OVERVIEW OF THE GROUP’S BUSINESS AND OPERATIONS
Metronic Global Berhad (“MGB” or “the Group”) through its wholly owned subsidiary, Metronic engineering Sdn Bhd (“MeSB”), is involved in the engineering services works. MeSB has been in the industry since 1984 and considered to be one of the local pioneers in the engineering services industry. MeSB specializes in design, supply, install, testing and commissioning, and service and maintenance of Integrated Building Management System (“IBMS”), Building Management System (“BMS”), energy Management System (“eMS”), Security System (Card Access, CCTV System, Guard Tour and Car Parking System), Information and Communication Technology System (“ICT”), extra Low Voltage System (eLV), Integrated Security Management System (“ISMS”), e-Project Management (“e-PM”) of mechanical and electrical service, sales and distribution of electronic products and integrated facilities management system. The business operations are primarily located in Malaysia with offices in Shah Alam, Selangor and Johor Bharu, Johor.
MGB’s wholly owned subsidiary, MGL Development Sdn Bhd (“MGL”), has 7.9 acres of freehold lands in Kuala Krai, Kelantan which is planned for a mixed development consist of retail and commercial shops, terrace houses and bungalows.
MGB, via its wholly owned subsidiary Metronic Medicare Sdn Bhd (“MM”) has participated in a research program of Covid-19 Neutralizing Antibody Test Kit (“Test Kit”). The test kit is expected to provide an easy way to assess the patients’ immunity system against the Covid-19 infection. MM has obtained an establishment License from Medical Device Authority (“MDA”) on 11 August 2022 and is presently in the process of product registration with MDA. MM is also expected to be involved in the importation and distribution of medical related products.
In line with the Group’s expansion plan into the provision of smart solutions services, and Internet of Things (“IoT”), the Group, through its wholly owned subsidiary, Metronic Smart Tech Sdn Bhd (“MST”) that has formed a joint venture company, Metronic JF System Pte Ltd, has undertaken a research and development of smart city system solution. Presently the company is focusing on building automation and security system products, modules and production of an automated storage and retrieval system based on technologies of Industry 4.0 to be used for smart factories within the estate of Jurong Town Corporate.
The Group, via its 70% owned subsidiary, Sinaran PPA Sdn Bhd (“SPSB”), is involved in the marketing, design and installation of solar power system. SPSB is a Registered Solar PV Investor (“RPVI”) with Sustainable energy Development Authority (“SEDA”). SPSB, has secured two (2) Power Purchase Agreements (“PPA”) with a total capacity of 4.121 Megawatt (“MW”).
The Group foreseen the growth in e-Commerce businesses shall be able to provide opportunities to the group. The Group therefore, via its wholly owned subsidiary, Metronic Integrated System Sdn Bhd (“MISSB”), had embarked its e-Commerce business through a development of e-Commerce platform to market and sell various engineering products and services. The e-Commerce business is synergized to the existing engineering business as it is expected to facilitate the existing customers ordering process as well as being a business enabler for its service and maintenance works.
During the financial year, the main contributor to the Group’s revenue derived from the engineering services segment. The property development in Kuala Krai, Kelantan undertaken by its wholly owned subsidiary MGL remained stalled temporarily due to impending finalization of actions plans to resume the development works. The Group has yet to register any revenue from its ventures into Smart City, medical products and solar business that are presently under development.
BUSINESS TRANSFORMATION PROGRAM
The Group has commenced a transformation journey in 2020 whereby it has undertaken a comprehensive review of the viability of its business and operation. Based on the results of the review, the Group has identified and undertaken several improvements measures includes to enhance all the current workflows, procedures, policies and practices used by various divisions for efficiency, effectiveness and most importantly, strengthening the corporate governance and policies. The Group has also explored and pursued other potential business opportunities towards expanding the revenue stream.
During the financial year, the management continued to review the performance of the Group’s business and operations, and formulated action plans required to meet corporate objectives. The management placed greater emphasize towards rationalization and optimization of its projects and operational costs in order to improve profit margin.
As part of its transformation program, the Group by leveraging on its experience in the engineering services, ventured into smart system technology, Solar PV business, and e-Commerce. The solar business segment would provide opportunity to diversify into a stable and recurring revenue stream besides contributing towards reducing carbon emission. The smart system solution and e-Commerce business are complemented and synergistic with its existing core business in engineering services. A capital raising exercise had also been undertaken to address the working capital requirements particularly for its new ventures.
FINANCIAL HIGHLIGHTS
For the financial ended 30 June 2023, the Group recorded a revenue of RM36.1 million, 9% lower compared to RM39.6 million recorded in the same period last year, mainly due to lower revenue recorded for MRT2 and KL118 Tower projects that were in the final stage of completion during the current year. However, this was partially offset by the increase in revenue from KL118 Hotel project. MRT2, KL118 Tower and KL118 Hotel projects accounted for 21%, 8% and 35% respectively of the total revenue for the year.
