million, its new project wins have been encouraging, hitting the highest level ever of RM1.58 billion in FY2024. This raised its order book to RM2 billion. The new wins are expected to help the company sustain its earnings visibility through to 2028.

Wee says the company did not land any new jobs in FY2023 due to a lack of “good projects” in the market. However, it managed to clinch RM944 million and RM521 million worth of jobs in FY2021 and FY2022 respectively.

The construction jobs secured in FY2024 are Avaland Bhd’s (KL:AVALAND) Alora Residences (RM209 million), Sime Darby Property Bhd’s (KL:SIMEPROP) Hype Residences (RM248 million), Pelaburan Hartanah Bhd’s Gleneagles Hospital Kuala Lumpur (Block C) (RM317.6 million), Sunway Bhd’s (KL:SUNWAY) Sunway Serene Petaling Jaya (Phase 2) (RM411 million) and Beverly Group’s Milla Residence (RM389 million). These project wins have lifted the company’s total number of ongoing projects to nine.

Wee points out that the Gleneagles Hospital is a design-and-build job, which is deemed to be niche in the construction industry. “Where a design-and-build model is involved, there are not many players that are able to bid for these kinds of projects. The competition is less intense. Therefore, we are able to secure better margins because it is a specialised project,” he says.

In addition, the group is involved in the development order stage for such a model and has to apply for development approvals.

In the past, Tuju Setia had undertaken similar design-and-build projects for the Bentong Hospital (Phase 2) and the recently completed Kajang Hospital’s Women & Children Complex.

Given its track record, Wee says the company has a long-term relationship with reputable developers such as Sunway and Beverly Group.

“Sunway has given us almost RM1 billion worth of contracts,” Wee adds.

He expects Tuju Setia’s financial performance to continue to improve, particularly with the completion of its last loss-making project — One Equine (Phase 2) — by May 2026. The project was awarded in 2020 but high material costs weighed on its margins. 

“This contract was awarded to us together with the One Equine (Phase 1) contract. So, it was based on 2020 rates,” Wee remarks.

The stabilisation of building material costs will continue to strengthen the company’s financial position, he predicts, with a full recovery projected in FY2026.

“The government has tried to curb the dumping of steel bars from China and India in Malaysia. I don’t see an upward trend in material prices. These are stabilising and probably even show a downward trend,” he says.

As a contractor, Wee says the company is very careful and selective about its client base. “You can see we only go for the more established ones. It will be very painful if you don’t get paid on time.”

Tuju Setia’s share price has risen 24% over the past year and closed at 26 sen last Friday giving the company a market value of RM90.61 million.

This is a far cry from its initial public offering (IPO) price of 70 sen when it listed on the Main Market of Bursa Malaysia in May 2021.

That the stock is down 62.9% from its IPO price will not be lost on shareholders.

Interestingly, last November, Khoo Yok Kee — the wife of Pintaras Jaya Bhd’s (KL:PTARAS) major shareholder and managing director Dr Chiu Hong Keong — emerged as a substantial shareholder in Tuju Setia following her subscription for 14.5 million placement shares or a 4.16% stake. This raised her shareholding to 6.06%, which rose further to 6.11% after Khoo acquired more shares a month later.

Tuju Setia raised a total of RM6.97 million from the issuance of 31.68 million placement shares at 22 sen each to fund its construction jobs.

On Khoo’s emergence as Tuju Setia’s substantial shareholder, Wee says it is purely Khoo’s personal investment interest. “Pintaras Jaya is in the same industry as us, so they understand the situation that we are in, as well as our commitments and fundamentals. Khoo came in at a very good price.”

Wee — who has more than 30 years of experience in civil and structural engineering consultancy, project management, property development and construction — is the largest shareholder of Tuju Setia with a 44.5% stake, followed by non-independent non-executive director Datuk Wee Beng Aun with 21.86%.

Tuju Setia’s shareholders can expect a dividend payout this year given that its financial results are looking better. The company has a dividend policy of distributing at least 25% of annual net profit but failed to do so in FY2022 and FY2023 because of its losses.

As at the end of September 2024, the company had cash and cash equivalents of RM43.7 million and total borrowings of RM144.6 million, with a net gearing ratio of 1.53 times.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.