By Xavier Kong
WIDAD Group Bhd has identified the integrated facilities management (IFM) market as a Blue Ocean sector for the group, marking it as a space that can help the group grow at a higher rate, compared to focusing purely on the construction sector.
“The IFM market is a very exciting space for us,” its executive chairman Datuk Feizal Mustapha tells FocusM, adding that the group sees IFM and construction as complementary competencies that will spur growth for the group.
Widad has been “very active this quarter (4Q19),” according to Feizal, having entered two heads of agreement (HoA) for IFM concessions from Universiti Teknologi MARA (UiTM).
The most recent was an HoA to acquire the concession for Campus 3 of the Negeri Sembilan branch of UiTM for RM122 mil. The concession actually belongs to Innovatif Mewah Sdn Bhd, an indirect subsidiary of Menang Corporation Bhd.
The primary shareholders of Innovatif Mewah are Menang Industries (M) Sdn Bhd and Menang Development (M) Sdn Bhd, both of which are wholly-owned subsidiaries of Menang Corporation Bhd. The third shareholder is Tentu Selesa Sdn Bhd.
This agreement, which was announced on Bursa Malaysia on Nov 27, comes on the back of a previous HoA in which Widad acquired the concession for UiTM’s Jasin, Malacca campus for RM95.9 mil, which was announced on Oct 17. This concession belonged to YBK Usahasama Sdn Bhd, a wholly-owned subsidiary of Serendah Heights Sdn Bhd.
According to Feisal, the two deals combined will add “about RM1.8 bil to our order book for the next 14 years, as both concessionaires are for a period of 14 years starting from Jan 1, 2020.” The value of the two acquisitions come to RM838 mil and RM861.6 mil respectively.
This rounds the group’s order book to RM3 bil moving forward, which include current construction and IFM contracts in place, which account for about RM900 mil up till 2023.
The group also posted the financial results for the third quarter of its 2019 financial year, reporting a quarterly revenue of RM40.3 mil, down 38.4% yoy from RM65.5 mil a year ago. Net profit, however, rose 1.5% yoy for the quarter to RM6.8 mil.
For the nine-month period, Widad saw revenue of RM118.2 mil and a net profit of RM18.1 mil, compared with RM182.5 mil and RM14.6 mil a year ago respectively.
“The reduction (in revenue) was mainly due to the completion of two construction works and an IFM contract early in financial year 2019, as well as slower construction works,” the group notes, professing confidence for the remainder of the financial year, which ends on Dec 31.
Heavy construction competition
Feizal also shared that the construction sector is an intensely competitive arena, with the group chairman acknowledging that “there are a lot of players, which compresses margins for our competency in that particular sector.”
It was also pointed out that Widad’s construction arm is lot more of a niche player, which can be seen especially in its recent contract for a RM120 mil waste management plant in Kepong in September, as well as a contract for upgrading a sewage treatment plant in Penang.
“In the construction sector, we work with pipes and not the mainstream, mass-market items like residential or commercial developments.
“The IFM sector, on the other hand, has relatively few players in the market, especially when you are dealing in end-to-end IFM like Widad does,” says Feizal, who also explains that, when it comes to facility management, there are generally two options.
“One is that facility owners undertake facility management and maintenance themselves, which not only requires resources from them, but everything else that comes directly out of their balance sheet.
“The other option is to outsource facility management, and this can be the facility owner engaging multiple different companies, such as one for the air-conditioning, one for the wiring, one for landscaping … you get the idea. The facility owner can also engage an end-to-end or one-stop IFM service such as that provided by Widad, which simplifies matters for them,” explains Feizal.
The group chairman also identified the group’s primary competitors in the market space, citing names such as UEM Edgenta Bhd, GFM Services Bhd and AWC Bhd as other one-stop IFM players.
IFM is also premised on several approaches. One is the preventive approach, which looks to perform maintenance before wear and tear occur, thus preventing disruption in daily activities.
Next, there is the scheduled approach, which performs maintenance on a scheduled basis to make sure everything is in good working condition. Lastly, there is the ad hoc approach, which is reserved for emergencies and unforeseen circumstances.
“This is a growing market space, as facilities go beyond merely office buildings and government offices and include factories, hospitals, and malls – these are all facilities which need to be maintained (more stringently),” notes Feizal, who believes that the market space is big enough for IFM and other facility management players.
The PLUS connection and the way forward
It should be noted that Widad Group is not the company which had made an offer to acquire PLUS Malaysia Bhd, as that offer came from the group’s parent company Widad Business Group Sdn Bhd (WBSB), which owns 70% of the group’s shares.
WBSB had made an initial offer of RM1.5 bil to acquire 51% of PLUS, or RM3 bil for all of its concessionaires, from Khazanah Nasional Bhd and the Employees Provident Fund.
This is one of four offers that the government had received from the private sector for PLUS, with the others coming from Maju Holdings Sdn Bhd, private equity fund RJR Capital and businessman Tan Sri Halim Saad.
However, following a statement by Prime Minister Tun Dr Mahathir Mohamad that the offers from the private sector “do not reflect the bright prospects of PLUS,” WBSB upped its offer to acquire 100% equity interest in PLUS for RM5.3 bil.
After adding in the compensation waiver of RM3.04 bil and debt assumption of RM30 bil, the total enterprise value of the offer comes to RM38.34 bil.
This news has had an interesting effect on the share prices of Widad Group Bhd, which rallied from 32 sen on Oct 10, when the first offer was made, to 55 sen as of Dec 16.
Feizal notes that the rally could also have been a combination of the market responding positively to the group’s acquisitions of the two concessionaires for UiTM Negeri Sembilan and UiTM Malacca, as well as the PLUS offer from its parent company.
“The market could be hoping for a spillover effect to Widad from our parent company, should the bid be successful,” he says.
“However, our task remains clear, and that is to ascertain how we stand out, how to give value to our investors and shareholders and be sustainable in our business practices,” stresses Feizal, adding that the group, while currently recognised as a construction player by the market, may be re-identified as a construction and IFM player soon. – Jan 4, 2020
