For the financial year ended 31 March 2012 (FY2012), the Ireka Group recorded total revenue of RM429.89 million, a marginal 3.2% decrease compared to the previous financial year (FY2011). The Infrastructure division, through its construction activities, continued to be the main contributor of the Group's turnover, accounting for approximately 94.2% of the Group's total revenue. The Real Estate division, through development management services provided to Aseana Properties Limited (a 23.07% associate of Ireka Corporation Berhad) and the Technologies division are the contributors to nearly all of the remaining of the Group's total revenue.
The profitability of the Group in FY2012 saw a significant increase from a loss of RM11.74 million to a profit of RM10.40 million, largely on the back of improved performance of the Group's construction activities and positive results of its associate, Aseana Properties Limited ("Aseana Properties").
The general business environment for Malaysia in FY2012 had remained robust despite the global uncertainties that were still unfolding particularly in respect of the debt crisis in Europe, and an impending slowdown of growth in China. The Malaysian economy grew 4.5% in year 2011 driven by strong domestic consumption that was supported in large part by government pump priming. The efforts by the government bolstered an inevitable slowdown in exports to the West and China, as well as a decline in commodities prices globally.
In contrast to Malaysia, the general business environment in Vietnam in FY2012 has remained sluggish, reflected in the slow property market and the low transaction volumes of the Vietnam stock markets. The economy in Vietnam, although continuing to grow at a relatively healthy pace of 5.9% in year 2011, will remain vulnerable to the slowing demands for its exports globally and deferments in capital investments by local and foreign companies due to the financial crisis. The July 2012 inflation rate of 5.4%, the lowest recorded since November 2009, and down from a peak of 23.0% in August 2011, presented a silver lining as the economy responded positively to the credit tightening measures by the government.
The Group's business strategy has remained conservative in managing through the challenging business environment. In line with our sound track record and our resilience throughout our 45 years history, we aim to become the trusted partner of choice for our clients, buyers and business associates in these uncertain times.
INFRASTRUCTURE DIVISION PERFORMANCE REVIEW
The construction sector is anticipated to record a stronger growth in 2012 with the ongoing implementation of the various projects under the banner of Government Transformation Programme and Economic Transformation Programme. These projects include the LRT line extension, Klang Valley MRT, Kuala Lumpur International Airport 2 and KL Metropolis development. Whilst these projects are expected to continue to propel the nation forward over the longer term, the implementation of these projects over the short term remains vulnerable to the threats of a global slowdown. The 6.0% price increase by cement producers in Malaysia in August 2012 highlights the risks and dislocation of the construction industry with the global economic trend, which serves to heighten the vulnerability of the industry in the event of a sudden slowdown.
During FY2012, Ireka Engineering & Construction Sdn Bhd ("IECSB") had successfully completed a few key construction projects. Works at Phase 2 of Seni Mont' Kiara was completed in third quarter of year 2011, marking the completion of a RM588.74 million project for IECSB. The Kulai-Second Link Expressway in Johor was completed on time for the opening of the Johor Premium Outlet in December 2011. FY2011 saw Ireka Group's maiden foray into Vietnam via its 100% owned subsidiary, Ireka Engineering And Construction Vietnam Company Limited ("IECVCL"). In FY2012, IECVCL had successfully completed the RM27.58 million structural works package for the City International Hospital in Ho Chi Minh City, Vietnam. With this completion, IECVCL then built on its success by winning a RM77.70 million follow-up contract for the main building works package of the City International Hospital. Works for this package commenced in October 2011, with completion expected in December 2012.
Aside from this notable success in Vietnam, IECSB secured two other projects in Malaysia in FY2012 and year-to-date. They are the interior fit-out works for Aloft Hotel in Kuala Lumpur Sentral worth RM45.80 million and the construction works for Imperia Puteri Harbour Serviced Apartments and Office of RM268.60 million. These new construction contracts are expected to contribute positively to Ireka's earnings in the coming financial year.
