ONE company that is garnering much positive attention of late has to be construction and property development titan Gamuda Bhd, which has seen its financial performance soar year-on-year.
Granted, the group has always delivered with regard to carrying out projects as well as financially, but the case becomes more pronounced when looked at from the perspective of the past three years since 2020.
Involved heavily in several projects locally – including the just-commenced Upper Padas Hydroelectric Project in Sabah, coupled of course with major completions such as both lines of the Mass Rapid Transit System – it is looking ahead to projects like the Penang South Island (PSI) and Light Rail Transit assignments north of the country.
Having said that, the numbers are showing that Gamuda in recent times has shifted more of its focus to overseas jobs. And the outcome of that is paying off handsomely for the group and its shareholders.
Taking a glance at its results for its first financial quarter ended Oct 31, 2023 (1Q24) – where the group posted a net profit of RM195mil on a revenue of RM2.85bil – it is revealed that external projects have actually contributed to 70% and 75% respectively to the aforementioned metrics.
Sitting down with StarBizWeek for a semi-exclusive chat this week, Gamuda boss and group managing director Datuk Lin Yun Ling appears to be in a relaxed mood as he prepares to fly later that night to the United Kingdom for a meet-up with his daughter and intending to catch one or two English Premier League matches while at it.
Belying the laid back demeanour however, is a man keeping a couple of heavy concerns for Malaysia in his 68-year-young heart – matters he reckons might appear to be unrelated to each other – but are in fact closely connected.
Subsidies (and low Malaysian wages)
Despite being a civil engineer by training, Lin began the conversation by touching on a topic usually brought up by economists – the unity government’s rollout of targeted subsidies.
Commending Putrajaya’s effort to exit the “vicious cycle” of subsidies, he nevertheless points out that the government’s projected subsidy bill of RM81bil for 2023 – a significant increase from the RM62.1bil of the previous year – could be a reason for the slow-moving execution of new projects in the country.
Elucidating the web further, he ties this matter to Gamuda’s shift towards overseas jobs, be they long-term developments or its now-famous quick turnaround projects (QTPs), to keep up its robust financial performance.
Referring to the subsidies, he comments: “The government’s fiscal position is nothing new, and it did not happen overnight. Rather, like many things, it is the accumulated effect of something that has gone on for 30 or 40 years.”
As such, Lin believes that the current weak ringgit, a high national budget deficit, the need for targeted subsidies and a progressive wage policy are related symptoms.
Of particular interest, he puts forward the idea that blanket subsidies have indirectly had a suppressing effect on Malaysian wages and salaries, as employers are led to think the consumer’s price index (CPI) has been relatively low.
“When we look at the items on the CPI, we can see that a huge proportion of it is made of subsidised components such as food stuff, water, electricity, fuel and gas.
“The subsidies have kept CPI low, and therefore, employers will think it is unnecessary to increase wages accordingly,” he says.Using Gamuda as an example, Lin reveals that for some countries his company is in such as Australia, Taiwan and Vietnam, the annual employee increment is in the range of 6% to 7% over the last 20 years, while in Malaysia the increment rate is significantly lower at 2% to 3%.
Tellingly, he mentions that the Vietnamese government does not provide blanket subsidies, but the compounded annual growth rate (CAGR) of median wage in the country is growing at a quicker rate than Malaysia’s.
“This is how subsidies exert an indirect effect on wages.
“In addition, Malaysia also has a high reliance on foreign workers who are willing to work for even lower wages, resulting in our salary increment lagging behind countries such as Vietnam and Australia,” he explains.
Low wages also affects the affordability metrics when it comes to buying a home.
Crucially, with the minimum and higher wage debate also centralling on the increase in employee productivity, especially with the progressive wage model, the Gamuda boss acknowledges that productivity is a factor to be considered.
On the other hand however, he is of the view that productivity is more a long-term metric.
He says over a longer period of time, there is the undoubted need to have some linkage to productivity, but before the country arrives at that point, even foreign investors are noticing that Malaysian wages are too low, signalling a chronic situation in need of an urgent solution.
The web of concerns does not end there, says Lin, as the foreign investment factor brings the country to another thorny situation.
“Taking the case of the construction of an expressway, due to subsidies and low wages, users may be expecting low fares and low toll payments.
“When the revenue is shallow for the operator and they are unable to even fund their capital expenditure, investors will question the viability of a project.
“This is because the subsidy practice will bring forth a result such that nothing is priced to the market anymore,” he observes.
The move overseas and strategisation
Having identified a primary concern, Lin says it was just as well Gamuda became aware early on not to put all its eggs in one basket, or in this case country, although he admits the realisation dawned on the company over time.
