9 Things To Know About MN Holdings Berhad Before You Invest

Underground utilities and substation engineering specialist MN Holdings Berhad (“MNHB”) expects to raise RM17.2 million under its listing on Bursa Malaysia’s ACE Market, which is tentatively slated for April 28. 

If you are looking at MNHB with interest, here are 9 things to know before you invest.

1. Business overview

MNHB is principally involved in the provision of infrastructure utilities, construction services and solutions, serving customers in the power, gas, sewerage, and telecommunications industries in Malaysia. 

Its primary business activities relate to the provision of:

  • Underground utilities, engineering services and solutions

Procure, supply, deliver, install, lay, construct, test and commission as well as inspect, repair, and maintain underground utilities or product pipelines that form the overall utility systems.

  • Substation engineering services and solutions
  • Design and establishment of indoor and outdoor electrical substations, structural and civil construction for medium and high voltage power substations, medium and high voltage underground cabling and overhead line systems for transmission and distribution lines; and
  • Project management, construction, installation, testing and commissioning of medium and high voltage power substations, medium and high voltage underground cabling and overhead line systems for transmission and distribution lines. 

The company has more than 13 years of operating history in Malaysia and is registered as a Grade 7 (commonly known as G7) contractor with Construction Industry Development Board (CIDB) for the categories of Building (B), Civil Engineering (CE) and Mechanical Engineering (ME). 

The CIDB G7 contractor registration is the highest accorded grade issued by CIDB that allows participation in tenders for projects with unlimited contract value throughout Malaysia, therefore the company is not restricted by any tender limit.

In addition, MNHB is registered as G7 contractor under Sijil Perolehan Kontrak Kerajaan (SPKK), which enables its participation in tenders for government projects of unlimited contract value throughout Malaysia. 

2. Competitive strengths 

MNHB lists its competitive strengths as follows. 

  • Synergies between operating subsidiaries to serve the power utility sector in Malaysia which allows the company to serve the power utility sector in Malaysia, from power generation to transmission and distribution.
  • Established presence in the underground utilities and substation engineering segments with over 10 years of operating history
  • Expertise in undertaking a comprehensive range of services for underground utility engineering projects requiring open trench excavation method and trenchless method. 
  • Own range of machinery to take on various sizable underground utility projects. At present, MNHB owns 22 units of HDD machines, 3 units of excavators and 3 units of pipe jacking machines.  
  • Capability to provide integrated solutions with execution capabilities for substation engineering projects which can position the company favourably to secure contracts for large-scale and complex substation engineering construction projects. 
  • Dedicated management and project teams where its Executive Directors, Dato’ Toh and Loy Siong Hay have 18 years and 25 years of experience, respectively, in underground utility engineering. 

3. Ongoing contracts and order book

Ongoing contracts

Currently, MNHB has 174 ongoing projects with a total contract value of RM258 million and an unbilled contract value of RM126 million. 

(Source: Draft IPO prospectus)

Revenue is recognized progressively over time based on the work performed under such contacts. The balance contract value of ongoing projects is estimated to be fully recognized over the next 6 to 24 months. 

Order book

MNHB has completed over 375 contracts during the track record period comprising:

  1. 228 contracts in the underground utility engineering services and solutions segment with a total contract value of approximately RM195 million; and
  1. 147 contracts in substation engineering services and solutions segments with a total contract value of approximately RM66 million.

Currently, the company’s total order book is approximately RM172.2 million, comprising RM135.4 million from the underground utility engineering services and solutions segment and RM36.8 million from the substation engineering services and solutions segment. This order book will be recognized progressively over the next 1 to 4 financial years as below.

(Source: Draft IPO prospectus)

4. Growth strategies and future plans

MNHB’s business objectives are to maintain sustainable growth in its business and create long term shareholder value. To do so, the company will implement the following strategies:

  1. Enhance machinery and equipment to expand the scale of projects, as this allows the company to have better cost control and estimates for bidding on construction projects and enhance its flexibility in managing projects. 
  1. Venture into other underground utility engineering segments, namely piped water and sewerage distribution by leveraging on current capabilities.
  1. Venture into the assembly of neutral disconnectors for sales and distribution in Malaysia. In 2020, its subsidiary entered into a distribution agreement with Lucy Asia Pacific for the sales and distribution of neutral disconnectors in Malaysia. MNHB intends to resume and finalize the negotiations upon reopening of borders and lifting of travel restrictions. 
  1. Secure more LSS substation projects to strengthen its substation engineering services and solutions business segment. 

5. Utilization of proceeds 

MNHB expects to use the total estimated gross proceeds raised of RM17.2 million in the following manner.

(Source: Draft IPO prospectus)

34% or RM8.4 million of the gross proceeds will be used to purchase the following machinery and equipment from local suppliers.

(Source: Draft IPO prospectus)

6.  Risk factors

The key risks factors are as follows.

  1. Concentration risk on its major customer, Rentak Segar. MNSB had on 1 February 2017 entered into a joint venture agreement with Rentak Segar where MNSB was appointed by Rentak Segar as its exclusive partner for the implementation of medium voltage and high voltage underground engineering services and solutions for power utilities.

    Rentak Segar is a TNB-approved main contractor for underground power utilities construction. Under the joint venture agreement, Rentak Segar will exclusively award the projects relating to undergrou nd utilities engineering services to MNHB. Rentak Segar will then act as the project manager to monitor the project progress and quality of work, as well as the liaison with the project owner for verification of work completed.

    Rentak Segar, being MNHB’s major customer, contributed significantly to the company’s revenue as disclosed below.
      
  1. Inability to accurately estimate projects costs and cost overruns will affect its profitability and financial performance. The company’s contracts with customers normally have a fixed and pre-determined fee throughout the contract period in accordance with its tenders or quotations. If the actual costs to complete the projects significantly deviate from the estimated costs when tenders or quotations were submitted, the company’s financial performance and profitability may be adversely affected. 

7. Promoters and substantial shareholders

The following table sets out the direct shareholdings of the MNHB’s promoters and substantial shareholders after its IPO. 

(Source: Draft IPO prospectus)

  • Loy Siong Hay – Loy Siong Hay is MNHB’s Managing Director. He has spearheaded the business growth of the company together with Dato’ Toh and Dang Siong Diang. He is principally responsible for overseeing the day-to-day operations and implementation of the overall strategies and corporate direction of the company. He has more than 25 years of working experience in the underground utilities industry.   
  • Dato’ Toh Eng Keat – As Executive Director, Dato’ Toh Eng Keat is responsible for managing and implementing the company’s business development plans and strategies, particularly in the operations of MNSB’s underground utilities engineering business. He has more than 18 years of working experience in the underground utilities industry.   
  • Dang Sion Diang – As Executive Director, Dang Sion Diang is responsible for managing and implementing the company’s business development plans and strategies, particularly in the operations of the company’s substation engineering business. 
  1. Financial Highlights  

(Source: Draft IPO prospectus)

MNHB has doubled its revenue from RM51.8 million for the financial year ended (FYE) 30 June 2018 to RM115.2 million for the FYE 30 June 2021. However, profits have only increased 10.3% over the same four-year period.  The company has seen its both its gross and net profit margins squeezed, indicating difficulties in costs control and project overruns.  

9. IPO valuation  

With an IPO price of RM0.21, Cengild will have a market capitalisation of RM85.8 million, based on the enlarged issued share capital of 408.8 million shares upon listing. This translates to a price-earnings ratio (PE) of 10.6 times (based on the FYE 30 June 2021 profits). 

As with all new listings, investors should wait and monitor if the management can execute its business plans and deliver on its commitments, before rushing to make an investment.  

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