Comintel faces uphill task to turn around
Ho Chung Teng 

Comintel Corporation Bhd garnered investors’ interest recently after it announced a special dividend of 45 sen per share following the disposal of BCM Electronics Corp Sdn Bhd.

Though shareholders rejoice over the windfall, which translated into a dividend yield of 63.38% based on Comintel’s closing price of 71 sen on Dec 29, 2017, they are nonetheless concerned over the company’s future earnings as BCM was its only profitable subsidiary.

Comintel is classified as an affected listed issuer by Bursa Malaysia. It posted a net loss of RM33 mil for financial year ended Jan 31, 2018 from a net profit of RM17.7 mil in the previous year, on the back of lower revenue of RM382.2 mil versus RM406.8 mil. This was due largely to a one-time loss on disposal of a subsidiary of RM14 mil and lawsuit losses of RM21.6 mil.

The company is, however, keeping its loss-making subsidiary, Comintel Sdn Bhd, a system integrator for information technology and telecommunication solutions which has been in the red in the past five years.

Nonetheless, its managing director Lim Keng Hock is unperturbed. “We are not sitting down (doing nothing), that is why we decided to expand into green energy,” Lim tells FocusM.

In fact, he says its system integration solution business was once the group’s “cash cow” while BCM managed to turn around in FY16 due mainly to favourable exchange rates.

On Aug 30 last year, Comintel entered into a term sheet with Aurelius Holdings Sdn Bhd for the proposed sale of BCM for RM123.8 mil, which was based on Aurelius assuming BCM’s existing liabilities.

The proceeds from the disposal will be used mainly for Comintel’s special dividends as well as development and expansion of green waste management and waste-to-energy businesses.

Its foray into waste-to-energy business is not new as the green energy plan started three years earlier.

“The three years were about consolidating (the operations). This is why we built the Kuang plant. We are bringing in non-existent technology,” Lim explains.

Due to the relatively new technology, the plant underwent a series of testing like acceptance, commercial operation date and initial operation date tests.


Gasification to start contributing in FY19

Despite the delays, Lim expects the green energy business to begin contributing to the group in FY19.

However, a fund manager does not expect earnings from the gasification plant to turn around Comintel’s top line in the near term as they may not be sufficient to offset losses from its existing system integration solution business.

“Based on the current approved feed-in tariff of 42.3 sen per kWh at 90% availability, the annual gross revenue from the Kuang plant is estimated to be about RM6.67 mil. Profit from the plant is insufficient to cover Comintel’s net losses,” he adds.

Lim is unable to provide guidance on the Kuang operations. “This is not a good time to compare as I don’t have raw materials. It’s not a good representation as there is a big deficit (of raw materials). Unfortunately we got caught in this bad time,” he explains.

“We want to move fast, but we are stuck with things beyond our control. Oil palm does not qualify for feed-in tariff because it is not classified as garden waste. Instead it’s considered biomass.”

Municipal waste or garden waste has a higher feed-in tariff than biomass. Garden waste and biomass have feed-in tariffs of 42.3 sen and 30 sen per kWh, respectively. Hence, not many people want to do biomass as it is impossible to make money, Lim adds.


Continued losses

On Comintel’s system integration solution business, Lim says its continued losses were due largely to the high number of skilled workers employed. “We don’t have many production workers but we have a lot of engineers,” he says.

However, he says on a project basis, Comintel is not incurring losses, “But if you look at the overall overheads, Comintel losses money. We need to have a fair amount of turnover to support the overheads,” he adds.

Comintel, he says, bid unsuccessfully for various new jobs such as broadcasting systems for the Klang Valley Mass Rapid Transit projects, and communication systems for offshore patrol vessels. It also submitted bids for other projects worth some RM600 mil.

Lim says Comintel received fewer government orders in the past years, especially for defence maintenance, command and control, as well as defence and public safety communication systems.

To offset these, he says the company hopes to market its communication systems overseas. “In terms of capabilities, it’s not an issue but more of looking for jobs. (Moving forward), we are not depending on the government (for jobs),” he says.

He says Comintel is in talks with a Chinese ship builder, which was awarded a contract to build four naval vessels for Malaysia in 2016.

“We are talking to the ship builder to allow us to participate even though the contract has been signed. If it’s allowed, it will be a good start.

“What about their other ships in the world? Comintel can help because not everyone likes Chinese electronics, as we are talking about defence, and this is where we can play a role,” Lim explains.

This article first appeared in Focus Malaysia Issue 279.