Abd Aziz likely brought in to revive THHE

This article first appeared in The Edge Malaysia Weekly, on June 14, 2021 - June 20, 2021.
Abd Aziz likely brought in to revive THHE
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DATUK Abd Aziz Sheikh Fadzir, the new chairman of TH Heavy Engineering Bhd (THHE), may be an independent and non-executive director, but market talk is that he is likely to be tasked with reviving the cash-strapped company.

His appointment to the Practice Note 17 (PN17) company was announced at the end of last month, just prior to its auditors Deloitte expressing a disclaimer of opinion on THHE’s audited financial statements for the financial year ended December 2020, stating material uncertainty on the group’s ability to maintain itself as a going concern.

“From what we hear, he will be the one trying to secure jobs for THHE. If you look at its direction, it is going more into shipbuilding, and he (Abd Aziz) is an ex-director of Destini Bhd, also well connected politically, so my reading is he will try and resuscitate the company,” one source familiar with the matter says.

Checks on Bursa Malaysia show that Abd Aziz had a couple of stints as a director of Destini. The first was from November 2010 to May 2015, when it was still known as Satang Holdings Bhd, and the second was from August 2017 to May 2018. During his first stint, he was redesignated as a non-independent, non-executive director from September 2012 to May 2015.

Destini is the vehicle of well-connected businessman Datuk Rozabil @ Rozamujib Abdul Rahman, who holds about a 20.5% stake and is the largest shareholder. Other notable Destini shareholders include privately held Aroma Teraju Sdn Bhd, which is controlled by the Ministry of Finance. THHE’s largest shareholder is Urusharta Jamaah Sdn Bhd, a Ministry of Finance entity set up to take over selected assets of pilgrim fund Lembaga Tabung Haji.

Urusharta Jamaah has 64.45% equity interest in THHE. Other notable shareholders in THHE as at end-April this year, according to its FY2020 annual report, include Datuk Sri Mohamed Faroz Mohamed Jakel and Luqman Mohamed Jakel, who collectively control about 1.6% interest.

Mohamed Faroz recently surfaced in Sedania Innovator Bhd with a 12.77% stake, and with family members Mohamed Izani Mohamed Jakel and Mohamed Nizam Mohamed Jakel, has a 14.21% stake in Dataprep Holdings Bhd.

Abd Aziz made the headlines when he acquired 35 million shares, or 31.61%, in Utusan Melayu (M) Bhd from United Malay National Organisation or Umno, and took over as executive chairman. Shortly after that, the newspaper company was delisted from Bursa Malaysia after falling into the cash-strapped, Practice Note 17 category.

Abd Aziz is the younger brother of former cabinet minister Tan Sri Abdul Kadir Sheikh Fadzir, a seven-term member of parliament for the Kulim-Bandar Baharu constituency in Kedah.

Shift to shipbuilding

Recent moves seem to indicate that THHE is moving towards shipbuilding rather than undertaking fabrication contracts for the oil and gas industry.

It recently appointed Ahmad Yusof Mohamad as an independent non-executive director. He was previously chief operating officer of Grade One Marine Shipyard Sdn Bhd, CEO of MSET Shipbuilding Corp Sdn Bhd, and senior general manager at PSC Naval Dockyard Sdn Bhd.

Apart from that, THHE recently sought to buy out Destini Shipbuilding and Engineering Sdn Bhd’s (a unit of Destini) 51% stake in THHE Destini Sdn Bhd for RM121,131, making THHE Destini a wholly owned unit of THHE.

The JV had, in early 2017, secured a RM738.9 million contract from the Malaysian Maritime Enforcement Agency (MMEA) to build three offshore patrol vessels (OPV). The first vessel was slated to be delivered to MMEA in October last year but this was pushed to the first quarter of 2021. It is understood that there are issues with the delivery.

In acquiring the 51% stake in THHE Destini, THHE said, “The proposed acquisition is in line with the group’s intention to grow its ship building and ship repair business.”

The move to focus on shipbuilding and ship repair is understandable, after what happened to THHE’s other core business — fabrication for oil and gas.

In October 2017, national oil company Petroliam Nasional Bhd (Petronas) had disallowed THHE’s fabrication arm from bidding for main contractor, major fabricator and engineering procurement, construction and commissioning jobs due to non-performance in the Kinabalu Non-Associated Gas project. While THHE regained its licence in January last year, many are still wary about its capability, making it difficult for the group to secure any contracts.

With its shipbuilding business seemingly going through a tough patch with the MMEA OPV delays, it will be interesting to see what THHE management does.

For its first three months of FY2021 ended March, THHE chalked up a net profit of RM852,000 from RM1.89 million in revenue. For the corresponding period a year ago, it notched up a net profit of RM2.5 million from RM18.94 million in revenue.

As at end March, the company had cash and bank balances of RM43.41 million, short-term debt commitments of RM103.21 million and long-term borrowings of RM61.4 million.

Its accumulated losses as at end-March were RM629.19 million.

THHE says it “intends to seize the shipbuilding and maintenance, repair and overhaul (MRO) opportunities from small to medium-sized vessels in Malaysia by fulfilling the fleet modernisation and MRO requirements of maritime agencies of the government of Malaysia, such as the MMEA, the Marine Department, the Royal Malaysia Customs, the Eastern Sabah Security Command and the Royal Malaysia Navy.”

But with the delays in delivering the first OPV to MMEA, will the group secure more contracts?

The group’s issues have been piling up beyond slipping into the PN17 category since April 2017 and getting several extensions from Bursa Malaysia to regularise its financial condition. THHE also has the distinction of being perhaps the only company to have fallen into the PN17 category twice — the first time from February 2010 to October 2012.

It is also grappling with a host of legal issues, brought about after years of being in the doldrums, which have hammered its shares. THHE closed last Thursday at 9.5 sen, valuing the company at RM211 million.

Against this backdrop, with many challenges facing him, will Abd Aziz succeed in reviving the company?

 

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