In the current financial year, IECSB will also see the completion of construction works for the Four Points by Sheraton Sandakan Hotel and Harbour Mall, as well as the KL Sentral office towers and Aloft Hotel main building works. The Group's construction order book as at end June stood at about RM961.20 million, with approximately RM425.81 million remaining outstanding. Replenishment of order book in this current financial year remains a priority for the Group. However, despite keen competition from other construction players, the Group will continue to be cautious in its pricing to ensure profitablity targets are maintained. IECVCL will also continue to seek out opportunities in Vietnam, but will be exercising caution in taking on construction contracts from clients amidst the poor sentiments of the general property market in Vietnam.
In pursuit of operational efficiency, IECSB is taking proactive steps in revamping its management
REAL ESTATE DIVISION PERFORMANCE REVIEW
The residential sector continues to drive the real estate market in Malaysia, accounting for over 77.7% of the total volume and 62.7% of total value of transactions recorded in year 2011. Market prices and rental rates for the commercial sector of both retail and offices have remained largely stable throughout year 2011 and year to date. The retail segment in particular have seen vibrant activities with the RM3.50 billion initial public offering and listing of Pavillion Real Estate Investment Trust in December 2011. Pavillion REIT are the owners of the Pavillion, one of Kuala Lumpur's premier shopping malls. Occupancy levels of prime retail malls in Klang Valley have continued to stay above 85%. Although the office segment had fared well in year 2011, the occupany levels and rental rates in Klang Valley are expected to come under pressure in year 2012 as some 6.8 million square feet of office space is scheduled for completion in year 2012, adding approximately 7.2% to the total stock.
At the end of year 2011, the National Property Information Centre's House Price Index indicated a 6.6% increase compared to previous year across Malaysia. Anecdotal observations suggest that the increase in residential property prices has been more drastic across the Klang Valley particularly in the medium end segment of the market. This has prompted the Bank Negara to introduce the 'responsible lending guidelines' in January 2012 that places the onus on financial institutions to exercise extra restraint in approving loans. The guidelines include requirements for financial institutions to provide detailed assessment on individual affordability of the borrowers, and for loan margin to be approved based on direct net income of borrowers. These guidelines are compounded on an earlier Bank Negara guideline in November 2010 that restricts the loan-to-value to 70% for borrowers purchasing their third residential property and above. To date, these measures have significant impacts on slowing down property transactions in Malaysia, particularly in the higher end segment of the residential property market.
In FY2012, Ireka Development Management Sdn Bhd ("IDM"), as the development manager for Aseana Properties, has achieved another milestone with the completion of the SENI Mont' Kiara in FY2012. SENI Mont' Kiara is a 605-unit luxury residential development, and is the largest project in Aseana Properties' development portfolio. For the current financial year, amidst the challenging property market, IDM will focus its efforts in realising the approximately 20% remaining stock in SENI Mont' Kiara. The completion of SENI Mont' Kiara has contributed positively to the results of Aseana Properties, hence boosting Ireka's earnings for FY2012.
The year to date also saw IDM managing the completion and soft opening of the Sandakan Harbour Square ("SHS") properties, consisting of the Harbour Mall and the Four Points by Sheraton Sandakan Hotel. The SHS properties are another key component of Aseana Properties' portfolio. IDM will continue to play an active role in managing and nurturing the SHS properties in preparation for realisation when the opportunity arises.
The current financial year will be another busy year as the joint venture project between Aseana Properties and Ireka - hotel suites and serviced residences in Kia Peng @ KLCC, readies for launch in the final quarter of year 2012. IDM will also be managing the completion, handover and opening of the KL Sentral office towers and Aloft Hotel in Kuala Lumpur Sentral towards the end of year 2012.
Efforts will also be focused on furthering Aseana Properties' portfolio in Vietnam. The City International Hospital, the flagship development in Aseana Properties' International Hi-Tech Healthcare Park, will be completed at the end of year 2012 with planned opening in 2013. IDM is also putting the final touches to the planned launch of the first phase of Waterside Estate (formerly known as Phuoc Long B project) in Ho Chi Minh City, Vietnam in the final quarter of year 2012. The Waterside Estate is a joint venture between Aseana Properties and Nam Long Investment Corporation consisting of 37 units of luxury riverfront villas (phase one) and 460 units of apartments. The projects in Vietnam will be undertaken with caution given the challenging economic and property market conditions at this point in time.
