OVERVIEW OF METRONIC GLOBAL BERHAD AND ITS SUBSIDIARIES (“THE GROUP”)’s BUSINESS AND OPERATIONS
Metronic Global Berhad (“the Company” or “MGB”) 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 business. 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, north and south of Peninsular Malaysia.
MGB previously ventured into property development under a wholly owned subsidiary MGL Development Sdn Bhd (“MGL”). MGL presently has 7.9 acres freehold development land in Kuala Krai Kelantan which was planned for the development of retail and commercial shops, terrace houses and bungalows.
MGB has also previously ventured into a research and development, importation and distribution of medical related products under a wholly owned subsidiary Metronic Medicare Sdn Bhd (“MMSB”). MMSB has participated in the 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. MMSB 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.
In line with the Group’s intention to expand its business 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”) has ventured into Smart City System development. MST focuses on research, development and marketing of 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, Singapore.
The Group, in the pursuit to create new revenue stream, has also ventured into solar business through a joint venture arrangement. The diversification that has been approved by the shareholders on 21 March 2022 is expected to provide a steady and recurring income to the Group which has been relying from contracts works.
The Group foresees the growth in E-Commerce businesses shall be able to provide opportunities to the Group. The Group therefore 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 Group has deconsolidated its subsidiaries namely, Metronic Microsystem (Beijing) Co. Ltd, Anhui Lai’an Metronic Water Supply Co. Ltd. and Metronic Engineering Private Limited. The companies have been inactive for years due to resignation of local key management personnel and have a very challenging business prospects. Notwithstanding that, MGB remains as a shareholder.
During the financial year, the key source of revenue for the Group remains 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.
The Movement Control Orders (“MCO”) implemented by the Government resulted from the COVID-19 outbreak has somehow affected the execution plans.
During the financial year, the management continues to review the performance of the Group’s business and operations, and formulate action plans required to meet the corporate objectives. The management places greater emphasize towards rationalization and optimization of its projects and operational costs in order to deliver higher margin to the business operations.
A part of its transformation program, the Group, leveraging on its experience in the engineering services, ventured into smart system technology, Solar PV business, and E-Commerce. The solar business segment shall be able to 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 has also been undertaken to address the working capital requirements particularly for its new ventures.
FINANCIAL HIGHLIGHTS
| FYE 22 RM '000 |
FYE 21 RM '000 |
|
| Revenue (continuing operation) | 39,589 | 29,471 |
| Gross profit (continuing operation) | 13,685 | 8,736 |
| Loss before taxation (continuing operation) | (3,887) | (21,527) |
| Net loss after tax | (7,362) | (22,116) |
| Total assets | 220,134 | 162,599 |
| Total Liabilities | 107,190 | 45,072 |
| Total borrowings | 9,874 | 7,831 |
| Shareholders’ equity | 112,944 | 117,527 |
| Net asset per share (sen) | 0.52 | 0.06 |
For the financial Year ended 30 June 2022 (“FYE 2022”), the Group recorded a revenue of RM39.59 million, increased by 34.3% compared to RM29.47 million recorded in the same period last year. The favorable performance recorded mostly due to Group’s ability to make a keen advancement on engineering progress billing from the ongoing key project namely Projek Mass Rapid Transit Laluan 2 Sungai Buloh - Serdang Putrajaya (“MRT 2”), Merdeka PNB KL 118 project for the main tower, as well as new Extra Low Voltage System works for a Belfield Tunnel project.
The Group’s financial performance during the year continues to be impacted by the residual effects of the COVID-19 pandemic, that had resulted to supply chain disruption, labor shortage and increase in material price. For the FYE 2022, the Group registered a net loss before tax of RM3.89 million. The amount was however improved from the net loss before tax of RM21.53 million recorded last year. During the financial year, the Group recorded a loss after tax of RM7.36 million resulted from a reversal of deferred tax assets of RM3.56 million as it anticipated the amount may not be able to be utilized within the stipulated period.
As at 30 June 2022, the Group’s total assets stood at RM220.13 million, increased by 35.4% compared to RM162.60 million as at 30 June 2021. The significant increase mainly reported in its fixed deposits balance resulted from the placement of funds of RM77.97 million received towards end of the financial year from the Group’s rights issue exercise.
Meanwhile, the Group also recorded higher total liabilities as at 30 June 2022 of RM107.19 million as compared to RM45.07 million as at 30 June 2021. The increase was mainly attributed to the funds from rights issue exercise received towards end of the financial year impending conversion into share capital.
Total outstanding borrowings as at 30 June 2022 was RM9.87 million, increased marginally from RM7.83 million reported as at the end of the previous financial year.
