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Monday, November 5, 2007

Melati Ehsan the envy of its rivals

Despite being a small turnkey construction and property developer, it has built a strong reputation in the sector.

MELATI Ehsan Holdings Bhd's performance is the envy of many players in the construction industry, despite being a relatively small company compared with some of its more established rivals.

The turnkey construction and property developer is outperforming many of its larger competitors in terms of results because of its strong reputation for delivering projects on time and within budget.

In fact, Melati Ehsan has been on the roll long before it got listed in March on the main board of Bursa Malaysia.

The company has an impressive compounded annual growth rate of 38.5% per annum over the four years up to August 2007, and its order book has ballooned to RM1.7bil from slightly over RM600mil within that period.

However, managing director Datuk Yap Suan Chee said the company was not resting on its laurels and expected to rapidly but cautiously expand its construction division in the near future.

“We are still small, but we have a vision to grow much bigger,” he told StarBiz.

Datuk Yap Suan Chee explains about one of the company’s construction projects in Johor Baru

For the financial year ended Aug 31, 2007, Melati Ehsan posted net profit of RM27mil on the back of RM173.4mil in turnover.

The company has recommended a first and final dividend of 7.5 sen per 50 sen share for the year under review.

Currently, Melati Ehsan has four wholly owned subsidiaries under the group.

They are Bayu Melati Sdn Bhd, Pembinaan Kery Sdn Bhd (both turnkey contractors), Melati Ehsan Consolidated Sdn Bhd (involved in property development) and Melati Ehsan Trading Sdn Bhd.

Yap said Melati Ehsan's construction division had been growing steadily over the years, even during the financial crisis, because of its ability to complete projects on time, within budget and often with little bank borrowings.

Asked what was the secret to his success, he said: “Besides having a strong workforce with the expertise to deliver projects on time and within budget, it is important to maintain good cash flow.”

He said it was also important to develop a good working relationship with suppliers, institutional investors and financial institutions.

“We have also been very cautious in selecting our projects,” said Yap.

A CIMB research analyst said Melati Ehsan had undertaken several notable Government projects.

The projects include Taman Aman Putra phase 1 in Jinjang Utara (1,000 low medium-cost apartments and 30 shops) awarded by Kuala Lumpur City Hall, the RM106mil Bayu Damansara (334 double-storey terrace houses) and 38 semi-detached houses in Kota Damansara awarded by Selangor State Development Corp.

Another project is the Majlis Link (RM53mil), a turnkey project to build a link road at the Free Trade Zone Bandar Seaport in Damansara Jaya, Selangor, awarded by the Public Works Department.

The analyst said Melati Ehsan was poised to benefit from the rollout of construction projects under the Ninth Malaysia Plan (9MP).

“The stock has been attracting some investors recently,” he said, adding that Melati Ehsan had tendered for over RM1.7bil worth of projects year-to-date, of which RM1.7bil was under the 9MP.

The analyst said the company's success rate in winning contracts had not fallen below 30% of total projects tendered in recent years.

“It has the ability to complete construction projects on time and within budget, which puts them in a favourable position with financial backers,” he said.

He said Melati Ehsan had also undertaken several infrastructure projects, including Jambatan Baru Pinang Tunggal (RM10.3mil), flood mitigation solutions (RM169mil), and the construction of two new interchanges and bridges as well as road upgrades and traffic management (RM86mil).

The analyst said the company had an unbilled order book of over RM1.4bil and its current projects would sustain it for another three to five years.

“The company is in the pink of health with low borrowings (RM3.6mil), good cash flow (cash and cash equivalents of RM25.8mil), a healthy order book and an impeccable track record that must be the envy of any contractor,” he said.

An analyst with OSK Securities concurred, saying that while Melati Ehsan was relatively small compared with other contractors, it was churning out stable profits over the years and had good potential for growth.

“The company has managed to balance financial cash flow and operational requirements while delivering projects on time and within budget,” he said, adding that Melati Ehsan was a well-managed construction company.

The analyst said the company had a strong mix of building and infrastructure projects that was providing good profit margins.

“Melati Ehsan is a contractor that has been able to increase profit margin of projects without incurring a corresponding proportionate increase in marginal costs,” he noted.

- The Star (By Danny Yap)

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