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Scomi Engineering may revamp loans


Despite financial woes, the company continues to bid for jobs, especially overseas

DESPITE having more than 20 years of expertise in railway engineering manufacturing, Scomi Engineering is not exactly in the pink of health. While it has won contracts in Brazil and India for its monorail system, the company has not been winning jobs locally.

In FY17, Scomi Engineering saw its net loss widen to RM19.76mil from RM1.84mil previously and this was due to the reversing of certain claims, unrealised foreign exchange losses, lower work done in the rail segment and lower sales in the commercial vehicle segment.

A source says Scomi Engineering is looking at the possibility of restructuring its current debt.

As at March 31, it had a total debt of RM525mil.

The potential restructuring is to ensure the company’s continuation, following its legal case with client Prasarana Malaysia Bhd.

Scomi Engineering has outstanding revolving credit and bank overdraft amounting to RM213.2mil, for which it had sought an extension because of ongoing litigation with Prasarana.

Despite the financial woes, Scomi Engineering continues to bid for jobs, especially in developing countries.

The company says the the global monorail market is potentially valued at US$120bil.

Scomi Engineering is said to be actively bidding for monorail jobs in the third and fourth-tier cities in China and a source says it is close to sealing one such deal with a local partner there.

“The monorail system is suitable for cities because monorail is light and can maneuver in tight corners,” the source said.

The infrastructure boom in China has spilled over to the republic’s third and fourth-tier cities that have a population of about three million people each.

These cities, it is believed, are ripe for monorail systems, as there is little chance of larger metro systems being built by them.

Policy updates in China have been in favour of the monorail. It is said that there could be potentially 2,800km of new monorail lines to be built in China.

Nonetheless, competition for China’s monorail projects is expected to be stiff, with players such as China-based new energy vehicle maker BYD Co, Japan’s Hitachi Ltd and Canada’s Bombardier Inc all vying for work. Scomi Engineering, which is building in India and Brazil monorail systems similar to that of Kuala Lumpur’s, has tendered for a total of RM3.3bil worth of work, including monorail projects in countries such as Thailand and Turkey.

Share price in doldrums

Shares of Scomi Engineering have been trading sideways since the beginning of the year.

The company saw its shares traded as high as 51 sen on Feb 10. On a year-to-date basis, the share are up 32% to trade at 24.5 sen a share giving it a market capitalisation of RM83.8mil.

Its share price has mostly traded below 50 sen a share for more than two years mainly because of the company’s weak financial performance despite winning jobs overseas.

Currently, Scomi Engineering’s order book stands at RM1.9bil, consisting mainly of monorail jobs in India and Brazil, which would last the company for seven years.

Its overseas revenue have been increasing steadily since last year.

For the financial year ended March 31, 2017 (FY17), revenue for its Malaysian operations fell more than half to RM51.59mil from a year earlier, while revenue from India and Brazil grew 68% and 80%, respectively.

The company is currently working on Phase 2 of the Mumbai Monorail spanning over 10.76km, which it expects to complete in the second half of next year.

On Scomi Engineering’s jobs in Brazil, the company expects to complete all construction activities by 2019.

In 2011, it clinched a contract worth RM2.6bil with consortium partners to build a monorail line for Line 17-Gold in Sao Paulo, Brazil, following an international competitive tender process.

In July 2014, it was awarded a contract to develop and maintain the Sao Paulo Line 18 monorail project.

So could new project wins nurse Scomi Engineering to health?

Although Scomi Engineering is going through a tough time, it is worth noting that the company is one of three major monorail manufacturers in the world, competing with big boys such as Bombardier and Hitachi.

Even if Scomi Engineering manages to steer its financials around, the outlook of the company remains uncertain, especially since the company is operating in a high capital expenditure sector.

Scomi Enginnering , restructure

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