Wah Seong Corporation Berhad Annual Report 2018

INDUSTRIAL TRADING & SERVICES (“ITS”) Discussion of strategies, operational capabilities to achieve the desired business objectives and results In year 2018, ITS made good progress in its business strategy to diversify from its traditional business which was dependent on commodity based products to a more profitable product distributorship business model, leveraging on its vast business network. On 5 th July 2018, WSCannounced that its indirect subsidiary, WDGResources Sdn. Bhd. entered into a Distributorship Agreement with Ammann BauAusrüstung AG as an exclusive dealer of their products and services in West Malaysia. WDG already is an authorised distributor of Mitsubishi Heavy Industries range of diesel engines, and are sole distributors of Doosan Infacore range of construction equipment. The new distributorship with Ammann Bau expands WDG’s product offering to include pavers and compactors. During the period under review, approximately 80% of WDG’s revenue were contributed from its construction equipment business which included its Doosan product range. During the year, ITS was successful in delivering products and services to the Gemas Double Track project, Elmina Township in Shah Alam and Malaysia-China Kuantan Industrial Park (MCKIP) in Kuantan. The remainder 20% of revenue were contributed from its power systems business where it delivered gensets to various projects such as Uptown 8, 8 Conlay and Thomson Hospital in the Klang Valley. Demand for Spirolite HDPE products remained buoyant as large infrastructure projects in Malaysia progressed despite earlier concerns of cancellations and delays. In 2018, demand was particularly robust for HDPE pipes used as ducting and conduits for cables in infrastructure projects undertaken by utility companies. During the year, ITS also secured orders to supply building materials to amongst others Rumah Selangorku Putra Heights, Pusat Pentadbiran Sultan Ahmad Shah Kuantan, The Wave Penang, Imperial Grande Penang, Taman Nusa Central Johor and Bandar Sri Sendayan Seremban development projects. Discussion on Key Financial and Operational Indicators for the segment For the year under review, ITS segment recorded revenue of RM481.7 million and a segment profit before taxation of RM7.1 million. ITS recorded better performance compared to previous year mainly due to higher margins and better product mix. ITS enters 2019 with an order backlog of RM54.4 million. Discussion of anticipated or known risks that may have a material effect on, among others, the sustainability of the group’s results or operations, financial condition or liquidity Credit risk continues to be a significant risk for ITS segment. To mitigate this risk, ITS has taken a prudent approach in the extension of credit to its customers and that its portfolio of customers have relatively sound credit ratings; stepping up collection efforts forms part of the overall effective and efficient working capital management. Discussion of expectations of future results The business outlook of ITS segment remains challenging in 2019 amidst the slower growth projection in the construction industry. However, based on the encouraging performance in 2018, there are market niches that ITS can benefit from which will translate to better profitability margins from a better product mix based on the distribution of heavy equipment, machineries and related spares. ITS seeks to enter the new product segments in industrial automation equipment and robotics to position itself to Industry 4.0. Moving forward, ITS pipe manufacturing business will continue to look into increasing revenue through distribution of ancillary products related to HDPE pipes. In 2019, ITS will also aim to promote other product lines such as spiral pipes, storage tanks, flap gates and fittings notwithstanding the stronger market demand. The longer term goal would be to expand ITS products and service offerings and aim to become a one-stop manufacturing and service provider for pipes in the ASEAN region. MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2018 27