FY2012 also marks the return of the Ireka Group into direct property development activities in Malaysia, with Aseana Properties having fully invested its funds since its initial public offering in year 2007. In September 2011, Ireka announced the acquisitions of an industrial land in Kajang measuring 21.83 acres and a residential land in Nilai measuring 27.76 acres respectively.
It is envisaged that the Kajang land, together with an existing adjoining piece of land of approximately 10.94 acres (currently owned and used by Ireka Group as its central workshop) will be developed into prime industrial properties for sale. Planning is currently underway for this project. Since the acquisition of the Nilai land, planning approvals have been obtained for the first phase of the development called Kasia Greens. Kasia Greens, consisting of 142 units of super-linked houses, is located in the heart of Nilai's educational hub and close to key amenities such as hypermarkets, golf courses and the Kuala Lumpur International Airport. This development will be officially launched in October 2012 and is expected to appeal to both first-time homebuyers and 'upgraders' seeking for a high quality home in an established location.
In FY2012, Ireka has also completed an acquisition for another piece of 5.1 acres land in the heart of Kajang Town. Detailed planning is currently underway for the development of a mixed commercial and residential project that will take advantage of its strategic location in Kajang Town and near the upcoming Kajang My Rapid Transit ("MRT") station.
The three new projects above represent a concerted effort to diversify and grow Ireka Group's real estate business beyond the high-end and hospitality segments of the market. Ireka is committed in bringing innovation to these three projects that is often the hallmark of Ireka's past successful property projects.
TECHNOLOGIES DIVISION PERFORMANCE REVIEW
i-Tech's 'green' data centre in Mont' Kiara, branded as SAFEHOUSE, offering co-location and disaster recovery services is now in its second phase of construction, with the first phase consisting of basic infrastructure works such as cabling, installation of fire fighting equipment and the Network Operating Centre (NOC), with rentable space of 20 racks. Since commencing operations in August 2011, SAFEHOUSE has already managed to secure clients in its first few months of operations. With completion of Phase 2, which consists of installation of all the data centre's redundancy requirements, in September 2012, we are hopeful of expanding this specialist services to a larger client base. SAFEHOUSE is listed in Multimedia Development Corporation's ("MDec") directory (which is distributed and marketed worldwide) as one of the 16 data centres in Malaysia. MDec is a government agency tasked to promote and oversee national ICT initiatives in Malaysia.
The government's Economic Transformation Program to make Malaysia a world-class hub for data centres in the region is now fully operational. i-Tech recently participated in a 'Think Tank' session organised by the MDec and Performance Management & Delivery Unit (PEMANDU) to discuss Malaysia's ICT industry's direction to build the country's position and competitiveness as a regional ICT and data centre hub. We are proud that the SAFEHOUSE is well on the way to making this contribution to the national agenda.
A recent Business Monitor Report suggests that Malaysian IT spending is expected to reach US$5.2 billion in 2012, up 4.9% from 2011. The Government's push for greater broadband penetration, the development of a national cloud computing program and other positive factors that include lower interest rates and government import tax exemptions for IT equipment should provide bigger opportunities for i-Tech as an integrated ICT player in the coming year.
Now in its second full year of operations, iTech ELV Solutions Sdn Bhd ("iTech ELV ") has performed admirably, improving on its revenues compared to 2011. iTech ELV is a specialist contractor offering installation services for extra low voltage components such as structured cabling, building automation system, audio visual, security access control system, closecircuit television system, lighting control system, master antenna television system and public address system. We are confident of further successes in the coming years. iTech ELV 's order book is healthy and we are anticipating new projects in the coming months.
The Technologies division continues to tap on the synergies between the Infrastructure and Real Estate divisions by supporting and recommending technologies to enhance the products and services they offer. In recent years, i-Tech and iTech ELV has provided integrated IT solutions to a few of Ireka Group's projects. At the Technologies division, our commitment is to continue to improve on all aspects of our business processes and systems that will help sharpen Ireka Group's competitiveness in this digitally and technologically integrated economy.
Lai Siew Wah