Its shares rally on non-revenue water job prospects
Increasing chatter about reducing the country’s rate of non-revenue water (NRW) is likely the cause of Fitters Diversified Bhd’s shares awakening from a deep slumber.
The fire services, renewable energy solutions provider, property developer cum water engineering firm has seen its share price rise up from the 40 sen level it had hovered at over the last three or so years, to hit close to 50 sen apiece, creating RM35.4mil in increased value over a month’s period.
So what is the link between NRW and Fitters?
Fitters managing director Datuk Richard Wong explains to StarBizweek.
“We will be participating in the open tender process for the installation of orientated polyvinyl chloride (PVC-O) pipes to replace the existing asbestos cement (AC) pipes, via Fitter’s construction subsidiary.
“Prior to this, we were only involved in the supply of PVC-O pipes, and smaller contractors were installing them.
“One of the main causes of NRW is AC pipes -- it is an obsolete technology.
“AC pipes rupture easily, have a shorter lifespan and there are concerns regarding the carcinogenic components of asbestos,” he says. The group’s 65%-owned subsidiary Molecor (SEA) Sdn Bhd is the manufacturer of PVC-O pipes marketed under the HYPRO brand.
Last November, Molecor (SEA) had secured a central purchase contract from Pengurusan Aset Air Bhd (PAAB) to supply HYPRO PVC-O water pipes for two years.
The contract award is expected to contribute positively to Fitters’ financial performance for the years ending December 31, 2018 to 2020. For a start, the HYPRO PVC-O pipes will be utilised to replace ageing AC pipes in Kelantan and Johor.
The water pipes rehabilitation and replacement programme will be rolled out to other states in the near term.
According to 2017 statistics, an average of 5,929 million litres of treated water is wasted each day, nationwide.
That amount is more than enough to meet the water demand in Selangor and Johor.
AC pipes are still being used in the water distribution system, making up an estimated 27% or 41,560km.
Water, Land and Natural Resources Minister Xavier Jayakumar had said that it is imperative for the mass replacement of pipes, in order to reduce the national average NRW rate from the current 35% to 31% by 2020. To date, up to 450km of PVC-O pipes have been installed across 10 states, involving water operators such as Ranhill SAJ, Syarikat Air Negeri Sembilan, Pengurusan Air Selangor and Air Kelantan Sdn Bhd.
According to Wong, there is a remaining budget of RM1.3bil under the 11th Malaysia Plan, to be spent over the next three years to resolve the NRW issue.
Wong elaborates that PVC-O pipes are well suited to be used in Malaysia, as it is able to withstand the high pressure.
“PVC-O pipes are the most durable pipes in the market, with the patented ‘molecular orientation’ technology which provides a prolonged lifespan of up to 50 years and higher impact resistance with minimal breakage.
“It is also lightweight, cost effective and reduces labour cost.
“HYPRO’s innovative connection system allows easy installation, with no maintenance required if the valve connections and fittings are properly installed,” he says.
Conventional steel-based and AC pipes have a lifespan of 30 years or less, being more susceptible to scaling and cement erosion. Wong adds that Molecor (SEA) has obtained approval for HYPRO PVC-O pipes to be used in Malaysia’s water sector by the National Water Service Commission.
Molecor (SEA)’s manufacturing plant is located in Gebeng, Pahang, and has a production capacity of 11 tonnes or 3,000km PVC-O pipes per annum with three production lines. The plant is fully automated and runs round the clock.
Should there be growing demand going forward, Molecor (SEA) has the capacity to scale up to 12 production lines, producing a total 12,000 km of pipes then.
Molecor Tecnologia Spain is its principal and technology partner.
“Molecor (SEA) has been loss-making for the past three years as demand has not moved up.This is normal, as it is a relatively new start-up.
“However, we see things to be turning around for the subsidiary soon, as we are optimistic hearing of more water-related jobs being awarded,” says Wong.
Fitters registered a four-fold growth in net profit to RM8.18mil for the first nine months of the financial year ended December 31, 2018 (FY18), when compared to the same period in FY17.
This was mainly contributed by the group’s property development division, which saw work progress of the project management & construction contract obtained in the fourth quarter of 2017.
Revenue and pre-tax profit for the property development division recorded a significant improvement to RM25.4mil and RM5.6mil respectively, during the third quarter of FY18.
“The property development & construction division is continuing with its progress of the RM97.8mil project management and construction contract, which is poised to contribute substantially to the group’s turnover and profitability for FY18 and FY19.
“Meanwhile, the renewable energy division saw a decline in crude palm oil and palm kernel price by 15% and 20.3% respectively and lower crop trend during the third quarter. The stringent measures implemented earlier by our palm oil mill has yielded encouraging results and the management is committed to further enhance its potential,” Fitter’s Bursa Malaysia filing reads.
Barring any unforeseen circumstances, Wong is optimistic that all four pillars of the group will do well in FY19.