Spring Energy a beneficiary of stronger US dollar

by **Cals** Mon 07 Sep 2015, 22:30

Spring Energy a beneficiary of stronger US dollar

By Chester Tay / digitaledge Daily | September 7, 2015 : 10:15 AM MYT

KUALA LUMPUR: [size=16]Spring Energy Resources Bhd, a quarry-mining company that is seeking to list on the Main Market of Bursa Malaysia, sees its revenue rise by 10% to 15% for the financial year ending Dec 31, 2015 (FY15), boosted by recurring projects such as road upgrading and resurfacing, as well as a stronger US dollar that bodes well for its bauxite-mining business.

“We are a bit lucky this year because our bauxite sales are denominated in US dollars. The stronger dollar has generated a windfall for us,” its group managing director Yap Soon Huat told digitaledge DAILY in an interview.

The group almost doubled its net profit to RM34.92 million in FY14, from RM17.75 million in FY13, on the back of a 39.5% increase in revenue to RM296.81 million from RM212.7 million in the previous year.

Yap, 58, attributed the group’s strong performance in the past two years to the roll-out of the Klang Valley Mass Rapid Transit (MRT) and Light Rail Transit extension projects.

“It was not the rail projects themselves that drove our revenue as quarry products needed in a rail project is not much, but the spillover effects from them. [Be it] residential and infrastructure projects, [they] all need quarry products,” he said.

Yap said this year, the quarry-mining industry has begun to stabilise. While he conceded that competition is getting stiffer, Spring Energy is fortunate to have ventured into the bauxite-mining business.

Spring Energy started mining bauxite in January 2014, by managing a mine operation on a 65.87ha piece of land in Bukit Goh, Kuantan.

The group is a subcontractor of the mining operation by Kreatif Selaras Mining Sdn Bhd, which is a 60%-owned subsidiary of Tanah Makmur Bhd.

During its first year of operations in bauxite-mining in FY14, Spring Energy saw the business generate RM61.27 million for the group’s revenue, representing 20.7% of its total revenue, surpassing that of its civil engineering division which contributed 19.9%.

The remaining 59.4% of the group’s revenue in FY14 was derived from its quarry-mining business.

Yap also noted that despite some of the country’s mega projects such as MRT Line 1 and klia2 coming to an end in FY15, Spring Energy remains busy with other road-upgrading and resurfacing works like the road-widening project of the New Klang Valley Expressway, which have a combined worth of RM106.35 million.

Yap said the quarry-mining business, which involves the mining of granite, will remain the group’s main revenue contributor in FY15.

“That is why we seek to be listed, as the proceeds raised would help us to develop a long-term foundation for Spring Energy,” he added.

Yap said a strategic location is very crucial for a quarry mine, therefore the initial public offering (IPO) will ensure that Spring Energy will have enough strength to take up leases of these mine sites should the opportunities arise.

Currently the group operates three mines in the Klang Valley, namely in Sungai Buloh, Semenyih and Kuala Langat, which Yap deems as “strategic” to supply the raw materials to several major infrastructure projects.

Yap said the three quarry mines are not only close to upcoming new infrastructure projects, but also adjacent to existing highway networks which are subject to periodic maintenance and improvement programmes.

“Transportation costs are high for quarry products. So, if we can supply from a location close to our client, it would be an advantage,” he said.

Quarry mining forms part of the upstream activities in the construction sector, where miners like Spring Energy extract rock materials such as granite and crush them into different sizes.

The output, better known as aggregates, are generally used as base materials for construction of road, buildings, and infrastructure.

Based on the group’s draft prospectus exposure submitted to the Securities Commission Malaysia, it is proposing to issue 110 million new shares with a par value of 20 sen each in addition to its current issued share capital of 510 million shares.

Spring Energy has earmarked 23.79% of the total proceeds raised through the IPO for expansion of its quarry and bauxite- mining operations and 22.41% for working capital.

Another 30.5% of the proceeds will be used to purchase machinery and equipment, 17.4% to repay bank borrowings, and the remaining 5.9% for listing expenses.

As at Dec 31, 2014, Spring Energy’s bank borrowings stood at RM20.76 million, while it has a cash pile of RM15.81 million.

Spring Energy is wholly-owned by Yap and his family, through their privately held vehicle Fook Hua Holdings. Yap and his family will hold 72.6% of the enlarged issued capital of Spring Energy upon its listing.

This article first appeared in digitaledge Daily, on September 7, 2015.

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