Financial Highlights

The following table sets out the financial highlights based on the company’s combined statements of profit or loss and other comprehensive income for the Financial Years Under Review:

• The revenue declined from RM54 million in FYE 2021 to RM50 million in FYE 2022 due to lower contributions from M&E engineering services following project completions, it then rose to RM136 million in FYE 2023.
• The gross profit margin increased from 11.50% in FYE 2021 to 16.50% in FYE 2022 but dropped to 16.10% in FYE 2023 due to budget revisions and additional variation orders.
• The PAT margin rose from 0.70% in FYE 2021 to 8.60% in FYE 2023.
• The gearing ratio is 1.80 in FYE 2023, which is above the healthy range of 0.25 - 0.5, indicating higher liquidity risk exposure.

Major customers and suppliers

Major Customers

The company's top 5 major customers according to their revenue contribution for FYE 2024 are as follows:

The company is not dependent on any of the other major clients. Revenue contribution from the company Group’s major clients varies from year to year given the nature of the business being conducted on a contract basis and as such are non-recurrent in nature. The company Group’s M&E engineering projects typically range between 6 months to 27 months, depending on the scope of services in which the company Group has been engaged to perform. The company Group may not secure similar contracts in terms of size and scope with the same clients every year.

As at LPD, Client M is the company Group’s sole corporate client in relation to the CGPP between Selarong Pertama and Client M. As such, upon commencement of operations of Selarong LSSPV Plant, the company will be dependent on Client M for its generation and sales of renewable energy from the Selarong LSSPV Plant. In the event Client M ceases to be the company’s corporate consumer for the Selarong LSSPV Plant, the company Group intends to approach the Single Buyer to purchase electricity generated by the Selarong LSSPV Plant for a period of up to 1 year, while the company seeks for a substitute corporate consumer to replace Client M. As at LPD, the company Group has not identified any substitute corporate consumer to replace Client M as they have entered into the CGPA with Client M and there are no requirements to identify any substitute corporate

consumer under the CGPA. For clarity, the company Group is unable to negotiate with any other corporate client to be a substitute for Client M, until the company receives a written notice from Client M on its intention to terminate the CGPA with Selarong Pertama.

Major Suppliers

The company's top 5 major suppliers for FYE 2024 are as follows:

The company Group does not have any long-term agreements or arrangements with any of its major suppliers. The company Group’s major suppliers comprise suppliers of inputs ranging from cables, wires and main switchboards, and related electrical panels. The company Group selects its major suppliers from its internal approved list of suppliers. As at LPD, the company Group’s internal approved list comprises 502 suppliers.

The company Group is not dependent on any supplier, as there are other suppliers in the market with similar quality and offering competitive prices for the products that the company Group requires.

Industry Overview

Engineering is a field, discipline, practice, profession, and art that involves the development, acquisition, and application of technical, scientific, and mathematical knowledge to understand, design, develop, invent, innovate, and use materials, machines, structures, systems, and processes for specific purposes. The mechanical and electrical (“M&E”) engineering industry involves:

• Mechanical engineering - focuses on the theory and application of physical or mechanical systems, encompassing the design, manufacture, and operation of various mechanical components, devices, and systems. Many mechanical engineers specialize in designing and producing machines to reduce human labor, while others work in fields such as air conditioning and mechanical ventilation (“ACMV”), automotive, manufacturing, and refrigeration engineering.
• Electrical engineering - concerns the theory and application of electrical systems, focusing on electricity and electromagnetism. Electrical engineering includes power generation and distribution, electric circuits, transformers, motors, and electromagnetic devices. In a broader sense, electrical engineering deals with large-scale electricity systems, power transmission, and energy distribution.

M&E engineering is a specialized field of construction work carried out during the erection, reconstruction, renovation, retrofitting, or upgrading of buildings or structures. It involves the design, installation, commissioning, and maintenance of systems such as heating, ventilation, and air conditioning (HVAC) systems, water supply and sanitation, fire protection systems, escalators and lifts, electrical transmission, and distribution networks, communications and IT networks, lighting, security, and alarm systems, and process utilities such as steam, industrial gases, and related infrastructure.

