By Khairie Hisyam
Controversies surrounding klia2 may be a thing of the past now for Bina Puri, but beyond that a persistent problem remains: its profit margins have not grown in tandem with its growing topline. KiniBiz asks Bina Puri executive director Matthew Tee Kai Woon how the company plans to address the Peter Pan syndrome afflicting its profit margins.
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Though Bina Puri Holdings Bhd is now able to put the klia2 saga behind it, one longstanding issue remains: its growing revenue over the years had not been reflected in its bottomline, which had not been growing in tandem.
Looking at the company’s financial performance across the last ten financial years, revenue had been on a relatively upward trajectory for the most part, bar some sideways movement for the past few financial years. In FY13 Bina Puri’s RM1.05 billion in revenue is 157% higher than RM409.2 million it posted in FY04.
But both the company’s pre-tax and net profit margins have not shown similar growth. In fact Bina Puri’s actual net profits have been declining over the past three financial years. For FY13 ended last December, Bina Puri posted RM4.32 million in net profits, sliding down from RM5.33 million in FY12 and RM6.59 million in FY11.
‘We have been consistently profitable’
The issue can be traced back to Bina Puri earnings breakdown, said executive director Matthew Tee Kai Woon to KiniBiz, explaining that about 90% of the company’s turnover comes from its construction segment.
“Construction is a very cut-throat industry, so the margins are very low,” said Tee to KiniBiz in an interview. “When we go in for tenders, we always look at single-digit profit margins.”
However, several other listed construction outfits boast better pre-tax profit margins, according to a brief KiniBiz survey of FY13 earnings.
Infrastructure outfit Gamuda Group, for example, posted a 17.8% pre-tax profit margin for its FY13 ended July last year. In response Tee acknowledges that Bina Puri is often compared to its industry peers.
“At least on the positive side we are stable,” said Tee to KiniBiz. “We have been profitable since 2001 — how many companies can claim that?”
In comparison, some construction outfits post relatively big full-year profits only to run into a loss, argued Tee. “Take for instance Nam Fatt Construction Berhad which at one point posted RM20-30 million in profit — after that (it went downhill) and now they’re gone.”
Formerly listed on Bursa Malaysia, Nam Fatt entered PN17 status in mid-March 2010 and was eventually delisted in May 2011 after running into financial difficulties. Its last announced quarterly results recorded RM117.47 million in revenue for FY10 ended December 2010 and a pre-tax loss of RM143.57 million.
That said, Tee expects Bina Puri’s financial numbers to stay flat-ish this year, preferring a conservative viewpoint on Bina Puri’s outlook going forward. “Construction division may continue to drag down a little but hopefully our property division can balance that.”
Another point to consider is that Bina Puri had gone into power in Indonesia in recent years and also diversified into property, but digestion periods and other delays had prevented these ventures from taking some of the earnings burden off its construction arm, said Tee.
“When you buy a piece of land, it normally takes about two to three years to actually digest and for fruits to come about (off the the land),” said Tee on Bina Puri’s property arm. “For example we bought a piece of land in Sabah in December 2010 but till today we have not got our approval nor our developer’s licence.”
“So it takes a very long time,” said Tee, conceding that growing Bina Puri’s profit margins remain a work-in-progress at the moment.
KiniBiz will examine Bina Puri’s various ventures in the third part of this series tomorrow.
Eye firmly on Malaysia
On the other hand, Tee is more positive on the Malaysian construction scene as a whole, saying there are a lot of jobs for the taking in the country at the moment.
“I think there are a lot of projects lined up to be implemented this year,” said Tee to KiniBiz. “For highways we have things coming up (for tender) like the West Coast Expressway, the Kidex (Kinrara-Damansara Expressway).”
There are also several other infrastructure projects that Bina Puri is tendering for as a contractor. As for the Kidex highway for which Bina Puri is also gunning for, Tee said the job is still very much in the air with other players such as Gadang and Mudajaya also in pursuit.
Overall, Bina Puri’s order book to date stands at RM1.93 billion after bagging the RM247.84 million contract to plan, design and build the Fisheries Development Authority of Malaysia (LKIM) complex in Kuching last month.
Announced on April 15, 2014, Bina Puri said it inked the contract agreement for the fisheries complex project via its wholly owned unit Bina Puri Construction Sdn Bhd with concessionaires Blessed Builders Sdn Bhd and Pengkalan Ikan Central Sdn Bhd (PIC).
Three days later on April 18 Bina Puri had also announced a joint venture with Titijaya Land Bhd — also through Bina Puri Construction — to develop a mixed residential and commercial strata development project on a land parcel near Brickfields.
While not as sexy as the nearly RM1 billion klia2 main terminal package it won as a 40% partner to UEM Construction or package A of Ampang LRT extension worth RM634.64 million it bagged in November 2010, these jobs place Bina Puri on track to hitting its average order book value of about RM2.2 billion over the past five years.
With more than half the current financial year to go, Bina Puri has said it is confident of winning more construction jobs this year. Tee said given where the local construction scene is at in terms of the industry cycle, there is no need for Bina Puri to look for construction jobs overseas.
“With all these projects coming on board and the entry point projects (EPPs) under our prime minister for the corridors, why would we need to go overseas?” said Tee. “The first thing each of these EPPs need is a contractor.”
‘Not easy to go overseas’
However Bina Puri is no stranger to securing construction projects beyond Malaysian shores. In 2007, for example, 50% of its construction order book consisted of jobs from Thailand.
“I think every country we go to is cyclical,” said Tee, adding that when Bina Puri went to Thailand in a big way in 2006, Malaysia’s own construction industry was in a down cycle. “Between 2003 and 2008 we went overseas because there were hardly any projects locally.”
At present Russia is Bina Puri’s largest overseas location, comprising 68% of the company’s overseas projects in value at RM155 million, with the Malaysian embassy project it won in February last year. The rest are split between Thailand, which comprises 30%, and Saudi Arabia and Brunei with 7% and 5% each, according to data provided by Bina Puri.
“We received the letter of intent for the Russian job in 2006 but it was later terminated,” commented Tee. “Then it was given back to us subsequently last year.”
However these overseas locations come up to 7% of Bina Puri’s total orderbook. The bulk of the construction outfit’s order book lies in West Malaysia at 60% with the remainder 33% in Sabah and Sarawak. “Nowadays I think we need a digestion period (with all the projects around).”
In any case it is not so easy to go overseas and bid for construction jobs, added Tee. “If I want to go to Indonesia and tender, for example, the problem is Indonesians are more sneaky than us,” said Tee to KiniBiz, laughing.
“And can an Indonesian businessman come here and become a contractor?” added Tee. “He’ll need to set-up a database, need to do networking, find people to meet, find out who’s connected and who’s not — it’s not so easy.”
Yesterday: Bina Puri moves on from klia2 saga
Tomorrow: Bina Puri, the mini conglomerate
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