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KUALA LUMPUR: MKH Bhd’s RM675 million turnkey construction contract (TCC) from Puncak Alam Resources Sdn Bhd is considered unusual and puzzling. The group’s construction outfit makes only a small margin compared to its core expertise as a property developer, say analysts.
“The group’s construction margin is small relative to its contributions from property development,” said an analyst.
Usually, it is contractors who move into property development but not the other way around. When contacted on this, group managing director Datuk Eddy Chen said MKH is open to taking on more turnkey construction contracts if the profit margin is satisfactory.
“The expected operating profit margin from this project is in the range of the low- to mid-teens,” MKH said in reply to The Edge Financial Daily.
The TCC project awarded to MKH’s wholly-owned subsidiary Pelangi Seri Alam Development Sdn Bhd is for the construction of residential and commercial properties over a period of five years in Jeram and Ijok, Kuala Selangor, on about 223ha land, translating into RM135 million per year.
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| Chen: MKH open to taking on more turnkey construction projects. |
For 1QFY12 ended Dec 31, 2011, the group recorded a jump of 139% in profit to RM16.5 million from RM6.9 million a year ago. This was on the back of a 135% spike in revenue to RM121.6 million from RM51.7 million.
MKH cited a higher percentage of recognised profit in ongoing and new projects from its property and construction divisions. At the end of the quarter, the group said it still had unbilled sales of RM356 million from developments which were in the process of completion.
The company’s property and construction division recorded a jump of 293.8% in profit before tax to RM19.3 million from RM4.9 million a year ago. This was on the back of a 274.2% spike in revenue to RM84.2 million from RM22.5 million.
“Usually developers outsource or open to tender for contractors but there are exceptions whereby they use their own construction outfit in order to lessen the cost of building,” said the analyst, adding that this latest job is MKH’s first major construction contract.
In an interview with The Edge’s City&Country in December 2011, Chen said the group was still on the lookout for land in Semenyih as the area was still relatively inexpensive.
Currently, it is developing three out of four parcels of land in the area — Pelangi Semenyih 2, Hillpark 2 and Hillpark 3, which are mixed use developments comprising 2-storey link houses, semi-detached houses, superlinks and shopoffices. The estimated gross development value (GDV) for the developments are RM360 million, RM150 million and RM320 million respectively.
