JBB Builders, a Malaysian engineering contractor, is expected to start trading on May 10, aiming to raise up to HK$172.5 million.
The company, with an estimated market share of 33 percent in the marine construction industry in terms of land reclamation services in Johor, the second-most populous state in Malaysia, ranked first in the state in 2016, according to an Ipsos Report.
Marine construction services generated 85.3 percent of its total revenue for the year ended June 30, 2018, while the other 14.7 percent of revenue was from building and infrastructure services.
The core marine construction services business can be categorized into two parts.
Reclamation and related works, which includes soil investigation, pre-reclamation design and sand handling, accounted for 18.3 percent of its total revenue for the year ended June 30, 2018, while marine transportation, involving transportation of marine sand, and the filling material, made up 67 percent of the total revenue.
JBB Builders’ total revenue jumped by 82.49 percent year-on-year to 514.07 million ringgit (HK$974.8 million) for the year ended June 30, 2017, and climbed by 4.6 percent to 537.82 million ringgit for the year ended June 30, 2018, as it secured more contracts.
Net profit increased by 29.1 percent year-on-year to 21.24 million ringgit for the year ended June 30, 2017, and gained by 42.27 percent year-on-year to 30.21 million ringgit for the year ended June 30, 2018.
However, for the four months ended October 31, 2018, revenue decreased by 34.79 percent from a year ago to 120.26 million ringgit, as a result of less marine construction services work. Also, net profit fell by 26.44 percent from a year ago to 8.78 million ringgit, as the rising proportion of revenue from building and infrastructure services had higher subcontracting costs and lower profit margin.
Gross profit increased 48 percent year-on-year to 52.1 million ringgit for the year ended June 30, 2017, while the overall gross profit margin fell from 12.5 percent year-on-year to 10.1 percent during the period, partly due to a relatively lower profit margin contract it undertook on reclamation and related works for phase three of Forest City.
It warns that over 95 percent of total revenue is from top five customers. Revenue from its single largest customer amounted to 84.1 percent for the four months ended October 31, 2018, compared with 56 percent for the year ended June 30, 2018.
Individual M, who is the controlling shareholder of JBB Builders’ single largest customer, is also associated with some of JBB Builders’ other customers, the company says.
Meanwhile, M is a director at a subsidiary of Country Garden Holdings (2007), the Forest City’s developer.
JBB Builders also warns that revenue contributed by its completed marine construction contracts on development of Forest City represented 67.3 percent, 82.4 percent, 27.5 percent and 43.3 percent of total revenue for each of the three years ended June 30, 2018 and the four months ended October 31, 2018 respectively.
The Forest City project may continue to contribute a major part of JBB Builders’ revenue and profits, but it may also be adversely affected by government policies and opposition to the project.
For example, during the early stages of the project, work was halted amid a public outcry over possible environmental damage and after the government of Singapore conveyed its concerns.
Part of the net proceeds from the flotation will be used to buy a rebuilt sand carrier for marine transportation.
Some fund will be used for purchasing new land-based machinery, and some for satisfying the performance bonds requirement of prospective projects.
JBB Builders also plans to upgrade information technology and project management systems.
It intends to expand the management team for building and infrastructure works, and use the funds for working capital purpose.