SSB positive on construction sector

NST Mon, Nov 21, 2022 11:09am - 1 year View Original


KUALA LUMPUR: The demand for affordable homes, especially in highly urbanised areas, will continue to sustain despite domestic and global macroeconomic uncertainty.

Southern Score Builders Bhd (SSB) executive director and chief executive officer Gan Yee Hin said that despite the increased cost of borrowing following Bank Negara Malaysia's continued Overnight Policy Rate (OPR) hikes, the demand for low-cost properties would continue to be fueled by stable employment and wages.

"The current OPR rate is supportive and accommodative of the economy.

"There is always a need for affordable housing, especially given the inflationary pressure fueling cost-of-living expenses.

"Affordable housing is also part of the public discourse as it is an issue that is especially critical to highly urbanised areas like the Klang Valley, therefore we see a continuous flow of affordable housing projects to be proposed," Gan told The New Straits Times.

He said SSB's good track record stretching back to 2010 stands in good stead for securing new projects.

"Our ability to secure projects is also based on our strengths in providing end-to-end project management services to our clients that ensure projects are completed on time and efficiently, which helps mitigates risks of escalating costs," Gan said.

SSB's business model principally involves the provision of construction

management services mainly for high-rise residential buildings.

As a turnkey and main contractor, SSB managed to clock in a higher gross margin of 17.14 per cent compared to its peers due to its low capital requirement via its construction project management business model, according to Rakuten Trade Sdn Bhd's recent report.

When asked how the company manages high material costs and landbank shortages in the Klang Valley, Gan said SSB is allocating RM25 million from the proceeds of the private placement to purchase building materials and another RM18 million for the rental or acquisition of construction assets.

"Our operating costs are also low as we have an asset-light and flexible delivery model based on a standardised and cost-efficient building process which enables scalability and flexibility with lower exposure to cyclicality and house prices," he said.

"Because of our asset-light and flexible delivery model, we work with property developers or landbank owners and are not affected by landbank shortages.

"As a provider of end-to-end project management services, we work closely with our subcontractors to manage the foreign labour shortage.

"Our long-term relationship with suppliers and manufacturers enables us to enjoy less volatile prices as we purchase building materials consistently and in bulk," Gan said further.

Touching further on affordable home initiatives, Gan said the government in July this year launched the Keluarga Malaysia Home Ownership Initiative or i-MILIKI, in which first-time homebuyers of properties worth RM500,000 and below receive 100 per cent stamp duty exemption.

First-time homebuyers of properties worth between RM500,000 and RM1 million receive a 75 per cent stamp duty exemption. My First Home Scheme was also launched in 2022 for properties valued up to RM500,000.

Another initiative is the Housing Credit Guarantee Scheme, which assists first-time homebuyers with no steady income to get financing up to a limit of RM400,000.

"While these measures and initiatives are targeted at homebuyers, it also helps developers of affordable housing as homebuyers in this category are assisted to get loans," Gan said.

SSB, formerly known as G-Neptune Bhd, completed the reverse takeover (RTO) regularisation plan on 9 November via the acquisition of Southern Score Sdn Bhd for RM252 million by issuing 1.68 billion new shares.

The acquisition comes with a cumulative net profit guarantee of RM80.0 million over three years from 2022 to 2024.

Gan said the listing status would allow SSB to grow the construction sector, which is on a rebound with the economy's recovery.

SSB also bagged an RM173 million turnkey contract on 10 November, pushing its aggregate orderbook to RM703 million.

Whilst SSB does not have any tender book due to its niche business, the current orderbook provides earnings visibility up to 2025.

"We intend to grow the manufacturing of industrialised building system (IBS) products as an additional revenue stream for the company.

"This is also to leverage the increasing adoption of sustainable practices in the construction sector.

"SSB will continue working with property developers and landowners who require and appreciate our full-scale comprehensive construction management services and building capabilities, and at the same time, exploring more affordable residential projects with the government," Gan said.

On ongoing projects, SSB is currently constructing Platinum Arena Residences, which has a contract sum of RM199.11 million, Vista Wirajaya 1 @ PV9 Residences, with a contract sum of RM308.68 million,  Vista Sentul Residences, with a contract sum of RM149.57 million and Vista Harmoni Residences with a contract sum of RM131.40 million.

"For upcoming projects, we have a letter of intent from a property developer for the provision of construction services while we have pending one project at the tender stage from a landbank owner.

"These are mainly for affordable housing projects in Klang Valley, with a total contract sum of RM634.3 million," Gan said.

With economic activities regaining momentum, Gan said SSB expect growth in the construction sector to rebound in 2023, supported by ongoing construction activities from large civil infrastructure projects as well as the implementation of small-scale projects under Budget 2022.

He said a more stable employment market would also support the residential subsector, which will benefit from new housing projects and launches, while growth in the non-residential subsector is expected to be supported by both existing, new commercial and industrial projects.

Residential construction activities are expected to recover over the long term, with the value of awarded residential construction projects to rise from RM27.2 billion in 2021 to RM32.2 billion in 2025 at a compounded annual growth rate (CAGR) of 4.3 per cent, according to the Independent Market Researcher (IMR) report attached to the shareholders' circular recently.

Growth in the affordable housing segment is expected to bounce back faster than mid-tier and luxury residential segments, while office and retail segments are expected to witness a slower recovery over the forecast period.

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