Ireka ... Oct09

It is looking to step out in a big way after a three-year self-imposed exile on its construction business.

The company, which is primarily involved in the construction business, has not been aggressively pursuing projects outside of the so-called “in-house” projects, but the management has indicated that its strategy will change moving forward.

Starting out as an earth moving specialist back in the 60s, Ireka has since diversified into construction, property development, hospitality and information technology (IT). Its core businesses, however, are in the first two.

It had pre-qualified for RM2.5 billion worth of construction projects and was eyeing to participate in some of the government projects expected to crop up soon.

Ireka has reined in its bidding practices the last several years to focus primarily on projects offered by Aseana Properties Ltd, which is a London-listed property development company.

This was partly due to the volatility of raw material prices and general uncertainty in the market. However, this is changing after the management determined that volatility has subsided. Building materials have stabilised, and the property markets have also shown signs of a turnaround.

Now (Oct 2009) would be the ideal time to lock in some of the cheaper prices for future projects.

Its business structure is unique in Malaysia because it is a “landbank-less” property developer. Though Ireka's business model was unique in Malaysia, it was not that uncommon elsewhere.

In 2007, Ireka injected all its property assets into Aseana, a company that was initiated by Ireka and subsequently listed in 2007. Ireka also holds a 23% direct stake in the company, although its shareholding, together with other friendly parties, adds up to more than 40%.

In return, Ireka was appointed the exclusive property development manager for Aseana, and receives a management and performance fee in return. The base fee is set at 2% of Aseana’s net asset value. Ireka also benefits from dividend issues by the property company.

The transformation has enabled the company to focus on its core philosophy of working on projects with short gestation periods as opposed to the more traditional development model, which is to hold strategic landbanks for long periods of time. There was a catch-22 to landbanking, Land is either prime, thus expensive to hold, or it’s cheap but might take a longer time to turn over, that is to say a longer gestation period.

Ireka’s total borrowings, prior to the business transformation and the sale of the Westin, stood at RM563.13 million compared with total shareholder’s equity of RM140.43 million.

Since the transformation, Ireka is now on sounder financial footing, returning to the black after posting respectable earnings following three years of consecutive losses as at the end of its FY2007.

Going forward, Vietnam will be one of the key drivers of earnings for Aseana and Ireka, with a number of projects already mooted there.

Meanwhile, the construction arm of Ireka will be expected to make some big pitches for upcoming projects, including the construction of the new low-cost carrier terminal in Sepang. One of the major components of the project will be earthworks and Ireka, with its expertise in the area, should be one of the key considerations when it comes to project awards.