Quiet restructuring, aggressive results


  • Business
  • Saturday, 11 Jan 2003

By ANITA GABRIEL and DARSHINI M. NATHAN

MOST expected Abdul Rahman Ahmad and Shahril Ridza Ridzuan to rescue Malaysian Resources Corp Bhd from the clutches of insolvency. They just did not realise it would be done so quietly, yet aggressively. 

And in an environment where debt-afflicted companies dragged their feet to shed assets, it can be forgiven when Rahman, MRCB's chief executive officer and Shahril, executive director, seem boastful that in 15 months, MRCB has raised RM1.8 billion cash via major asset disposals, hence slashing total group debts by half. 

Since their appointment to the board back in Oct 2001, Rahman, 34 and Shahril 33, have led MRCB through a painful restructuring, shedding 350 jobs and trimming overhead costs by almost half, selling major assets while bolstering its next to nil future order book to RM800 million. 

And as a “bonus”, as Rahman puts it, investors will be allowed the chance to partake in a new integrated media and multimedia company which comprises 100 per cent of TV3 and 49.7 per cent of The New Straits Times Press (Malaysia) Bhd. 

Start from scratch 

So, it should not be taken lightly when both Rahman and Shahril say they had to start from scratch. The group was tottering on debts totalling RM4 billion (including those of NSTP and TV3), shunned by the investing fraternity and had a fairly grim future. 

“There were four major problems with MRCB which we wanted to address – high gearing, TV3 needed rescuing, the bleak profit outlook and the perception that MRCB was an unfocussed conglomerate,” says Rahman. “We have addressed that.” 

That in a nutshell wraps up MRCB's biggest problems. MRCB had huge debts (MRCB alone had debts of RM1.2 billion), was not getting income from its associates who were loss-making, had tremendously poor cash flow and a far from convincing management strategy. On the back of this, MRCB's share price had tanked significantly hence putting a cap on its glory days as a much sought after stock by both foreign and domestic investors. 

Today, however, the conclusion is more encouraging. MRCB's media business will be sliced away leaving behind a more focussed infrastructure entity with core activities in engineering and construction, energy and property. Its debts today stand at RM1.9 billion (including those of TV3 and NSTP). MRCB's corporate debt has been reduced to RM50 million via aggressive asset disposals, TV3's debt revamp is well on the way, major new contracts have been secured and the management promises a lot more (MRCB has bid for projects totalling RM5 billion-6 billion).  

The results are already showing 

For the financial year ended August 2002, MRCB's revenue dropped to RM420.02 million from RM533.08 million the previous year but it made a net profit of RM176.41 million from a loss of RM656.75 million. Owing to its cost rationalisation and higher contribution from the engineering and construction division, the group managed an operating profit of RM53.8 million compared to a loss of RM22.8 million the previous year.  

This stands in stark contrast to its position since the crisis lent a cruel blow to its financial position. In 1998, it posted a loss of RM305.31 million, and then in 1999, it went on to record the biggest loss of RM1.43 billion. It managed to return to the black in 2000 only to revert to a loss position the following year. For financial year 2003, AmResearch has forecast a net profit of RM228.7 million for MRCB. 

Job half done 

The job is, however, only half done. “With the debt issue out of the way, now we need to make sure that the operation side does well,” Shahril, admits.  

It is perhaps for this reason that both Rahman and Shahril did not seem as relieved as one expects when BizWeek met up with them over the week. 

“There is still a lot of pressure. It has been very stressful the past 15 months but the pressure now is quite different,” says Shahril. 

Their future plans too are by no means small. Both professionals want to turn MRCB into a big name in urban property development and engineering and construction. To do this, MRCB will make major moves to expand its land bank and is in talks with property companies. It also plans to have a recurring order book of RM1.5 billion for engineering and construction jobs to ensure stable income and for the energy sector, it is aggressively seeking work overseas namely the Middle East and Asia. 

Post restructuring, construction will likely be MRCB's main earnings driver. Its current order book is around RM800 million and according to AmResearch, could exceed RM1 billion if it secures a hospital and construction job. Rahman did indicate that the company is keen to get more hospital and education construction jobs. MRCB has also clinched a 30 per cent equity stake in KL North East Expressway (KLNEE) concession. The local research house says if MRCB undertakes 30 per cent of the RM1 billion construction work, the RM300 million order book at 10 per cent profit margin could add another RM10 million to its pre-tax or 0.7 sen net earnings per share annually from financial year 2004 onwards.  

But to position itself against construction stalwarts like Gamuda Bhd, IJM Corp Bhd and Road Builder (M) Holdings Bhd, it is not going to be easy, particularly in a market where the pie is shrinking. 

Rahman, however, shrugs that off by saying that MRCB has an impressive track record and through its attractive value propositions, it should be able to land substantial amount of jobs.  

Media entity 

The media company in the shape of Newco – Media Prima Bhd (yet to be launched) – has far bigger ambitions as well.  

As the only listed print and broadcast media company, there are plans to look for more advertising medium to boost revenue. In fact, another local house says with TV3 and NSTP under one roof; the Newco is forecast to make a turnover exceeding RM1 billion and earnings between RM35 million and RM40 millon for financial year 2003. 

The professional managers speak enthusiastically over the plans. 

“The Newco will be in an ideal position to see what other media platforms can be tapped and a platform to grow more distribution channels. Our Utopian model is effectively that all our businesses will offer a full scale of services to all our clients. It should offer a whole suite of services.” 

A MRCB shareholder holding 1,000 shares will end up with 670 MRCB shares and 430 newco shares after the de-merger exercise. An optimistic analyst and one of the few out there who has had a “buy” call on MRCB for months, says the new stock should generate keen interest among institutional and retail investors post-restructuring.  

AmResearch estimates the Newco could make RM35 million-40 million net earnings in its first year post restructuring or 6.4-7.5 sen earnings per share (EPS).  

To a certain extent, the managers have raised the bar somewhat on corporate reforms. The clearest indication – the company is surely in a better state today than it was 15 months ago. And as its de-merger exercise draws to a close, the company is likely to attract renewed attention. 

For now, the market continues to crank up the pressure on the managers.MRCB's share price has seen wild swings over the period and has come down as surely as it went up back in 2001. It is currently trading at around 77 sen. As a high beta stock, Rahman laments; MRCB will always experience an exaggerated pattern of the market trend. That, unfortunately, both Rahman and Shahril can't change. 

More Stories: The healing continuesThe task aheadRevamping NSTP 

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