Corporate: EPIC out to shed complacent image
By Doreen Leong, The Edge Daily

Complacency is often the moss that grows on government-owned companies and Terengganu state-owned Eastern Pacific Industrial Corporation Bhd (EPIC) is no exception.

Realising the existence of this insidious culture within the organisation, the company wants to shake itself free of that complacency mode.

EPIC non-independent non-executive chairman Datuk Mohamed Awang Tera tells The Edge that he wants to change the government-like, "non-competitive" nature of the organisation.

EPIC, formerly known as Corrugated Carton Products Bhd, has been reliant on its 99.07%-owned Pangkalan Bekalan Kemaman Sdn Bhd (PBKSB), which remains the group's largest revenue and profit contributor, bringing in over 90% of total earnings. The Terengganu State Economic Development Corporation (PMINT) used to control PBKSB. The state government has a 40% stake in EPIC following a reverse takeover in 1994.

PBKSB owns the Kemaman Supply Base, a custom bonded area providing integrated base facilities and support services to oil majors and Petronas' sharing contractors. The integrated base facilities include warehouses, office space and open yard storages for major oil companies and their contractors.

"Money comes in all the time. PBKSB has a lucrative and secure business — almost a monopolistic position. We are a bit complacent. Even if we sit tight, people will still use the port. Here at PBKSB, like it or not, they have to use us.

"However, we are not aggressive enough. We have to bring out the competitive edge in us," says Mohamed.

For the six months to June 30, 2006, EPIC's oil and gas division in PBKSB contributed a higher pre-tax profit of RM17.35 million compared with RM11.94 million a year earlier on the back of higher revenue of RM48.35 million against RM32.60 million.

Overall, EPIC posted a substantially lower net profit of RM1.88 million for the first half of the current year compared with RM10.57 million last year due to provisions for contingent liabilities and doubtful debts.

He says EPIC wants to see exponential growth in the company by latching onto the oil and gas activities as well as expanding its foothold regionally. The change in attitude has been brought about by a strong desire to see how the company can fully realise its full potential, Mohamed adds.

He says EPIC has instituted several measures to change the company's work culture, including de-centralising decision-making to instil competitiveness in EPIC.

While the company has been profitable, the growth story has been somewhat inconsistent. Its net profit fell to RM10.28 million for the financial year ended Dec 31, 2002 from RM17.21 million a year earlier. However, its net profit rose to RM23.58 million in FY2004 compared with RM20.03 million in the previous year.

In FY2005, its net profit fell drastically to RM2.50 million despite registering higher revenue of RM84.28 million due to a RM15 million provision in relation to an investment in Aurado Energy Inc.

However, investors do not appear to get EPIC's message of change as its share prices fell to a 52-week low of RM1.12 on Sept 12, 2006. It reached a 52-week high of RM1.90 on Feb 2, 2006 and is currently hovering at RM1.15, well below its net assets per share of RM1.51 as at June 30, 2006.

Mohamed says the company hopes to grow its business by expanding the scope of its oil and gas services, both locally and abroad, to be in the likes of Scomi Group Bhd and KNM Group Bhd. He also wants to shed negative perceptions that state-owned companies are not well managed.

Having said that, Mohamed says EPIC is already exploring ventures into fabrication and tank operations either via acquisitions or partnering local as well as international parties.

"For us to strike something big, we've got to go overseas like Scomi and KNM. We went to the Middle East — Iran, but did not come back with tangible results. I think it's a learning curve for us. We are starting with Indonesia now," he adds.

In February, EPIC's subsidiary Eastern Pacific Labuan Ltd entered into a joint venture with Sugico Graha for the development of a supply base in Balikpapan in Kalimantan. This venture, Mohamed says, will be the springboard for EPIC to play a bigger role in the region and is eyeing Cambodia and Myanmar as potential markets.

In terms of returns, EPIC rewarded its shareholders with the highest ever dividend returns of 17%, which included a special dividend of 10% in FY2005 despite the drastic reduction in net profit.
The largest beneficiary of the windfall is PMINT, which has a 39.17% stake while Lembaga Tabung Haji holds a 20.85% stake. Since 2001, the company has consistently paid dividends of 6% to 7%.

Moving forward, Mohamed says EPIC will probably end up with some RM3 million net profit in FY2006 after providing for another RM15 million provision for the investments in Aurado.

Based on organic growth, he says EPIC will still be able to turn in a net profit of between RM20 million and RM22 million in FY2007, and targets to grow its revenue and profit at a rate of 15% annually.

EPIC is still looking for a candidate to assume the role of chief executive officer following the retirement of Md Suhaimi Husain, which took effect on June 30, 2006. As an interim measure, the board has empowered the executive committee of its board to assume the functions and powers of the CEO.

As part of its strategy to broaden its oil and gas services, the group last year acquired a 95% stake in Tubex Sdn Bhd, which provides tubular threading, inspection and maintenance services to the oil and gas sector.

Mohamed plans to turn around loss-making Tubex via venturing into new activities such as tubular handling of pipes, having been licensed by Petronas to handle such assignments.

Tubex registered a pre-tax loss of RM470,000 on the back of RM1.9 million revenue for the three-month period from the completion of the acquisition in September last year.

More recently, Konsortium Pelabuhan Kemaman Sdn Bhd (KPK), a 61% subsidiary of EPIC, inked a privatisation agreement for the Kemaman East Wharf and liquid chemical berth with the Ministry of Transport and the Kemaman Port Authority (KPA). The privatisation was signed 12 years after the idea was mooted.

EPIC holds a 61% stake in KPK while the remaining stake is held by Road Builder (M) Holdings Bhd.

Mohamed says KPK will allocate some RM35 million for the construction of a new liquid chemical berth and RM10 million to upgrade the existing berth.

The Kemaman Port is positioned as the new gateway to the Asia-Pacific region. It is capable of handling vessels up to 150,000 dead-weight tonnes and various types of cargo ranging from general to dry and liquid bulk.

Mohamed says KPK would serve as a platform for EPIC to provide logistic services to international trade. The Kemaman Port, to be officially taken over by KPK effective Oct 1, was expected to contribute between RM4 million and RM5 million in revenue to KPK for the current fiscal year ending Dec 31, 2006.

While there appears to be a strong will to change, investors will need to be convinced that this is indeed a growth story worth looking at while the company trudges along its learning curve towards heaving itself out of complacency.