The M&E engineering industry in Malaysia, measured by the value of M&E engineering works completed, increased from RM3.9 billion in 2019 to RM7.3 billion in 2023 at a compound annual growth rate (“CAGR”) of 17.0%. The value is projected to increase from RM7.3 billion in 2023 to RM10.6 billion in 2026 at a CAGR of 13.2%.

The key drivers in this industry:

• Growth in end-user industries drives demand for M&E engineering services
• Foreign and domestic investment growth supports investments in M&E engineering services
• Increased outsourcing and relocation of E&E manufacturing activities to Southeast Asia

Renewable energy is generated from naturally replenishing sources such as sunlight, wind, rain, tides, and geothermal heat. Key renewable energy resources include solar, wind, hydro, biomass, biofuels, and geothermal energy. The depletion of fossil fuels and climate change has accelerated the adoption of these sustainable and untapped energy sources.

Solar energy is harnessed through technologies such as solar photovoltaics (“PV”), solar thermal energy, and solar heating. These can be categorized as active solar technologies, such as solar PV systems, concentrated solar power, and solar water heating, or passive solar technologies, such as building orientation, thermal mass materials, and light-dispersing designs.

Due to its equatorial location, Malaysia receives approximately 1,575 to 1,812 kilowatt-hours per square meter (kWh/m²) of solar irradiance, making solar PV a viable renewable energy source. The availability of installation areas further supports solar energy adoption. The main solar installation configurations in Malaysia include rooftop solar PV systems, which are installed on residential, commercial, industrial, and public buildings, and large-scale solar facilities, which are ground-mounted or floating installations on water bodies.

The total installed capacity of rooftop solar PV systems and large-scale solar facilities in Malaysia increased from 894.0 megawatts (“MW”) in 2019 to 1,933.0 MW in 2023 at a CAGR of 21.3%. Comparatively, the newly built capacity has fluctuated due to government initiatives. The new built capacity for rooftop solar PV systems and large-scale solar facilities was 349 MW in 2019, 589 MW in 2020, 304 MW in 2021, and 146 MW in 2022. In 2023, the newly built capacity is estimated to be negligible. These fluctuations are largely influenced by government programs such as the Net Energy Metering (“NEM”) scheme and Large-Scale Solar (“LSS”) competitive bidding programs. NEM 2.0, launched in 2019, had its 500 MW quota fully subscribed by December 2020, contributing to the higher newly built capacity in 2020. Additionally, several large-scale solar projects under LSS 1, LSS 2, and LSS 3 were completed in 2020, further contributing to the surge in newly built capacity that year.

Source: PROVIDENCE

Future plans and strategies for ES SUNLOGY BERHAD

The company's business objectives are to maintain sustainable growth in the business and create long-term shareholder value. To achieve the business objectives, the company will implement the following business strategies over the period of 24 months from the date of Listing:

1. Develop Selarong LSSPV Plant
2. Secure more solar projects to further grow the company’s revenue from the renewable energy segment
3. To increase the company’s market share within the M&E engineering industry in Malaysia
4. To strengthen the company’s internal workforce through the recruitment of qualified employees
5. To participate in the LSS5 program to generate recurrent revenue

MQ Trader View

Opportunities

1. The company's wide range of M&E engineering services has enabled it to establish a strong presence in the M&E engineering industry in Malaysia

Risk

1. The M&E engineering projects are non-recurring in nature, with no guarantee of securing new projects
2. Disruption of operations at the Junjong LSSPV Plant could affect the company’s business
3. The company has only one corporate client for CGPP under the generation and sales of renewable energy business segment
4. The company is dependent on main contractors, project owners, subcontractors, and material suppliers

Click here to continue the IPO - ES Sunlogy Berhad (Part 1)

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