THE reversal of a bauxite mining boom in Kuantan following the Government’s ban last year is likely to take a toll on Main Market-listed WZ Satu Bhd
In a filing with Bursa Malaysia on Thursday, WZ Satu Bhd, whose substantial shareholders include the Regent of Pahang,the civil engineering and construction company cautioned investors of an expected loss of RM1.2mil in its mining segment results for the fourth quarter (Q4) ended Aug 31.
The announcement came ahead of WZ Satu’s financial results for financial year 2017 (FY17), which is expected to be announced later this month.
This was “due to a complete ban on bauxite export by the Federal Government in Kuantan, Pahang,” the construction and bauxite mining firm told Bursa Malaysia on Thursday, with its mining operations being a key business segment of WZ Satu,
In fact, this is not the first financial year for WZ Satu to be negatively affected by the ban.
In FY16, its mining business’s after-tax profit nearly halved to RM9.7mil, in the aftermath of the bauxite mining moratorium.
The segment’s reduction in net profit, while is largely expected, partially diluted WZ Satu’s civil engineering and construction segment’s after-tax profit which surged by nearly 65% year-on-year in FY16.
However, it must be noted that bauxite mining remained as the single largest contributor to the group’s bottom line in the previous financial year.
Now, with the bauxite mining ban running till year-end, WZ Satu’s mining segment’s prospects are highly unlikely to be rosy.
“The estimated loss of RM1.2mil is based on preliminary assessment of the unaudited consolidated management accounts of the group for the financial year ended Aug 31, 2017 (FY17), which have yet to be audited or reviewed by the independent auditors of the company,” WZ Satu said.
“Details of the group’s financial performance for Q4 FY17 and FY17 will be disclosed when the company announces its unaudited consolidated financial results in the month of October 2017.”
WZ Satu advised shareholders and investors to exercise caution when dealing in the shares of the company.
Three years ago, bauxite mining boom in Kuantan came about as a rather unexpected development, primarily due to the result of Indonesia’s mineral ore export ban in January 2014.
The vacuum left by Indonesia, which was a top producer of mineral ore, benefited Malaysia and particularly Kuantan, in meeting high mineral ore demand from major commodity consumers such as China.
However, following concerns and public backlash on environmental degradation due to bauxite mining in Kuantan, the Government has imposed a complete moratorium on mining and has extended the ban several times. As of now, the ban is expected to last until December 31 this year.
WZ Satu, which was formerly known as WZ Steel Bhd, has a market capitalisation of approximately RM370mil.
Following the emergence of Tengku Datuk Seri Uzir Tengku Datuk Ubaidillah as a substantial shareholder in August 2013, the company commenced its diversification into the civil engineering and construction business as well as other current ventures.
The company was also later officially renamed as WZ Satu, to reflect the change in its business model and trajectory.
Uzir, who is a member of the Pahang royal family, is the single largest shareholder of the civil engineering and construction company, with an equity interest of 20.5%.
The Regent of Pahang,Tengku Abdullah Sultan Ahmad Shah of Pahang holds a 9.69% stake (direct and indirect) in WZ Satu, just shy of the 9.71% equity interest owned by Lembaga Tabung Haji.
Despite the anticipated lower bottom line contribution from its mining business, WZ Satu may not necessarily be worse off financially. This is on the back of the expectation of the company’s both oil and gas and civil engineering and construction segments continuing their improved financial performance moving forward.
For the first nine months of FY17, the group recorded a 46% growth in earnings to RM21.86mil compared to the previous year’s corresponding period.
The lion’s share of the nine-month revenue of RM410.07mil came from civil engineering and construction (RM209.37mil), which also contributed the highest operating profit of RM12.27mil.
“The environmental issues of bauxite mining in Kuantan, Pahang, has resulted in a moratorium imposed by the Government of Malaysia on bauxite mining in Kuantan effective since Jan 15, 2016. This would continue to impact the group’s share of current associate results,” WZ Satu said in its last interim quarterly report.
Going forward, WZ Satu envisages its civil engineering and construction segment to remain promising, with the group eyeing for more big-ticket infrastructure projects financed by the Malaysian government.
Among the projects that the company is bidding for include the RM3.74bil Setiawangsa-Pantai Expressway, the RM6bil West Coast Expressway, East Coast Economic Region infrastructure jobs, the RM9bil Gemas-Johor Baru double-tracking project with Fajarbaru Builder Group Bhd
and the RM4bil Central Spine Road project with UEM Group.
WZ Satu shares, which climbed earlier this year and peaked at RM1.37 (in March), closed unchanged on Thursday at RM1.07.
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