As at 30 June 2022, the Group’s total equity stood at RM112.94 million, lower compared to RM117.53 million as at 30 June 2021. The decrease was mainly resulted from the loss after tax recorded during the current financial year however the amount had been partially offset by RM2.21 million increased in capital raised through a private placement exercise undertook during the financial year. The MRT2 project secured in March 2018 worth RM50.00 million has started the installation work in December 2020 after a long delayed due to the change in government back in the year 2018 and the revision of the design. During the financial year, the Group has been able to perform about 39.0% of the contracts works and the revenue generated from the project accounted 54.3% of the Group’s total revenue from engineering contract works.
During the financial period, about 36.1% 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 RM59.00 million. The installation work for the tower that was started gradually in year 2020 only started picking up after the upliftment of MCO restriction in July 2021. For the Retail Mall and Hotel, the physical works only commenced in fourth quarter 2020.
The Group’s services and maintenance division had been badly affected by the pandemic in last financial year mostly due to suspension or postponement of services requested by customers as well as cancellation of contracts due to closure of the customers’ business. During the financial year, the services and maintenance segment started to pick up and it had contributed about 9.2% of the Group’s total revenue.
The Group managed to record a higher gross margin of 34.6% as compared to previous year of 29.6% due to various measures undertook by the management included a cost optimization for project and operation costs, tight control on treasury operations and better management of the delivery lead time from oversea manufacturers.
OPERATIONAL ACHIEVEMENTS
During the financial year, the Group has prioritized its resources towards accelerating the progress of its ongoing key projects namely MRT2, PNB Merdeka 118 that consist three packages for Tower, Hotel and Retail Mall. The Group has been able to obtain the extension of time (“EOT”) 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.
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 the development of 179 units retail and commercial shops, terrace houses and bungalows, if resume, is estimated to record a Gross Development Value (“GDV”) of RM73.9 million.
The Group continued to pursue progress for its SMART solution project under joint venture arrangement with Singapore based JF Strategic Management Pte Ltd (“JFSM”). The progress however has been affected due to the resurgence of COVID-19 cases in both countries during the financial year.
Under the arrangement, a joint venture company - Metronic JF System Pte Ltd has been setup in Singapore to undertake 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:
of development of digital factory for plating processes with space and process re-design, process management, automation and project management;
implementation of radio shuttle pallet storage system and Vertical Lift Modula for entire warehouse; and
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 team is currently in the final stage preparation for the proposals to be marketed to manufacturing companies operating in Singapore and expected to approach potential customers by the end 2022.
During the financial year, the Group has ventured into Solar Power Purchase Project subsequent to the Memorandum of Agreement (“MOA”) entered with Earthech Energy Sdn Bhd (“ETSB”) on 1 July 2021 and the subsequent Subscription and Joint Venture Agreement (“the SJV Agreement”) entered on 15 October 2021 with ETSB and Mr Chew Keng Yaw. The SJV agreement detailed out the terms of agreements for the parties in the proposed undertaking that will include to carry out the marketing, design, research and development and installation of solar power system as well as to provide after-sales services support thereafter.
In pursuant to the SJV Agreement, a new joint-venture company, namely Sinaran PPA Sdn Bhd (“SPSB”), has been incorporated and MGB has acquired a 70% interest in SPSB that shall be used as a vehicle to undertake the project. SPSB has been registered as Solar PV Investor (“RPVI”) with Sustainable Energy Development Authority (“SEDA”).
During the financial year, SPSB has secured two (2) power purchase agreements (“PPA”) with a total capacity of 4.121 Megawatt (“MW”). Currently, SPSB is in the midst of conducting the engineering, procurement, construction and commissioning (“EPCC”) for the said projects in Northern Region.
The Group, during the financial year, has also deployed resources and allocated substantial investment to develop the Information Technology system and 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 that will improve the business process efficiency and effectiveness, and customer experience.
During the financial year, the Company has undertaken the following corporate exercises the objectives among others to enable the Group to diversify into an additional income stream, to improve capital structure and to raising funds required for its working capital. The exercises are as follows;
The consolidation of the Company’s every 10 existing ordinary shares into 1 Share (“Consolidated Shares”);
The diversification of the Group’s existing business to include the design, research and development, installation, engineering, procurement, construction, commissioning and maintenance of solar PV panels, equipment and facilities and other related activities including solar leasing; and
The issuance of rights issue shares with free warrants on the basis of 6 Rights Shares together with 2 free Warrants B for every 1 Consolidated Share held by the entitled shareholders.
The above exercises have been approved by Bursa securities and the shareholders on 24 January 2022 and 21 March 2022 respectively. The share consolidation was completed on 23 May 2022.
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. The progress has been slow due to various restriction imposed by the local government to contain the COVID-19 outbreak.
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 the customers and suppliers.
The Group’s financial performance is very much dependent on work order and its 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. It was very challenging to secure new contracts with decent profit margin especially after the COVID-19 pandemic hits the country. The cost of equipment kept increasing whilst suppliers and sub-contractors tightened their contract terms. It was also a challenge to the Company in getting timely payment from client. Despite these challenges, the Group has taken appropriate measures to address these challenges with the view of maximizing profit margin and reducing cost in mind.