For the period of twelve months, the Group reported a Loss Before Tax (“LBT”) of RM10.1 million as compared to a LBT of RM4.8 million reported last year. In addition to the lower revenue and gross profit, the Group’s performance during the financial year was affected by an impairment of intangible assets of RM3.0 million, loss on fair value change of investment in quoted shares of RM1.2 million and amortization of intangible assets of RM1.2 million.
As at 30 June 2023, the Group’s total assets stood at RM211.1 million, signifying a reduction of 3.2% compared to RM218 million as at 30 June 2022. The reduction in total asset mainly attributed to the reduction in the fixed deposits and cash balance of RM10.7 million due to withdrawal and utilization for business and operational requirements.
Meanwhile, the Group reported a total liability of RM30.7 million, representing a reduction of RM75.4 million, compared to 30 June 2022 of RM106.1 million. The significant reduction was attributed to the conversion of proceeds from the rights issue exercise received towards end of the financial year, which were converted into share capital.
Total outstanding borrowings as at 30 June 2023 recorded RM9.6 million, representing a slight reduction as compared to the previous financial year of RM9.9 million.
As at 30 June 2023, the Group’s total equity stood at RM180.4 million, which is higher compared to RM112.0 million as at 30 June 2022. The increase was due to the issuance of new shares from rights issue exercise of RM78.0 million, which was partially offset by a loss after tax recorded during the current financial year of RM10.6 million.
The MRT2 project secured in March 2018 worth RM49 million has started the installation work in December 2020. During the financial year, the Group has been able to perform approximately 20% of the contracts works and the revenue generated from the project accounted to 21% of the Group’s total revenue.
During the financial period, about 49% of the Group’s revenue from engineering contracts works was contributed by Merdeka PNB 118 three packages consists of Audio Visual and Information Technology System for Tower, and the supply, deliver, installation, testing and commissioning of the Audio-Visual System and Information Technology System for the Retail Mall and Hotel respectively with the total contract value collectively of RM58.7 million.
The Group’s services and maintenance works had contributed about 9.8% of the Group’s total revenue.
The Group recorded a gross profit of 15% during the year, which is lower compared to 34% recorded in financial year 2022, mainly due to lower contribution from MRT2 project that has higher gross profit margin compared to Merdeka PNB118 Projects.
OPERATIONAL ACHIEVEMENTS
During the financial year, the Group had prioritized its resources towards accelerating the progress of its ongoing key projects namely MRT2, PNB Merdeka 118 that consist three packages of Tower, Hotel and Retail Mall. The Group has been able to obtain extensions of time required mainly resulted from the delay in contract works due to the delay in other civil and construction works. The Group’s work progress was very much dependent on the site readiness that were undertook by other contractors.
During the financial year, the Group, via its wholly owned subsidiary – Metronic Engineering Sdn Bhd (“MESB”) received a sub-contract work of RM2.0 million for building and supervisory system for Hospital Pasir Gudang, Johor.
MGL which is the Group’s property development’s arm, is currently in the midst of finalizing actions plans to develop its 7.9 acres freehold development land in Kuala Krai, Kelantan. Based on the original plan, the project consisted of the development of 179 units retail and commercial shops, terrace houses and bungalows, if resumed, is estimated to record a Gross Development Value (“GDV”) of about RM73.9 million.
The Group continues to pursue progress for its SMART solution project under the joint venture arrangement with Singapore based JF Strategic Management Pte Ltd (“JFSM”). Under the arrangement, a joint venture company – Metronic JF System Pte Ltd has undertaken the research, development and marketing of building automation and security system products, modules and any kinds of smart products. The company is also expected to participate in the development of Smart Factories and Space Optimization with the following scope of work:
- a) Development of a digital factory for plating processes with space and process re-design, process management, automation and project management;
- b) Implementation of radio shuttle pallet storage system and Vertical Lift Modula for the entire warehouse;
- c) Development and building of SMART warehouse of storage of scaffold or/and construction material through implementation of Radio Shuttle pallet system and customized heavy duty Automated Storage and Retrieval System (“ASRS”).
The Group, via its 70% owned subsidiary Sinaran PPA Sdn Bhd (“SPSB”) has commenced the preliminary design and construction works of a solar power system for its two (2) secured contracts, two (2) Power Purchase Agreements (“PPA”) with a total capacity of 4.121 Megawatt (“MW”).
During the financial year, the Group has also deployed resources and allocated substantial investment towards completing the development of its on-line platform that will enable to integrate the Group’s various systems includes Services Web & Mobile Apps, e-Commerce Platform, Customer Platform, and Logistic/supply chain Platform. The systems and platforms are not just expected to provide additional revenue, instead, also becoming a business processes enabler to improve the business process efficiency and effectiveness, and customer experience.
