BHIC says lower contract price to buildships for China won’t impact margins

  • Business
  • Wednesday, 24 Apr 2019

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KUALA LUMPUR: BOUSTEAD HEAVY INDUSTRIES CORP Bhd (BHIC) says the lower contract price to build the four littoral mission ships (LMS) with the Chinese government will not have an impact on its margins.

“Under the earlier agreement, the first two LMS will be built in China, while the remaining two will be built in Malaysia. But, for cost-saving purposes, all four vessels will be built and delivered in China,” said BHIC executive deputy chairman and managing director Tan Sri Ahmad Ramli Mohd Nor.

“This will not have any material impact on the group,” he added. Ahmad Ramli was speaking to reporters after the firm’s AGM yesterday.Last month, the Defence Ministry revised the contract price to build four LMS for the Royal Malaysian Navy (RMN) lower to RM1.05bil from RM1.17bil originally negotiated for in 2017.

As part of the revision, BHIC’s associate company – Boustead Naval Shipyard Sdn Bhd – will no longer build two of the vessels in the country.

Despite the lower contract pricing, Ahmad Ramli said the government vessels are more than 40 years old and there would be more maintenance and ship-building contracts in the pipeline.

“There are more LMS contracts that we can bid for and build in the future,” he said.

Notably, the LMS is part of the RMN’s “15-to-5 transformation plan” that calls for 18 such ships to replace the ageing warships.

On the outlook, Ahmad Ramli expects 2019 to be a challenging year for BHIC and the firm is exploring opportunities in the region.

“We have an order book of RM4.3bil, which would last until 2023, and we can’t just depend on government contracts, moving forward,” he said.

About 60% of its order book is shipbuilding contracts, mostly from remaining work on an earlier RM9bil contract to build six littoral combat ships (LCS) and LMS projects.

The remaining 40%, meanwhile, is for maintenance, repair and overhaul jobs for submarines, helicopters and ships.

“We will soon welcome our new chairman, Datuk Seri Amrin Awaluddin, and we are excited about the group’s next chapter of growth,” Ahmad Ramli said.

For the financial year ended Dec 31, 2018 (FY18), BHIC slipped into the red, posting RM108.3mil in losses compared to a RM10.6mil net profit a year earlier, due to impairment and provisions.

Revenue for the period declined to RM169.11mil from RM277.65mil in FY17.

“While earnings last year were impacted by impairment and provisions, BHIC kicked off 2019 on a positive note with contracts from RMN for MRO jobs worth RM150mil.

“We also received a letter of intent for the integrated logistics support contract for the LCS project, which we hope to finalise in the next few months,” Ahmad Ramli said.

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