Monday, 26 February 2018

(The Star) New rail player in town

PETALING JAYA: Engineering and integrated facility management (IFM) services provider AWC Bhd has been working behind the scenes to prepare for its next venture.

On March 29 last year, AWC incorporated a new wholly-owned subsidiary, AWC Rail Sdn Bhd.

Later, former Schneider Electric SE Asia Pacific director for facilities management Mohan Kumar was appointed CEO of the subsidiary.

So what’s brewing in AWC?

“Our strategy is to penetrate into this space via merger and acquisition (M&A), strategic alliances, or joint ventures, which will enable us to obtain the necessary expertise required and grow our competency for rail maintenance.

“There is great potential to be tapped from this industry, considering the asset size of the rail industry in Malaysia, be it heavy rail, mass rapid transit or light rapid transit.

“Apart from expanding our facility management offerings, we feel very strongly that the rail maintenance industry is a blue ocean for AWC and it is going to be the next exciting phase for us,” he said, adding that Mohan would have quite a bit of task and challenge to build up this segment.

After serving in Schneider Electric for seven years, Mohan worked on short-term assignments in Kennametal (S) Pte Ltd and UEMS Solutions Sdn Bhd.

According to Kabeer, market studies have shown that there is RM150bil worth of new rail projects to be awarded soon or are in the process of being awarded.

Premised on the RM150bil new projects, the value of standard rail maintenance work ranges from 3% to 5% of that sum.

However, world class asset management programmes will be able to fetch more lucrative profits.

AWC intends to emulate the UK’s Network Rail, which has a successful asset management programme in place, and replicate a similar model in Malaysia.

“We intend to model our programme according to what they have done and bring it to the Malaysian market.

“Instead of a pure maintenance play, we would like to establish an asset management programme to be presented to the rail asset owners,” said Kabeer.

Despite the various rail asset ownership and operation models in the Malaysian market, asset management is a needed requirement.

Typically, rail maintenance works are carried out internally by the asset company (AssetCo) or operating company (OpCo).

If the maintenance work is subbed out, it is distributed via sub-contracts or short-term contracts, managed by both government and private companies.

Kabeer explained that the concession model, which has a tenure of 10 years or more, for rail asset management would be most beneficial to both asset management providers and rail asset owner.

Currently, there are no concessions as such.

Hence, AWC’s strategy is to first enter the market by potentially taking on a small pilot project, and use it as a working model to demonstrate to AssetCos and OpCos.

“We want to disrupt the conventional market, and this requires us to engage with AssetCos or OpCos in Malaysia to facilitate the adoption of asset management for rail assets,” said Kabeer.

For comparison purposes, AWC’s potential entry into the rail asset management space would be akin to Projek Penyelenggaraan Lebuhraya Bhd (Propel)’s role in highway maintenance.

“We do not claim to be masters in rail asset management.

“We believe that there are so many opportunities for us to tie up with either foreign or local players who have the expertise, and together, we will be able to bring forward solutions to the market,” said Kabeer.

AWC’s business divisions comprise facilities, environment, and engineering, which contributed 39%, 23%, and 38% respectively to its revenue of RM296.5mil for the financial year ended June 30, 2017 (FY17).

On a net profit basis, the environment division contributes 53%, followed by facility at 34% and engineering at 13%, to the FY17 net profit of RM30.9mil.

For the first half of FY18, AWC registered a net profit of RM10.12mil, a 5% drop from the previous corresponding period.

Kabeer explained that this was attributed to project delays in the environment and engineering divisions, which are expected to pick up in the coming quarters.

As of the second quarter, the group’s cash and cash equivalents amount to RM82.4mil, while total borrowings stand at RM3.33mil.

The group’s outstanding order book remains healthy at RM1.108bil, as of Jan 1, 2018.

From this figure, the facilities segment makes up RM813.6mil, of which RM571.2mil will last through 2025, while the remaining RM242.4mil will be spread over a period of three to five years.

The environment and engineering divisions’ order book amounts to RM125.23mil and RM169.4mil, respectively, to be recognised over the next two to three years.

Meanwhile, AWC’s tender book to date amounts to RM1.05bil.

“In view of the current association of AWC’s engineering division in landmark projects currently undertaken in KL, such as The Exchange 106 in Tun Razak Exchange and Merdeka PNB 118 -- which are in phase one, we feel confident in being able to participate in the subsequent phases, as and when it happens, being incumbents to the existing projects.

“Our ability is demonstrated with The Exchange 106, where one floor is being constructed every four days, which is a world standard,” Kabeer elaborated.

There is still room for AWC to grow in the IFM industry, due to cross-selling opportunities among the group’s three business segments, accordign to Kabeer.