Disclosing that the group prefers taking a long-term view over 10 to 20 years that is broken into smaller five-year plans, he is responsible for setting targets to ensure the conglomerate remains on course of its targets.
“Our targets are always ambitious, but targets are nothing without an underlying strategy. When we reveal our targets to our teams, we also formulate strategies and reasonings to get there.
“Anyone who ventures overseas needs to be committed, coupled with the belief that they can do well,” he says.
Notably, Lin remarks that a high profit margin is not his sole consideration when it comes to deciding whether to do business in a particular foreign country.
Using Australia, Taiwan and Singapore as examples, he says Gamuda has approached matters one step at a time, building up its name as a reputable partner and developer, while evaluating if a country has potential growth opportunities.
As exemplified by its recent win of the RM1.77bil contract to construct the West Coast Station and tunnels of Singapore MRT’s Cross Island Line Phase 2 – the group’s first independent venture in Singapore – Lin says the Singapore government is now confident enough of Gamuda to award it independent contracts.
“Meanwhile, 10 years ago, in Taiwan, we remember working on projects where it is a 50:50 joint-venture (JV) between us and a Taiwanese partner.
“These days, we are still working on JV’s in Taiwan, but Gamuda holds the larger part of the venture, such as the Kaohsiung MRT YC01 package where we command an 88% share, among some significant others,” he explains.
For Australia, aside from the Sydney Metro West – Western Tunneling Package where the group owns 100% of the project, Lin says Gamuda is still working with partners on the Coffs Harbour Bypass and M1 Motorway projects where it holds a 50% and 40% share respectively.
“Australians have a more compliant and risk averse business culture, and even local contractors are required to work with partners, but I believe undoubtedly we are making good progress there as well,” says Lin.
Hence, even though the process of gaining an independent contract could be slower in Australia, and the country may offer lower profit margins at the moment due to high overheads, he says Gamuda’s value accretive growth model is steadfastly looking to harness the tremendous growth potential Down Under.
The progress on major projects such as these as well as township developments like Gamuda Gardens in Rawang and Gamuda Cove leads Lin to peel off the logic behind the group engaging in QTPs.
“Townships, for example, take 30 years to develop and perhaps half as long to recover the capital we spend on land acquisition and infrastructure.
“This is why we need to balance our profitability strategy with QTPs.
“With these QTPs, such as the Winchester House in London and The Canopy in Melbourne, we aim for a turnaround of five years or less, and an internal rate of return of at least 18%, in order to boost our overall real-estate return on capital employed,” says Lin.
The profits made from these QTPs, he notes, can then be recycled into new projects, as part of a sustainability measure.
Looking ahead
Casting his eyes to the future, Lin says while Gamuda does not have specific revenue or profit, the group does its best to grow turnover or earnings by a CAGR of 20% to 30%, as he believes expectations of shareholders would have understandably risen given the group’s strong performance year-on-year.
When it comes to projects however, he reiterates that the group would likely keep looking elsewhere outside of Malaysia as the country continues to grapple with limited opportunities due to the affordability and price control situation.
“We have local economists telling us in order to attract investment, we need to wind back on subsidies and price control, because only then can investors see a way to profit,” he emphasises.
With the discussion focusing on future projects, the elephant question in the room that is begging to be asked would of course be on updates to the Penang Light Rail Transit (LRT) construction.
Lin says Gamuda has done almost everything there is to be done in connection to the project, and through its subsidiary SRS Consortium, has been appointed the project delivery partner.
After revealing that the Penang LRT is a proprietary property of Gamuda, he adds that SRS is basically waiting for go ahead from the Finance Ministry, after which it can call for tenders as early as next week for 26 packages.
“We have the railway scheme conditionally approved, land acquisition drawings, as well as social and environmental impact assessment approvals,” he says.
Meanwhile – he comments that the PSI reclamation project, which is a new urban development off the coast of Penang Island that includes homes, leisure, and work sites – will be a good complement to Georgetown as an option to Seberang Prai, or as he puts it: “Seberang Prai is not for everyone.”
From his observations and research, Lin says many multinational companies such as Western Digital, Advanced Micro Devices and Intel Corp prefer to stay on the island side of Penang, especially since the PSI has been marketed as a smart city based on sustainable as well as on environmental, social and governance principles.
“These companies are always looking to move up the value chain.
“ With the amount of foreign expatriates working in the Bayan Lepas area, they very much appreciate the idea of a green technology park powered by renewable energy with other green features which is literally just next door,” Lin says.
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