The Group continues to pursue recovery and resolutions of the on-going legal cases in China with regard to the recovery of outstanding rental and unauthorized transfer of one unit of office property held by its wholly owned subsidiary, Metronic Microsystem (Beijing) Co. Ltd.
OPERATIONAL CHALLENGES AND IMPROVEMENT INITIATIVES
In the pursuit to propel and remain ahead in the competitive industry, the Group is mindful of the challenges and risks, and has continued to take necessary measures to ensure its ability to achieve its operational and financial objectives.
The Group acknowledged the importance of all relevant stakeholders and has given high attention particularly to the customers and suppliers.
The Group’s financial performance is very much dependent on work orders and margin. During the financial year, the construction industry specifically related to building management system became more competitive with limited opportunity as a result of the delay in the projects award, entrance of new players, and an increase in contract costs. The cost of equipment kept increasing while suppliers and sub-contractors tightened their contract terms. It was also a challenge to the Group in receiving timely payments from Clients. Despite these challenges, the Group has taken appropriate measures to address these challenges with the view of improving profit margin and optimizing cost in mind.
Being involved in the skilled intensive industry, the retention of skilled and experienced personnel and engineers remains a key challenge. Efforts have been put to upgrade the employees’ technical skill and maintain a competent team to stay competitive.
During the financial period, the Group continued to place the required resources towards attending several long outstanding issues such as the recovery of its property in Beijing, China under legal proceedings. It is foreseen that the case nature may take time and a lot of resources needed to resolve the case especially in this post COVID-19 global pandemic outbreak.
Notwithstanding the above, the Group continues to leverage its long-term strategic relationship with the existing and potential business associates and partners that would improve the business process efficiency and cost-effectiveness. The Group continues to pursue progress of its joint venture arrangements in order to meet the objectives.
The Group has also formed a dedicated team to explore and engage with engineering product suppliers and manufacturers for distributorship and Original Equipment Manufacturing arrangements.
As part of the Group’s Business Transformation Program, the Group amongst other, had identified key action plans required to improve its capability and competency, which includes the improvement of the governance structure, business policies, and work processes, performance management system, and other work processes enablers.
The Group believes the diversification into Solar business which has a favorable outlook due to the increase in environmental awareness and available incentives which will spur the business segment and subsequently contribute towards a long-term stable income stream.
Despite all the challenges and difficulties faced by the Group, we are committed to ensuring the Group’s long-term growth by continuously exploring and pursuing available opportunities that are prospective to increase shareholders’ value.
ANTICIPATED OR KNOWN RISKS
Following are risks identified which may affect the Group’s ability to achieve its operational and financial objectives:
- Reducing construction and infrastructure projects due to economic condition;
- Unsuccessful tenders due to highly competitive pricing and entrance of new players;
- Project costs overrun due to prolongation of contracts period and increase in equipment price; and
- Loss of talented and skilled employee.
Plans to mitigate risks, among others:
- Collaborate with key players in the complement works such as ICT, Mechanical & electrical contractors and Air Cond contractors will create synergy in the pursuit to bid and participate in more sizable contract works;
- Collaborate with the key equipment suppliers to enhance product features and the required certifications to improve bidding price competitiveness;
- Establish a Research and Development unit to create better BMS solution and reduce product cost. The center will also play a pivotal role in creating more functions and interfacing with more devices, technology and internet of things (“IoT”);
- Form dedicated teams to explore other similar or complement business related opportunities;
- To place greater focus on staff development programs;
- Attract talented staff by changing the working environment to a more conducive and corporate image, and adopting the latest technology to improve the efficiency and productivity of staff.
SIGNIFICANT CORPORATE DEVELOPMENT
On 13 July 2022, the Group announced the completion of its rights issue exercise following the listing and quotation of 1,299,562,731 Rights Share and 433,187,525 Warrants B on the Main Market of Bursa Malaysia Securities Berhad.
FORWARD-LOOKING STATEMENT
The Group is mindful of the challenges ahead for the engineering segment due to the intense competition, supply chain disruption, price increase, and the uncertainty in the economic situation. The Group, however, remains optimistic about the prospect in the engineering business segment as it will continue to grow due to the expected commencement of high-profiled construction projects.
The Group to-date is pursuing contracts totaling to RM219 million and identified few potential works in the pipelines. Based on the various initiatives undertaken to mitigate the risks and the combined expertise and experience, financial resources, and technical strength, we are optimistic to secure more contracts, and regain our market share and leadership position in the engineering services and building management system technology solutions provider industry.
The Group continues to strengthen the team and business strategies in order to build a strong order book, as well as to further progress in its ventures into solar and e-commerce business. The Group also continues taking various measures to enhance operational efficiency and effective cost management to improve the financial performance of the Group.