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The much anticipated implementation of the projects under the Ninth Malaysian Plan (9MP) did not quite meet the high expectation of the construction industry in 2006. Construction industry suffered a contraction due to the lack of new projects coupled with high raw materials prices in cement, steel and diesel.
Notwithstanding the above, the rolling out of certain projects under the 9MP towards the end of 2006 will spearhead the momentum for a speedy recovery in the construction sector. The Government has stressed on the importance of fast implementation of the projects under the 9MP as evidenced by the mega projects identified in growth areas like South Johore Economic Zone (now known as Iskandar Development Region), the Northern Region and the Eastern Region. 2007 will see the construction sector staging a fast pace recovery, hyped up by the 9MP and in anticipation of the continuous rolling out of projects.
Financial Review
The financial performance of the Group was impacted by the lower off take of quarry materials due to the slow implementation of the 9MP projects resulting in low demand for quarry materials. Higher energy and production costs also continued to impact on our bottom line. Exceptionally wet weather conditions across Peninsular Malaysia also contributed to the slow execution of our road projects.
For the year ended 31 December 2006, the Group recorded a higher turnover of RM118.6 million which is 25.8% higher than 2005 of RM94.3 million. However, net profit for the Group fell 51% to RM2.46 million compared to a net profit of RM5.04 million for 2005 due to the above mentioned adverse factors.
At the Company level, revenue recorded for the year 2006 was RM4.5 million as compared to RM3 million for 2005. Net profit of the Company achieved was RM0.66 million as compared to RM2.9 million for 2005. The net assets per share were RM1.26 (2005: RM1.23) while net earnings per share were 4.47 sen (2005: 10.18 sen).
Review of Operations
Quarry Operation
Despite the challenging conditions faced by the industry in 2006, our quarry operation was able to sustain its revenue inspite of lower profit due to the high energy cost, in particular. Turnover was recorded at RM61.4 million as compared to RM61.6 million for 2005 while profit before tax achieved was RM3.03 million as compared to RM4.51 million for 2005.
The Group currently operates 17 quarries including 1 quarry in Karimun, Riau Island, Indonesia. The management is constantly on the look out for more quarries at strategic locations and maintaining our position as the leading turnkey quarry operator in the country.
On the overseas front, the Group has set foot in Indonesia with the acquisition of quarry rights and assets from Batu Ayer Granite Pte Ltd, a company incorporated in Singapore in November 2006, for the operation of a quarry in Karimun, Riau Island including the marketing of the quarry products.
The quarry products will be mainly exported to Singapore to capitalise on its high demand of the quarry materials in anticipation of the launching of its two mega casino cum theme park projects.
Civil Engineering Works
Our construction company had recorded a higher revenue of RM36.0 million as compared to RM18.8 million for 2005 due to the commencement of new projects namely the 3rd lane road widening from Rawang to Slim River, Rawang By-Pass and Teluk Kumbar project, Penang. However, its revenue could have been higher if not due to the exceptionally long raining spell which invariably affected our progress of work.
Lower profit before tax of RM0.80 million (2005: RM2.78 million) was achieved mainly due to the additional and higher cost incurred in the delay of the progress and late completion of the projects.
With the implementation of the 9MP, there will be opportunities for the Group to secure projects synergistic to our core business in quarrying and road construction. However, the Group will be more prudent and selective in the participation in the projects that are to be rolled out from the 9MP.
Sales and Marketing
Sales and marketing activities recorded a revenue of RM22.4 million as compared to RM19.5 million for 2005. However, profit before tax achieved was RM0.14 million (2005: RM1.05 million) due to higher purchase price from K.S. Chin Minerals Sdn Bhd and the reclassification of certain expenses from cost of sales to operating expenses resulting in lower profit margin.
The slow progress in the execution of our 3rd lane widening project from Rawang to Slim River and also delay in the commencement of two of our quarries had in a way mitigated our quarry sales.
Premix Products
Premix operation recorded a higher revenue of RM9.5 million as compared to RM7.0 million for 2005. Profit before tax also increased to RM345,634 (2005: RM44,718).
The higher revenue achieved was partly due to the resumption of pavement works by the contractors resulted from the stabilisation of the bitumen price. Revenue and profit would have improved if not due to the slow progress in the pavement work of our 3rd lane widening project from Rawang to Slim River.
Industrial Spare Parts
Revenue from Industrial Spare Parts division was mainly derived from intercompany sales and sales to subcontractors. Revenue for 2006 was RM2.2 million (2005: RM7.9 million) while incurring a small loss before tax of RM74,885 (2005: profit before tax stood at RM159,325).
Manufacturing
A Joint Venture Agreement between Minetech Resources Berhad and Korea Petroleum Industrial Co. Ltd was signed on 27 June 2006 to form a joint venture company on a shareholding ratio of 51:49. The venture will spearhead the Group's effort into synergistic manufacturing business and expand our business portfolio into the growth sectors like water and oil and gas sectors.
The joint venture company (Minetech Korea Petroleum Industrial Sdn Bhd) will initially manufacture and market bituminous compounds for the coating of water and gas pipes and subsequently expand its manufacturing into more value added products. The said venture will contribute positively to the Group from year 2007 onwards.
Dividend
I am pleased to announce that the Board has recommended a first and final dividend of 2 sen less 27% tax per ordinary share of RM1.00 for your approval in the forthcoming Annual General Meeting.
Corporate Developments
During the year, the Group had embarked on a fund raising exercise and successfully completed the issuance of Islamic Private Debt Securities by way of up to RM100 million Partially Underwritten Murabahah Notes Issuance Facility/Islamic Medium Term Notes Issuance Facility (MUNIF/MTN) in September 2006.
Rating Agency Malaysia (RAM) had assigned a respective long-term and short-term ratings of A2 and P2 to our MUNIF/MTN.
The fund raising exercise will enable the Group to tap into cheaper debt capital markets to meet our future cash flow requirements.
Future Prospects and Outlook
The challenging conditions faced by the construction industry in the past 2 years are likely to be cushioned by the implementation of the 9MP. The construction sector is poised to stage a long awaited recovery for the next 3- 5 years.
Our Prime Minister has stressed on the importance of the swift implementation of the projects under the plan and had since rolled out some mega projects at the end of 2006. Several growth areas have been identified such as the Iskandar Development Region (Johore), the Northern and Eastern Regions. We anticipate that the implementation of the said mega projects will create a huge demand of quarry materials and our Group will tend to gain from the demand.
Our new quarries, both in Peninsular Malaysia and overseas, together with our joint venture in the manufacturing sector will begin to contribute from the year 2007 onwards.
Acknowledgement and Appreciation
On behalf of the Board of Directors, I would like to express again my appreciation to the management and staff of the Group for their dedication and contribution. To the shareholders, financials, customers, we thank you for your continuous support.
Chin Kim Sang
Executive Chairman
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