Being involved in the skilled intensive industry, the retention of skilled and experienced personnel and engineers remain key challenges despite continuous effort and measures being undertaken to maintain our talent pool in anticipation of securing more major projects ahead. 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 lot of resources needed to resolve the case especially in this post COVID-19 global pandemic outbreak and the implementation of rigid control measurements in China in line with their zero-COVID-19 policy.
Notwithstanding the above, the Group continues to leverage its long-term strategic relationship with the existing and potential business associates and partners that would enable to smoothen and improve the business process efficiency as well as cost effectiveness. MESB 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 products suppliers and manufacturers for distributorship and Original Equipment Manufacturing (“OEM”) arrangements.
The Group’s Business Transformation Program to strengthen its business foundation is still on-going. The program amongst other, has identified key action plans required to improve its capability and competency, and it covered 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 favorable outlook due to the increase in environmental awareness and available incentives will be able to spur the business segment and subsequently contributing towards a long-term stable income stream and positively improving the financial performance.
Despite all the challenges and difficulties faced by the Group, we are committed in 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 its ability to achieve its operational and financial objectives:
Reducing construction and infrastructure projects due to economic and political environment;
Lower success rate in securing tender due to highly competitive pricing and entrance of new players; 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 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 working environment to a more conducive and corporate image, and adopting latest technology to improve efficiency and productivity of staff.
SIGNIFICANT CORPORATE DEVELOPMENTS
During the period, the Company has undertaken several corporate developments which was part of its transformation program towards improving financial performance, capital structure and addressing working capital requirements.
On 1 July 2021, the Company announced that it had entered into a Memorandum of Agreement (“MOA”) with ETSB to regulate their working relationship in the formation of a joint venture for the Solar Power Purchase Project.
Subsequently on 15 October 2021, the Company entered into a Subscription and Joint Venture Agreement (“the SJV Agreement”) with ETSB and Mr Chew Keng Yaw. The SJV agreement detailed out the terms of agreements for the parties on the proposed undertaking that will include to carry out the marketing, design, research and development, and installation of solar power system as well as to provide after-sales services support thereafter. In pursuant to the SJV Agreement, the Company has acquired a 70% interest in SPSB that shall be used as a vehicle to undertake the project.
On 19 November 2021, the Company announced its proposal to undertake the following corporate exercises:
proposed diversification of its existing core business in engineering services to include the design, research and development, installation, engineering, procurement, construction, commissioning and maintenance of solar PV panels, equipment and facilities and other related activities including solar leasing (“Solar Energy Business”) (“Proposed Diversification”);
proposed consolidation of every its existing 10 ordinary shares in into 1 Share (“Consolidated share”); and
proposed issuance of renounceable rights issue of up to 1,742,433,306 new Shares together with up to 580,811,102 free detachable warrants in the Company on the basis of 6 Rights Shares together with 2 free Warrants B for every 1 Consolidated Share held by the entitled shareholders on the entitlement date (“Proposed Rights Issue with Warrants”).
On 24 January 2022, the Company announced that the above proposals have been approved by Bursa Securities. Subsequently on 21 March 2022, the proposal had also been approved by the shareholders in their Extraordinary General Meeting.
On 15 March 2022, the Company announced the expiry of its warrant A 2019/2022 issued in pursuant to a Deed Poll dated 1 March 2019 constituting the Warrants 2019/2022.
On 20 May 2022 the Company announced the consolidation of its every 10 existing shares into 1 share.
On 23 May 2022, the Company announced the completion of its shares consolidation exercise following to the listing and quotation of 216,857,919 Consolidated Shares on the Main Market of Bursa Securities.
On 13 July 2022, the Company announced the completion of its rights issue exercise following to the listing and quotation of 1,299,562,731 Rights Share and 433,187,525 Warrants B on the Main Market of Bursa Securities.
FORWARD-LOOKING STATEMENT
The Group is mindful of the challenges ahead for the engineering segment with the industry intense competition, supply chain disruption, prices increase and the uncertainty in economic and political situation. The delay in the implementation of mega rail infrastructure projects namely High-Speed Rail, MRT3 and other commercial projects has also affected the construction industries overall. The Group however remains optimistic of the prospect in the engineering services works, which consist of BMS, ELV and AVS businesses continue to grow with the expected commencement of high profiled construction project such as MRT3 and few other commercial building projects.
The Group to-date has submitted tenders for RM70.56 million and identified few potential works in the pipelines. Based on the various initiative undertaken to mitigate the risks, with our 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 this engineering services and building management system technology solutions provider industry.
The Group continues to strengthen the team and business strategies in order to build up a strong order book, as well as to further progress in its ventures into solar and E-commerce business. The Group will continue taking various measures to enhance operational efficiency and effective cost management in order to improve the financial performance of the Group.