Gunung ... Jul12

To bid for a Saudi BRT network will a big test for land transport charter outfit Gunung Capital Bhd whose current core business of bus chartering relies heavily on concessions from the Malaysian government.

It had already submitted the pre-qualification documents on July 31, 2012.

It expects to bring in additional revenue of rm60 million over the five year duration of the contract.

Perak based Gunung made a complete business turnaround two years ago, ceasing its loss making latex concentrate business in 2010 and venturing into land based passenger transport chartering. It underwent a capital raising and restructuring exercise, which included the acquisition of transport outfit GPB Corp Sdn Bhd from Datuk Syed Abu Hussin Hafix Syed Abdul Fasal, who then became Gunung’s executive chairman and CEO.

Hussin previously served as deputy head of Bukit Gantang UMNO division and before that, director of the National Civic Bureau (Perak), a unit of PM’s Department. He retired from politics in 2005 and ventured into various businesses. He got his break when GPB secured a rm321.5 million NS coach supply contract from the MOD that currently contributes to the bulk of Gunung’s revenue.

Having raised funds from selling his stake in GPB to Gunung, Hussin emerged as Gunung’s substantial shareholder with an 18% stake, the majority of which he purchased from former’s CEO. Earyear Equity owns about 15.03% stake while Hussin has 19.92%.

Unlike other struggling bus operators in Malaysia that depend on ticket sales, Gunung has a unique business model that has been the key to its success so far. Comparing its operations with that of the chartering of vessels in the oil and gas support industry, Gunung essentially owns, operates and maintains land based tramsport assets (namely buses and speciality vehicles) in return for a monthly fixed fee.

This concept of chartering is only economically feasible with large fleets, which is why Gunung’s target customers have been the government and government linked companies.

In FY2011 ended Dec 31, the company reported a 378% surge in net profits to rm9.57 million from rm2 million in the previous year.

Close of 70% of Gunung’s revenue is derived from the NS charters. The company currently holds ongoing charter contracts worth rm356 million, which are expected to drive earnings up to 2014.

Most of these contracts are for three to five years including Gunung’s agreement with MinDef that is set to expire in 20114. The challenge for Gunung is to negotiate contract renewals while acquiring enough new contracts to sustain its growth.

Hoping to reduce its reliance on revenue collections from MinDef, Gunung has rolled out several pilot projects, including public bus services in the Manjung district in Perak. The contract with the Perak government is worth estimated rm4.32 million.