Zecon gradually moving into property development business

It is an effort that would reduce the rm’s dependency on the construction sector as its main source of revenue, says CEO


Sarawak-Based Zecon Bhd is diversifying into the property development business, a move that is viewed as a natural progression from its current dominance in the construction industry.

CEO Syed Muzakir Al Joofre (picture) said the company is gradually evolving into property development, an effort that would reduce the company’s dependency on the construction sector as its main source of revenue.

“Although the revenue contribution from the property segment during our recent financial year ended June 30, 2017 (FY17), is negligible and not sizeable compared to revenue from construction, we have planned well for the upcoming years,” he told reporters at a media briefing after Zecon’s FY17 investors session in Kuala Lumpur yesterday.

During the recently ended financial year, property segment has only contributed merely between 1% and 2% to Zecon’s total revenue.

“Now, we see property development as the next engine growth for the company, after acquiring approximately 3,000 acres (1,214ha) of prime landbank situated strategically within a 6km radius of the Kuching city centre,” he said.

Syed Muzakir said the company is also involved in the proposed Kota Petra mixed development master plan.

The project will be the group’s largest property development that will be carried out over the next 15 years, with a total estimated gross development value (GDV) of RM11 billion.

The Kota Petra mixed development plan comprises multiple clusters, including a proposed state and federal new administrative centre, a tourism enclave, an education city, a resort destination, as well as an integrated affordable homes destination and medical city.

The Kota Petra project also includes the proposed construction of PR1MA (1Malaysia People’s Housing Programme) with a contract sum of RM286.9 million.

The PR1MA project consists of 1,065 units of residential houses on 122 acres of land.

The proposed construction of PPA1M (1Malaysia Civil Servants Housing Programme) with a contract worth RM839.6 million will also be constructed within Kota Petra, with 2,332 units of housing for civil servants on 261 acres of land.

“Once fully completed, it will provide approximately 4,331 units of housing for qualified public and civil servants. “For the next 15 years, the property segment is pretty secure with a GDV of RM11 billion. So, we see a bright outlook on this,” he added.

Zecon currently has an outstanding construction orderbook of RM3.6 billion, including key projects such as the Pan Borneo Highway, Petra Jaya Hospital in Kuching and Children Specialist Hospital, Universiti Kebangsaan Malaysia.

All the projects are expected to contribute positively to the company within the next four years.

In retrospect, the group has already completed more than 26 major projects with a combined project value of more than RM 1.5 billion.

Currently, several key projects are in progress including the RM1.46 billion Pan Borneo Highway Phase 1.

As for fundraising, Zecon corporate finance and accounts VP Jamil Jamaludin said the group had also proposed a private placement that will raise about RM6.5 million as interim funding for the group’s working capital, pending the completion of a proposed rights issue of redeemable convertible unsecured loan stocks (RCULS).

“The exercise has just been completed as planned. The proposed private placement is to provide additional capital to the Zecon Group on an expeditious basis, given the relatively short time frame for the completion of the proposed private placement, as well as for the group’s business operations. At the same time, the exercise will also increase the flexibility of Zecon Group’s cashflow management,” he said.

Jamil also said the group intends to use about RM6.4 million of the gross placement proceeds to finance its working capital requirements, which include but are not limited to administrative and operating expenses, payment to creditors and purchase of raw materials.

According to the group’s recent filing to Bursa Malaysia, the RCULS would see the group raising a minimum proceeds of RM24.9 million for its working capital requirements.

The board is also of the opinion that the proposed private placement is the most appropriate avenue of fundraising at this juncture, as it would enable the company to raise money expeditiously without incurring interest costs compared to bank borrowings

For its FY17, Zecon’s revenue decreased 8% to RM217 million, while its net income applicable to common stockholders decreased 55% to RM14 million.

The decline is also reflected in other operating income that decreased 31% to RM112.4 million, while interest expense increased 81% to RM24.1 million.

Zecon closed one sen lower at 75 sen yesterday, with a market capitalisation of RM98.26 million.